EP.4 When will it end?!

Welcome back to the Lumber Hawk Podcast y'all!

It's been another crazy day. Markets are… bad. There's a lot going on out there and between the contraction of the credit markets, the Russian invasion of Ukraine and also China's export growth falling from 15.7% in March to only 3.7% in April, all of these things are contributing to what we're seeing in the markets recently.

It's definitely not pretty. There's no getting around that, but as this plays out remember that wealth is not created in bull markets. It's created with buying opportunities in bear markets. Being positioned to capitalize on buying opportunities when we're in the gutter is what enables you to capitalize on the best of times later. All markets go through cycles. Try to remember that smart purchases held for the long term, either forever or at least well into the next bull cycle is where the real rewards come from. You hear about people Yolo-ing into bull markets all the time and then you get crushed on the downswing. Now I'm not saying to try to time the markets perfectly. It's nearly impossible to time the tops and the bottoms. Just have a plan and a dollar cost into the market at times like this or as the downswing continues and then have a plan to dollar cost out of the market when the market is frothy.

As usual none of this is financial advice. I'm just a guy with a microphone telling you how I feel about what's going on out there. Do your own research. Make your own decisions.

We have a lot to cover today. So I'm going to give you a brief overview so that way if you want to skip around; I'm going to try to cover these things basically in this order. First we're going to talk about Bitcoin and the S&P500. We're going to talk about CPI and some housing data coming out soon that we need to keep an eye on. We're going to talk about Terra Luna. We're going to talk about Microstrategy. We're going to talk about Argentina. We're gonna touch back on local real estate in Las Vegas, which is the area that I'm at and then lastly I have a travel deal. I'm gonna try to incorporate a travel deal into each one of these because it's one of my passions and I come across a lot of good stuff. So I'm going to try to get that out to you guys. Hopefully you like it. If you do, great! If not, let me know.

So, let's start with bitcoin and the implied volatility chart. There is a one week and a six week week gauge. Just recently the one week volatility rose above the six week volatility gauge which is a sign of peak fear. As indicated the fear and greed index right now is currently at 11, which is in the extreme fear range.

But this implied volatility chart is often used as an indication of option traders expectations for price turbulence coming for the next few weeks. Usually this crossing of the one week over the six week marks a temporary price bottom. That doesn't mean that the price is actually going to bottom here, it just means that's what the option traders are expecting to happen.

As bitcoin and the S&P500 have both had major selloffs recently, if you check their RSI, Bitcoin just entered the oversold range. The S&P500 is right there on the border. S&P is sitting at three 3991.24. The Dow is at 32,245.7. The Nasdaq is at 11,623.25. Russell 2000 is at 1762.8. Bitcoin is clinging on to $30,000 currently at $30,467. The $30,000 support line for Bitcoin is a significant line of resistance as well as the 4000 point line of resistance for the S&P500. We're sitting on both of those right now. So, it's really important to watch to see if we bounce off of both of those, if we ride those, or if we break through them. I expect that we're going to see a local bottom form here for both of those markets. The S&P500 and Bitcoin which in turn kind of impact all of the rest of the markets out there besides real estate.

I think it's likely that we end up with a bull trap. Maybe we'll see a little bit of a relief rally here. If we do I don't see us going north of $40,000 on bitcoin. I think $36,000 is more likely, but I'm not even sure if the relief rally is going to take place. And if it does, the down trend is likely going to continue after the rally. So, I won't be looking to make any big moves if we do get an upswing. I'm still going to just wait and see how the market plays out for a little bit longer. I don't think it's likely that if we do get a reversal here, it'll be a market cycle bottom. Like I said in last week's episode; the markets will probably not shift until the Fed's position shifts, and that's going to be based on CPI data and just the greater situation in the economy.

I am going to get to CPI information in just a second but before that on Wednesday, the day after tomorrow, Wednesday morning at 4 am PST time 7 am EST we're gonna get some mortgage application data. That'll give us a better idea if the real estate market is continuing to cool off. I expect that it will indicate as such. I think that the local market peak probably came through and the and the recent interest rate raises are going to put some downwards selling pressure on the market, or at least discourage new buyers from entering the market. Now, I call that a local peak because I still believe that the housing shortage situation in this country is going to be a problem for a few years. We're still way undersupplied for starter homes. And by “starter homes” I mean… It's market specific, so every market's a little different, but if you just want a rough estimate I would say anything between $100,000 and maybe $450,000 is what I would consider a start at home or at least in my local economy. We're seeing the 2 largest generations in history both adjusting their situations into starter home markets. You have the Boomers who are retiring and basically downsizing and then you also have the Millennials and Gen Z who are entering their (anywhere from) early 20’s to late 30’s. Many of them waited a lot longer than past generations to get started with things like a family and a career path. So you have a lot of people now moving out of mom's basement and starting a family and looking to buy a house and they're competing with the Boomers who are downsizing. By the way these are the 2 largest generations in history. You combine that with the lack of building that we've had for the last five years and it's pretty easy to see that we're going to continue to have housing shortages probably for several years.

As far as CPI data is concerned; the data is always released a month after it's relevant. So the March CPI data was released in April and it was 1.2% month over month. Which if you annualize that number that's 14.4% which is absolutely wild. That's why last month so many people were going crazy about inflation being a 40 year high and all this. But the year over year data was 8.5%. Core inflation was 6.5%. Core inflation if you don't already know is basically CPI minus food and energy costs. April CPI data comes out a couple of hours after the real estate data. It's expected for the core inflation number to come in about 6 and the (year over year) CPI to come in at 8.1%.

The bright spot is that the month over month data is thought to come in somewhere between 0.2-0.4% thanks to a passing of peak food and energy costs, which means that you're not going to see a big change in the core CPI. But hopefully the low monthly headline CPI will indicate that there is a reversal in the inflation patterns. If you extrapolate that 0.2% out, then we're looking at 2.4% year over year, which is right in line with where the Fed wants us to be.

Generally these expected numbers are already priced into the market well before they come out, so what we need to do is compare what actually comes out with those expectations, as the market will. And then the market will shift accordingly. So if those numbers come in low that would be a bullish indicator and if those numbers come in higher than expected, then you can expect bearish activity in the markets. So again, these numbers might cause a local bottom and a temporary relief rally, but as I've already said be cautious of a potential bull trap. As I said last week the FED would need to see inflation turn around in order to loosen up its policy and potentially implement rate cuts or further balance sheet expansion, but I don't think we're going to get that kind of response based on the data coming out the day after tomorrow.

That's it for your general market update. The next thing I want to cover is UST. UST is the stablecoin based on the Terra Luna ecosystem. It's an algorithmic stablecoin that uses the Luna token basically to to balance UST and keep it pegged to the Us Dollar. It's somewhat unique in the stable token space in the fact that it is an algorithmic stablecoin rather than a purely asset backed stablecoin. So with these market conditions UST actually lost its peg to the US dollar starting last night and it went down to about $0.99/dollar for most of last night and then this morning it went down quite significantly further. It's currently sitting at ¢82 and on Trading View you can see that it wicked as low as $0.79. We're still pushing that boundary right now, so unsure how far this is going to go or if it's going to completely unravel. The cause of this event was a pretty massive withdrawal from the Anchor Protocol which is the high yield staking platform. It was $2B pulled out of that and there's a lot of people who believe that this is a coordinated attack on UST. For reasons I am unaware, but there was $285M dollars worth UST dumped on Curve and Binance by a single person, followed by a whole bunch of shorts applied to Luna. I have no way of knowing if this is someone maliciously trying to take down the UST-Luna network or if it's just someone being opportunistic. It kind of doesn't matter because in my opinion if your stablecoin is unable to weather these kinds of storms then it's a risk. So, maybe this person who is performing these actions is doing the rest of us all a favor. We will see if UST can handle it or if not, but basically it's been a digital bank run like we saw in the great depression except for much more localized of course.

Now the Luna Foundation does have a significant amount of Bitcoin on their balance sheet as a partial reserve to the UST network. So if those reserves end up getting liquidated then UST and Luna are probably done. However, if they can weather the storm and reestablish their peg to the dollar, combined with bolstering into a larger bitcoin reserve supply (because they were in the middle of buying. They bought $1.5B in bitcoin a couple weeks back and I think they've been adding a little bit more the last few days with a goal of getting to $10B of bitcoin total) So, if they can get through this and establish that $10B Bitcoin reserve and the bottom of this market doesn't clear them out, then they might be in pretty good shape going forward. Personally, I'll be watching this very closely. If it looks like they're going to recover then I will be interested in looking at Luna for my own portfolio. I was invested in it in the past and then as this bull bear market started to show its teeth, I cleaned up some of my alt coin positions for this exact reason of what we're seeing now. Luna is down 60% over the last seven days. If it can make it through this then the upside on the other end of this might be significant. Definitely a risky play. We'll just have to wait and see.

Another potential buying opportunity is Microstrategy (MSTR). I've talked about that a few times here on the channel and today if you were to buy 1 Bitcoin worth of Microstrategy as a proxy you could get that for $20,000 which is a 36% discount over the price of Bitcoin. The amount of Bitcoin that Microstrategy holds on its reserves is significantly more than the market cap of the company as far as it's being publicly traded right now. As long as they can weather this bear market storm, on the reverse side when we start to see bull market conditions again, that gap between the reserves that Microstrategy has and their share price should close. And if so anything you buy today should appreciate 36% more than what Bitcoin does over that same period of time. Along with Luna this is something I'll be watching pretty closely especially as market conditions start to change.

Alright, next up, let's talk about Argentina. So recently Jack Mallers over at Strike rolled out his (Bitcoin lightning) platform for using Tether (USDT) in Argentina because their economy is a mess. Well about a week ago the largest private bank in Argentina (forgive me if I mispronounce this but) I believe it's Banko Galacia added the option to buy and sell cryptocurrencies on their platform. Within three days the IMF sent over a debt package to Argentina of $45B, which included a provision against the use of cryptocurrencies. So Argentina's central bank set out a ban for lenders from offering cryptocurrency services. Basically the way I see this is the IMF dangled a whole bunch of cash in front of Argentina (in the form of debt by the way) and told them that they could only have it if they banned cryptocurrencies in their country. Which is unfortunate to say the least.

All right Let's touch on local real estate real quick. Las Vegas was the most popular moving destination in 2020 and the second most popular moving destination in 2021, only behind Houston Texas. It'll be interesting to see what 2022 numbers look like. Usually Vegas struggles in a bear market because we are in Entertainment Capital. Tourism is such a significant part of our economy here.

And to end this all off on a slightly more fun note I have a cheap flight travel deal here. It is from Los Angeles to San Jose Costa Rica for $196. So, if you want to forget about all of the market turmoil, the political turmoil, maybe you're in-laws (lol) I don't know… Then this is a cheap way to go to a beautiful country. The airline is Delta and or Jet Blue and the dates are September through November of this year. I will have a link for this posted in the text part of this. I will have a link for this within the post.

That's all I have for today. These are available on Substack, Apple and Spotify. Feel free to hit me up on Twitter at @Lumberhawk or leave me a comment here on Substack.

Cheers y'all have a great day!

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