Confusion

On paper, it’s reasonable to assume our markets should be in full blown correction territory. Consumer credit is deteriorating, job losses are accelerating, and early 401k withdrawals are at record highs. Not to mention, Jerome Powell thinks banks aren’t out of the woods yet either. Some of the beloved Mag 7 names like Apple, Tesla & Google are beginning to fall out of favor….and our country is swamped with expensive debt and a laundry list of domestic and international challenges.

Yet the market continues to move higher, and while the “ai” boom can take credit for more than its fair share of the rally, the fact remains there is still a good chunk of liquidity out there. High rates have created a massive war chest of money market deposits just waiting to pounce on the next investible opportunity…..and while they wait, investors are happy to receive a decent yield on cash.

That’s why my preferred model of asset allocation, particularly with alternative investments, is have exposure to investments that do well in various environments. The tradeoff is that some may lag while others outperform, and vice versa. But, if constructed properly, this method seeks to deliver a smoother ride with fewer performance shocks, forced liquidation scenarios and overall emotionally-driven investment decisions.

I promise a deeper dive into this topic in the coming months as it relates to correlation and vintage risk as well.

Don’t feel frustrated if you can’t make sense of this market, there are tons of conflicting signals out there:

Finally, here is what’s on my radar:

lending & credit

Carson Block (Muddy Waters) came out several months ago with a call on Blackstone Mortgage Trust’s dire situation relating to its commercial RE book….refinancing properties will be hard.

While BXMT shrugged off these claims initially, it now seems Mr. Block wasn’t entirely wrong….perhaps just a little early. Blackstone is now facing realized losses in its portfolio and even potentially running afoul of its covenants.

macro

I don’t envy Jay Powell’s job. His task of delivering us MISSION IMPOSSIBLE: SOFT LANDING appears strained. For now, he’s faced with either prolonged inflation or an actual recession. Higher for longer puts further stress on our government’s ability to service its debt, while lower rates could significantly reignite the inflation problem. As one popular financial blogger put it, “there are no winners” in this situation.

bitcoin

It’s been 2 months since the debut of the Bitcoin ETF(s) and by all measures, the rate of growth in this market has been astounding. The 9 Bitcoin funds that allow for spot price exposure have amassed almost $20 billion in flows since their launch, eclipsing what both Gold and Silver did when they unveiled ETFs.

It would seem logical that if insane amounts of capital are flowing into a “risk” asset like Bitcoin then those funds must be leaving another asset class. However, as of this writing, not only are the Bitcoin ETF’s up in price since their launch, but so are the S&P 500 and NASDAQ indices, which suggests that investors are not swapping out these exposures.

Perhaps the new flows are coming from asset managers who are slowly allocating a % of the portfolio to the digital asset? Could it be sovereigns who are following in El Salvador’s footsteps? Maybe it’s large family offices deploying cash stockpiles?

While it may be too soon to tell, one thing does seem clear is that a wave of demand from wire house brokerage clients hasn’t occurred yet….as most of these firms are now only beginning to allow the ETFs on their platforms.

in closing

Several weeks ago I wrote on the topic of 3% credit card fees at restaurants and based on the polling results this practice clearly touches a nerve with most customers. It doesn’t look like the trend is going away any time soon, as now there seems to be a “Restaurant Fee” applied to anyone who is eating in a restaurant. Wild times indeed.

Clark Gaines focuses on alternative investment strategies at Almanack Investment Partners, and is based in Charleston, SC.

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