Blood in the Streets…
Pretty nasty sell off today across global markets.
There appears to be panic selling in Asia and the Japanese stock market is absolutely cratering
The triggering event happened with the Japanese Central Bank raising its interest rates, which made the cost of borrowing money much higher
This change significantly impacted investors who hold Japanese debt, which had been very cheap for over a decade
Now, with higher borrowing costs, these debt holders are being forced to sell their assets across the world (especially stocks and crypto) to repay their debts
Adding to the firestorm, Taiwan’s benchmark stock index the Taiex closed down 8.4%, marking it the worst single day selloff in 57 years
Growth
To add to this, the deteriorating U.S. unemployment data that came out on Friday is spooking markets
Seems like investors are de-risking due to fears of recession and piling into bonds at a pace not seen since early 2020
So, is the US economy heading into recession? Not likely in my view – at least not for a while
This of course could change if growth data continues to deteriorate but the persistent leading indicators of the business cycle don’t indicate recession
Also when we look at the most recent GDP data, the main line items of GDP are all in expansion
Growth will likely soften in the coming quarters but most likely remains positive
US Markets and Crypto
Adding to market fears, Berkshire Hathaway Inc. disclosed this weekend that it slashed its stake in Apple Inc. by almost half during the second quarter
That amount of selling to Berkshire’s largest stock holding is definitely going to be seen as hugely negative by the market and is adding to fears
Risk assets and Crypto are getting rocked in this environment
Bitcoin is down 22% the last week (10% just today)
Ethereum is down 31% for the week (21% for the day)
Summary
All in all, this massive sell-off appears to be a global de-grossing event
Due to the rise in uncertainty with the Bank of Japan and risk of recession, investors are selling off assets to reduce their exposure and leverage
This has lead to widespread selling across various asset classes, causing prices (especially crypto) to crater
This is why we NEVER USE LEVERAGE in crypto
In the short term, things will probably get even uglier but I expect stocks and crypto to recover in the coming months as investors gain more confidence in the sustainability of the economy
And if things really hit the fan, we all know how the Federal Reserve will eventually respond – Money printing
This is textbook fear in markets
If you have high conviction in technology stocks and crypto, the next 60 days will be a great time to dollar cost average into positions
Good luck out there
