MoneyFitt

10 November 2022

Happy Thursday!

US large-cap S&P 500 closed 2.08% DOWN  Tech-heavy Nasdaq Composite closed 2.48% DOWN Pan European STOXX Europe 600 closed 0.30% DOWN  HK’s Hang Seng Index closed 1.2% DOWN  Japan’s Nikkei 225 closed 1.68% DOWN 

📊 IN THE MARKETS

Binance does NOT bail out FTXToday in Musk and Zuck

📝 FOCUS

Coinbase: A Fiat Winner in a Crypto Winter?

📖   MoneyFitt EXPLAINS

🎓 “Priced In”

📊 IN THE MARKETS

Markets, in their warped sense of logic, like political gridlock in Washington, which usually happens when the executive (the presidency) and legislative (one or both houses of Congress) arms of government are from different parties. For a few days ahead of the anticipated “red wave” of Republican wins in Tuesday’s midterm elections, stocks rallied despite mixed messages from corporate America and inflation remaining at multiples of the Fed’s target 2% rate.

In 2022, a divided government would mean Republicans can’t pass unfunded tax cuts and Democrats can’t pass unfunded spending, both of which would be worse for inflation.

But what markets don’t like is uncertainty, which is what they had at the opening bell as the “red wave” failed to materialise and control of both the House and Senate remained uncertain. Markets had priced in 🎓 Republican majorities in the US House and Senate and those trades were getting unwound as the market awaited the final results.

Binance does NOT bail out FTX

Also in the Uncertainty Bucket is the fate of FTX after the last-minute failure of its dramatic bailout by arch-rival Binance, which cited concerns about FTX’s business practices and investigations by the SEC and CFTC. The “issues are beyond our control or ability to help.”

Beyond FTX, the customers with money trapped in it and its native coin FTT (down 79% in the last 24h) or even its boss Sam Bankman-Fried (net worth down 94% in a day, according to Bloomberg) the implications for the wider cryptocurrency space remain to be seen, particularly regarding contagion coming from Alameda Research. But the minimum you can expect is FUD (“fear, uncertainty, and doubt”) and a broader loss of confidence in the space to last for quite some time longer. Watch this space. Also watch @cz_binance.

Alameda Research, SBF’s hedge fund and a leading principal trading firm and cryptocurrency market maker, seems to have been at the centre of the storm that took down FTX. Assets held by Alameda and the companies it trades with will be under intense scrutiny.

MINI-EXPLAINER:

Principal trading is where a company uses its own money to trade, taking risks and potentially making (or losing) a lot of moneyA market maker is a type of principal trader which offers other investors a buying and a selling price at the same time and profits from the difference between them.Agency trading, like most brokerages, is where trading is done on behalf of an investor in return for a commission. An exchange is a marketplace where trading happens, with each trade generating a small fee for the exchange. In crypto, the line between exchange and broker can be blurry, particularly when leveraged exposure or borrowing is involved.

And in today’s Musk and Zuck news 

Having slashed Twitter’s moderation teams and called into question what a blue tick is actually supposed to mean Elon Musk is getting Twitter to introduce an ‘Official’ label for some verified accounts. But not all of them, just some. The company said that governments, companies, media outlets and public figures will receive the label. Fake accounts for government officials in particular are a recurring issue for Twitter globally, of course.

And on acquiring Twitter, Musk is reported to have sold off US$4 billion more shares in his real source of wealth, Tesla, ​​bringing the total amount sold since last November to US$36 billion, leaving him with 14% of the company. So Twitter has gone from having a CEO who splits his time with one other company (Jack Dorsey, who also ran Block) to a CEO also running at least three others (Boring Co, SpaceX and Tesla.)

Meanwhile, Meta Platforms, the parent of Facebook, sacked 11,000 employees, about 13% of its workforce. Like other social media platforms, Meta is facing challenges from weaker ad spending in the economic slowdown, competition from TikTok and, especially, Apple’s iOS privacy and tracking settings, which from last year took the legs out from under the digital advertising market. 13 months after changing the name of his company to Meta, CEO Mark Zuckerberg is slashing costs but doubling down on his metaverse bet. And as usual, if there are sackings involved, the market will bid up a company’s shares. Sure enough, META is trading up about 5% even in a down market.

📝 FOCUS

Coinbase, a fiat winner in a crypto winter?

Coinbase is the US’s largest listed cryptocurrency exchange, so there is pretty good disclosure that can serve as an indicator for other crypto exchanges. Third-quarter revenues dropped from US$1.2 billion last year to just US$576 million, and earnings flipped from a profit of US$406 million to a loss of US$545 million. Trading volumes were down by 27% on the previous quarter, and even worse, monthly transacting users (MTUs, users who actively or passively transact at least once in a month) dropped for the third quarter in a row. Coinbase warned trading volume would continue to decline.

Part of the problem for the crypto industry is the loss of appetite for risky investments like crypto and stocks (including Coinbase’s!) that came along with aggressive inflation-busting interest rate hikes.

But luckily, Coinbase benefited from higher rates and made US$102 million in interest income from stablecoin USD Coin’s reserves since Coinbase is a co-owner with issuer Circle. It also earned some interest on customer balances held in “fiat” currencies (i.e. traditional currencies, an old term back in popular use to differentiate them from crypto. It’s a Latin word meaning “make it so” basically meaning the currency is “worth something” just because a government says so, and that’s it.)

IMAGE CREDIT: CBS via Sephirock38 and Tenor

Coinbase stock is down about 80% since the start of the year, which is worse than Bitcoin and Ether, which are down 62% and 69% respectively. (It’s also done worse than Dogecoin, down just 52%.) The concept for investing in Coinbase was that crypto infrastructure such as an exchange would be both much more profitable and safer than any single coin, and would be like selling shovels to miners in the Gold Rush. 

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS: “Priced In”

It’s rarely obvious what happens when news affecting a company or a market comes out. The most confusing thing is when something good happens to a company and the stock doesn’t shoot up. Sometimes it does nothing or even goes down. What happened? 

We say in the market that the market has “priced it in” or that the news or results are “in the price” or “factored in”. This means that means the current value of the improved future prospects is already reflected in the price. (An old market saying that can apply here is “buy on rumour, sell on news.”)

Inexperienced traders often see what IS positive news and buy. Thinking the fastest trigger finger will win, they often jump in without considering how much may have already been priced in. Sometimes you can’t tell if the news has been priced in until AFTER you see how it trades because the market is made up of so many players with different amounts of information and expectations.

Experienced investors are often caught off guard and surprised by news or results, too, despite their enormous resources, access to expert analysis, teams of researchers and gigantic salaries! Professional investors spend their entire careers trying to be brilliant at picking winning stocks or timing the market, yet many many studies show that the vast majority of them do worse over the long term than “index-hugging” ETFs.

Please do your own research – we create educational and entertaining content so you can start the day understanding the financial and business worlds a little better. However, this is NOT financial advice.

MoneyFitt (Spendolater Pte Ltd) is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. The information contained is not intended to be a source of advice or credit analysis with respect to the material presented. Any ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial, tax or legal professional and independently researching and verifying information. Content is intended to be used and must be used for informational purposes only.

MoneyFit Morning Archive (to 07-Nov-22)