Upcoming Live Fastlane Calls (FREE!)
Inventors Virtual Meetup (FREE - All welcome!): Sunday, April, 21st 2024: 11 AM ESTJoin over 80,000 entrepreneurs who have rejected the paradigm of mediocrity and said "NO!" to underpaid jobs, ascetic frugality, and suffocating savings rituals— learn how to build a Fastlane business that pays both freedom and lifestyle affluence.
Free registration at the forum removes this block.
No one can tell you what to do. I can say historically, the stock market dropping has not helped Bitcoin. I always thought a market crash would make people flee to crypto, but to this point, crypto has generally gone down during market dips (like the quick COVID-crash of 2020).
what is a treasury bill? what does liquidity mean?? will these be good for my crypto miner stocks?
It’s a little different because they get their money for nothing
Crypto is NOT a hard asset. A lot of investors are moving their cash into hard assets.
You seem to lack a basic understanding of how the financial system works. You need to study the basics.
To be fair with banks (and insurance companies), they are required by law to buy this useless government paper. I'm not sure worldwide but this is how it works in my country, I would expect it to be quite similar with varying degrees at least across the Western world.
They never factored in the risk of inflation or higher interest rates. They thought that interest rates would be 0 or close to it continuously. What I have seen is people who crash and burn. Then they are replaced by a newbie who lasts until the next downturn -- when they crash and burn -- to be replaced by another newbie who lasts until...
Many points to wrap my head around, thanks. The things that I have previously heard before are from Warren Buffetts
There are several narratives that come together and nobody can list them all. Some are contrarian and it is hard to predict how they will play out together.
Real Estate gave them the leverage. You cannot do a 20 percent down payment and borrow the rest from the bank for REIT.
I talked to a banker who used to work in the U.S. because U.S. banks can resell the interest rate hike risk as financial products to other buyers (hedge funds and sophisticated investors).
It is pretty certain that if we need a recession to kill inflation, Fed is willing to pay the price.Many points to wrap my head around, thanks. The things that I have previously heard before are from Warren Buffetts
letters to the shareholders. So what banks did with the float is not even the issue here? It is not about leverage and more about balance? How is this game winnable for banks? They should have stopped loaning money to customers when the trend changed or is there another asset class they were allowed to use to be able to pay interest that is better aligned with higher short term yields?
I suppose monetary policy depends on banks being more conservative when there is monetary tightening going on!?
There are several narratives that come together and nobody can list them all. Some are contrarian and it is hard to predict how they will play out together.
Lets look at a few of the terms used recently and think about how they relate to crypto.
Many cryptocurrency enthusiasts say the value lies in the peer-to-peer, no government control character. We might see a hard landing scenario where many people will have a hard time and lose a lot. Whole countries will have debt crises. At that point the trust in the financial system might collapse and cryptocurrencies will be the alternative to the traditional system.
I personally think it is a huge leap. Even if such a shift happens then there will be a million events on the way there that can wipe out your investments, even if you have the right idea in general.
What msufan wrote is an interesting addition to that. It is interesting to see how available liquidity (how easy is it to get money and how little interest do you have to pay for it) affects the price of Bitcoin. There are obvious issues now with inflation and if these issues had prompted people to move money into cryptocurrencies, then it would have made this a gradual thing.
Now it looks like it might be an all-or-nothing deal. Is a full blown collapse of the financial system required for the crypto bull case?
When the market was flooded with liquidity, cryptocurrencies did well. That is nice and all, but if that is all there is, then it is just one of many asset classes that behave the same way - not much special about it.
Bitcoin always had the halvings going for it ... which should keep the price rising exponentially - but how well is that actually working these days?
Some people say the negative news (FTX collapse) of cryptocurrencies have just proved that centralized cryptocurrencies have never done well while decentralized has been growing steadily and is doing fine. It could slowly but surely take market share, so there might be long term opportunities, especially when you look into smart contracts.
A few points about liquidity. Monetary policy is based on the idea that there is a sweet spot where there is just the right amount of growth and innovation without exuberance. It can be out of balance in two directions:
1. it is too hard to get your hands on money for a reasonable project
2. it is too easy to get your hands on money for an unreasonable project
Treasury bills are the way to control this. Basically the central banks say: buy treasury bonds and you get a given yield with close to zero risk. The higher the yield is, the harder it is to compete with these bonds. This pulls liquidity out of the unreasonable project. Only the best alternatives are supposed to survive, those that can still beat the bond yields.
When Covid restrictions hit, companies needed to get their hands on money just to survive, so the central banks had to provide liquidity.
Now inflation is running wild. Arguably that means that access to money is too easy, because people and companies are willing to pay any price!?
A strong case can be made that this is just wrong. There have been suppy chain issues and energy troubles due to politics that lead to high prices.
Is this really something that monetary policy should fix, or is now a situation where money should be cheap so that companies can transition and innovate to make energy and food more affordable again?
I am following a market observer that thinks that it is all about China. Monetary easing (providing more liquidity) would allow China to get further ahead, while America wants to pull the plug and get a huge real estate bubble to burst - at any price. Arguably they did that to Japan in the past.
I posted this at the end of December:
The blue line shows how easy it was to get access to cheap money. The orange line shows how the stock market responded to that. I assume that the stock market and other asset classes will follow the blue line, unless the Central Banks start reversing course - lowering interest rates and buying up bonds to lower the yields and interest rates. I have not seen an update since then, but I think earnings have yet to take a really significant hit. Liquidity is drying up somewhat slowly, I think.
A while ago, the most important question for people trying to predict what is next for the market was: will the Central Banks be forced to continue quantative tightening (reducing liquidity) because of inflation.
So people closely observed inflation metrics.
Now they wonder: will the Central Banks be forced to start monetary easing because of a recession? So they follow recession indicators.
People who think the geopolitical motivation is more important don't care much about either question, they follow how large the fallout is on the Chinese and the Amican side - who is winning?
The part about hard assets is:
when you expect a tempest in these more liquid and less tangible financial products / assets, then you can move money into commodities and hard assets.
They might seemingly go against your high risk tolerance, but a coming tempest might just wipe out pretty much everything in its path. Nothing guaranties that crypto is a winner when traditional assets lose.
You can go short, but a tempest means volatility and short positions get knocked out left and right.
Having money in less volatile and decentralized cryptocurrency products might be an okay long term investment, but that also doesn't seem to be what you are looking for.
I fear it is a bad time to aim for huge returns in general, unless you buy into the concept of starting a business that helps people.
I hope people will point out any errors. I am also still just trying to piece things together.
Before Covid, I was part of a Landlord's association here locally. The leaders of this group were doing RRR&R programs (rehab, rent, refinance, & repeat) as fast as they could in the apartment market. When they got any equity above 20% they refinanced and repeated. I was on a debt reduction program for my RE debts. They thought I was crazy. They seriously set me down to explain leverage to me -- like I didn't understand. They had 8 to 10 years of experience in the RE business. I countered with my 40+ years of experience (today it's 47 years) and I tried to explain 1980 and 1990 to them. They thought I was missing out on the boom. And I couldn't convince them that I was sitting on the sidelines on purpose waiting on the other shoe to drop.Many points to wrap my head around, thanks. The things that I have previously heard before are from Warren Buffetts
letters to the shareholders. So what banks did with the float is not even the issue here? It is not about leverage and more about balance? How is this game winnable for banks? They should have stopped loaning money to customers when the trend changed or is there another asset class they were allowed to use to be able to pay interest that is better aligned with higher short term yields?
I suppose monetary policy depends on banks being more conservative when there is monetary tightening going on!?
There are several narratives that come together and nobody can list them all. Some are contrarian and it is hard to predict how they will play out together.
Lets look at a few of the terms used recently and think about how they relate to crypto.
Many cryptocurrency enthusiasts say the value lies in the peer-to-peer, no government control character. We might see a hard landing scenario where many people will have a hard time and lose a lot. Whole countries will have debt crises. At that point the trust in the financial system might collapse and cryptocurrencies will be the alternative to the traditional system.
I personally think it is a huge leap. Even if such a shift happens then there will be a million events on the way there that can wipe out your investments, even if you have the right idea in general.
What msufan wrote is an interesting addition to that. It is interesting to see how available liquidity (how easy is it to get money and how little interest do you have to pay for it) affects the price of Bitcoin. There are obvious issues now with inflation and if these issues had prompted people to move money into cryptocurrencies, then it would have made this a gradual thing.
Now it looks like it might be an all-or-nothing deal. Is a full blown collapse of the financial system required for the crypto bull case?
When the market was flooded with liquidity, cryptocurrencies did well. That is nice and all, but if that is all there is, then it is just one of many asset classes that behave the same way - not much special about it.
Bitcoin always had the halvings going for it ... which should keep the price rising exponentially - but how well is that actually working these days?
Some people say the negative news (FTX collapse) of cryptocurrencies have just proved that centralized cryptocurrencies have never done well while decentralized has been growing steadily and is doing fine. It could slowly but surely take market share, so there might be long term opportunities, especially when you look into smart contracts.
A few points about liquidity. Monetary policy is based on the idea that there is a sweet spot where there is just the right amount of growth and innovation without exuberance. It can be out of balance in two directions:
1. it is too hard to get your hands on money for a reasonable project
2. it is too easy to get your hands on money for an unreasonable project
Treasury bills are the way to control this. Basically the central banks say: buy treasury bonds and you get a given yield with close to zero risk. The higher the yield is, the harder it is to compete with these bonds. This pulls liquidity out of the unreasonable project. Only the best alternatives are supposed to survive, those that can still beat the bond yields.
When Covid restrictions hit, companies needed to get their hands on money just to survive, so the central banks had to provide liquidity.
Now inflation is running wild. Arguably that means that access to money is too easy, because people and companies are willing to pay any price!?
A strong case can be made that this is just wrong. There have been suppy chain issues and energy troubles due to politics that lead to high prices.
Is this really something that monetary policy should fix, or is now a situation where money should be cheap so that companies can transition and innovate to make energy and food more affordable again?
I am following a market observer that thinks that it is all about China. Monetary easing (providing more liquidity) would allow China to get further ahead, while America wants to pull the plug and get a huge real estate bubble to burst - at any price. Arguably they did that to Japan in the past.
I posted this at the end of December:
The blue line shows how easy it was to get access to cheap money. The orange line shows how the stock market responded to that. I assume that the stock market and other asset classes will follow the blue line, unless the Central Banks start reversing course - lowering interest rates and buying up bonds to lower the yields and interest rates. I have not seen an update since then, but I think earnings have yet to take a really significant hit. Liquidity is drying up somewhat slowly, I think.
A while ago, the most important question for people trying to predict what is next for the market was: will the Central Banks be forced to continue quantative tightening (reducing liquidity) because of inflation.
So people closely observed inflation metrics.
Now they wonder: will the Central Banks be forced to start monetary easing because of a recession? So they follow recession indicators.
People who think the geopolitical motivation is more important don't care much about either question, they follow how large the fallout is on the Chinese and the Amican side - who is winning?
The part about hard assets is:
when you expect a tempest in these more liquid and less tangible financial products / assets, then you can move money into commodities and hard assets.
They might seemingly go against your high risk tolerance, but a coming tempest might just wipe out pretty much everything in its path. Nothing guaranties that crypto is a winner when traditional assets lose.
You can go short, but a tempest means volatility and short positions get knocked out left and right.
Having money in less volatile and decentralized cryptocurrency products might be an okay long term investment, but that also Ddoesn't seem to be what you are looking for.
I fear it is a bad time to aim for huge returns in general, unless you buy into the concept of starting a business that helps people.
I hope people will point out any errors. I am also still just trying to piece things together.
Inflation? In early 1980 mortgage interest rates went from 9 1/2% to 22% overnight. The interest rates must be higher than the inflation rate. And the reported numbers don't include the nut of the problem! It's deflated on purpose.
It will be interesting. SVB will open its doors on Monday post-seizure and under supervision. The part of this bank crash that gets me is that 94% of deposits are not insured under FDIC -- which implies that those accounts exceeded the $250,000 limits. And the cash withdrawal run that happened on Thursday and Friday totaled in the billions. They had to sell their treasury notes at steep discounts to meet that demand, thus leaving them with no liquid reserves. The bank has a bunch of clients out there that had their money for payrolls and expenses in their accounts -- that is now tied up in the Federal banking supervision system. No one has talked about the receivables balance sheet. BUT there are hints that they were doing higher-risk loans to start-ups and young tech companies. Will Monday be black? I know it's going to be deep in the red-ink zone. And I'm afraid this is the canary in the coal mine.
That is why I was talking to my old investment partner. I know he has about 2M in his account. I made sure that he had a heads-up.
Now they are saying that the CEO of SVB sold a bunch of his stock in the bank - and everyone got their annual bonuses - just before the receivership.
They also say that it wasn't just the CEO -- several people who were "in the know" also sold their stock before the hammer fell. They had to know in advance of the money run. It is a very sad situation when a bank goes down.
It is just a maturity mismatching problem. They will be in profits if they can hold the bonds toll maturity but they have obligation to provide withdrawal upon request. If the relevant government authority can extend a line of credit everything will be fine real fast.
My understanding is that they already had to sell the bonds to meet the withdrawal demands. And the sales were at a deep discount pushing their stock value to 0. To me, it looks like the party is over. That would only leave the accounts receivables (loan portfolios) and their commercial RE locations in the asset column. Both can and will be sold to raise cash. When I was doing RE appraisals, I used to help with some of those portfolio sales and RE transactions -- especially in the 1990s crash when the Savings & Loan Associations and Thrifts collapsed. This feels like the bank's assets were mismanaged and they lost a boatload of money. I suspect that most of the money has already been lost
I don't know IF I would call it a "black swan" event since we can all remember 2008. We've all seen this "swan" before -- whether we understood it or not. And some of us are old enough to remember 1973, 1980, and 1990. This problem is to be expected if you track the economy.
Join Fastlane Insiders.