263449412 - 1_249n97zt - PID 1851201 Welcome to the revision daily briefing. It's Friday, July 1st, 2022. I'm Ash Bennington, joined today by Mark Ritchie, The second. But first, let's take a look at what happened in US equity markets today. I would call things pretty much flattish up. They're moving a little bit here at the clothes on nasdaq, looks like it's up about nine tenths of 1%, S and P 500 up a little over 1%. And Dow Jones Industrial Average off up, excuse me, I should say a little over 1% as well here on the day, let me give you some of those numbers to find out nasdaq here above eleven thousand and eleven thousand 127 S and P 500, closing out at 3,825. Relatively passive day here in markets. But obviously lots of breaking news, particularly on the crypto aside to talk about, we've got Mark Ritchie here with us today. Mark We were talking a little bit off camera. We're both champing at the bit to get on the air. Lots to talk about what's going on first in US equity markets. Ash, good to be with, yeah, way to kick off a holiday weekend, at least for those of us in the US, yeah, with some interesting things to talk about. As far as US equities are concerned. I would best describe things kind of in a state of no man's land. So if you look over the past few months, we've gone from people doubting whether we were in a bear market to sort of, that is now there's nobody arguing that anymore because the textbook definitions are involved and met. The question from here becomes, how severe is this going to be the cyclical versus secular? Ironically, I think last time I was on somebody picked up a recap of the religion headlines saying I called for a secular bear market. For the record, I didn't. However, the conditions are potentially there. So the things we're looking at right now, we can get in on the fundamental and the technical side. Where would you like me to start? Well, let's start with the fundamentals. One of these questions that's been floating around is not just whether we're in a bear market as you say that one's been answered, but now the question of, are we in a recession? Kathy would out a couple of days ago earlier this week saying that we are in recession. Lots of our guests saying we're currently in a recession. Of course, the official definition of recession is dated after the fact by the NBER, The National Bureau of Economic Research. But when you're in a recession, you know, it's kind of the old joke. You're in a recession when you think you are. And there are a lot of people out there right now who think we are, right? And this is a really good point. Your point about lagging. I would love to even take that a step further is to say, normally, by the time you have specifically job losses or these larger negative GDP prince is usually towards the end of the move in terms of equities lower. So without jumping in a camp. And this is where I'm trying to stay agnostic and have an open mind in terms of, I don't have a hard opinion on, you know, recession or not, but here's what I would say is most important, I think for people to be watching. If we don't have a recession, according to our work and intervening private access. Historically speaking, we're probably close to the LOS most cyclical bear markets with where we don't have a recession, correct? In the neighborhood of 20 to 25 percent, while we're there, the taxi is already taken us to that location in terms of at least if you look at the historical percentages, that means this market is potentially bottoming. If it hasn't, it's an, a bottoming more or less process. Obviously, the elephant in the room is, well, what if we have a recession? Then it's going to depend, of course, on the duration and the depth. Now, let's say to your point, we're already in recession because Q1 was, was negative. And I think Atlanta Fed came out this week and said and revised down Q2. Well, let's say we're in a recession right now and the Fed quickly backs off. I still think you could be in that bottoming scenario. And that is a scenario I think investors need to have at least an open mind to this is where flexibilities, everything. I think it is very possible we have another large leg down. I also think it's very possible we're putting in a bottom and I'm trying to hold both those intention and then to look at obviously the fundamental data as it rolls out, but even more importantly, the technicals. So if you want me to make the strongest prediction, prediction I would make about the US equity market right now. And this is recession or not. But if we do have a recession, everyone needs to understand one thing. Bull markets are born out of recessions. So this, you should not be afraid of a recession. How that is, of course, assuming you manage your household well going into it and you don't get clobbered. Haven't gotten clobbered to this point. I've been talking about cash and the value of cash for awhile. The other point I would make though, is the prediction I would make is that if we're going to have a recession, at some point, the market will actually look through the recession and everybody will probably not believe it. And that's the trap in my opinion. And when I say I'm trying to stay flexible and open-minded is meaning I'm trying not to get married to it, just a fundamental narrative so that then you miss a major opportunity. And that's actually what if you had asked gun gun to my head, asked me what do I hope is going to happen? I would hope the data gets really bad and the bearish just gets end of the world. And then the market, in terms of its price action, starts to tell a different story. This is precisely what we had after COVID about two years ago. And historically, the market bottoms on average three to six months ahead of the economy. So when things look bad, as often when the market starts to, if you look at the bottom in March 09, you look at the bottom in March of 2020 and some of these other cyclical and secular periods. So I would just have an open mind. Now we can get into the technicals in terms of what, what am I going to look for in terms of a change of character that would make me say, Wow, sit up in my chair and go, it's time to potentially look to get more aggressive because right now I'm very cautious and very defensive. Many good points there. Let's unpack some of that talking about really bad data. The, the Atlantic Fed now cast out today minus 2.1% print on GDP. Obviously this is a leading indicator. This is an attempt to estimate using high-frequency data series what the GDP print is going to be. There's definitely some variability, especially with things swing around. But as you say, a very negative sign. Second, the point that you made such an important one, something that we talk about Unreal vision a great deal. This notion of the challenges when things are moving badly against you. The important points, things like asset allocation, position sizing, risk management, understanding the risks inherent in leverage. All of these conversations that investors, folks who've been in the business for some time, or really at the core, not just about picking which stock is a winner and which stock is a loser. Absolutely critical for investors to know. I also wanted to pick up on something else that you mentioned there, which was, of course Mr. um, intervening a conversation that you had with Mark ME intervening today actually aired on 614, but very relevant to what we're talking about right now. Let's take a look at that conversation right now. Now in a bull market, I mean, if you happen to get the bull market right early on and you buy a bunch of stocks and and you have a big bull market. Yeah, you're going to probably do really well being diversified. However, two things. One, when the market goes down and you're in a bear market diversification is not going to protect you. Yeah, because correlation goes to one and everything. So it's just going to dilute you. Yeah. But the problem is, is it doesn't protect you on the downside and it dilutes you on the upside. So the key is to two. Instead of being diversified. Back to your point also that you said in the beginning, you said to have that low-risk gotta have your timing really well. That's a big part of it. That's a big part of it. So if you're going to have the big positions, then you have to have your timing well, and you have to have the risk under control and they go hand in hand. In order to keep the risk type, you have to have your timing. If you have your timing right, or you have good timing. And you have your risk under control for when you're timing is off. You can take the big positions. We don't take position, big positions all the time. If, when things are working well, we take big musicians and they go back to standard recommend that because I am a big fan of stand. And he said that and sorrow said that to make money every now and then you gotta be. Diversification will not protect you picking up on a point that you made earlier when you're talking about this challenge with the historical correlation between equities and fixed income breaking down obviously a conversation that you had with Markman or Veni here on religion, how would you characterize your big takeaways from that conversation? While there's a lot of them, and obviously we're going to get into is maybe even more specific risk management ones when we, when we shipped a crypto. But if you look at this bear market, since it started in November, and I'm I'm not trying to, you know, evangelize any type of sort of risk management strategy. But one I have been an evangelist for is just the idea of simply cutting risk when things are not working or raising cash, cash is the position. So let's look at the other alternatives. Stocks and bonds. Bonds as a hedge versus raising cash has not performed well. Precious metals not performed well. Volatility strategies, volatility has probably, unless it's been very nation specific volatilities just kind of stayed in that slightly elevated but never giving you that, you know, that big outside burst where maybe your tail risk guys had had a good run. Just has not then a, there's not been a position like cash. So the idea being, you know, for me this is where I don't hold it arbitrarily. I hold an opportune times. And that was Mark. Diversification has been one of the worst because in a bear market, right now, 85% of stocks in the Nasdaq and the NYSE are trading below their long-term moving average. So if you have a large diversified subset of that, you're probably performing in kind with the averages, if not worse, because some of those negative tails are much worse. The positive ones, we know that areas of the nasdaq are down 80, 90%. If you were hiding in commodities in somebody's cyclical, they worked for a bit. But even now some of those are coming under pressure. So this is where some type of cash allocation or strategy to move into cash, I think is essential. Yeah, I'm looking right now at my Bloomberg worksheet where I have all the indices tracked across multiple time horizons, as we were saying at the top of the show, nasdaq Composite up about nine tenths of 1% of the day, we should say, on the week, down about 4% year to date off almost 29%, 1 year, a little bit better off, 23 percent, S and P. Again up today, about 1%, down about 2.35, 2% to be exact on the week, four year to date, off, just a hair's breath, under 20 percent year to date and off 11 percent, almost 11. And an actual overall at 11.5% on a one-year basis. Yeah. The nature of this bear market has been more of than grinder. It has just it's grinded you down, given you a little bit of hope and then grinded you down. And that has been really what we've seen all year. The question, of course, depending again, like we talked about on the economic data, do we get some type of a swifter leg down? Maybe give some people a sense that we put in a capitulation. I'm not sure I could I could easily see a scenario where we do. I could see a scenario where if we continue to go lower, it may just be same song at a few more Vs. So it, it really, this is where you gotta look at things one day at a time. I will say on the technical side, every accumulation attempt we've had. And what I mean by that, I've talked about this a bit before, is when you get a valid rally a few days off the low confirmed by some volume. Those have all been sold into just for a little bit of history. I read a report this week from William O'Neal and company that said the every every bear market back, I believe to 970 usually has six or so on average, such failures. I think we're on number five right now. So again, we're sort of right in that average of what you would expect to see in, in a, in a, in a bear market, whether it's cyclical or secular, we may see more lately the first couple of rallies where we're able to retake the 51, retested the declining 200. Right now, we're kind of, we were really able to retake the 20 day. So this market is oversold, but again, it's just kind of a no man's land. And the last point I would make though, is this is where if you get some type of more systemic shock or issue, things could really come unglued because liquidity is poor. So I want to be careful that I'm a ham while i'm I'm holding both things intention, the worst-case scenario would be some type of maybe it's a credit and blow up, maybe it's a sovereign blowup where all the aircraft has lost the lift. That's what it will take you into a nosedive for people that weren't around in 08, we were in a bear market before Lehman failed. Then Lehman failed and it was just a blood bath. So not calling for that. I think this is where the guy from ECRI would say there's an open window of vulnerability for a bigger issue. Well, I would tend to agree with that. Even on the technical side, you don't have a lot of strong technical support under this market. That's what I'm, and the liquidity is quite poor. So if we get a lot of heavy volume selling, There's only one way for things to go. Now, again, if I see the opposite and this is where what I think folks should be looking for on the, on the upside is, do we get some type of positive breadth thrust? And there are a number of drivers. There are also some bullish narratives and there's things like a cease fire or some type of agreement that will definitely I would think produce a relief rally. I want to see what do the technicals in terms of breath volume look like underneath. I also think coming into the election without getting into the politics. I think any type of political gridlock is generally bullish. If of course we, we get some type of a red wave. Assuming that ahead of time. So those are a couple, again, keeping an open mind to both sides. So much to talk about their equity. Of course, our old friend, Lakshman, aka John, it be great to get him back on to talk about some of these cyclical aspects. You know, just looking at my screen here on the day data that came out. So Eurozone has hit record inflation highs now at 8.6% up from month prior, 8.1%, a significant hot inflation print in the Euro-zone. Additionally, we have the US manufacturing index would be ISM index specifically decreasing 53 this month from 56.1 last month. This is a high-frequency data series that many people look at as a leading indicator of potential economic growth. Particularly Ralph, Our CEO and founder at real vision, uses that series very much to think about how he sees growth shaping up. So some negative indicators, as you said, some indications in your words that the aircraft maybe losing lift on both sides really of the Fed's dual mandate, on the one hand, decelerating growth. On the other hand, global inflation, rising price pressures, supply chain challenges, pressure on prices. Lemme just n2 maybe with us on a couple of positives or other things for people to be watching. So we did have on, on June 13th, we had a 60 to one or more than 60 to one down volume day on the noisy. That is That's tantamount to someone vomiting or purging, if you will. The, the good news is often those happen near bottoming processes. The bad news, of course, is sometimes they come in clusters. So her baby, you know, if you have the flu, sometimes one purges in enough. So there may be more, the sentiment is getting very bearish, very bearish. I think AI is now or last week hit the worst in 40 years. And then looking at some groups, biotech is starting to, to buck the trend. That's an area I have folks watching and as crazy as it may sound, China looks like it might have bottomed. So if we've made a low contrary in place to potentially look would be China if that continues to trade? Well, so again, in the bottoming scenario, those would be areas I'd be looking at. Okay. Mark, we've managed to hold ourselves back for a full 20 minutes talking about crypto. This is something that we were talking about off camera. Some breaking news here in the space, voyager digital, suspending redemptions right now today. This is stories that we've seen. We saw it in Celsius Sci-Fi lending platform. We recently also sought, of course, a coin flex. I wanted to make reference to a conversation that I had today with Mark lamb. This is the CEO of coin flex who came on real vision and answered a whole series of questions. We spent about an hour walking through some of the challenges that they're having over there in detail. I think it's the most detailed interview to date that he's done where he really gets into the granular details about what they're doing. This is a special report, coin flex fall out that aired on religion today. It's available on the religion platform, on Twitter, on YouTube. Let's take a look. This is something that most exchanges do. Non liquidation accounts that are institutional customers or large whale customers. This is something that it's commonplace not only in crypto, but also in the traditional financial industry. And although it's common, although it may be commonplace, it's still not something we should be doing going forward. It's it's in hindsight, we would not have done it in the past. The reason the reason for an account like this, the reason for an arrangement like this is it enables the customer to trade with, with with more confidence that they will not be liquidated. And cash on the sidelines enable to in order to fund those liquidations without having to worry that their ability to meet those the margin calls won't be hindered by the fact that they might be asleep. And, you know, every every previous margin call was promptly met. So this is this this customer's longtime customer or client flex. Every prior margin call is Matt. You know, there's there's a lot of clarity around the situation. The goal now is just to make deposit or toll. And that's what we're spending every every moment working on. Mark Ritchie, I know you have lots of thoughts well without being overly critical of this particular individual. And I have not watched the entire interview, but I'm going to be watching it. And I had been following the unfolding of sort of the D leveraging in the crypto space from a distance in terms of reading. This is exactly the type of thing we were talking about in the real visionary series of what you shouldn't do. It couldn't be a better textbook example. Here you have somebody that has decided, well look, we've got this one client account. Think of it as a position however you want and have no reason to think that this. Xyz could never happen, then it happens and all of a sudden their businesses and solvent. That is the same thing as me going my broker. You allowing me to told a a3x position because it never gaps down, but if it ever did, my whole account would go into default. This is craziness is the only way to really put it. And if I literally tweeted about this three or four hours ago in the wake of the whole lune and not even knowing we're going to talk about this today Ash. How serendipitous this is the idea though, is if you haven't learned this lesson, It's on every level. I don't care if you're running a business, if you're managing your own account, managing money for other people, you cannot say well, that'll never happen, but if it does, we're out of business. That's not risk management. And I've been trying to gently critique this type of thinking for years. And this is to me right now in crypto, this is they're having their Lehman moment where people realize the same thing that we saw, an arc that goes from a year and a half ago. And somebody's other blowups where people are realizing, wow, our entire business was tethered to something that we didn't think could happen, that then just happened overnight. This question is this the Lehman moment for crypto? I'm going to give you the name of an obscure fund, the high-grade structured credit strategies Enhanced Leverage Fund, not exactly a household name. So you mentioned this idea of a Lehman moment. That was October 15th, 2008 in, on June 15, 2007, the prior year, about 16, 17 months before that hedge fund that I just read the name of. And another hedge-fund at Bear Stearns defaulted. And this was a story that the Wall Street Journal ran. The moral of the story is the moment when we start to see these distresses in the system. When you start to see things like forced liquidations. When you start to see positions getting sold out, when you start to see redemptions being denied. When you start to see all of these signs of trouble can be a very long time before you hit the true bottom, the true panic moment, the true maximum pain point. Now am I saying we are in a June 15th moment and we're going to be heading into an October 15th moment. No. But it is a potential reminder that that can happen. I shouldn't say No, I should say the real answer is we don't know. We don't know. And the other thing that's so striking mark from your comments about this and I think you're spot on in the way that you're thinking about this. One of the things that my senses of case of crypto is something that I spend a lot of time in, is that folks on the crypto aside, many of whom are absolutely brilliant guys and gals who have PhDs in computer science and statistics and those sorts of things. In many ways mark, they are learning the lessons that we learned in traditional capital markets in the 2007, 2008 phase. As though people who didn't already know them, they're learning those lessons a new for the first time. The two sides did not speak to each other. It seems to me in some ways, and again, not a critique of any individual person, but there was an ethos in the crypto space that somehow this really amazing technology and the technology is amazing, I think as Mark pointed out, this incredible ability to have these distributed decentralized networks validate things. This is a tremendous advance in computer science. It's an incredible thing, but it hasn't solved flaws in human nature. It hasn't solved excessive speculation. It hasn't solved irrational exuberance. It hasn't solved risk management questions. It hasn't solved leverage in the system. These challenges, It's almost like we built them a new in the crypto space. And now we're learning the hard way that crypto digital agile assets are not a panacea for problems of human nature that are inherent in economics. Yeah, I don't know that I said that any better ash. And I will just make the point. You're dead on one in terms of it could be. Could could this be the bear the Bear Stearns hedge funds failures in the summer of 07 couldn't be the failure of Bear Stearns in March of 08, lehman AND and OR September of 08, who knows, Right? Right. And the one thing it does seem though, is that the speed of these market seems to be a little faster. Just if you look at Luna, it failed and six to seven days, 30 to 40 billion in market cap just wiped off like that. Well, because there there was no I said there were no coordinated other efforts for people to come in and support this market. And I'm not going to get into views on whether they should or shouldn't. The reality is, it's just what happened. I've never seen that much market cap wiped off to 0 that quickly normally is coming from the trad five type world. A 0 takes some time. You know, you gotta go through a bankruptcy and even then the common stock trades around that kind of thing. This is a full on wipe out in really short order. To me, this is one of those growing pains if you're a crypto bull, long-term, not that you're welcoming the pain, but to say look, the actors who didn't learn these lessons, they need to potentially be weeded out of the system. And for those potential bowls, I think you want to see, I saw a headline this week. Goldman's potentially trying to put together groups to bid on somebody's assets. That's actually a good sign that, that shows that crypto maybe growing up at least three years ago, there wouldn't have been an investment bank leading a group to do that in my view. So that's a positive. Right now though on the technicals, I would just add I would not be touching this personally. And I made this point a couple of probably probably a month ago, Wednesday, Cohen was still around 30000 after Luna failure. A lot of people saying, Hey, this held up pretty well. Well, it had for the time being. But there was contagion. To your point about where are we? Is it is it two years before Lehman or will be in the middle? Is that after, we didn't know, but the price action of Bitcoin was not very good. It broke hard and didn't rally. Well, if you look right now, Same story. We broke hard then to 20 and we have not been able to bounce. That doesn't mean the lows not in doesn't mean it's in, I'm saying and again, my style, as I've been clear on before, I am not a falling knife catcher. And crypto right now is a house of falling knives. There. They're all in deep down trends and they're all just sort of looking for bottoms. If you're a deep value tech type person that maybe this is Christmas come early for you, but for right now, it's an avoid for me and wait to see how things shake out. I do think assuming that the, the digital asset ecosystem survives, there's gotta be some phenomenal opportunities on the other side. Yeah. And we should say Bitcoin right now, trading under twenty thousand nineteen thousand, five hundred and eighty four. I also wanted to talk about Voyager digital, which as I said, I think they suspended redemptions and trading and effectively all activity on the platform at two PM Eastern time today. So some two hours before we started on the air today. Hi In November of of of 21, this is the 52 week high of 25, 17. He's just gotten blown out since then. It's trading at $0.58 right now. And a bit of downward momentum. It appears on the news as you would expect of them halting redemptions. I wanted to point out this, looking at the questions and the comments as I always do on YouTube as we stream year. Jeff mainland makes an important point. You can't have a Lehman moment in DeFi, my guy. We've been talking about this very broadly crypto as though it's a singular monolithic asset class where, you know, everything functions in a heterogeneous way. That's not true. We should point out that these are, I guess you would say the term of art in this space is a Sci-Fi. These are centralized digital asset platforms, whether it's Celsius we're talking about or voyager digital or in the case of Mr. Lamb, coin flex, not true. D5 platforms, people in the space who are true believers in digital assets, who are true believers in decentralization of finance would say, well, that's exactly what you would expect to happen on a centralized platform because you have human beings who were fallible. We've seen it time and time again, making mistakes as they did at Lehman Brothers, as they did at Bear Stearns as they did it, you know, pick your name of secure of big banks or mortgage originators and the 2007, 2008 period, folks who are in the DeFi space would say, we don't have true decentralization on those platforms. And again, to make this even more complex, rich and ramified, big pointers are also sitting back when they see this thing. Well, we told you show so you shouldn't be speculating on what they would call **** coins. You shouldn't be speculating anything that's not Bitcoin. And you should own Bitcoin in a way where you control your own private key is not your keys, not your coins, they would say. So it is a very rich and complicated space. This is a very big conversation. We are very early in this space. It's an inflection point when we see these type of things happen. But there are also a lot of divergent strands to keep track of here. And that's what we try to do here on religion, on this show and elsewhere is to try and have fantastic guess on like you. So we can start to try and untangle what those strands, what they mean and why they're relevant to individuals. Ashley, I think that was about as good a summary as I could do in terms of what's going on. And the question in my mind is what are we in? And this is one of those where it could go on for months and months. Maybe we see headlines like this Voyager one. At least for the next few months, maybe through the rest of the summer. And if we continue, of course, to see cascading crypto prices, are we going to see people are talking about certain people getting margin call or knockout levels. And similarly, what we're seeing and equities is crypto going to have that big a candle down to capitulation type move where the last remaining weak holders who are sweating right now are forced out. I don't know. Very possible though. Again, to my point earlier about this is why you want to just be careful if you're in the, Hey, it looks cheap. Now. It looks cheap at 30 and 40. And here we are at 20. So if you don't mind taking a ride to 10, then maybe it is cheap. I just think again, you have to think risk first with every one of these decisions. And crypto isn't one of these moments right now, like we've seen in the past, just, just a sort of a different iteration. And you have to think risk first. Yeah, talking of which things that could go on for a while. You and I could have this conversation for another three hours on or off camera, but we have to let people get to their summer weekend. Mark, as we come to the conclusion of this conversation, final thoughts, key takeaways that you'd like to leave our audience with in about 60 seconds, if you could. Well, I think the big one is just keep an open mind. Try not to get yourself completely married to any one narrative. And then allow the information specifically with what you're seeing in the price action, dictate some of your actions. So that's always been one of my things to say. Look, okay, if I see a and B, then I have to do something and allow that to potentially start changing my mind. I'm holding a lot of cash right now, but I am I am looking every single day to see do I see a shifting or changing and the wind to potentially redeploy some of that cash. That's exactly what I would advise people to have a plan and stick to it. And going forward, I think there's going to be great opportunities. It's just a matter of making sure you manage the risk and really hone in on your timing. Mark Ritchie, always great to have you on the show. A great conversation as always, thanks for joining us. Thanks for having me ask everyone, have a great weekend. Thanks for watching revision daily briefing everyone, just a reminder, US markets are closed on Monday in celebration of the 4th of July. Holiday will be back with Tony Greer on Tuesday. Enjoy the long weekend. Everybody.