It was made official on Friday that Cryptocurrency exchange, FTX would be filling for bankruptcy. All the details are yet to become public but a few things that we know is that FTX founder Sam Bankman-Fried has resigned, he leveraged FTX up to levels that Long Term Capital could only dream of and broke a cardinal rule by using customer accounts to prop up company debt. Recall how former New Jersey Senator and Governor Jon Corzine’s firm, MF Global did the same with about $1.2 billion in customer funds? It was a great short trade. Why he never went to jail still to this day amazes me.
None of this is new. As I mentioned, Long Term Capital (LTCM) leveraged itself to the hilt. I dealt with LTCM for many years, but I did not like the way that they tried to screw Merrill Lynch over on trades that I had with them. Plus, despite having two Nobel Prize winners, the hedge fund did not know what it was doing. I saw LTCM’s demise way before others did on Wall Street.
Another recent example is Mt. Gox, a Bitcoin exchange located on my old stomping grounds Shibuya, Tokyo, went belly up in 2014, just four years after its founding.
I got a call (I won’t mention names) from a money manager / hedge fund who was sending representatives to Las Vegas a few weeks ago seeking to solicit money managers like myself to invest in their Crypto Currency Fund. I refused to take the meeting citing that it is my policy that LakeView Asset Management would not invest in Crypto. Then last week I ran into the same salesperson and his boss in Sarasota at a conference. It took a lot of chutzpah to continue to raise money in a Crypto Fund when the secret was out that FTX was going down the toilet.
I will repeat this for people who are new to My Gut Feeling or did not read my prior commentary. Crypto is snake oil; a fugazi; phony as a three-dollar bill. It does not generate income, has no sales, does not distribute dividends, can’t authorize buybacks, and has zero assets supporting its value. I would not invest counterfeit or monopoly money in Crypto.
There is a silver lining for stock investors. Pension plans and professional money managers, who did not already remove Crypto from its approved investment list are doing so now. Those that got caught holding the Crypto horse pooh either have or will be selling it soon. As a result, there will be more capital available to invest in traditional assets – such as stocks and bonds – which can be valued.
I expected a positive reaction to the midterm elections but that did not occur on Wednesday as many political races were still undetermined. However, on Thursday the monthly inflation numbers came in better than expected and had a “7” in front of it. To be precise, CPI was 7.7% versus expectations of 7.9% The market interpreted this to mean that the Federal Open Market Committee (FMOC) might be loosening the interest rate noose around the economy’s neck when it next meets and determines interest rate policy. On Thursday, all major domestic stock indexes took off like a rocket and even had a milder follow up on Friday.
My take is that the worst may be over for the stock market, growth stocks might be coming back in vogue and Crypto is a four-letter word which will be universally avoided, except by those who have blinders on.
Thanksgiving is around the corner, which means that it’s time to start reviewing your potential taxable capital gains or losses for 2022. If you would like to do so with, let’s set up conversation.
[ Note: my prior My Gut Feeling for October 27: The 100 Year Flood ran into a distribution issue. So if you did not receive the email for that installment of MGF, you can still access it here ]
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long AAPL, ENPH, MSFT, SPY, SPXL L- although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
© 2022 LakeView Asset Management, LLC. All rights reserved.