Current Market Thoughts (May 2022)
One thing that I reflect upon when watching this market is remembering how irrational markets can become over the shifts between cycles. That means that despite some areas of the market look interesting to start investing in, there is a high possibility of losses continuing to build as the market tend to overshoot what would be true value. This is also led by the fact that there is still plenty of capital and liquidity in the markets that compete for yield. Despite the Fed already moving rates higher, they are only about to begin to shrink their balance sheet which will likely be the next leg lower.
While mentioning the Fed, I think it has become clear that there is no longer a “Fed Put” in the market; in fact, this may all be part of their plan to slow demand in various segments to try to fend off inflation. However, the challenge lies in that the enemy of inflation is not necessarily demand driven but instead, supply side driven. This means that the balancing mechanism will take time which will lead to increased volatility across markets like we are seeing now.
Despite the international markets trying to deglobalize, the fact remains that globalization is embedded in most developed economies which mean that correlations will persist in this cycle. This is bad news as dominoes will continue to fall as stronger economies hold off pressure for some time before ultimately succumbing to deceleration in their economic activity. Unfortunately, this will lead to more social divide and probably even worst political decisions which only hurt those dependent on our centralized governments.
As you can tell, my outlook is not very good. Even for the promise of technology like Blockchain and Crypto, economic activity will only add pressure to projects that are unable to bring development and adoption quick enough. To be honest, the 2018-2019 bear market in Crypto did not end many projects nor the development of news ones as I would have thought. This could be the true bear market where we see 90% of projects fail so we need to be ready for losses while looking out for opportunities.
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