BEEStMoD on a Summer Solstice

My two cents have been known to cost other people a lot more, which is why I don’t generally bother making market predictions. That’s a sucker’s game anyway, because — as any good forecaster would never tell you — being a successful pundit has nothing to do with being right and everything to do with never being wrong. There’s a subtle art to talking a whole lot while saying nothing, allowing for plausible deniability for when you’ll probably be proven wrong.

Only a select few know how to forecast the markets consistently, and the one thing I learned from years of being a trader is that I’m not one of them. (The other thing that I learned is that those who are will not tell you what to do for $99 a month). What I’m good at is thinking about broader themes of economic, technological and social progress, and then writing about how they might play out in the financial markets.

I wrote a blog post last August laying out my thesis as to why the centralized tech platforms of today would eventually be disintermediated, and recommended investors rotate away from the likes of Google and Facebook and invest in the coins of the biggest decentralized blockchain-based platforms. Specifically:

I’m confident that five years from now, $10,000 invested in BEEStMoD will have done much better than the same money invested in FAANG.

Here are the results so far:

Topped FAANG, definitely didn’t bottom BEEStMoD

As you can see, I’ve been mostly wrong. Technically the crypto basket is outperforming the tech stock one, but despite mine catching the top in tech, I was too early in the crypto bear market. If nothing else, you could have waited a few months and gotten everything at half price. My timing was terrible.

Nevertheless, with almost one year in the bank, I’m more confident about my prediction than ever before. Investing in digital assets is still nothing more than a bet on an idea, and that idea is starting to take root. Remarkably, it gained the most widespread adoption during the gut-wrenching crypto winter. Case in point: Facebook, one of the companies whose demist I’ve predicted, is now leading the charge toward decentralization, joined by the likes of Visa and PayPal, whose coming trouble I’ve also written about.

On the flip side, investing in the stock market is increasingly also a bet on a simple idea, and that idea — that liquidity and central bank intervention can fix all ills — is starting to get stale. The S&P 500 made an all time high this week, despite an onslaught of economic and geopolitical headwinds. Or rather because of them. Here are the actual bullet points from a recent Marketwatch story:

The cynicism in markets that rally when actual humans lose their jobs because a central bank will cut rates is palpable. About the worst thing that could happen between now and the expected July cut by the Fed is a strong jobs report. Think about that for a second.

A quarter point cut in the Fed Funds rate, which the Fed all but promised this week, would do nothing to solve any actual problems experienced by real people. If low interest rates created economic growth then the last decade, featuring the lowest in human history, would not have been so anemic. But the assets owned by the rich and powerful went up, so who cares? Like an addict excited to have acquired the next batch of opioids, how risk assets feel is all that matters.

Except in politics, where the economic inequality caused by central banks constantly giving free money to the wealthy and corporations “because the middle class” continues to drive populism. And in technology. What bureaucrats and Central Bankers are want to break, nerds and cypherpunks are trying to fix. On this summer solstice, I’m glad to be in the company of the latter.

Ask a central banker what his best idea is, and he’ll give you some variant of the one that’s already failed to do what he himself predicted the last 30 times it was applied. Ask a group of hedge fund managers, and they’ll tell you to BTFD on expensive tech companies, because “don’t blame me, everyone else was doing it” is the best job security on Wall Street. Ask a crypto nerd and she’ll take you on a journey that dares to re-imagine the nature of money, the spirit of banking and the root of trust.

There are those who keep doubling down on a failed idea, and those who dare come up with a new one. As the night once again begins to grow longer, and the S&P 500 touches a triple top, choose your company wisely. There is no such thing as a free lunch, but there is still (even above $10k) such a thing as a cheap Bitcoin.

The opinions expressed in this blog are strictly my own and not that of any client, employer, associate, colleague, hater, steward or stranger on the subway. Past performance doesn’t guarantee future results, unless you are Mario Draghi, in which case past failure is the best indicator of future action.

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