The Pivotal Moment: Market Momentum Collapsed in September 2021
Market conditions need to change around the drivers of inflation. This would begin with commodity prices not going up, particularly energy. To that point, members of the ETF Think Tank last week enjoyed an insightful discussion with Senior Bloomberg Energy Analyst Fernando Valle. Note that his expectations are that price for WTI (see chart above; Cl1 Comb is WTI, orange is heating and blue is gasoline) will stay in a trading range of about $100-$120 a barrel for quite some time, and will keep inflation pressures high (recording to be posted shortly on the ETF Think Tank YouTube channel, but the summary can be found here in our Summary/Distilled piece). Remember back in April 2020 when oil was being given away? Unfortunately, beyond taking action to raise rates by 75 or 100 Bps during the upcoming July 26th-27th meeting to slow economic growth, there is not much that the Fed can do. This means inflation will need to flow through the economy to find its own natural level, whereby the slowdown is unfortunately felt by millions of folks who now will have to tighten their belts to buy time. Economic cycles are a necessary evolution that most investors have not experienced, but that markets started to address 9 months ago. We say this not to be cavalier about the financial pain, but to offer encouragement that we are already into the cycle. Further to the point, conditions have changed in the markets, and the treachery that has befallen the liquidity crisis from the removal of the “punch bowl” makes all predictions challenging.
Test Us in the ETF Think Tank Bunker
The good news – the ETF Think Tank is here to help. For years we have spouted about the importance of new ETF innovation due to ever-changing conditions. We have highlighted that the traditional buy-and-hold portfolio (the 60/40) is not the only way to manage savings - “past performance is not indicative of future outcomes,” etc, etc. Well, guess what? No one has the crystal ball, but the tools that advisors have available to them have never been more robust, so take action. (1) Realize losses so you can reposition for gains. (2) Grab yield without overreaching to increase cashflow for clients. (3) Look closely at alternatives because volatility may be the new certainty. (4) Thematic has not been this much on sale in years, so take a stand and grab some growth. Real wealth and business growth is earned by taking a stand when innovation and disruption is on sale! Sorry for the preaching, but this is the time that investors and financial advisors will look back at and say, “what did I do right and what did I do wrong?” Doing nothing will almost certainly not be the answer that people will be most proud of, whether it be for their clients or themselves.
Energy Costs, the Electric Grid and Bitcoin Miners as the Solution
What drives entrepreneurship and the need to innovate to address a problem is a characteristic that is not often addressed in the ETF world. Nevertheless, the need to solve a problem that has an economic impact is usually a common focus, and such successful individuals usually have a passion to yield a strong return for investors. Ironically, many ETF Entrepreneurs have also found crypto as a focus. This week, we will have Chad Everett Harris as a speaker during our Happy Hour. Some may know him on Twitter as @GigaChad. Chad is best known for leading the build out of RIOT Blockchain’s Whinstone 750 MW facility but make no mistake about it; Chad is more about solving a problem than he is just about Bitcoin going to the moon.
Ignoring a problem is never the answer! We have an inflation problem which, in in an overly simple form, is about the impacts of an aging labor force and energy. Staying the course and ignoring the issue is never the solution. For some, using Bitcoin as a solution to the energy crisis may sound like a false paradox, but many in Texas see it differently. Bitcoin miners support the grid through flexible loads and long-term contracts, which help the supply issue. They also are incentivized to seek out the lowest form of energy which ultimately is renewables. We try not to make the ETF Think Tank Happy Hour overly focused on crypto, so we hope most people getting this email will consider this a follow-up discussion about energy and inflation (see footnotes for further details about bitcoin mining and energy).
Speaking of Entrepreneurship, Ric Edelman’s success in building the nation’s largest RIA is without parallel. He is now devoting himself to teaching other financial advisors about blockchain and digital assets, and we are pleased to announce that we are extending our research offering by providing sponsorships to Ric’s certificate program via his company, the Digital Asset Council For Financial Professionals. To learn more, email Danweiskopf@torosoinv.com.
Creative and entrepreneurial solutions that are sniper-like must be part of the solution. In the ETF Think Tank, we are big believers in supporting out-of-the-box thinking. No more echo chambers! Hope you will come join the fun and debate. Arguably, equity market momentum collapsed in September 2021, around the time energy prices took off. With market conditions taking a different form, investors arguably need to adapt to different ideas.
Footnote: Bitcoin miners help the grid, and therefore help the problem.
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