Skeptical Insight #20

The Russel is also sitting at key fib levels, waiting for money to flow into the smaller cap stocks to make it a more broad-based rally.

The DOW is now above its all-time high.

And the RTY is above its 0.786 retracement.

Both are positive signs that the market is showing signs of continuation. The RTY shows that the smaller caps aren’t getting left behind during this rally and the capital is getting spread out more evenly throughout the market.

This shows more stability in growth.

What most people forget is that the FED is normally late to lowering rates and is waiting for unemployment to spike before doing so.

Below I have the FED FUNDS rate in blue, unemployment in teal, and the DJI in purple. The grey boxes indicate recessions.

The FED historically drops rates as unemployment is rising, however, this is a lagging indicator of how the real economy is holding together. As a result, you can have cascading layoffs and spiking unemployment even while rates are decreasing.

Although consumers think lowering interest rates will be beneficial, I am cautious of the cascading unemployment rate that will cause less spending and less profits for companies. As a result, I am not as bullish on interest rates dropping as others may be.

Strategy

Strategy (formally Microstrategy) has begun running a Bitcoin Treasury account, which involves issuing convertible bonds (Debt) to buy Bitcoin instead of holding cash on their books.

They’re essentially exploiting temporary inefficiencies in the market, which has worked out well for them, seeing that their stock price is up 2600% since the announcement in 2020.

Strategy allowed fund managers to get exposure to Bitcoin through a synthetic product that would be within their fund's parameters.

Lyn Alden, a respected analyst in the Bitcoin space, recently asked Michael Saylor, “At what percentage drop in Bitcoin would cause problems for Strategy?”

To which Saylor responded that they may have to temporarily pause debt payments if Bitcoin dropped 80-85%.

Drops like this have been seen at the bottom of Bitcoin’s bear markets. So, what’s stopping it from repeating or dropping a little more next time?

Let’s just say I hope Strategy has this finely calculated.

My concern is that we now have companies like CORZ that are unprofitable and just using this as a last resort to bring some media attention to the company.

I can see it already; they might as well dig their graves. It’s like patching the Titanic with tape as it's already going down.

If the situation arises where Bitcoin drops 85%+ and Strategy’s debt has to be converted to common stock, it will devalue the stock further by increasing the supply.

Essentially compounding the drop that would have already happened to MSTR.

All this to say, this could signal the bottom of the next bear market in crypto and at that point I’ll be backing up the Brinks and buying Bitcoin.