How The Fed Could Raise Rates Without Ending The World

If it's a no-brainer that bonds should sell off as Fed unwinds, and if there's no such thing as a free lunch, then bonds ought not to be sold.

If Fed hikes then emerging markets take a hit. If emerging markets take a hit, there will be a flight to safety. If there's a flight to safety, then Treasuries get bid up. If Treasuries get bid up, the price of bonds gets bid up. If the price of bonds get bid up while Fed is unwinding balance sheet, then the unwinding will be successful. If Fed unwinding is successful, there's really nothing to be bearish about aside from over-stretched valuations and the economic cycle.

Bottom line: if bonds rally while Fed unwinds, then the Fed's operation will be successful.

Bitcoin

The only people more ignorant than the people buying bitcoin on the way down are the ones that didn't buy it on the way up.

QOTD

"If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it's coming in, it'll never happen. The market is always right." - Ed Seykota

Why Bitcoin is a Derivative, not a Currency.

In order for Bitcoin to be considered a currency it must satisfy three conditions: 1. be a store of value, 2. a medium of exchange and 3. a unit of account.

What separates fiat currencies from BTC is the fact that they satisfy the most critical condition: being a unit of account. The US Dollar is considered a real currency because it satisfies that critical condition. 1 USD is just that: 1 USD. It is backed by nothing other than the full faith and credit of the United States Government. It is not a derivative.

BTC, on the other hand, is a derivative, and is not a unit of account, as it is backed by the nominal value of the USD, which, in this example, is the independent variable.

In order for something to be considered a unit of account, it must have an independent value metric. If it does not have an independent value metric, then its value, by definition, is derived from some other thing. When the value of an asset is derived from the value of an underlying, that asset is defined as a derivative.

Eye on Opiant

Indices are strong this week, however, certain overextended stocks are dropping like rocks; e.g. OPNT (Opiant Pharmaceuticals) is doomed re: opioid crisis. Gov't shutting down.

Tesla Stock and Rocket Man's Incentive

At some time, 28.7M shares of Tesla common stock (TSLA) must be purchased in the open market by the short interest, which is ~$10,390,659,760 of buying power. If Rocket Man shorted $1B worth of TSLA at today's close and put the price up 10 by bidding to cover, he would lose $28M on the trade, however, his total net worth would increase by $382M, and presto: a $354M net profit or >1,200% risk adjusted return, by shorting your own stock. A thing of beauty.

QOTD