Juggling Dynamite

There are so many incredible developments in financial markets right now it isn’t easy to choose what to write about. And there are so many complex interconnections. Suffice it to say the throughlines are rampant financial fraud and unusually high capital risk, with very few people positioned to prosper in 2024.

Just one area of glaring danger for retail buyers is the cesspool cryptocurrency space.

In March 2021, Canadian regulators bowed to pressure from sell-side companies and approved the first Bitcoin Exchange-Traded Funds (ETFs) for trade on Canada’s TSX. As of late 2023, 11 Canadian cryptocurrency ETFs were trading, and all had lost heavily since inception.

Since October, however, prices of everything crypto rebounded on rumours that the US Securities and Exchange Commission (SEC) will also succumb to sell-side lobbying and soon approve Crypto-based ETFs. Over ten crypto ETFs are awaiting approval despite high-profile fraud and a lack of regulatory framework governing crypto exchanges.

Ironically, yesterday, as a lawyer and Better Markets CEO Dennis Kelleher appeared on Bloomberg explaining the madness of crypto ETFs for retail consumption, the SEC’s  ‘X’ account was hacked to issue a false BTC ETF approval notice.

Crypto-related prices surged on the fake news, and perpetrators no doubt sold into the strength they’d fabricated. You can watch these developments in real-time in the clip below. Here is a direct video link. Overnight, news hit that the SEC had not approved the BTC ETF. Yet, at least.

Crypto-grandaddy Bitcoin is leading the space lower this morning but remains +65% since October 8 and 30% below its cycle peak in November 2021.

As would-be-investors repeatedly discover, packaging speculative, illiquid securities inside opaque retail wrappers does not make them any less speculative, illiquid or dangerous for buyers. But the salesforce has enormous incentives to convince us otherwise so that we will hand them our cash. Customer accounts/portfolios are seen as distribution channels for the risk assets that capital-raisers seek to offload. Buy and holders, beware.

During the supply disruptions of the pandemic, stockpiling became an international obsession and warehouse space was in high demand. That’s reversing now. In the fourth quarter of 2023, the US had 5.2% of warehouse space empty versus 4.7% in 2019.

Construction doesn’t turn on a dime, though. Hundreds of millions of new square footage are still being built on spec and look likely to add deflationary pressures in the commercial real estate sector. See Warehouse Availability Surges to The Highest Level Since the Pandemic:

Industry experts have warned the leasing slowdown raises the potential for a glut of warehouse space in the coming months with hundreds of million square feet of new development in the construction pipeline. Much of that space is being built without tenants lined up, known in the real-estate sector as speculative projects.

There has never been an incidence in history where the US Conference Board Leading Economic Index (LEI) had a six-month average growth rate sub -4.5%, and the US economy did not enter an NBER-defined recession.

The six-month smoothed LEI growth rate in November was -7.5% (chart below since 2000, courtesy of ISABELNET.com) and has been negative for 20 consecutive months, something only seen before the 1974 and 2008 recessions (stock markets halved and unemployment leapt during both).
(The 10 data points in the LEI are the leading credit index, S&P 500 stock prices, yield spread between the 10-year treasury and the Fed funds rate, average consumer expectations for business conditions, ISM new orders, building permits, average weekly hours worked in manufacturing, manufacturing new orders, consumer goods orders, average weekly initial jobless claims).

When we combine the sub -4.5% LEI trend with the inverted 10-year minus 3-month yield spread and falling Gross Domestic Income (GDI), the warning of incoming recession has never been louder. Yet, most are ill-prepared.

Economist Eric Basmajin does an excellent job of explaining the significance of these signals in the segment below.

Explore the reliability of the Conference Board Leading Index, a recession indicator with a flawless track record spanningic  six decades. This video delves into the current -7.5% growth rate, compares it with other indicators, and challenges the optimistic narrative driven by recent stock market performance, emphasizing the importance of staying vigilant to potential economic downturns. Here is a direct video link.