5 Incredibly Obvious Signs Of The Best In The Market That Everyone Has Missed

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We should have seen it coming. At least that’s what many investors (big and Robinhood speculators alike) are saying right now with financial assets of all kinds in free fall this year. More than ten years of a bull market, a wave of money from the Federal Reserve, and a new world of technology in everything from money to cars and even art have made the future seem limitless. Only now are some people discovering – many of them for the first time – that the laws of the market have not been repealed. Inflation, the war in Ukraine and rising interest rates are pummeling the markets and no one knows when it will end.

The S&P 500 – the stock index that is most likely in your 401 (k) – is down 19 percent this year to date. This is dangerously close to the official bear market definition: 20 percent or more from the peak. Meanwhile, NASDAQ, where the biggest names in tech trade, is down 28% this year, SPAC and cryptocurrencies have collapsed, and private markets are gaining momentum.

No wonder looking for the most important market signals that most people have missed has become a favorite pastime among financial pundits who seek black humor as a balm for their losses. This list is far from complete, but from cryptocurrencies to meme stocks to SPACs and beyond, here are some of the clues that are making the rounds among investors.

Cryptocurrencies are perhaps the most obvious place to look for the missed signals that things had gone too far. For most of the past year, bitcoin has seemed insensitive to critics who have called it a Ponzi scheme and to regulators around the world who have threatened or enacted restrictions. Ultimately, though, the cryptocurrency market’s top was heralded by one of the most notorious curses in a financial bubble market: arena name rights.

In early November, just as bitcoin was peaking, the Staples Center in Los Angeles said it would change its name to Crypto.com Arena after selling the rights to crypto.com for $ 700 million, which ESPN he called it “the richest naming rights agreement in sport history.” It’s only been a few months since cryptocurrency exchange FTX bought naming rights to the Miami arena where the NBA’s Heat play. Those deals have become a red flag for investors remembering that Enron went bankrupt shortly after the major energy company seized the rights to name the Houston Astros baseball field. The New England Patriots stadium outside Boston was, at the far end of the dot-com bubble, briefly called CMGI Field after a high-flying Internet incubator, but within a few months everyone agreed that the deal no longer made sense.

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Naming rights deals are “generally the crossroads of arrogance, arrogance, and management believing their bs,” says former financial journalist Herb Greenberg, who jokes that his decision last summer to abandon a plan to become a short-selling activist was also a superior indicator market. After writing research for short sellers for several years, Greenberg moved on to the long side, taking a job writing stock advice for a financial research firm.

Then there is the NFT craze. At Anthony Scaramucci’s SkyBridge Capital SALT convention last September, the former hedge fund manager and current king of cryptocurrencies, albeit recently humiliated by big losses, Michael Novogratz raised the Jeff Koons fool Balloon dog sculptures to explain the economic logic of NFTs, digital tokens on blockchains that act as a certificate of ownership. “Because it is the Balloon dog is it worth 30 million dollars? Because we say it is. We are doing the same thing with NFTs, ”said Novogratz, CEO of Galaxy Investment Partners, a cryptocurrency investment firm.

(Unsurprisingly, Koons, a former Wall Street commodity broker who honed those skills to sell his kitsch art, also entered the NFT market.)

But the market’s highest signal for NFTs came on January 5th, just days after the stock market peak. On that day, OpenSea, the dominant auction market for NFTs, reached a valuation of $ 13.3 billion. NFT sales also plummeted, down by more than 90 percent from the peak.

Meanwhile, OpenSea is still selling NFT Bored Ape Yacht Club, even though the prices are very low. And recently, a CryptoPunk NFT that was bought for $ 1 million six months ago it went for $ 139,000.

While the Koon Balloon dog the comparison may not be completely insane, it is also a classic example of the kind of thinking that tends to happen at the highest levels of the market: intelligent people trying, at some level, to convince themselves that something clearly overrated may actually be underestimated. Read about any bubble in history and this kind of logic becomes commonplace. In the cold and harsh light of late May 2022, however, it seems clear enough: a mass-produced cartoon jpeg is not, in fact, a Koons.

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The bubble wasn’t just in cryptocurrencies. The original meme stocks were brick and mortar company GameStop and AMC Entertainment.

But it didn’t turn out to be the class revenge against Wall Street that caught media attention after retail investors at sub-Reddit WallStreetBets took down hedge fund Melvin Capital by learning to squeeze stocks like GameStop heavily into the open. Although Melvin, who was short of GameStop and AMC, failed to bounce back and is now shutting down, the whole episode is something of a Pyrrhic victory for the Reddit crew. A recent report from Morgan Stanley found that retail traders just starting to invest in 2020 were the hardest hit by the recent dip from the market peak.

Should we have seen their death come? Perhaps the digital billboards and banners flying from airplanes in the skies over New York and Los Angeles insisting on “AMC We Love the Stock” might have been a clue. These ads, paid for through GoFundMe accounts, began running when the stock hit a high of $ 60 per share last summer. Even after AMC CEO Adam Aron sold his holdings early on, AMC Apes continued to believe in it and continued to run their digital ads, most recently on the mountainside. Meanwhile, the stock continues to drop. It is down more than 50% this year, to around $ 12 per share.

“I laughed then, though perhaps tragic today,” says Josh Wolfe, co-founder of venture capital firm Lux Capital. “TikTok tells of young people talking about stocks, many of whom buy options or invest through Robinhood in record amounts, and it all worked out for them, which virally caused social proof and their peers to pile up, none of them have any idea. like actually reading an annual report, dissecting a 10-K or 10-Q, reconciling a financial statement, or explaining why WeWork’s “community adjusted EBITDA” was fundamentally a fraud. “

More than anyone else, entrepreneur VC Chamath Palihapitiya gets the credit – and blame – for igniting the craze in special purpose acquisition companies or SPACs. Palihapitiya’s first SPAC took off when it merged with financially strapped Richard Branson’s Virgin Galactic spacecraft company in late 2019. Soon others joined in the rocket launch and Palihapitiya, anointed the “king of SPACs” by Bloomberg, would go on to sponsor ten SPACs.

But on February 21, 2021, a few days after the stock prices spike for SPACs, he launched an enigmatic tweet: “I’m ready to screw up some shit … just please.” (A financial Twitter user using the @ItaliGino handle called this tweet the most obvious sign of the summit, saying, “It was just like that … exactly.”)

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Although Palihapitiya never made it clear what he meant, losing money probably wasn’t what he had in mind. Just three days later, however, he said he dropped $ 1 billion that day alone as the SPACs continued their descent. By March 5, Palihapitiya revealed that it had sold its entire personal stake in Virgin Galactic for a profit of $ 200 million. The SPAC market in general has been in free fall since then, including those sponsored by Palihapitiya. In February, he stepped down as president of Virgin Galactic.

According to Wall Street lore, when critics give up, the stock market has clearly reached its peak.

During the long bull market, short sellers faced one of the toughest times ever and stopped trying to predict when the market would turn in their favor. Then dozens of short sellers found themselves part of a large-scale Justice Department investigation that began last year (but has not produced any indictments so far).

One after another, the shorts retreated. Andrew Left of Citron Research has stopped writing short reports. A well-known perma-bear hedge fund manager, Russell Clark, told investors in November that he was shutting down his he hedge fund – and he did it right before high-stakes tech stocks started to fall, just like he had. planned.

Then, in January, Jim Chanos – who famously called Enron’s demise 20 years ago and repeatedly referred to the last few years as “the golden age of fraud” – changed the name of his fund from Kynikos Associates to Chanos. & Co., quietly closing many of its funds and consolidating others.

Although Chanos’ assets have fallen from several billion dollars at their peak to under $ 300 million by the end of the year, the legendary short seller is still in the game. So far, 2022 looks like a great year for him.

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