Four random investment thoughts as I sit here urging myself to start writing again.

The Bull Case For Bitcoin

We’ve all seen it; Bitcoin mania has taken hold again.

The “Have Fun Staying Poor” brigade has risen from the dead to haunt all who dare cast dispersions on its name.

Bitcoin is up Over 200% in the last year

I may as well set my cards on the table from the outset here.

While I have some exposure to Bitcoin, I have never been much of a crypto fanboy. I have never bought into the whole ‘cog in the financial, monetary machine’ narrative, and I’m yet to be amazed by any new use cases for Crypto outside of the blockchain element itself.

But it’s no longer about ‘use cases’. It’s simply a Supply/Demand story. Which is, weirdly, the only bull case I can get behind.

The ETF floodgates have opened, and the new crypto bull market has begun.

The new Blackrock Bitcoin ETF alone has bought more Bitcoin than was mined- every single day since the ETF was launched.

The overall trading volumes are through the roof.

When institutional buyers of this size and scale enter the market, the supply/demand mismatch only sends the price in one direction.

Maybe you don't love it, perhaps you're not bullish on the use cases, but it has now embedded itself into the cultural zeitgeist of an entire generation at an institutional scale. And that matters.

Where it goes from here is anyone's guess, but the ETF flows don't look like stopping anytime soon, especially if Blackrock starts allocating Bitcoin across its own Funds. It's a $10 trillion asset manager, after all.

So, to summarise, using some complex investing jargon.

More people buy... number go up.

The Number 1 Market Conundrum

In Q4 2023, the Magnificent 7's earnings growth was +56%, while the S&P 500-ex-Mag 7 saw earnings shrink by -2%.

This leaves investors with an uncomfortable choice.

Do you buy something already expensive, with good earnings growth (Mag 7), or something cheap, perhaps justifiably so, with negative earnings growth (pretty much everything else)?

Thankfully, investing never needs to be an ‘either-or’ decision, but for me, I expect the recent broadening of market returns to continue.

Already, the ‘Mag 7’ has been culled.

• Apple: Down 13% from its highs

• Alphabet: Down 14% from its highs

• Tesla: Down almost 40% from its recent high and down 56% from its all-time high

That's considerable losses for some of the market's biggest players, yet the market marches on.

More broadly, the momentum across Large-Cap Tech is down in recent weeks.

Don’t be fooled by sensationalised headlines; rotation can and will happen in the market without any major upheaval as some underperforming names step in off the bench to do some heavy lifting.

Market concentration is rarely detrimental, and sector rotation is the lifeblood of any bull market.

Don’t get me wrong, I expect profitable Tech to continue to perform quite well from a fundamental standpoint, but much of this is already baked into the price over the short run.

For me, Industrials, Energy, and anything that can benefit from this perpetually loose fiscal environment has more room to run, giving some of the bigger names a chance to take a breather following their relentless run.

Not-so-cool Inflation

I know the constant monitoring of CPI and inflation bores most people to death, so I will keep it short.

February U.S. CPI data came out yesterday.

• Month-on-month increase in core CPI inflation of 0.4%.

• That's the second ‘higher-than-expected’ MoM print for the year

• The 3-month annualised rate of core CPI is now 4.1%

• The stickiest subcomponent of the inflation basket - Core Services Ex-Housing PCE - is trending north of 4.5%.

In short, it's becoming increasingly difficult for the Fed to maintain that the disinflationary trend towards 2% is intact. Headline inflation is sticky around 3%.

The US economy is simply not slowing down, which leaves us pitched in the 'higher for longer' camp for now.

 I'm not predicting the 'second coming' of inflation here; Core CPI is still in a downtrend. These things just tend to take longer than we think to play out, and this is especially true in economics. 

 As John Maynard Keynes once said, 'When the facts change, I change my mind'

The Fed is no different. If inflation and labour data remain sticky, they will continue to hold rates. If it doesn’t, they won't.

Simples.

Money Hungry ‘Big Chocolate’

And finally, in altogether more devastating news, the price of cocoa topped $8,000 a Ton this week.

Prices are up nearly 70% this year as West African output lags due to bad weather.

In response, we can expect chocolate makers to hike prices and shrink packaging.

Wait…have they not been doing that for years I hear you ask… right you are, so imagine what it’s going to be like now.

To help combat this, I have come up with a top investment tip … buy next year’s easter egg this year… You may not be able to afford it next year at this rate. (In an unrelated matter, nothing in this newsletter should be construed as investment advice)

In truth, we have all witnessed this carry-on for years. We have all seen the Freddo inflation fiasco play out before our very eyes and stood Idly by….. well, no more.

We’re…. FRED up… (See what I did there)

I’ll let myself out.

Thanks for reading (and apologies again for the horrendous jokes, I literally can’t help it, it’s just who I am as a person)

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