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What Is Cryptocurrency?

Cryptocurrencies like Bitcoin, Ethereum and Dogecoin are digital money secured by cryptographic technology known as a blockchain. Here’s how they work,…

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This article was originally published by Money

By now, you’ve likely heard of cryptocurrency. But you need to actually understand what it is and how it works before you invest.

Bitcoin, Ethereum, Dogecoin and others have surged in popularity, and it seems like everyone wants to get in on the action. Now, everyday investors can: Buying crypto is now as easy as opening the Venmo app, and it can be traded like stocks and bonds via trading apps like Robinhood.

But the actual technology behind cryptocurrencies is a bit complicated. While it’s easy to get swept up in the excitement around how some investors are making a ton of money trading Bitcoin, it’s important to understand what cryptocurrency actually is before you invest.

Here’s everything you need to know about cryptocurrency.

How does cryptocurrency work?

Cryptocurrency is digital money designed to allow users to send online payments quickly anywhere around the world without having to go through a bank and without oversight by any government.

The anonymous creator of Bitcoin, the original and most popular cryptocurrency, said in what came to be called the Bitcoin white paper that he wanted to create a peer-to-peer electronic cash system, meaning that you could instantly send money to someone else (think PayPal, but without the company doing the transacting for you). The idea was that eliminating banks and brokers from the equation could reduce fees and allow senders and receivers to keep the exchange private.

In addition to avoiding banks, many fans of cryptocurrency see it as a new way to fight corrupt and oppressive governments, as it aims to remove governments from financial transactions completely by operating completely anonymously. It’s certainly shown its use. For example, Venezuelans have turned to crypto as they face hyperinflation and an economic crisis.

Ideally it requires nothing more than an Internet connection to start trading cryptocurrency, making it different from opening an account at a traditional bank (think about how much information you need to provide to get a credit card).

But many critics — including the Chinese government, which went so far as to ban cryptocurrency — say crypto assets can also be used for illegal activities like money laundering and gambling. The U.S. government, for example, has taken steps to ensure that those who are buying cryptocurrency actually pay the taxes they owe when they earn profits. Regulation could take away some of the convenience crypto promises.

On top of this, cryptocurrency prices are extremely volatile. For the majority of Bitcoin’s first five years of its existence, it was worth less than $1,000 per coin. But in 2017, it surged to $20,000. before falling back down to less than $5,000 in 2018 and skyrocketing to more than $60,000 per coin in 2021.

Plus, it’s hard to buy a lot of the things you actually want to buy with crypto. While the number of companies that accept Bitcoin as payment is growing, with major names like AT&T and Microsoft on the list, you’ll still find it much easier to whip out a credit card for most of your everyday purchases.

Still, crypto has taken the financial world by storm and its underlying technology, called blockchain, has been adapted for new innovations, like buying digital art.

Pros and cons of cryptocurrency

Crypto advocates can’t get enough of these digital currencies. But investing in cryptocurrency is certainly not for everyone. It’s important to know the pros and cons of cryptocurrency before you decide if it’s a good investment for your portfolio.

Pros:

  • In theory, you can buy and sell cryptocurrencies without a bank, broker or government, allowing you to bypass the fees and have more privacy.
  • Bitcoin’s price has skyrocketed and some investors think it will become a fixture in the investing landscape, like gold.
  • The government isn’t involved in the creation of new bitcoins like it is with what the crypto world calls fiat currency, so it can’t print too much and cause hyperinflation, advocates say.

Cons:

  • Cryptocurrency is a speculative investment and has extreme price volatility, which always comes with higher risk.
  • If you’re looking to get rich off of cryptocurrency, it’s much harder than it looks to pick the right coin.
    Because of the lack of regulation by a central authority, crypto’s future is very uncertain. China has recently banned cryptocurrency, and it’s possible that the U.S. could do the same.
  • Crypto is stored in a wallet, and if you lose access to that wallet (like forgetting your password) you lose all your digital coins.
  • Profits you make trading cryptocurrency are taxed just like other capital gains.
  • Most of your everyday purchases probably can’t be paid for with cryptocurrency.

What is blockchain?

Blockchain is the underlying technology used to create cryptocurrencies. While traditional money is created by governments and managed by banks, cryptocurrency aims to do without these authorities. Instead of relying on a particular bank’s accounting system to keep track of who owns what, cryptocurrencies store this information on what is called a “distributed ledger” stored simultaneously on thousands of computers all around the world, known as nodes.

This ledger, which records all of a particular cryptocurrency’s account balances and transactions, is known as the blockchain. While the ledger is public, making it difficult for anyone to cheat the system by surreptitiously creating new coins, the accounts are anonymous offering the secrecy crypto investors crave.

When new transactions occur, nodes monitoring the system rush to verify and record them, storing the information on a new ledger entry known as a “block.” Each block is given a unique identifier known as “hash.” New blocks are added at regular intervals (every 10 minutes in the case of Bitcoin) to the past chain of blocks, hence the system’s “blockchain.”

The transactions are secured with digital cryptography, which ideally makes data inaccessible to anyone but the intended recipient. Each person gets a public and private key: The public key is like an address that you can share with others to receive cryptocurrency while the private key is for your eyes only, and used to prove you are the one who should receive a transaction.

Bitcoin transactions are irreversible, since they’re based on an agreement between two parties called a “smart contract” that executes a transaction when certain conditions are met, and can’t be walked back.

Proof-of-work

When it comes to Bitcoin and many other popular cryptocurrencies, the computers tied to the network (known as nodes) verify vet and record transactions by solving complicated cryptological math problems. Verifying transactions helps crack down on double-spending, which is when a digital currency is spent twice.

To incentivise as many powerful computers to join the network as possible — and make transactions more secure — the system rewards them for their efforts with newly minted coins. This process of verifying and recording transactions in exchange for newly created coins is known as “mining.”

With prices of Bitcoin and other cryptocurrencies so high, mining for popular cryptos is mostly handled by specialized computers run by professional outfits. One downside: Proof-of-work takes a lot of computational power and a mind-boggling amount of electricity. The Bitcoin network’s electricity consumption is about the same as Washington state’s yearly usage, according to The New York Times. That has led to criticism that Bitcoin isn’t eco-friendly. As a result, some newer cryptocurrencies use a different method to verify and record transactions on the blockchain. This is known as proof-of-stake.

Proof-of-stake

Proof-of-stake, like proof-of-work, is a way to add new transactions to a blockchain to create tokens. This system requires those who are hoping to create new digital tokens to deposit other coins — called stake — into the network.

In exchange for staking their coins, these computers get a chance to validate a new transaction, which can be added to the blockchain and earn rewards. But if these computers, known as validators, sign off on a fraudulent transaction, they lose part of their stake.

While Bitcoin runs on proof-of-work, some newer popular cryptos, like Cardano, run on proof-of-stake. Ethereum is transitioning from proof-of-work to proof-of-stake.

How to buy cryptocurrency

In the early days of Bitcoin, cryptocurrency transactions were negotiated in internet forums and required some technical knowledge about how the medium of exchange works. But then crypto exchanges came on the scene, making it easy to buy and sell cryptocurrency much the way investors trade stocks and bonds.

Coinbase is a popular option, and one of the biggest cryptocurrency exchanges in the U.S. The platform offers Coinbase geared towards beginners and Coinbase Pro, the premium service for more avid and experienced traders.

While exchanges offer convenience, they take away some of the original benefits of crypto, like the privacy and the security of peer-to-peer actions. They also may put you at risk of getting hacked. (There are “decentralized exchanges,” like Uniswap, but these aren’t as mainstream as an exchange like Coinbase).

As cryptocurrency has gained popularity, more and more companies are offering ways to buy and sell digital currencies. You can now buy coins via Venmo and Cash App. Some trading apps like Robinhood also offer crypto.

There are also Bitcoin ATMs popping up in grocery stores and retailers across the country, including in Walmart. To buy Bitcoin from one of these kiosks, users insert cash into the machine and receive a physical voucher for Bitcoin that can be redeemed online.

How to trade cryptocurrency

In many ways, trading cryptocurrencies is like trading stocks — especially if you’re doing so via a trading app.

On Coinbase, for example, the process is straightforward: You can simply hit the “sell” icon on the app, pick the crypto you want to sell and how much of it you want to sell. Then hit “sell now,” and you can get the best available current market price.

However, it’s important to note that exchanges usually charge trading fees, and also you’ll likely have to pay a spread when you buy and sell cryptocurrencies (like you do when buying and selling stocks).

One big difference between trading stocks and trading cryptocurrency is the volatility. Cryptocurrency’s prices often skyrocket or plummet within just a few days. For example, Bitcoin lost 50% of its value between April and July of 2021, before surging to an all-time high of above $68,000 in November.

Many financial advisors recommend that if you are going to invest in cryptocurrency to make it a small portion of your portfolio — no more than 5% — and treat it as a long-term investment.

Where to store cryptocurrency

Cryptocurrency wallets hold the private information you need to make transactions. “Hot wallet” is the name for a digital wallet that allows you to transfer money via a crypto exchange. Meanwhile a “cold” wallet is hardware that is not connected to the internet (and therefore, very secure).

To pick a crypto wallet that is right for you, check out Money’s guide to the best crypto wallets. The guide includes the best wallets for those who want to trade just Bitcoin, for those who want to trade on their phones, for those who want to trade on their desktops and more.

How many cryptocurrencies are there?

While you may have only heard of Bitcoin, Dogecoin and a few of the other most popular cryptocurrencies, there are more than 14,000 cryptos in existence, according to CoinMarketCap. And there are more being created every day.

Plus, the pool of cryptos to choose from just keeps growing thanks to new types of cryptocurrencies, like altcoins (digital coins that aren’t Bitcoin) and stablecoins (digitals coins with values tied to an outside asset like gold or the dollar).

Experts say to stick with the more well-known, established cryptos, especially if you’re a beginner, rather than pick a random altcoin someone just created yesterday.

Bitcoin

Bitcoin was the first cryptocurrency and was created by Satoshi Nakamoto — an alias for the unknown creator — in 2009. Since then, the cryptocurrency’s price has skyrocketed as high as $68,000 per coin.

The cryptocurrency’s more-than-$1 trillion market value makes up nearly half of the overall crypto market.

Ethereum

Ethereum is a software platform built on blockchain technology. Ether was launched in 2015 as the digital currency of the Ethereum network.

Ethereum is now the second largest cryptocurrency by market capitalization after Bitcoin. But crypto’s advocates say that Ethereum can be used for much more than Bitcoin, like non-fungible tokens (NFT) space. NFTs run on the Ethereum blockchain.

Dogecoin

Dogecoin started as a joke in 2013 when two software engineers created the “altcoin” — the name for any cryptocurrency that isn’t Bitcoin — after seeing other altcoin creators claiming their coins would one day be worth millions.

“The original intent was a parody of all the ‘serious’ clone coins that were trying so hard to differentiate themselves, but all seemed the same,” one of the Dogecoin creators told Business Insider. “Dogecoin was just another clone coin, but instead of taking itself seriously, it was just Dogecoin.”

But the crypto amassed a huge following over the years and, while its market value was around $624 million at the beginning of 2021, it surged as high as $95 billion in May and now sits around $34 billion.

Binance Coin

Binance Coin is a token issued by Binance exchange, one of the world’s largest cryptocurrency exchanges by trading volume.

Users on the exchange can pay for transactions and cover trading fees at a lower rate with Binance Coin than they would with other tokens. It’s what is referred to as a “utility token.”

Cardano

Created by one of Ethereum’s co-creators the Cardano network and the associated crypto — called ADA — launched in 2017.

Cardano uses proof-of-stake technology instead of proof-of-work technology. The crypto has similarities to both Bitcoin and Ethereum but attempts to address issues of flexibility, security and scalability. This is why Cardano is often referred to as being part of “third generation blockchains.”

Litecoin

Litecoin is an altcoin that was developed by a former Google engineer based on Bitcoin’s open-source code but with several changes, like speeding the time it takes to mine new coins. (Blocks are generated every 2.5 minutes on Litecoin’s network versus 10 minutes on Bitcoin’s network, according to Gemini).

Due to the similarities, it’s been called the “silver” to Bitcoin’s “gold,” and at its height was the third largest cryptocurrency in the market.

How to mine cryptocurrency

Cryptocurrency mining involves the process of solving complicated mathematical problems in the hopes of successfully recording and verifying transactions and adding them to the blockchain.

Mining can look different for different cryptocurrencies. But for Bitcoin, successful miners receive a “block reward,” or a fixed number of new bitcoins (BTC). One block equals 6.25 BTC, but the rewards are halved after every 210,000 blocks, or about every 4 years, as part of Bitcoin’s design to ensure that a maximum of only 21 million bitcoins are created.

Being able to mint a coin worth thousands of dollars is tempting, but crypto mining isn’t as easy as it may sound. Despite having access to tools like a new direct-to-consumer mining service, individual miners are up against large firms that are able to mine with thousands of specialized machines at once. That leaves at-home miners with high hardware and electricity costs and less of an opportunity to actually mine any Bitcoin.

“At-home mining is not economical,” Hanna Halaburda, an associate professor at NYU Stern School of Business previously told Money.

Is cryptocurrency safe?

The crypto ecosystem isn’t regulated like traditional currency and its speculative nature means it comes with huge price swings. Bitcoin hit a high of $20,000 in 2017 before crashing to below $5,000 the next year. In 2021, it soared to more than $68,000 per coin at its peak, but a 10% drop in a day is not uncommon. It’s certainly a riskier investment than stocks and bonds, and should only be a small amount of your portfolio — less than 5% — if any, financial advisors say.

Because crypto is new, governments are just figuring out how to regulate it. For example, the U.S. Securities and Exchange Commission (SEC) sued Ripple Labs for allegedly raising $1.3 billion via XRP, Ripple’s cryptocurrency, which the government says is an unregistered security.

But the overall lack of oversight makes crypto’s future very uncertain. A government crackdown could hurt crypto’s value, and there’s always the possibility of it being outright banned.

The platform in which you trade your cryptocurrency also matters, especially since the technology is so new. Customers lost hundreds of millions of dollars when Mt. Gox — once the largest Bitcoin trading exchange in the world — crashed in 2014. Quadriga, another exchange, turned out to be a Ponzi scheme. Before you hand over your money to a crypto exchange, be sure that it’s legitimate and has safeguards in place, like reporting to the SEC.

To ensure extra security, you can store your crypto in an offline wallet (but make sure you don’t lose your password).

What is cryptocurrency FAQ

How to mine cryptocurrency

New cryptocurrencies are created through a process called mining. In many cases, like with Bitcoin mining, creating new coins entails running through algorithms to solve complicated mathematical problems. Miners who are successful receive a “block reward.” But mining is tough to do: While there are products that let you mine from home, all miners are competing against one another, including with larger firms who have an upper hand (and a lot more money to fund the mining process).

How to invest in cryptocurrency

There are many ways to buy cryptocurrency nowadays. You can buy bitcoins and other cryptos with Venmo or Cash App, as well as via stock trading platforms like Robinhood. You can also go right to a cryptocurrency exchange, like Coinbase.

How to create a cryptocurrency

Mining for cryptocurrency may be hard but creating a brand new cryptocurrency is even more complicated. It involves coding a new blockchain, altering the code of an existing blockchain or using an existing platform — like Ethereum — to create a new digital token. After that, you’ll have to determine how nodes (the electronic devices like computers that connect to the blockchain) will function, design the crypto’s interface and more.

Which cryptocurrency to buy

While you’ve likely heard of cryptos like Bitcoin, Ethereum and Dogecoin, there are thousands of cryptos in circulation and more popping up all the time. Experts tend to recommend sticking to the well-known digital coins and tokens that have proven themselves over the years, especially if you’re new to the space. If you want to research lesser known cryptos, you can start on sites like CoinMarketCap and CoinDesk, which provide performance details and research on altcoins.

How to make money with cryptocurrency

Cryptocurrencies’ prices are very volatile, so while there’s a lot of room to make money, there’s also a lot of room to lose money. Financial advisors recommend that if you want to invest in riskier asset classes like cryptocurrencies to allocate more than 5% of your overall portfolio, and to treat it as a long-term investment instead of trying to time the market.

Can cryptocurrency be converted to cash?

Yes, cryptocurrency can be converted to cash and USD. If you buy cryptocurrency via a trading app, crypto exchange or platform like Venmo, you can sell the crypto on the platform and transfer the money you make to your bank account. But don’t forget to pay Uncle Sam; if you make a profit on Bitcoin, you will have to pay taxes on it. You can also use a cryptocurrency debit card to make purchases or withdraw cash from an ATM, or use a Bitcoin ATM, which are offered in many major cities.

More from Money:

Coinbase for Beginners: A Complete Guide to Buying and Selling Cryptocurrency on a Popular Exchange

What Is Bitcoin and How Does It Work?

It Just Got Easier to Mine Bitcoin at Home

Author: Author

Precious Metals

Gold Springs Discovers New Gold System – Shares Jump 20%

Gold Springs [GRC-TSX; GRCAF-OTCQB] reported assay results from hole J-21-015 with an average…

Gold Springs Resource Corp. [GRC-TSX; GRCAF-OTCQB] reported assay results from hole J-21-015 with an average of 1.0 g/t gold equivalent over more than 163 metres located 180 metres south of the discovery hole J-21-006 at the 100%-owned Gold Springs property located on the border of Nevada and Utah.

The results confirm the existence of a new gold-mineralizing system called intrusive-related gold system (IRGS) on a new target that the company has named Tremor. This new gold system is situated along the northern extension of the Jumbo trend of the large Gold Springs project of 8,000 hectares.

J-21-015 highlights include 1.0 g/t gold equivalent over 163.1 metres: 1.42 g/t gold equivalent over 33.5 metres within the vein, which includes 3.26 g/t gold equivalent over 10.7 metres within the vein; and 0.94 g/t gold equivalent over 123.5 metres within the intrusive and contact zone.

Randall Moore, executive vice-president of exploration, stated: “We have been anxiously awaiting these results, which now confirm what we believe to be a major new discovery. The existence of an IRGS at Gold Springs opens a potentially large area to develop a new gold resource. Hole J-21-015 extended both the high-grade vein system and the gold mineralization associated with the intrusive first seen in hole J-21-006. We would also like to highlight that both holes ended in gold mineralization. We are now awaiting assays from another 15 holes at Tremor that are currently in the laboratory for testing. Drilling has extended this northern vein for over 200 metres and the Tremor intrusive zone for 600 metres along strike as seen in the drill cuttings. The thickest intercept within the intrusive thus far has been 280 metres.”

The company is waiting to receive assays from 24 holes on two targets; 15 from Tremor and nine from White Point, in the coming weeks.

Gold Springs Resource is confident of the presence of an intrusive-related gold system within the Tremor target situated along the north extension of the Jumbo trend in Utah where a strong CSAMT (controlled source audio magnetotelluric) high resistivity anomaly extends for 1,200 metres.

The company completed 18 holes at Tremor designed to test the extent of the intrusive-hosted gold system. These holes demonstrate the intrusive extends for 600 metres and is open to the north, south and at depth. In addition, the vein system in hole J-21-006 has been traced for 200 metres. For details on hole J-21-006, which returned 6.87 g/t gold equivalent over 24.4 metres, included grades of 30.9 g/t gold equivalent over 4.6 metres.

The drill has moved to Charlie Ross where eight additional holes are planned to follow up that new discovery.

Author: Staff Writer

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Precious Metals

Sprott Physical Gold and Silver Trust (CEF): A Brand-New Prospect for Investors

Sprott Physical Gold and Silver Trust (CEF) is currently valued at $17.10. When the trading was stopped…

For the readers interested in the stock health of Sprott Physical Gold and Silver Trust (CEF). It is currently valued at $17.10. When the trading was stopped its value was $17.21.Recently in News on April 13, 2021, Sprott Physical Gold and Silver Trust Updates Its “At-The-Market” Equity Program. Sprott Asset Management LP (“Sprott Asset Management”), a subsidiary of Sprott Inc., on behalf of the Sprott Physical Gold and Silver Trust (NYSE: CEF) (TSX: CEF) (TSX: CEF.U) (the “Trust”), a closed-ended mutual fund trust created to invest and hold substantially all of its assets in physical gold and silver bullion, today announced that it has updated its at-the-market equity program to issue up to US$1 billion of units of the Trust (“Units”) in the United States and Canada. You can read further details here

Sprott Physical Gold and Silver Trust had a pretty Dodgy run when it comes to the market performance. The 1-year high price for the company’s stock is recorded $20.38 on 06/01/21, with the lowest value was $16.75 for the same time period, recorded on 09/29/21.

Sprott Physical Gold and Silver Trust (CEF) full year performance was -5.37%

Price records that include history of low and high prices in the period of 52 weeks can tell a lot about the stock’s existing status and the future performance. Presently, Sprott Physical Gold and Silver Trust shares are logging -16.09% during the 52-week period from high price, and 2.09% higher than the lowest price point for the same timeframe. The stock’s price range for the 52-week period managed to maintain the performance between $16.75 and $20.38.

The company’s shares, operating in the sector of Financial managed to top a trading volume set approximately around 2939308 for the day, which was evidently higher, when compared to the average daily volumes of the shares.

When it comes to the year-to-date metrics, the Sprott Physical Gold and Silver Trust (CEF) recorded performance in the market was -11.63%, having the revenues showcasing -4.09% on a quarterly basis in comparison with the same period year before.

Specialists analysis on Sprott Physical Gold and Silver Trust (CEF)

According to the data provided on Barchart.com, the moving average of the company in the 100-day period was set at 17.91, with a change in the price was noted -1.84. In a similar fashion, Sprott Physical Gold and Silver Trust posted a movement of -9.71% for the period of last 100 days, recording 489,960 in trading volumes.

>> 7 Top Picks for the Post-Pandemic Economy << 

Trends and Technical analysis: Sprott Physical Gold and Silver Trust (CEF)

Raw Stochastic average of Sprott Physical Gold and Silver Trust in the period of last 50 days is set at 16.43%. The result represents improvement in oppose to Raw Stochastic average for the period of the last 20 days, recording 6.72%. In the last 20 days, the company’s Stochastic %K was 2.89% and its Stochastic %D was recorded 4.11%.

Now, considering the stocks previous presentation, multiple moving trends are noted. Year-to-date Price performance of the company’s stock appears to be encouraging, given the fact the metric is recording -11.63%. Additionally, trading for the stock in the period of the last six months notably deteriorated by -14.50%, alongside a downfall of -5.37% for the period of the last 12 months. The shares -3.66% in the 7-day charts and went up by -4.26% in the period of the last 30 days. Common stock shares were lifted by -4.09% during last recorded quarter.

Author: Sarah Baker

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Precious Metals

It’s The Taper, Stupid!

It’s The Taper, Stupid!

Submitted by QTR’s Fringe Finance

It is astounding to me how much market commentary I have seen over the last 48…

It’s The Taper, Stupid!

Submitted by QTR’s Fringe Finance

It is astounding to me how much market commentary I have seen over the last 48 hours placing blame for the market “volatility” (read: 2% off all time highs) on the Omicron variant.

The extent of our recent “volatility”.

While there are definitely still some uncertainties about the new variant, early indications make it look as though it is not going to be meaningfully deadlier than other variants and that, one way or the other, we will be able to deal with Omicron and see our way through it – just as we did with the Delta variant. That is, unless the government implements more of what one trader calls a “criminal” response to Covid and issues more lockdowns and mandates.

While Omicron uncertainty has likely contributed slightly to market volatility, I don’t think it is the driving force behind it. Rather, I believe that current volatility is a result of Jerome Powell’s surprising, and so far unrelenting, hawkish stance that a taper and rate hikes look to be necessary.

In fact, several Fed governors have commented over the last 48 hours about potentially accelerating both rate hikes and tapering. This language, as I noted days ago, is an admission that the Fed has lost control of inflation.

In fact, it looks as though inflation has gotten so bad that the Fed is going to have to try and attempt to “stick the landing” of presenting hurried tapering and rate hike plans to the market. Of course, the Fed won’t really be able to stick the landing on either because politicians on the left and castrated on-air finance personalities will cry foul as soon as the market has a 10% pullback as a result of higher rates (just as they did on the Covid crash).

But for now, the company line is that we are going ahead with rate hikes and looking to accelerate the taper. This – not the Omicron variant – is what is moving markets.

I said just days ago that Powell doesn’t even need to say anything for the market to continue to stay volatile at this point because his standing position on the matter is very hawkish. Yet, instead of saying nothing, he went as far as to reaffirm his hawkish stance on Wednesday of this week. From my piece earlier this week:

If the Fed does look to accelerate the taper and toss around the idea of rate hikes in order to try and rope inflation in, as indicated, I think we can expect further downside in equity markets in December, as I predicted about a week ago. In fact, Powell doesn’t even have to re-acknowledge what he said yesterday, he simply has to say nothing until the Fed’s next official nod to the markets.

As I said during my interview yesterday with Jack Boroudjian, tapers cause markets to crash: it is that simple. Just take a look at what happened in December 2018. This time is not going to be different. If the Fed goes ahead and decides to taper, you can expect risk assets to get smacked.

Small caps and technology have gotten the “worst of it” during this volatility and I continue to believe that that will be the trend.

The Russell 2000 and NASDAQ are just so chock-full of overvalued, cash burning companies that the world would actually be better without – malinvestment that should’ve been corrected years ago – that I believe those indexes will move disproportionately lower.

I also continue to be profoundly negative on ARKK, an actively managed fund whose flagship component and largest weighting is up 90.6% in the last twelve months, yet has still somehow managed to plunge -11.9% over the same time period.

That takes some very special “active management”.

Source: Ycharts

In fact, just yesterday after hours, another Cathie Wood holding, Docusign, took a 25% haircut.

Wood contends that the growth from her companies will eventually make up for this volatility in the very long term, but I think her portfolio of egregiously overvalued names represents the first head on the chopping block if market volatility continues. And, as I noted days ago, if Tesla ever starts to sell off, ARKK holders should look out below.

As I’ve said before, I also think there will be somewhat of a rotation trade back into cash generating blue chip names, consumer staples and the few companies that still pay a dividend and have modest price to earnings ratios – one of which I profiled as my favorite just weeks ago.

Some of my other favorite names that I am looking to buy if they continue to sell off are well-known blue chip staples that have seen their stocks trade sideways or disproportionately lower over the last couple of months, despite growth-style P/E’s for some. I’d argue names like Disney (DIS) and Walmart (WMT) offer GARP (“growth at a reasonable price”) should they keep selling off. I also love Johnson & Johnson (JNJ)(my largest holding in my all-dividend portfolio which I add to almost daily) and Intel (INTC), which I believe will undergo a renaissance and eventually retake its throne as king of chips – if it isn’t bought out first at these levels.

Gold has continued to selloff on the expectation that a taper is actually coming.

Source: Ycharts

The selloff could easily continue for the short- to mid-term, at least until we get to the point that gold needs to be bought as a volatility hedge due to a taper, or the point where the Fed finally caves and stops its plans for tapering or raising rates. It will be interesting to see how inflation may drive the Fed’s decision making going forward.

Heading into the weekend and into the back end of this month, traders would do well to focus their energies more on Fed commentary than on developments with the Omicron variant, barring any massive change with what we know regarding the new strain. Obviously, if Omicron turns out to be a flesh eating variant of the virus that kills people instantly, that is going to have a profound effect on equity markets (Neel Kashkari heard shouting it the background: “Not if I can help it!”).

But for the time being, thank God that doesn’t seem to be the case. Heading into 2022, I still think the markets could be in for a collapse, as I wrote here, as it appears that this is the only man that can move markets in this day and age:

Readers of this free preview of paid content can subscribe to my blog and get 20% off normal pricing using this link: Get 20% off forever

DISCLAIMER: 

I own JNJ, WMT, DIS and INTC. I own ARKK, IWM, SPY puts. I own puts and calls in GLD and own a host of gold-related and precious metals related names. None of this is a solicitation to buy or sell securities. Positions can always change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot. 

Tyler Durden
Fri, 12/03/2021 – 10:25






Author: Tyler Durden

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