The US Freezes While Markets Overheat

Cold doesn’t even begin to describe the weather in much of the US and Canada this past week. Texas saw temperatures that rivaled that of Fairbanks – for the unaware, that’s highly unusual.

Millions were without power in the Lonestar State, and those that managed to keep the lights on are finding power bills that are over $9000. Good news for wood-burning stove manufacturers, terrible news for millions of citizens.

But who’s to blame for this cascading grid failure in a state famed for its energy exports? Data analytics firm Cascend Strategy suggests an inconvenient answer – pretty much every segment of the Texan power grid.

Wind turbines failed first, freezing solid overnight. Nat gas took up the bulk of this deficit but soon fell prey to the deep freeze.

Hell, even a nuclear power plant shut down due to lack of winterization.

Cascend’s recommendation? Winterize equipment, add power reserves for energy companies, and optimize the existing grid. Easier said than done, but it’s a great place to start.

The exploding domestic demand for energy still wasn’t enough to stop the US from experiencing its first-ever petroleum surplus on record.

Big win for US energy! However, the country also experienced its worst trade deficit since 2008 – the total trade deficit is down by 17.7%.

Given the macroeconomic environment, this dichotomy shouldn’t shock you too much. The real US economy is still reeling from lockdowns while Wall Street hits new all-time highs. It’s a topsy-turvy investment landscape.

Everywhere we look, the real economy is struggling while traditional markets way up. So much so that the famous Buffet Indicator is flashing all kinds of red lights – all-time high valuations just surpassed the Dot Com bubble.

Stocks are now 84% higher than the long-term trendline, demonstrating steep historic overvaluation.

Given the recent retail mania, which saw GameStop’s stock price rise by over 1600% in a week, things are starting to look very toppy.

Today’s wrap-up is more data-heavy than usual. Still, it’s difficult not to include hard numbers when markets keep shattering records. Unprofitable companies undertook over 80% of IPOs in 2020.

Private companies with valuations over $1 billion, also known as unicorns, were relatively rare a decade ago. Ten years later, the number of unicorn companies is up by over 530%.

The hot new approach is to increase private valuation as quickly as possible before going public, and profitability be damned. We’re starting to think some of these unicorns are just well-dressed donkeys.

The good news is that we’re not alone. “Smart money,” capital under the control of financial professionals, has declined to its lowest level since 2016 – the professionals are quietly exiting the casino just as retail mania kicks off.

Perhaps unsurprisingly, it’s an example of yet another indicator that is experiencing historical levels of divergence.

With the professionals headed for the door, one must ask, “Where are they going?” The answer is increasingly the following:

People are fleeing into safe-haven assets that hedge against market downturns and inflation.

Inflation expectations are continually rising as bond yields follow suit.

The Fed’s biggest struggle, to raise inflation to its target figure, is quickly morphing into its biggest headache. Smart money is well aware of this and is in the process of hedging accordingly.

Suitably, the newly announced Canadian Bitcoin ETF has seen record-shattering inflows of over $421 million in its first two days in existence.

It’s unlikely that this pace will continue unabated, but it would become the largest ETC in Canada in a mere 20 days if that were the case.

This tidal wave of demand demonstrates just how hungry investors are for exposure to synthetic commodities and inflation hedges.

Bitcoin continues to shatter its previous all-time highs and now boasts a $1 trillion market cap.

The Quatro Commas Club isn’t an easy feat. Still, Bitcoin’s achievement isn’t all that surprising – Bitcoin has a mere 2% of gold’s total market cap.

If that figure rises to 15%, one Bitcoin would be worth around $230,000. And they ain’t making any more of it.

Now, more than ever, the smart money crowd is preparing for an intense market downturn and rising inflation. How’s your portfolio looking?

If you’re in the industry, how’s your company look to the whirlwind of new eyeballs gazing upon the crypto industry?

HeavyZen is here to help you with scale and scope – from community management to branding to media outreach, our diverse team is hyped to lend a hand. Reach out via social media or email, and let’s talk digital turkey.

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