🍔Short Term Pullback in Long Term Bull

Plus: Stablecoins are the Next Frontier

Welcome back! Our portfolio has been performing well since we bought SPX and QQQ during the recent market collapse. But the bull run is getting extended and we are now turning cautious. In this post, we discuss why a short-term pullback is in the making, and whether our long-term bull thesis remains intact.

With geopolitical war a distinct possibility and oil prices rising, the risk to the stock market is elevated. Are you prepared for the next pullback? Upgrade your subscription to start timing the market!

Stablecoins

Stablecoins can facilitate payments and the movement of money, creating an alternative for traditional payment/banking systems. Just on Weds, Coinbase (the largest crypto trading exchange) announced it will start using USDC stablecoin as collateral for futures contracts and for payments to online retailers. We are in the midst of melding traditional and alternative finance. COIN stock jumped over 16% on the announcement.

Stablecoins are a type of cryptocurrency that have a fixed value (typically $1 USD). At the moment they’re mostly used for trading in and out of other crypto without having to convert to dollars. The Senate just passed a new act that legitimizes stablecoins by establishing a regulatory framework around them — e.g. what assets they can be backed by, monthly disclosures, and licensing requirements.

Earlier in the week we got news that Amazon and Walmart are considering launching their own stablecoins for payment, bypassing Visa and Mastercard fees. Pretty soon, banks will be under pressure too as fintechs start accepting deposits into stablecoins, perhaps with better yields. Historically, the adoption of Bitcoin as payment infamously failed because the asset was too volatile. But strip away the volatility and you simply have new rails upon which finance can be conducted more efficiently.

The stock prices of Mastercard and Visa have fallen almost -10% on the news. Traditionally they have had a comfy duopoly in payments, and collect fat profit margins for the whole world to use their system. This won’t change overnight, but the emergence of viable alternatives is an existential threat for these companies.

As if that weren’t enough, central banks will soon want to get in on the action. Given the interconnectedness of the internet and the world today, there will probably only be a small handful of major stablecoins used for global trade (for example, one backed by USD, perhaps another backed by Chinese Yuan). Whichever country controls the coin will also have the trade dominance and debt privilege that it confers. This means governments have a huge incentive to expedite development and nab the first mover advantage.

This is a secular trend you do not want to bet against. We’ll be watching as more adoption takes place, supported by a crypto-friendly administration.

Mr. Too Late…

The rest of this article is for premium members. Today’s post covers:

• Fed’s rate decision and the pendulum of hawkishness

• War’s impact on stock market

• Market pullback will continue

• Long-term investment thesis

• AI boom 2.0