Alpha Money Flow May 2021 Video Call

Alex Moschina: Hello everybody. And welcome to the May call for Alpha Money Flow. I'm Alex Moschina. I'm the Associate Publisher at Manward. And as always, I'm here with Andy Snyder, our founder. Hey, Andy.

Andy Snyder: Hello, good to see you today.

Alex: Good to see you. So we're here to talk about, probably not much. There's not a lot going on in the crypto world right now or in stocks, but we're going to get into both. Obviously, I'm kidding. It's been a pretty crazy couple of weeks for crypto as the media will tell you, there is a bloodbath in the crypto-sphere and everything's horrible.

So before we get into that, I just want to preface this call by stating that, as we record, Bitcoin is actually still up 350% from one year ago. The total crypto market is up 600% from one year ago. And so far this year, Ether is up 275%. So while they are certainly down comparatively for where we are in the year, crypto is still way up. And the overall picture, I think we're going to paint, is that that is not going to stop, but I'll actually let you lead us through that, Andy. Where would you want to start? I mean, should we start with the volatility? What do you think?

Andy: I think that's a good spot. So some context for the crypto market would be ideal at this point. So, every crypto is different, but looking at, if I had to put them all together in the same chart, we're back to where we were, I don't know, early April, late March. So we've given up a bunch, but we gained a bunch. From a healthy market perspective, I'd much rather see us where we are today than where we were. There's nobody that was kidding themselves, that it wasn't too fast and too far, that we could keep accelerating at that pace.

What I'm looking at is, of course, money flow, the amount of cash flowing in and out of crypto. One of the big numbers I'm looking at right now is the leverage. The average crypto buyer doesn't go to Coinbase and isn't using much leverage, but I had some stats. I'll have to dig and see if I can find them for this call. Basically, two-thirds of all buying right now is institutional. Two-thirds of all crypto buying is institutional. I think a lot of viewers will probably find that a surprise. They think it's the young kids sitting at home on their Coinbase account, but it's the institutional folks and a third of the buyers are retail.

So two thirds of those folks are most likely using leverage and I've seen leverage up to 100 to one in the market. So when we see that and we see just a little bit of price pullback, it brings in margin calls and we see it on the stock market where we can get a five or a 10% correction in a matter of a week or two when we see those big margin calls. With crypto market, which is much smaller, much more concentrated, we can see it magnified much quicker.

So what we're really seeing here is not necessarily the end of the bull market. I don't even have to say not necessarily, it's not the end of the bull market. It's some de-leveraging. It's some folks that the headline risk is always big. We can talk about Elon Musk and China and what Janet Yellen has said, and we will. But really what I'm seeing is a much more natural state of market. I got a chart here. I can show you.

Alex: Yeah. Go ahead and pull it up.

Andy: Yeah. I'm looking at another screen. Let me pull that up and just show you the volatility that we're seeing. All right. Can you see that Alex?

Alex: I can, yeah, it's popped up.

Andy: Okay. So this is just basically the VIX, the volatility index for crypto. You can see the big spikes here and what this is doing is looking at the pretty nascent, it's pretty fresh, pretty new futures and options market for crypto. This is just going in there, looking at that pricing activity. And then it shows what the implied volatility is that we're seeing. Again, it's very similar to what we use in the VIX for the S&P 500. And we can see, of course, the volatility is spike.

We saw big spikes back, and I think this was the February. We had not as sizable downturn, but we had a pretty good downturn then it came right back down. I got this chart on, let's say Wednesday, I think Monday afternoon. So this would be down even further now. But what this is showing is, the 100% here, normal volatility for context, the VIX hangs out around 16, 20%. When it's low, it gets down to 13% here.

Here we're at 100% up to 175%. So that's just showing what the implied volatility, what the market is thinking is going to happen to crypto over the next year. Some pretty big moves there. So nothing crazy out of the ordinary, wish this chart would go back further, just don't have the data to do that.

Alex: Sure. Well, and volatility it's worth noting is what crypto is famous for even for folks who are diehard crypto enthusiasts. I think everybody who invests in crypto and whether they're a holder or they're someone who is trading in and out of cryptos, it just comes with the territory. You have to, basically, put on your safety gear, it's going to be bumpy, but, man, those gains when they come are other worldly.

Andy: And that's the point. We're not talking about going all in. We're talking about taking measured risks. Never risk more than you can afford to lose, but we're going for those outsized days. Let me show you this correlations chart. I've showed versions of this before but you should be able to see it now. It's red. Really think of the red, I think it's backwards but the red here is positive correlations. Hopefully you can see it pretty well. You can see most things are highly correlated and that's no surprise. When Bitcoin makes a move, the king of crypto, everything else tends to fall. And there's some, we can call them outliers with some lower correlations in there.

What is key, and the reason I picked this chart, even though it's not formatted the best is it has the S&P 500, it has the VIX, it has gold and Treasuries tied into it. And so this is the 365 days. So what I want to do over the next month or so is watch this chart and try to find some shorter term correlations. Of course, the shorter we go, if you know statistics, the shorter we go with correlations, the less accurate we are so we want that one year to really show us things. Things in crypto change quickly.

But what we're seeing here is good. It's showing that the S&P 500 really isn't correlated with many cryptos. Just a slight correlation, that risk on, risk off movement. And that's what we've seen down here with the VIX, as volatility rises and fall, we see crypto doing the invert, which is healthy.

Last week, when we had the big turnaround in crypto, we saw it dragging down the stock market. That's something to keep an eye on, and I think we're going to see more and more of that. And ultimately, it's a healthy sign for crypto. It means it's becoming a bigger part of the economy. It's not this thing out here on the peripheral or out on the edge. And we have many more stocks now that has crypto in the treasury, or they're directly mining crypto, or they're allowing users to transact in crypto.

So more stocks, traditional stocks are being tied into the crypto space. That correlation is going to go up. That's going to be really interesting to watch. Then, of course, Treasuries, you know me, interest rates and then what's happening in the bond market are kind of, not kind of, are the core of my investing philosophy. So looking at this bottom line here is really important to just watch those correlations. And overall they're pretty mixed. We see them go positive negative across the board there.

Alex: It's interesting that you mentioned companies that are invested in Bitcoin. Yesterday, actually, I think it's going on right now. We've been attending all week a virtual conference put on by CoinDesk and the closing out the show yesterday was Michael Saylor, who is the CEO of MicroStrategy, which they're pretty famous. They now have billions invested in Bitcoin.

Yesterday, he basically reaffirmed that philosophy for a lot of the reasons that you're talking about. Where else can a corporation get yield? Where else is anybody going to get any kind of positive momentum on their investment or on their cash reserves right now, other than crypto?

And their investment or on their cash reserves right now, other than crypto.

Andy: Yeah, and I mean, that's a great way to sum up our entire philosophy with crypto. Real rates - if you read Manward Digest - we're constantly looking at real rates and they dipped almost to record lows in the last month or their backup from that because really the 10-year Treasury is pretty static, but now we're getting rising inflationary pressure. For a refresher, real rates are, what we're measuring are the 10-year Treasury minus the rate of inflation. Right now that's negative. It's about 0.8%. It was almost 1% of a week or so ago.

That's vital to that idea that ... Because if you go out and buy an ultra safe asset, you're losing money when it goes against inflation. Even if you put a small amount of money in crypto and you have that at risk, that the higher reward, we're seeing that much higher reward to risk equation or ratio in that space right now. That's exactly what Mr. Saylor was talking about and what so many folks are aiming for. Speaking of that, I've got another slide here I'll show, this was ... Alex, I'm not sure if you were in on this one or not, but it was ... Take a look at one of the big headlines in the last couple of weeks, crypto in China. I stole, I think it probably is stealing. There's probably a copyright on it, but we'll share it with our readers. We'll take that risk.

Alex: We are recording this, so let's see what happens.

Andy: Yeah. It's a screenshot, so we're all right, but it's a good screenshot that's more sharing. Let me share this with everybody again. This is from Bobby Lee. Can you see it?

Alex: Yep.

Andy: Yeah, and so you can see up here, he was talking about the state of crypto in China, but he wrapped up his comments really, really good session. Check him out - Bobby Lee at Ballet - but he talks about the top four mistakes with crypto. That's in decisiveness to make an investment. We see that all over the place with our subscribers, readers. Our subscribers are much better at it than the general public. Not buying enough, that one I could debate, and I'd love to have that debate with folks, but it makes sense. A lot of folks are just tiptoeing into it or they ... I heard some folks talking about the idea how much crypto should you buy? They're saying, "Well, look at where you think it's going to go in 10 years. If the amount that you're buying today will get you to the number that you want in 10 years." If it's not there, then you're not buying enough, but you have to look at the inverse of that too. Is if all that goes away, can you afford to lose that? It's that inverse and how much money do you want in 10 years? I want all of it.

Alex: That's interesting. Like the Babe Ruth strategy, just point that's what I want to do.

Andy: Yeah, it's a unique mentality. I won't say it's a good mentality, but it's a very Bitcoin, very crypto mentality. There's some caveats out there and you've got to watch who you're getting advice from on the crypto side, because there's definitely some folks with blinders on in the market. Really it's these last two that I think tie in so much to the long-term success and what I'm hearing from readers. Selling after just a small gain. Recently we took gains and it was like 40 or 50% overnight. In a traditional stock market, well, that's fantastic. That's crazy. It's really hard to touch, but a lot of readers were dissatisfied like saying, "We want 4000% over the next few years, we're going for 10000% gains. We're going for that, that really big money."

Part of that is crypto fees. We're going to start seeing those go down. I think this is kind of the difference between the stock market and the crypto market, is we're seeing a lot more folks just buying it and holding it. If you bought in, even if you bought at the top of the market in 2017, you're way up today, and you rode out some really tough times, and that's just with Bitcoin. If you're looking at some of the alt points, the sky's the limit. It depends really what you're after. If you're happy with the 40% gain overnight, which you should be, take those off the table. I've talked about it before, take some off the table, let the rest ride. I'd be fairly conservative with it right now.

You can probably afford to get a little more aggressive, but don't get greedy with it. If this is money that you can afford to sit on the sidelines for five years, great, but if it's not, then just take some of those profits and almost use it as a yield generator so much that the smart money absolutely is. Then selling during a panic crash, number four here from Bobby. That's pretty obvious. Don't add into it. We have to get in that mindset where we're selling it to the top and in buying at the bottom because that's where so much money is made. It's what we did last week with Internet Computer. We had a sell off last week, got into it, but I think it's a really hot coin at a pretty good time. That's just some pretty good mindset to keep in mind.

Alex: Yeah. I think, I mean with crypto especially, obviously you always want to buy the dip, and people can guess what the dip is going to be. This really seems within crypto, this is the dip right now. It's a great time to load up on crypto at a good price, but yeah, panic selling, which is what we're seeing so many people do, I mean, it's basically an amateur move. If you're investing the money that you need to pay your car payment or pay your mortgage, you're not doing it right. This is money and these are investments that you should be making with the goal of riding out the volatility, because there's going to be volatility. I think we've done a pretty good job. You can let us know, but I think we've done a pretty good job of letting people know that this is not your retirement money.

This is your investing. This is your trading money. That's where this is going into these cryptos. So far, if you look at what the track record is right now in the portfolio, we still have several positions that are up by double and triple digits. That's after all of this panic selling that the rest of the market has done in response to China, in response to Elon Musk and all these other things, which I know you wanted to get into too. I don't know if you want to talk about, I know you want to touch on the green aspect of crypto. What would you like to get into first?

Andy: Well, I mean, let's hit the real obvious ones first, because the green side is really interesting so I want to spend a little more time, but China made headlines last week. I could say a lot of words about that. There was nothing really new there. It was just kind of some tweeting from agencies related to agencies on that. I think that's going to go away. We are starting to see some miners move out of China, which is probably a good thing. It ties into the green side of things and China-

Alex: I think you covered that really well in an alert that you issued last week, kind of during the craziness. If anybody missed that, I just want to say, check it out. It's a really good primer on here's what happened.

Andy: Yeah, and it's not a surprise. China has very tight money controls. They can't afford to have some freewheeling hipsters out there making up a different kind of money. I don't think it ties into the central bank, digital currency thing. Everybody's trying to correlate the fed coin with Bitcoin. They're two different things. I think the fed and the treasury should just come out and say, "Listen, this is not what that is," but that ties into the other headline of last week where I think Yellen kicked it off, talking about taxing crypto. It makes sense. I mean, it's the government, they're going to get their hand in everything. My predictions by the end of this year, we're going to have another acronym agency, three letter agency out there regulating crypto in some form. That's not a bad thing.

It will eliminate a lot of the risk and the confusion over crypto. It was Yellen, I'm pretty sure it was her, forgive me if it wasn't, was talking about reporting laws. If you sell $10,000 worth of crypto, you're required to report that just like if I deposit $10,000 into a bank, which we've written a lot about on that. That gets reported and follows you around. It's not surprising to see that happen. There's some ways around that. Of course, the mouse goes here, the cat's going to follow. That's just the way the government works. I don't think, and that's probably the biggest thing is the government ...

And that's probably the biggest thing is the government can't shut this down. There's tons of money into it, and not that that would stop them, but it's just the definition of crypto is, and that's what's really stopping the discussion, and that's where Washington is confused, and they're right to try to figure it out, because Bitcoin, you can argue, is going after the dollar, a replacement or an alternative currency. But IOTA, so many of the coins that we've invested in, internet computer, ICP, that's not going after the ballot, that's going after the internet, that's going after Microsoft, Amazon, Google, Facebook.

And so, how would the IRS want to go after that and say that's another form of currency. The SEC may go after it and say it's a a pseudo stock or something like that, but that's where the discussions are going to be made. And that's what adds to the risk to it, but where there's risks, there's rewards. So that's on that, probably more than I wanted to, or intended for you on that.

But the green thing. So this is what really kind of got the sellers itching to hit the sell button in the last couple of weeks. Elon Musk went out and said, "No, hold on. I'm an electric vehicle company," Which is kind of interesting, "I can't be having something out there that uses all this electric. My cars are fine to use the electric, but Bitcoin mining, that's dirty. Those miners are fueling things with dirty coal, but my cars are powered by, I don't know, unicorn breath or something."

What's interesting is that, and I wrote about this in Manward Digest a couple of weeks ago, Tesla is not a car maker. I mean, they make cars, but where do they make their money? Carbon credits. So they make money offsetting various things. So maybe Elon Musk is playing his own book here, saying, "Listen, this is where I make my money." And it's something Manward Letter's subscribers know all about, UPCO2 is the crypto that plays carbon credits. And maybe that's where we're Musk is focusing. Let's not forget. He makes a billion dollars a year in sales, selling solar panels. Elon Musk is not stupid. He knows what he's doing. He's backpedaling, playing up this whole green thing, but then he's going to swoop in and do something.

So to let him control the market, and say everything is dirty, or some other things are clean. I mean, it has sparked some really good conversations. He met with some of the biggest miners this week, and they're talking about different ways of adding tags to crypto, to say, "This one's clean, this one's dirty. This was mined using coal, and kid power on a treadmill or something. And this one was mined with unicorns." Where that goes, I don't know, but the free market is absolutely playing with it. And that's a good thing. And there's alternatives. We have Cardano in our portfolio. That's a great alternative to this. So I think we're playing it fine. I'm not worried. I think it's very, very interesting. Very, very ...

Alex: Hypocritical.

Andy: Maybe hypocritical, but I think Elon Musk knows exactly what he's doing, and is having some fun with it, and good for him. It's fun to watch. It gives us some entertainment. It gives us, if we're thinking further, the big thing with all of this is the headlines. The China thing last week was just one Reuters headline came out, and every crypto site, every small writer, whatever, even the big guys were just mimicking that news. And it really wasn't news, but boy, did it spread fast, and then it became the psyche of the market and it moved the market.

So if we can get ahead of that and understand what was really happening, which is what I find so enjoyable, I know, Alex, you love diving into that. I think that's the value of what we do. And that's really fun. Plus we get to have some fun with Elon Musk, which I think he's having fun with all of us.

Alex: Yeah. Well, and it's worth pointing out too, and this is, I guess, the good and bad thing about crypto, because you don't get volatility, and you don't get the kind of gains you get with crypto in this early stage of investing without the added risk. So the fact that you can have a character like Elon Musk, who has already gotten in trouble with the SEC on more than one occasion for moving his own stock, and has actually been demoted from his board, and has to have his tweets about Tesla approved now, as a result of that SEC action. If we looked at crypto, or if the SEC looked at crypto the same way that they look at stocks, what he is doing is patently, I don't know if illegal, but it is certainly against some rules.

So this is just one of those growing pains that comes with investing in crypto now. So it's why people who are willing to put up with this added volatility are going to be rewarded, versus the people who maybe are investing in a couple of years from now, when the volatility dies down a little bit, but also, so do sort of the returns.

Andy: Yeah. Yeah. And if the government wants to ban anything, maybe they should look at Twitter. Seems like that's the root of all these problems, insurrection, stock market manipulation, whatever, let's go right to that, and then not ban everything else.

Alex: You mean I have to start talking to people in person? I don't know.

Andy: Imagine that, right? Let's go back to, I don't know, 2004. Good times.

Alex: Who was even alive back then? It's all right. Go ahead.

Andy: Let's move past crypto, because we're not entirely a crypto service here. We're I think mainly a stock service first. We have the new pick out today on the stock side of things. And the stock market, I'm not going to say it's boring, but it's doing what it does, doing what it has been doing. It's just chugging and chugging higher quietly and slowly, though we've had some bigger down days, some worries. We're not at highs right now, but we're not far off highs. Let me show you where we're at there.

All right. And you should see that. So here's a chart I showed a million times on these. So you can see down here the Liberty indicator taken, we're in the green. We kind of have that alligator formation, where you can see his head and his little snout there. I mean, chances are, and you can see we've had this several times, we might go into the red. I'm not concerned with it. I think we're going to start to bounce up.

Looking at Treasuries, they're back down to 1.5%, just above that lately. So that's kind of back into the risk on mode, but here, using the Keltner bands, you can see that we're back above the mid channel line, as we call it. And that's good. We've got a healthy bounce off the bottom here, went right back up on it. Volume's doing pretty well. So I think we're going to see buying pressure go back up. Now it'll take us right back up to a new high. On the NASDAQ side of things, the tech side, a little wavier. We are in the red there on the Liberty indicator, probably close to the bottom on that. And you can see this. So you see right here, you can see my cursor, right, Alex?

Alex: Yes, I can. Sorry. I couldn't find mine on mute. Yep.

Andy: Caught you in mid-drink, I think, too. But you can see this point here.

Alex: It's coffee, just so everybody knows.

Andy: It's a 20-day look back period. We wouldn't mind if it wasn't, but that just means it's lagging a bit. So we can see this bottom here, it's moving up, and then 20 days later, we should start to see the Liberty indicator start to move back up. Great buying indication, kind of confirms what we're seeing in the charts. Also, the fact that we're above this midline trend is very bullish. So like I said in my alert today, it's kind of back onto that risk on mode. Some good opportunities there. So tech has been beaten down pretty good. I mean, not crazy. We're back to where we were in early February, if you want to go back that far, but we're also back to where we were in April.

So no worries there. The market's just trying to figure things out. I do think some of the inflationary pressure is coming off, looking at lumber prices, looking at home sales, looking at some of the data, we're starting to see that slide. Some of that short-term stuff that we saw coming right out of the lockdowns appears to be easing. So now's when we get into the worrisome stuff. If it sticks around, the job shortages are really big. If we start to see wages tick up, that's going to be something interesting, but that's ...

That's going to be something interesting, but that's, minimum, three to six months out. Until then, I think we're going to start to see the good times come back into the stocks. Again, Treasuries are, I have a chart for that, yeah, Treasuries are coming back down, so we have some opportunity there.

So this is a chart of, this is, I mentioned earlier, real yields, real interest rates. This is that chart. So we go back all the way to 2004 when we actually talked to each other. And we can see, 2012 we dipped. Then we got back down to negative 1% here last year, and then we went back up. I believe this is February or March of this year, when things were really climbing, interest rates were really climbing. They've come back down. The nominal yield on the 10-year has come back down, but they've also been pushed down by rising inflation. The inflation rate right now is right about 2.4%, the official rate, which is what's calculated here. And as that goes higher, with the Fed being pretty stubborn with their rates, this should go lower.

And the reason that's key, as to what we talked about earlier, is money goes where money is treated best. It's going to flow into whatever brings the most yield for the unit of risk. We look at the Sharpe Ratio or something like that. So again, that's buyback stocks, it's tech stocks, it's crypto, everything that we've been playing so well, I think it's game on, or game back on, for a lot of those. So that's, if I had to say, as we wrap up, say if I'm bullish or bearish, I'm more bullish now than I was two months ago. And that's saying something. And especially with the crypto market, there are some good opportunities.

We can wrap it up, Alex, but I was thinking today, a reader wrote in recently and was asking about the idea of diversification, and it's something I've been right about for Manward Digest, our free letter that comes out in the mornings tomorrow, the idea of diversification. Guys like Warren Buffett, Charlie Munger, even Mark Cuban, they're talking about the idea of diversifications for idiots. And so basically, what they're saying is the traditional diversification model is, I think Charlie Munger says, it's demented, the ultimate form of dementia or something like that. It's a pretty good quote.

But they're saying, understand two or three things, and invest in those. So Charlie Munger and Warren Buffet, Warren Buffett has one stock, Berkshire Hathaway. Of course, there's a bunch in there, but he's got one stock. If Berkshire Hathaway goes down, he's in trouble. But he knows it better than anybody else. So kind of the macro advice here is find out that one thing that you're really passionate about as an investor, and then focus on that, whether it could be gold, it could be crypto, it could be buyback stocks, but really focus on that. If you want to break away from the pack, and the problem with diversification is it's the definition of mediocrity. If you spread your risk over a whole bunch of things, you're going to get exactly what everybody else gets, and you can't break away from the pack doing that. There's no college libraries based on some guy that bought an index fund. There's no yachts with the name, the ticker symbol of some index fund or something.

Alex: Right. No one's ever, like, "Wow, he was such a great... He was so even-keeled."

Andy: Yeah, exactly. That might be the rowboat in the marina, but that's not hundred foot yacht. And so my point is, just find something that you're passionate about and really focus on it. We've done a good job of cryptos. You know, Alex, I went to Wall Street recently, talked about SPACs, super excited about that. Readers or viewers, you've probably seen that in your inbox. We had that interview online, talking about SPACs and the opportunity. If we can send an email later today with that, I think it would be a good idea just to follow up, or probably tomorrow morning at this point.

Alex: Sure. Yeah, I agree. I think we should definitely blast that out for anyone who's interested. It's a really cool interview.

Andy: It just shows that when you're passionate about something. It talks about some of the investors that are really passionate about SPACs right now. The space is incredibly interesting. Pre-IPOs, get in at $10. They don't work out in that 24-month period, you can get your money back. And so it's really cool. We'll send out that link.

But the main thing is, figure out what you're passionate about. Crypto stocks, buybacks, SPACs, whatever, and become an expert.

Alex: Yeah.

Andy: So hopefully we gave you our input on all that. I'm bullish. I think there's some good opportunity, but that's it. You want to wrap it up, Alex?

Alex: Yeah, no, I think that we covered some good ground today. I do just want to say about that video real quick, that it does talk about our other service that's available that's focusing on SPACs. And whether you think you're interested in that or not, I do encourage you to watch it, because it's very educational, right? I think people have a lot of questions about SPACs, how they work, what they are, and how companies are actually managing to go public through them. So I would recommend watching this, even just if you're curious and want some clarification on terms and how these things work. It's a very informative video, and also just, it's really nice to see someone else interviewing Andy other than me for a change, somebody who's, what's the word, competent.

So, but yeah, I think that that does wrap it up. As always, if you have any questions for us, or if there's anything we didn't touch on in this video that you want to get information about in a future alert, or questions you want answered, you can always send that to mailbag@manwardpress.com.

We read those as they come in. If you want to just send us a nice comment, we'll take that, too, but happy to get questions. We'll either address them, like I said, in a future alert, or in another one of these videos. And we'll look to do one of these live down the line, maybe next month, because those have been a lot of fun, too.

But with that said, I hope you enjoy the rest of your day. Thank you for spending part of it with us. I hope you found it informative and we will see you next month.

Andy: See ya.