blood in the streets.

There’s blood in the streets.

Ugly jobs numbers last week. War drums beating in the Middle East. The YEN/USD exchange rate is collapsing. The Japanese NIKKEI is down worse today than any day since Black Monday in 1987 (and last Friday wasn’t much better). Taiwan markets down worse than any day since 1967.

Warren Buffett just sold billions of his Apple stock; he’s holding the largest cash pile in Berkshire history (he has more cash than Ethereum’s entire market cap - let that sink in).

Nvidia delaying new chip designs for design flaws. AI hype is now AI anti-hype.

Jump, a large hedge fund with a particularly active crypto division, is said to be liquidating their entire crypto book. Hundreds of millions dumped over the past few days.

Bitcoin is dumping into the low $50,000s. Ethereum is giving back all the ETF gains of the past months. Memecoins down 40%+ across the board.

Even gold is down over 1%.

There’s nowhere safe. There’s nowhere to hide.

So let’s go shopping.

You profits come from when you buy

I was up last night with a sick baby. We both woke up and cried every 30 minutes. She was stuffy and sick. I was opening Twitter and watching prices crash.

Days like today hurt. They test you.

The weak let the fear cloud their judgement. They sell at the worst possible time.

The strong crush the fear and embrace the pain. They buy today, creating the profits of tomorrow.

Market’s are emotional. They overreact. They panic. Do you think Warren Buffett is panicking today? Do you think Larry Fink is afraid right now?

Do not panic. Not today.

Today is an opportunity. A gift.

If you liked a stock two weeks ago at $100, and nothing fundamental to that stock has change today, shouldn’t you LOVE it at $70?

Today is a clearance sale. Christmas in August.

Why is the market crashing?

Last week, the market caught recession fears after disappointing jobs data. At the same time, Japan raised interest rates — the market did not like this.

The Yen strengthened against the dollar, unwinding what’s called a carry trade. Rates in Japan are lower than in the US. So macro investors borrow yen in Japan to buy dollars (or dollar denominated assets like US stocks). The trade profits because the cost to borrow is lower than the interest rate on dollars. Borrow at 1%, invest at 5%, and profit 4%.

As the Yen weakened and the interest rate spread shrank, the carry trade started to unwind. This triggered a cascade of selling in Japanese markets that quickly spread around the world.

This is a temporary phenomena. It’s an unwind in the financial market. In and of itself, it doesn’t change the intrinsic value of companies in the S&P 500, the NASDAQ, or the protocols bringing real world assets on chain. People still love to buy iPhones and doomscroll Instagram.

Is the US in a recession? Maybe. Maybe not. Could this financial shock impact global demand? Definitely.

The macro picture right now is mixed. There may be some deceleration, but deceleration does not mean negative growth. It just means slower growth.

Was the NASDAQ a little too far over it’s ski’s at the valuations we saw recently? Maybe. The AI hype was certainly a lot of hype. Nvidia’s revenue growth is insane, but maybe not that insane. A pull back can be healthy. It’s ok to normalize prices from time to time. That’s a healthy market.

But when prices across every asset class move together in near perfect correlation, then you know that either 1) the world is ending or 2) the market is overreacting. I don’t think the world is ending (And if you think it is, why are you investing? Go live it up!).

Therefore, the market is overreacting.

What happens next?

If the US does fall into a recession (we might — impossible to say for sure), then the Fed will respond. The odds for rate cuts have skyrocketed over the weekend.

The market is pricing in a 50 basis point cut in September at 83.5% probability. The market sees further cuts in November and into Q1 of next year.

Rate cuts would likely be accompanied by accommodative fiscal policy and further reductions in quantitative tightening (if not a return of QE). These policies would be bullish for risk assets like crypto, especially with recent inflation data as cool as its been.

The Yen/USD drama was a violent price move. The exchange rate has already returned to the levels from the start of the year. The silver lining of this unwind happening so fast is that it can end fast too.

Central bankers in Japan (and the US) will respond to protect global trade from these financial market machinations. And in the meantime, the free market will find the appropriate balance. This too shall pass.

There’s also heightened tensions in the Middle East. A regional or larger conflict between Iran and Israel will move markets. It could get ugly again.

Oil supply will be impacted. War (particularly along the trade routes in the region) is inflationary. The US will print more dollars to fund weapons and sanctions.

It is better for everyone — in terms of life and returns — if this conflict can be avoided. But it’s a real and present risk. But it too will find a balance in the market. This is true of all war, but most recently we can look at the markets at the start of the Russian invasion of Ukraine.

I’m buying the dip

Today’s crash is temporary.

It is driven by a short term market event, exacerbated by temporary recession fears. There remains risk. Prices could continue down for a number of days or weeks. There’s a chance this could turn into an extended bear market.

And I’m buying the dip.

With the market in free fall, you shouldn’t buy too soon. You don’t want to try to catch a falling knife. Move deliberately.

There’s no way to time the market perfectly, but you can give yourself an advantage by watching the VIX. Here’s the link.

The VIX is a volatility index. When it spikes (like it has over the past few days and especially today), that means that the market is going nuts. When the spike reverses, that’s your sign that things are calming down.

Don’t try to catch the falling knife. Take your time. Move deliberately. Don’t make your move in one clip — spread it out over the next few days or weeks.

What to buy?

On the crypto side, Bitcoin in the $50,000s and Solana around $130 seem like obvious choices. These are foundational crypto assets. No time like a panic to strengthen your foundation.

If you want to up the risk, $WIF has been such a strong performer in meme coin world that it’s hard to allocate anywhere else. The volatility here is particularly strong — you need a strong stomach for the swings.

For those of you that only trade on Coinbase or Binance and can’t access WIF on a decentralized exchange, $BONK is another meme coin in the Solana ecosystem that makes a ton of sense to me today. BONK was the go-to Solana coin before the dog put on the hat.

I wouldn’t limit yourself to just shopping for crypto today either. There are bargains everywhere. Apple is down big. I personally love Meta’s AI strategy. Microsoft’s earnings were very interesting to me (Github Co-Pilot is crushing it — MSFT more than any other tech giant is effectively monetizing AI).

I still not touching the most bubbly of the AI stocks, even after recent price declines. For example, Nvidia still feels too expensive to me, and Tesla lacks the fundamentals in it’s existing business (although I’m very hopeful that Tesla will succeed in its robotics, AI, self driving, and energy moon shots — I just prefer to allocate my high risk capital to crypto).

Low on cash? No problem.

If you don’t have cash in reserves to buy the dip, that’s ok too.

The most important thing today is to not panic. Don’t sell just because prices are down. If you can’t buy, then do nothing.

Ask yourself: do the events that led to today’s sell off reflect a fundamental change in the investment thesis? If no, then sit tight and HODL.

Selling when the fundamentals and/or your thesis has changed is no different than taking profit. It’s just a rebalancing of your portfolio. Use your losses to offset capital gains and lower your tax bill. Use this moment to get your house in order.

Gold has held up pretty well in this chaos. Perhaps this week is a good week to rebalance that position opportunistically. Sell a touch of your gold, reup on the SPY, QQQ, or IBIT. I’m doing this in my personal account — increasing my position in the SPY over the next few weeks (using the VIX as my guide — I’ll buy in a few different chunks in case the carnage continues).

If you don’t have any cash in reserve, learn your lesson. Every portfolio should have an allocation of dry powder.

The market crashes sometimes. It happens. When prices are ripping, you want to be fully invested. But fully invested doesn’t mean zero cash. You should always keep some cash on the side, even if it’s only a few percentage points of your investments.

When prices are on sale, you’ve got to be ready to buy. Your biggest gains don’t happen when you sell, they happen when you buy.

Here’s exactly what to do

1. Don’t panic. The world is not ending. We’re going to make money today.

2. Watch the VIX. When it normalizes, go shopping.

3. Evaluate your portfolio. Rebalancing today can make sense.

4. Buy crypto (Bitcoin and Solana are my targets).

5. Buy the stocks you love. They’re cheaper today than yesterday.

6. Save some cash. The market may go down farther before it reverses.

Market Vibes