Market Commentary

Is There Gold In The Hills? | Market Analysis for the Busy Investor

September 20, 2022

CEO and Co-Founder Ivan Zhang tackles the top market observations to inform your week better. 

Follow us on Twitter and Instagram to stay up to date in real-time. 

Summary: 

The market downturn continues, but there seems to be gold in the hills that could fundamentally change our perception of a long-term scarcity value asset, cryptocurrencies continue to show volatility, and banks are getting creative with their new bond products. 

Observation 1

The Fed hiked interest rates by 75 bps, clearly in response to a higher-than-expected CPI print from May (even though the Fed was pretty firm just a month ago, a rate hike this large was off the table). This reversal shows that they have very little visibility above and beyond the official data. Given how volatile the data will be for the next few months, we don’t need to spend as much time reading the Fed’s tea leaves since, at best, they’ll just try to catch up with the latest economic data. 

TL;DR: The Fed hiked rates higher than expected, indicating a reactive stance toward rate increases.

Observation 2

A considerable gold reserve was discovered in Uganda, which would be huge if confirmed. We should take this with a pinch of salt, but this should be a good test of gold’s scarcity value if even a fraction of what is claimed can be extracted. This one reserve should be double the world's current gold supply, which previously took thousands of years to accumulate. 

TL;DR: Massive gold reserves found in Uganda could alter our understanding of gold’s scarcity value. 

Observation 3

There was a significant collapse in the value of the top two cryptocurrencies, Bitcoin and Ether. Over the weekend, BTC hit a bottom of around $20,000, and ETH hit just over $1,000. According to Arthur Hayes, it was due to a market sell on Friday from an ETF tracking a number of cryptocurrencies which caused a cascade of selling with low volume. 

TL;DR: BTC and ETH dropped in value as investors moved away from crypto-based ETFs.

Observation 4

Credit Suisse bond yields nearly hit 10%. Deemed to be the riskiest debt banks can issue, the bank didn’t have to redeem them but did it anyway and offered up an arm and a leg to appear bondholder friendly. These bonds were designed to delay principal payment if you were experiencing a period of stress. Credit Suisse was already paying high rates on those bonds so they could use them. Had they decided not to repay their debt, estimates were that the bonds would have been repriced at a higher yield (but still 120 bps lower than what they got for the new bonds). 

TL;DR: Credit Suisse issued a new bond with a record-setting yield, the bond is one of the costliest debt on their capital stack which should be a red flag for investors and Credit Suisse customers.

Ready for a more stable investing experience that still allows you to earn substantial returns? PennyWorks is the top choice for traditional investors, fund managers, and businesses who want to earn more with less risk. Learn more