Tuesday Update Premium Video transcript

Hey everyone, and thanks for jumping back into the cryptoverse. This is your Tuesday update premium video. Hopefully enjoy the content. Uh the S&P is still holding strong at at just below 7700. Um what's interesting is that there's just a few names, right? Mainly the AI names, I suppose, and perhaps some of the energy ones that are holding the market. Uh that's not always a bearish sign. Sometimes the the lower caps will then catch back up.

But like if you look at say like the Russell for instance, um if you look at the Russell, what you'll see is that the Russell is is dropping quite a lot, right? Like it's down about 9% or so, which would seemingly have made a lot of sense if the S&P would have dropped as well. Um kind of following the small caps, but sometimes, you know, and and I've gone through the history. I mean, sometimes the the small caps catch back up and then other times the large caps get the memo that the small caps already got.

Uh 2018 is a great example of that. And also even I think like uh some of these others, like if you overlay the S&P onto the Russell, you'll kind of see what I'm talking about. Um so the the purple line is the S&P 500. So, here's a good example where the Russell was down about, you know, 12% or so and kind of holding there and the S&P was still printing new highs and then the correction finally occurred uh for the for the overall index and then the Russell went lower.

There's also 2018 uh as an example where the Russell, you know, if you sort of mark where the S&P topped. This is on these are weekly, but we know that the S&P um didn't really top until really late September or really early October, but you'll notice that the the Russell was already down um you know about 7% or so before the stock market really topped. Now, I know you're probably looking at this think, well, it already topped.

If you look at it on the daily, you'll see that the stock market was essentially at all-time highs or near them on October 3rd. So sometimes, you know, the Russell gets the memo before the stock market. Um, and here's another example, right? I mean, the pandemic Russell dropped uh not a lot, right? But it dropped um and was was essentially, you know, and put in a lower high while the S&P put in a higher high. So, you know, it's hard to know exactly the time frame on on which everything resolves, but one of the ways that this often plays out is that metals like gold and silver go down as the long end is going up.

So, if you were to look at gold and overlay the uh the 10-year yield, often times gold goes down in midterm years while the while while the long end is going up. You can see that occurred uh in 2022, right? Gold was dropping into October while the long end was going up. And 2018, you can see the same thing, right? Gold was dropping into into sort of like late Q3, early Q4 while the long end was going up. And in both of these cases, it gold sort of sniffed out its low before the 10-year yield topped.

Um, so I I I think that's relevant here. And so I don't know exactly when the 10-year is going to top, but I would look at a divergence. Like I would look for gold to show strength and and for the 10-year to still go up. And if that happens, then it's likely a sign that gold is bottoming out and likely going to start to go back up. Remember in 2018, gold was going up while you had a correction in the stock market, right?

So if you have if and this was in Q4, if you overlay the S&P, gold was going up during the the drop by the S&P. And then the same thing in 2022, right? Like gold well 2022 was a little bit different. Gold bottomed I think before stocks. Um like it bottomed in August, I want to say when when did it bottom here in 2022? So So it was late September. So, gold bottomed a little bit before stocks did, but then you can see that gold went up right after the long end um the long end topped.

And so I I guess and and actually it's even true if you look look at Bitcoin even like this year um which is kind of interesting because you know if you if you look at the 10-year yield and look at at some of these prior lows by Bitcoin they actually tend to occur when the 10-year yield is dropping, not going up. And so a lot of times, you know, what you'll see happen, and then I'll show you kind of how where where where I went wrong in terms of the Bitcoin stuff, but a lot of times what happens is yields go up, right?

So yields go up and risk assets can go up with it. But then when yields top and start going back down, that's the growth scare. So then you can actually see risk assets initially, they might go up as yields start to come back down, right? Like initially as yields drop, maybe risk assets think that that's a good thing. But then if it's truly a growth scare that's caused by the higher rates, then that can cause them to go down together.

And that's actually what you saw happen in um in earlier this year, right? So as as yields went up, Bitcoin went up. And it was when yields were dropping, that's where Bitcoin, you know, got somewhat spooked. And if you look at it from like a seasonality perspective and you go look at the 10-year yield and we look at it like how it's performing because I know it might feel different but if you look at 2026 compared to 2018 the 10-year yield is basically at the same level like 27% above its yearly open by the end of September.

And then it was like one final move up by yields. That's around the same time that gold bottomed. uh gold actually bottomed a little bit before yield stop topped and then that was when Bitcoin started to show weakness. Where I went wrong with Bitcoin was just the sheer strength of the move. Right? I've often said I didn't think we would have the final drop until Q4. So, it's not like I was expecting Bitcoin to be trading, you know, much lower before Q4 arrived, but I just didn't think it was going to go up this much.

And now because it has it, it obviously makes me not nearly as deterministic and confident in in those prior views because if you believe that price action is king, which perhaps you should, uh then it it really draws that into question. And so I I think the argument here is that as long as Bitcoin is above 83K, it's the bears that have something to prove. And the the Q4 bare case only only seems applicable if Bitcoin loses 83K.

You know, if we lose that, then I I think you you kind of lean into that Q4 weakness, but it would need to be accompanied by a drop in the stock market. And while small caps have dropped, the stock market is largely shrugging it off. Okay. Now, in 2022 or sorry, in 2018, the stock market was also shrugging it off even though the Russell was dropping and was even putting in nearly a new high by October 3rd. And then you had a larger drop in the stock market going into late December.

So, you know, it's hard to know exactly if you're going to have this correction or not. Obviously, just because it happened in 2014, 2018, and 2022 does not mean it has to happen in 2026. There are times like in 2010 where there wasn't really a stock market correction at the end of the midterm year. So, we have to be cognizant of that fact that just because you have three data points that say this is what it does, that doesn't mean that it has to, right?

And and when you look at at the presidential return path, um this is something that I I've talked about a little bit, right? Looking at the stock market in Trump's first term and compared to his second and noting that this is around the time that you would expect it to stall out and to start dropping if it's going to follow, you know, that analog. It sort of followed the analog during the first correction of the year.

Um so then the question is is does it follow the second analog? Um, and so you can see with Obama there was um, so this would have been back in 2014 there was a um, a correction, but it was only like a 10% drop. It wasn't really that large of a drop, but I mean 10% is is it's not I mean it's something. It just wasn't as bad as what it did when when Trump was in office. Now, what's interesting is that during Trump's first term and Obama's second term, the returns at the end ended up being about the same.

Although Trump outperformed Obama's second term, you looked at Obama's first term, you can see that Obama outperformed Trump's first term. So, what's interesting is that in all these cases, they all ended up about the same spot. Now, if you look at Biden and Trump's second term, currently Trump is outperforming Trump's second term is outperforming Biden's term and by a decent amount in fact, but that's not really I mean, if you look at at returns during various presidential sort like if they have the House and the Senate and the White House, typically a Republican sweep is has historically been good for the markets.

It's when you have Republicans as it's when you have like a Republican president and then a Democratic Congress that then starts to show you uh worse returns. And I think we have this somewhere on here. Um I wonder if it's Congress control change return distributions. Um this is not what I'm looking for. I can't even remember where it is. probably somewhere in here like draw down by political regime. You could take a look at that one.

Think maybe this is it. Annual returns by political regime. So you can see that Republican sweeps and Democratic sweeps tend to be good. Uh Democratic president with split Congress. Republican Congress tend to be good. Uh Republican pro president with a split Congress. Yeah, still pretty good. It's when you have a Republican president and a Democratic Congress, that's when you have when you tend to have lower annualized returns.

So, just something to keep in mind if it were to play out uh that way. So, the dollar, you know, as I've talked about, like the dollar is is moving higher. I I think that makes sense. You're likely looking at more rate hikes. There there was a comment, I believe, by one of the Fed governors today uh that made people now believe that you're not as likely to have a rate hike. And in fact, the probabilities have shifted to now it's basically a coin flip as to whether you're actually going to have a rate hike at the October meeting.

I would say in 2018 they hiked in September and December. If they do not hike in October, I I think that would be detrimental to the long end. The long end would likely go up a lot because the Fed funds rate is arguably not nearly where it needs to be to bring inflation back down. Um and so if they were to not raise rates in October, you know, I I that would probably cause the long end to just simply go even higher. And I don't know exactly where gold's going to bottom. you know, there's times where it puts in a higher low, there's times where it puts in a lower low.

Um, but, you know, with the extent of the move in yields and if they were not to raise rates in October, then, you know, you you would have to question whether it could put in a a lower low or not, or if the market thinks you're not going to raise rates, um, because I imagine the long end would go up in that case. The dollar should still remain constructive here because I do think they will be forced to continue to raise rates.

So I I think the dollar will go up either way. Um but you know, we'll see. Uh so far it's been playing out, but you know, the macro views I think have have played out. And now the qu the main thing I I think the main thing that has caused me to really question things is not the S&P. I mean, the S&P did the same thing in 2018 where it didn't really start dropping until October. It's more so Bitcoin that is has really made me question things because this is a move that is much more explosive, right?

I mean, it goes back to the idea of if you just DCA in the second half of midterm years, then you can sleep a little bit better because then you're not constantly worrying about trying to time things. If you're trying to time things, then it can be very, very stressful. And I imagine some of you feel that way if you chose not to to DCA. But this move has been is what really has made me seconduess a lot of things. I I recognize that Bitcoin's drops in prior midterm years don't tend to occur until after the long end tops, but in 2018 when the long end was going up, Bitcoin wasn't rallying with it.

It was just kind of staying flat. Whereas this time, Bitcoin has been rallying with the long end of the yield curve. So I I suppose I should have given that more weight than I did. But again, as I said, I mean, as long as Bitcoin holds 83 here, I don't really I mean, the bears have a tough case to make. If if this gives back 83, if you give it back, then the bears have a case for Q4. But I I don't know if it's going to fall or not.

Um, and how could I know when I didn't think it would take it out in the first place? So, you know, yields going up. Seems like there's going to be some type of growth shock at some point. It's just a matter of does it occur in Q4 or do we kick it out into, you know, into 2027? In 2018, it occurred in Q4, right? Um, in 2022, it occurred in Q4. But I I can't promise you one way or another like exactly what month that is going to occur.

I just historically when you have a a large move up in yields like you're getting it, it's when yields drop afterwards. If if stocks are going up with it, it's after they after the yield curve tops. That's where stocks start to leave us. This is a different regime than we were in a couple years ago because before 2025, the long and going up was bearish for stocks and then it was bullish when it would go down. If you guys remember, Bitcoin had a major breakout in October of 2023.

But this what it's doing today is the opposite, right? Like it's going up while the long end is going up rather than rather than down. So I think that's because you can see right here like between July of 2023 and October the long end was going up but during that time Bitcoin stalled out kind of like it did in 2018 right like Bitcoin just stalled out and then when the long end came down then Bitcoin went up but this time it's different right it's you have the long end going up and then Bitcoin's going up with it and the drops that Bitcoin had this year occurred after the long end topped now I don't really think the long end has topped yet.

I I think the long end will likely go a little bit higher. Um, you know, I I mean, momentum still seems to be in favor of the long end. The short end is is going to struggle here with the rate hikes not as as certain for October, but I do think the long end is going to slowly continue higher. Um, and therefore, as long as that does, it's going to put pressure on things like gold. But remember gold if history is indication could very well bottom before the long end tops and the same when when the long end comes back down that should be bullish for gold and whether it's bullish for risk assets or not depends on why it's coming down.

Is it become is it coming down because of a growth scare or is it becom is it coming back down perhaps because you know this conflict in the Middle East just gets wrapped up really really quickly. I don't really know what to believe because I see different headlines every single day uh as far as the Middle East. So, it's kind of hard to really know, you know, and I I feel like every single day something could come out of left field that no one is really anticipating.

I'm not a geopolitical expert and I'm not going to pretend to be one. But, you know, I think that's what you would one of the things you need to look for. And I think in rising energy prices do affect the long end, but it's not just [clears throat] rising energy prices. It's also the fact that the Fed funds rate is arguably below the neutral rate. um could be just as much of a reason why the long end is in fact going up.

And also because the AI buildout, you know, all that stuff is inflationary. And so you add those three things together and it's not that surprising that the market has been more worried about inflation than a recession. And my guess is that's going to continue for at least a little bit longer until yields kind of get that topping process, which you know could be in the October to November time frame. That'll wrap it up.

Thank you guys for tuning in. Make sure you guys get your ticket for the ITC conference if you haven't already gotten so. And if you haven't already done so, um, if you want to if you want to go and hear not only from me but from other voices as well, uh, make sure you do that at benjamin.com. I'll see you guys next time. Bye.