The Week Ahead: Is the Bitcoin Bubble Bursting?

Join Tematica Research's Chief Macro Strategist, Lenore Hawkins, and Chief Investment Officer, Chris Versace, as they discuss and debate what's driving the market and the economy this week.

Last Week's Market

Stocks rebounded a bit Thursday to end a 3-day losing streak. The S&P 500 rose 1.2%, with 445 of its components gaining on the day, to leave it down 2.8% for the week. The Dow added 1.3%, leaving it down 2.2% on the week, and the Nasdaq rose 0.7% bringing it to a 4.6% loss on the week while the Russell 2000 gained 1.7%, leaving it down 4.4%. 

Economic recap 

  • Friday’s Retails Sales (incl Food) flat MoM (expected +1%) up 51.2% YoY  Excluding Food -0.3% MoM +46.1% YoY 
  • Control group sales, which exclude more volatile categories including food services, car dealers, and gasoline stations, dropped 1.5% in April after an upwardly revised 7.6% jump in March
  • Clothing-store sales dropped 5.1% after a 22.7% surge
  • Sales at non-store retailers, which include e-commerce, fell 0.6% in April
  • General merchandise store sales fell 4.9% and the value of purchases at sporting goods outlets dropped 3.6%

Inflation fears are overdone, but overvalued asset classes like equities need perfection to keep the ball rolling. The perception that the Fed is behind the curve, and is getting further behind, is never a very good thing for the market multiple. 

Pricey Market?

  • The Buffett Yardstick, or total market capitalization of the U.S. equity market relative to the overall size of the economy, now stands at 270%. 
  • Peak of Dotcom Mania, this measure only reached 188% so we are now over 40% more expensive than the most expensive stock market peak in history
  • That means that at today’s valuation, the stock market would need to fall 30% overnight in order to match the peak of what is widely considered the greatest bubble in modern history.
  • The bubble is also broader. The median price-to-sales ratio of S&P 500 Index components is now almost 75% higher than it was at the peak of the Dotcom Mania. In other words, unlike that previous bubble which was confined to just a subset, the current bubble encompasses a much greater proportion of the overall stock market.

The Bitcoin bubble is bursting as it slides below $50,000 as Tesla (TSLA)’s Elon Musk suspended vehicle purchases using the cryptocurrency.

  • Digital currencies are under pressure in general
  • Elon Musk hosting SNL just might have been a classic market top
  • Tesla stock peaked a while ago and is now down 30% since it announced its investment in Bitcoin three months ago

Economic Data to Watch This Week

  • Two regional Fed manufacturing indices for May (first look at May!) and April Housing Starts (the focus will be single-family)
  • Monday, May 17: May Empire State Manufacturing Index; May NAHB Housing Market Index; March Net Long-term TIC Flows.
  • Tuesday, May 18: April Housing Starts & Building Permits
  • Wednesday, May 19: Weekly MBA Mortgage Applications Index; Weekly EIA Crude Oil Inventories.
  • Thursday, May 20: Weekly and Continuing Jobless Claims; EIA Natural Gas Inventory report; May Philly Fed Manufacturing Index; April Leading Indicators.
  • Friday, May 21: April Existing Home Sales.

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Related: The Week Ahead: Are We at the Point Where Trillions Is Considered Relatively Small?



Lenore Hawkins, Chris Versace

Chris Versace  00:00

The Week Ahead brought to you by advisorpedia and powered by Tematica research I'm Chris Versace Tematica is Chief Investment Officer in joining me as always but earlier than usual is tTematica's chief macro strategist Lenore Hawkins. Good early morning, Lenore, I hope I hope you're caffeinated. I don't want to talk to you. . .


Lenore Hawkins  00:23

What's happening?

Chris Versace  00:25

It's, it's it's actually quite a busy day. I know your ears into it even wherever you are. But we've you know, as we're recording this retail sales for April hit industrial production, he hit in the markets trying to claw back and all this stuff. So but let's, let's do what we do each and every week here. And with the week ahead, let's quickly recap last week, and give some folks some context for what really matters. The week ahead.

Lenore Hawkins  00:52

Okay, so good news is heading into the weekend, Thursday. And it looks like as we record this on Friday, it looks like Friday's gonna be a good day for the markets to finally ended what had been a three day losing streak on Monday, Tuesday and Wednesday. The s&p managed to rise on Thursday with 445 of its components gaming on the day. So that's that's a really solid broad based.

Chris Versace  01:17

That's confirmation.

Lenore Hawkins  01:18

Yeah, that is confirmation of the Dow added as well. I mean, everybody across the board was that now if we look at through Thursday, where everybody is from their on their year to date, the NASDAQ down 7.2 the s&p down 2.8 the Russell down eight, but the really amazing one is Bitcoin down 21.2%. And I don't think that the Elan musk flip flop with, we're going to accept Bitcoin for Tesla's

Chris Versace 01:51

No, we're not.

Lenore Hawkins  01:52

Because he just heard just recently heard that Bitcoin binding involves potentially fossil fuels.

Chris Versace  01:58

Wow, you heard no one knew about that. So my theory on that is the following. You know, a lot of investors are adopting ESG screens and what they're doing, we're seeing that with the indices that we're developing. And I suspect that Ilan kind of found out that you know, Bitcoin to your point, does not really make the ESG. Cut.

Lenore Hawkins 02:18


Chris Versace  02:19

So that's what I think is happening. But, you know, as I as I teased a little bit, we had kind of a big week for data, yet, yes, you know, breaking stuff as we're recording. But earlier in the week, there's a bunch of inflation data that I would argue, really, really hit the market. But I also know that you continue to say, and perhaps rightly so. That inflation, the warning bells, were not there yet. In fact, I think you said put that put that alarm buzzer away, yet put it back in the door.

Lenore Hawkins  02:54

But the alarm bells are backlit or so yeah, the most important thing I think out of the week, outside of Well, there's there's two things, there's the inflation data, and then there's the retail sales stuff. So the big thing hit on Wednesday, and that's what made the markets just go nutty. On the downside. month over month for headline and core, we're expected to be point two and point three respectively. But both came in at many multiples above that instead of point two for headline, we got point eight. Instead of point three for core, we got point nine. So that's a really big. Those were both the biggest increases in headlines since 2009. And core hasn't been that high since the early 1980s. headline CPI came in at 4.2% year over year now that's the highest since 2009. And core a 3%. year over year, that's the highest since 1996. So all of that sounds like holy cow, we should really be freaking out. Except, I mean, before we even get into the details, let me point out that it's the highest since 2009. Since in the years following 2008 that's like a period known for massive inflation.

Chris Versace  04:01

I don't think many traders were sitting there going holy cow when they read those down when they saw those numbers, I get the feeling it was a little stronger.

Lenore Hawkins  04:10

Oh crap. What the real concern is, is that they this may push the Fed right to slow down on its really loose monetary policy and we all know that the Fed pump and cash into the market has been doing a heck of a lot to keep these elevated stock prices. But But if we dig into the details on it, not really dived into the headline really doesn't give you the full story. Those prices were highly concentrated in around 5% of the economy sporting events prices rose at a record 10.1% so now keep in mind that with zero attendance the Bureau of Labor Statistics didn't even report what stadium prices were doing its sporting events from July through December. The next thing you know now stadiums arenas are filled like 5000 fans. Pay damn near anything to see a baseball or basketball game. And so Whoo, you have this 10.1% surge in the CPI sport ticket price index. Now that's, that's just because we had this crazy, you can't be anywhere and you can't see anybody and you're all locked in your homes and everything. That's not that that's just not legitimate price increase. I got.

Chris Versace  05:22

I can't even imagine what Springsteen tickets would go for now.

Lenore Hawkin 05:24

Yeah, exactly. You'll pay anything. It's like I just want to get out and airlines had to cut capacity just in time for Well, the reopening phase of the economy. And now seats are filled, and the industry managed to put through about it at 10.2% pricing surge in April. But that's because they cut capacity so much. And they want to get those planes out there again, and they want to get those seats filled. So this is not a long term kind of thing. CPI, air fares are down nearly 20% from where they were pre COVID. So again, a lot of noise in that data. For prices, of course, those went up. But that's because of this the chip problem that we're having.

Chris Versace  06:01

It seems that a lot of these categories are ones that given the nature of the pandemic, you would expect there to be pent up demand for coming out of it. Yeah, right.

Lenore Hawkins  06:12

Exactly. Exactly. And this and it's also but but these areas that really saw the skyrocketing, they were the ones that were hardest hit. So what that means is, it's not so much the demand is so crazy today, if you were to compare it to 2019. It's that the supply has been massively constricted, because you had to shut down the stadiums. Right? So there wasn't there was no one like a year ago, there was nobody sitting in a stadium seat, right? We don't even have anything to compare it to. Well, we can look at what happened with airlines. I mean, no one's on the darn planes. Right.

Chris Versace  06:44

It sounds very similar to what we're hearing this earnings season from companies, they're talking about supply chain shortages, in the sense that there is demand out there for what we're talking about. But the amount of seats on planes, the amount of seats in stadiums is simply not matching the the demand factor. So prices are moving higher. Does that does that give you hope, her belief, that wood pile on the fence say about transitory prices is likely to ring true, though I absolutely.

Lenore Hawkins  07:11

Because if you take a step back, look at the big picture of the economy. We still have a ton of people sitting on the sidelines who want a job. So that's excess, that excess capacity to make things right in terms of labor. If you look at capacity utilization, we're still about 10% below where we have been at the peak. So there's still plenty of excess capacity that's referred to as slack in the economy just to make things.

Chris Versace  07:38

And for listeners, I would just point out that Lenore wrote a wonderful piece that was published yesterday on the website talking about inflation and inciting these very figures regarding capacity utilization and slack in the manufacturing economy.

Lenore Hawkins  07:54

So I think overall, those inflation, fears are completely overdone. But when you've got asset classes like equities, they're really priced for perfection and priced to keep having the Fed be super, super supportive and super accommodative. Any kind of news like this, that might shake their conviction that the Fed is going to continue doing what it's been doing is good to get the markets a bit wobbly. But clearly, you know, here we are Friday, and we're bouncing back. So that panic and you gotta love how we see the market has become for the love of Pete, we hit all time Highs on Friday, we had some rough days, Monday, Tuesday and Wednesday. And by the end of day Wednesday, the headlines were like, Oh, it's all over this is it? Well, the end is here.

Chris Versace  08:42

It's you know, your opening was about, you know, reversing a three day sell off, and I'm like, three days sell off books. What's three days? Three days is nice. Yeah, it's not the end of the world.

Lenore Hawkins  08:52

And we're like over a decade into this bull market in three days.

Chris Versace  08:56

And the end is here. Well, just compared to last year, right? We had many, many days in a row. Was it down, down? down? down?

Lenore Hawkins  09:02

Yeah, that was where you felt like the end was here. Alright. We can look at this real quick at retail sales. So but the only other one that was really, really big was the retail sales because PPI the producers Price Index came in roughly about the same with as CPI that it was like, yeah, things are good. But they get into the details. It's all base effects. It's all because last year was just how right the retail sales report came in. Which is interesting, because here we have hotter than expected on the inflation. Then retail sales on Friday came in weaker than expected No, not at all consistent with this overheating economy narrative. Well, retail sales including food came in flat month over month, it was expected to be up 1% excluding food actually fell point 3% month over month. So yeah, both of those not exactly telling you a story of an overheating economy. But what is kind of funny is just to look at it, compared to year over year? Oh, absolutely. Top lines up over 50%. But that's because everything else but again, it's just noise like your, if you look at it compared to 2019.

Chris Versace  10:18

It's not a huge improvement if we had talked about this before, or the last couple of tapings of the week ahead. And we've been saying that companies as you move further into the second quarter are going to have unbelievably easy year over year comparisons. And the same is true for a lot of the economic data as well.

Lenore Hawkins  10:36

Yeah, I think what's what's interesting, too, is we were all really convinced that people were going to be going out and buying tons of clothes, because we're getting out of the house. Whoo.

Chris Versace  10:46

Hang on, hold that thought, hold that thought, hold that well,

Lenore Hawkins  10:49

in the retail sales report, clothing at stores fell 5.1%.

Chris Versace  10:58

I know. I know. I know. I know. It's it's, it's gonna be interesting. It's gonna be interesting, because I think that, you know, when we look at them on a trailing three month basis, some of the some of the figures are actually very robust year over year, and what we'll talk about that when we talk about the earnings that we're going to focus on in the coming week, but i think that i think you're right, though, that it's entirely due to very easy comparisons year over year, we shouldn't read too much into it.

Lenore Hawkins  11:28

Now, right now, I'm still in the transient camp. But if we continue to get some super hot numbers on this retail sales report is not telling me that we're going to get the super hot numbers. But if we continue to get super hot numbers in May in June on inflation, Hmm, I may change my tune. But for now, it's still it's just a lot of noise from everything being in a massive lockdown a year ago.

Chris Versace  11:53

What was it? One One of the Fed had said, a couple days ago, and you wrote about this, that it really won't be until September that we really have a truce we have to get through the summer.

Lenore Hawkins  12:02

Yeah. And then you start getting some some real idea. And here's when you think about it, here's why the market got real wobbly. So the total market capitalization of the US equity market relative to the overall size of the economy, which is kind of it's a favorite of Warren Buffett's. It's now 270%. To put that into context, at the peak of mania, it only hit 188%. Oh my god. So we're now over 40% more expensive than the most expensive stock market peak in history relative to GDP, which means that today's valuations, the stock market would need to fall about 30% basically overnight and over in order to match the peak of what was previously considered the greatest bubble in modern history. This time around though the bubble is much broader. The median price to sales ratio for s&p index components is now almost 75% higher than it was at the peak of mania. In other words, unlike that previous peak, which was confined to just a really small little subset, the current level pretty much in covers everything.

Chris Versace  13:11

We're not Bitcoin

Lenore Hawkins  13:13

no Bitcoin bubble been didn't burst and slid before below 50k. With Tesla suspending vehicle purchases all around the nation around the world, the digital currencies seem to be under pressure kind of in general. I think you could kind of laugh that that Elan musk hosting a Saturday Night Live episode just might have been a classic market top. Tesla, by the way, just a shout out. Yeah, it peaked A while ago and it's now down about 30% since it announced its investment in Bitcoin about three months ago.

Chris Versace  13:48

Crazy Crazy. What what are we watching this week? 

Lenore Hawkins  13:53

Okay, so looking forward, there's two regional fed manufacturing indices for May. Now this is the first time we get to look at may and that will really be looking to see how are things accelerating? April housing start. So of course focus is going to be on single family because we're still in that situation where it's funny you can you can say if you just this is where it's always important to dig into the details. If you just look at the headline information on housing, you think oh, here we are. We're back in a huge bubble just like we were in like, oh 607 big bubble. Except the volume is so small. Oh, yeah. It makes it a very different thing back in. Oh 607 like everyone in our cousin was buying three, four or five homes because it was like buy it flip it that was just ...

Chris Versace  14:36

What kind of cousins do you have?

Lenore Hawkins  14:39

But there was people were buying people who had you know, there was there was a liar loan, right? No money down. No proof of income. You could just buy it. So you just walk in. I'm going to buy a home buy it flip it that was going on. Now. There's such low volume that like yeah, it it seems bubbly because prices have gone up so high, but there's Just so little inventory that naturally when there's tiny little inventory prices are going to get bid up.

Chris Versace  15:06

So we're also going, is it possible that then I might actually be right this time with what I said last time? That was such low inventory levels might spur single family housing starts. No, definitely maybe see normalized price? Well, I got it wrong last time.

Lenore Hawkins  15:21

Yeah, that's part of it part of it? Well, no, we could, it could, we could see some of that. But a lot of what we're seeing is just, it's abnormal on the selling side, as in existing homes, people aren't with a pandemic, people, some people wanted to get the hell out of wherever they were. But other people didn't want to give up their home and move someplace else.

Chris Versace 15:42

Right? They wanted to go to

Lenore Hawkins  15:45

Yeah, so you had this real disconnect. And people also didn't want to open up their homes during the pandemic, too. And still, we're seeing part of that you just don't want strangers traipsing through your house. Understandable. You're a little nervous, right living in a pandemic. People are nervous. We're also going to get on Thursday, the usual weekly jobless claims. So we'll be looking to see if that's continuing to go down, especially given how weak the April jobs report was. And Friday, to your point, the existing home sales, we're looking to see if that's starting to move up a little bit.

Chris Versace  16:18

Well, that's Yeah, I'm very, I'm gonna be very curious to get some of that with some of that data next week, particularly the May stuff. But we've also got a big shift in earnings next week. Yes, the overall number continues to trip down compared to what we saw a few weeks ago. But this coming week is going to be heavily heavily focused on retail, retail, retail. And you know, as you're talking about the APR, retail sales, it's really going to set the tone, or at least the benchmark or the limbo stick, whatever you want to call it for these retail companies. And, you know, what I looked for in the April retail sales report was the trailing three month retail sales comparisons on a year over year basis. Why April, you might ask why trailing three months because a lot of retailers have January quarter ends, so the next quarter ends in April. So it's a nice comparison. That allows us to try and figure out which companies you know might have taken share wallet share from consumers that is or which ones might have lost. So just some quick headlines here out of that April report again, three month trailing year over a year for April, clothing and related accessories up almost 86% sporting goods bookstores, up almost 71% electronics and appliances, about 40%. But this is the big shift food services and drinking establishments IE restaurants and bars of 29%. But grocery stores were down 2.4%.

Lenore Hawkins  17:46

Well, you can finally go out now.

Chris Versace  17:49

That's exactly right. That's exactly right. But it's that inflection point that we've been kind of waiting and hoping to see. And I think with the CDC dropping the guidelines for masks, fully vaccinated, I think we're going to start to see this gain a little more momentum. And of course, online sales are up about 24%, again, for that three month period ending April year over year basis.

Lenore Hawkins  18:14

So that it and I would say that you'd have the same kind of thing with retail sales that we have with the inflation numbers, because I want to see, by the time we kind of lose some of these crazy base effects. What's the mix going to be between eating out and eating in? Because we keep hearing from all these companies that people bought all this all these cooking new cooking tools, they remodel their kitchen, they build new school, new skills on cooking? Are they going to be more interested in eating home or eating out?

Chris Versace  18:46

Well, it's interesting you say that, because doordash reported late last week, and they even said that their revenues were not as heavily hit by the reopening as they had expected. So it is going to be interesting to see what happens.

Lenore Hawkins  19:01

And I think it's going to take with the CDC dropping the the mass requirement cuz that really that changes your mindset for for people who are fully vaccinated. And as we get the percent of the population that's fully vaccinated up, we're going to start to get a better idea of what life is going to be more normal ish, but I think we're gonna have to wait more towards September to really get a good feel for it.

Chris Versace  19:22

I think you're right, I think the one risk we run with the data in the near term, this would be the April April data, the May data the June data, is perhaps some pent up demand by Zack gotta go out I gotta buy clothes, I gotta do this. And then it's then and what you and I've seen this, God knows how many times before this pull forward means that you know, in one to three months, you know, then we see a pronounced drop because what we would have done again is pull forward but anyway, anyway, so that those thoughts and those trailing three month April data numbers we rattled off when I want to keep them in mind because coming this week, we've got home depot Lowe's Macy's Walmart, Target TJ x companies known better to you guys as TJ Maxx and Marshall's Kohl's Ralph Lauren Ross stores footlocker in Vf Corp. And I'll leave you with this Lenore on the retail part of earnings next week dillards, reported late last week and they said that not well, not only did their results for the April quarter crush it, this is what they had to say. As vaccinations increased stimulus money was released in warmer weather arrived, we saw sales increase over 2019 levels with momentum continuing throughout the quarter. So, again, I think people expecting a big rising tide lifting all these boats, but I don't think it's going to be equal across the board.

Lenore Hawkins  20:45

No, I mean, we're still in that case, that case shaped recovery. And what we've seen even from the Federal Reserve is is studies that show less than 25% of those stimulus checks is actually getting spent the rest is being used to cut credit card debt cut any kind of student debt. I mean, those are all hitting they're they're declining at a record pace. mortgage debt is not but wait where you can cut, you're cutting.

Chris Versace  21:09

Right, right. Okay. So outside of retail, we've got a couple other companies that I think folks want to pay attention to, you know, daikon industries is the specialty contractor that builds fiber wireless networks, they're out there outlook, which not only benefit from warmer weather, which is better for construction. But it should also benefit from at&t, Verizon, and other carriers continuing to increase their spending on 5g networks. We'll look for confirmation in that we'll also look for confirmation on the 5g and other network build out from Cisco. But Cisco is also going to tell us about cybersecurity demand given their business in their protecting networks. And speaking of cybersecurity, when Palo Alto Networks reports next week, it's going to be very interesting, because I expect that they're going to talk not only about the colonial pipeline hack, and other ransomware attacks, but the most recent high profile attack, which happened early on Friday, which was Ireland's health service operator had to shut down all its IT systems to to protect it from quote, significant ransomware attack, crippling dyes, diagnostic services in forcing hospitals to cancel many appointments. This just goes to show that, you know, these attacks are increasingly sophisticated. They're hitting, they're hitting companies and subsequently people in ways that we haven't even seen before.

Lenore Hawkins  22:30

I think it's more and more clearly becoming the I think the colonial pipeline hack. And obviously this for Ireland is really hitting home that this is a national security issue, that governments are going to have to get much more involved. That it's it's it's part of it's kind of the new millennium version of national security, whereas you had to protect a nation right from external nations, you may want to come and attack, well, we're getting attacked, it's just in the virtual world.

Chris Versace  23:02

I agree, I suspect that we're going to see, you know, I don't know if it's over the last six months, or 2021 over 2020 or 2021, compared to like 2019. But the demand for cyber insurance is going to be off the charts simply off the charts.

Lenore Hawkins  23:18

Well, it's the new you don't you don't conquer a nation and steal its land anymore. Its natural resources, you steal with the data,

Chris Versace  23:27

... or use or you just you know, with a hit of a button or its ability. Yeah, it's everything. Exactly. Right. Exactly right. For you and me that would be tapping in and shutting down our coffee pots. Oh, God.

Lenore Hawkins  23:41

That's just mean to say, I will give you an idea.

Chris Versace  23:45

All right, so let's finish this up. Also, this week, we're going to hear from semi cap equipment company Applied Materials and, you know, Chip demand, we know just from our own digital infrastructure and connectivity index continues to step up whether it's 4g LTE Wi Fi six you know, 5g, or you know, the auto chip shortage and the like, we just know that they're the the demand continues to rise. As I joke chips are the fabric of our new lives. But we also know that Intel in Taiwan semiconductor are planning on spending gobs of money to build out their manufacturing capacity for chips. And even this morning, Taiwan semiconductor said it plans to pump quote 10s of billions of dollars more into cutting edge chip factories in the US. And I believe that's for its Arizona facility that it's been talking about. So just applied materials were reports that a breakwater in the outlet should simply be row bust. And then the last one that we want to talk about is we've all seen, or if you haven't, I'll tell you there's been a huge push higher in commodity prices, particularly corn, wheat and soybeans. That tends to mean that farmers are flush with capital and cash. That means that john deere, when Reports should also have a very vibrant outlook. But the other thing I want to be paying attention to when it gets to deer is all the technology that it's putting into these tractors and combines, I really want to see what it has to say about that, as it continues to push towards precision farming initiatives and helping us with our own Sustainable Future of food index.

Lenore Hawkins  25:24

It's a how to get more out of less.

Chris Versace 25:29

Boy Who wouldn't want to do that.

Lenore Hawkins  25:32

And with that, I believe it's that's the week ahead


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