Listen, if there’s one man in the world who wouldn’t lie to you under any circumstances, that man is Jeff Gundlach.
So averse to lies is Jeff that he plunged headlong into the Twitterverse last summer in an effort to, as he put it, combat fake news.
His chosen Twitter handle is of course @TruthGundlach which, as we’re fond on putting it, means that Jeff has now made himself synonymous with “truth”.
And because “truth” cannot lie, everything Gundlach says is now by definition “true” because again, his Twitter handle clearly indicates that there is no distinction between “Truth” (with a capital “T”) and “Gundlach”.
Over the course of his illustrious Twitter career, Jeff has subjected a laundry list of people (and various of entities he imagines are out to get him) to his “truths”. One person who found himself on the wrong end of a Gundlach “truthing” this week was Steve Mnuchin. You can read about that here.
Well recently, Jeff has discovered a new “truth” that he wants to share with you. Specifically, Gundlach has determined (through what we can only assume was careful study) that Bitcoin is a barometer for risk sentiment. Here’s Jeff on CNBC:
Got that? Here are those “truths” transcribed:
Strangely, bitcoin seems to be the poster child for social mood and market mood. We had a vertical rise from Sept. 7 which was led and epitomized by bitcoin. Bitcoin started at about $4,500 and went up to about $20,000 or so.
Bitcoin peaked out in mid-December and it crashed. That sort of presaged the volatility in the stock market. If stocks are going to take another tumble, I think it would be preceded by a bitcoin decline.
Weirdly, I’m actually using the sentiment regarding speculative assets like bitcoin as a guide to maybe what the future will bring.
To be honest, Jeff is too easy a target when it comes to lampooning his pretensions to profundity so we’re going to eschew the explicit ridicule in favor of simply excerpting (again) a note from Deutsche Bank and then one from Morgan Stanley.
The implication (in case it isn’t clear enough), is that Jeff (bless his heart) hasn’t exactly reinvented the wheel here. The things he describes as “strange” and “weird” are things that pretty much everyone has been talking about for months.
Via Deutsche Bank
Cryptocurrencies are closely watched by retail investors, affecting their risk preferences for stocks and other risk assets. Although institutional investors recognize that stocks and other asset valuations may have entered bubble territory (US equities’ average P/E is around 20x), they cannot help but continue their risk-taking. Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices. The result is that institutional investors, who are supposed to value assets using their sophisticated financial literacy, analysis, and information-gathering strengths, are actually seeking feedback about the market from cryptocurrency prices (which are mainly formed by retail investors). We believe the correlation between Bitcoin and VIX can increase as more institutional investors begin trading Bitcoin futures.
Via Morgan Stanley
Two weeks ago,after the best start to a new year since 1987, US equity markets suddenly seized up and had their worst week in 2years. We also noticed this was all due to multiple compression as S&P 500 forward earnings actually rose 1% during that week leaving P/Es down over 5%. So what happened? To briefly recap, we think interest rates and inflation expectations finally reached a level that provided a restraint on equity multiples. Until two weeks ago, P/Es had been somewhat positively correlated to interest rates. But reflation is only good to a point. Did we reach the point where reflation is now restrictive to valuations? Could P/Es become negatively corrected to rates? We think it’s entirely possible and believe that at a minimum higher rates will no longer be a supportive factor for valuations.
Furthermore, we find it instructive that Bitcoin also peaked on December 18th. Coincidence? We don’t think so. Instead, we think the passage of tax cuts coincided with peak excitement, at least in terms of price/valuation and “speculation”as represented by things like Bitcoin.
