What Happened in the Markets This Week?

So if you've checked your portfolios lately, you know that the market isn't doing too well. It's pretty brutal out there, right across the board. And that's in the big indexes. If you're talking about specific, especially high growth tech AI stocks, you're talking 10, 20, 30, 50 plus percent down. So we're going to get a little bit into why exactly that's happening and whether you should be concerned for your portfolio or take any kind of action. In fact, just today, NVIDIA reported blowout earnings, so about $57 billion versus $54 billion in revenue expected. And they came out and basically said, hey, AI isn't a bubble, you have nothing to be concerned about. The whole market popped, and then it's already right back down in the red today. So you're talking a five-day losing streak now, and even NVIDIA couldn't save us. And I think there are four things in unison to kind of explain what's going on right now. Okay, now before we continue, I want to tell you about something really interesting happening in the Bitcoin space from an investment perspective, and it isn't just buying Bitcoin directly. So you may know the company MicroStrategy or just Strategy, which is Michael Saylor's company that became famous for basically doing absolutely nothing except holding Bitcoin as a treasury asset. Now they own over 600,000 Bitcoin, and their company has radically outperformed the major indexes through their simple strategy, pun intended, of using their corporate balance sheets and access to capital markets to accumulate Bitcoin at scale first and then second to give shareholders leveraged exposure to Bitcoin's price accumulation. Well, that playbook is being replicated as we speak, and one company executing on it aggressively is Matador Technologies, ticker M-A-T-A on the TSX Venture Exchange over in Canada. So Matador Technologies is a Bitcoin ecosystem company focused on two things. Now, number one is to hold Bitcoin as its primary treasury asset, and number two is to build products that enhance the Bitcoin network and ecosystem. So they're not just accumulating Bitcoin, they're actually building infrastructure on top of it. Matador just closed what's called a convertible note facility with ATW partners, and they drew the first tranche of $10.5 million USD off of a total size of $100 million USD, and that leaves about $90 million in funding still available for future Bitcoin purchases. Now, the notes carry about an 8% interest rate, which steps down to about 5% if they uplist to an American exchange, and they mature in December 2027, and that entire volume of funding is dedicated exclusively to Bitcoin purchases. That means no dilution to existing shareholders, just debt-funded Bitcoin accumulation. And so here's their roadmap. Matador aims to accumulate about 1,000 Bitcoin by the end of 2026, and then expand that to about 6,000 Bitcoin by 2027. And their long-term ambition is to hold roughly 1% of the overall Bitcoin supply and to be among the top 20 corporate Bitcoin holders. Now, they're already executing by recently increasing their Bitcoin acquisition to over 100 Bitcoin, and that's in one purchase. And overall, their strategy is similar to MicroStrategy. As corporate entities can access these capital markets in ways that individual investors just can't, they can issue debt, raise equity, and leverage their balance sheet to accumulate Bitcoin at scale, and then shareholders get leveraged exposure to Bitcoin's price. And that's because when Bitcoin goes up, the value of the equity increases by multiple of the price move because you capture both the increase in the underlying assets of Bitcoin and also the increased equity value, or really the operational value of the company itself. Plus, this is different from something like MicroStrategy in that, again, Matador isn't just holding Bitcoin, they're actually building products and infrastructure on top of the Bitcoin network. And that can create additional revenue streams as well and operational value beyond just their Bitcoin holding. So looking forward, Matador is positioning itself along other major corporate Bitcoin holders like MicroStrategy, Tesla, Block, and Marathon Digital. And they're doing all of it without diluting existing shareholders through this convertible node structure. And so with Bitcoin trading under $100,000 as we speak and institutional adoption accelerating, companies which hold significant Bitcoin on their balance sheet are getting Wall Street's attention. And so overall, Matador's aggressive accumulation could let them become a major player in the space. And if you want to learn more about Matador, you can do so at their website at matador.network or look them up on Yahoo Finance under mata.b. And they publish regular updates about everything they're doing. It's a pretty cool company in the research. And so that said, let's get back to the video. So number one, I wouldn't call it an AI bubble narrative, but I would call it an AI super cycle narrative is starting to break apart a little bit. As in, I wouldn't say a lot of people think we're in this massive AI bubble because of the overall narratives about how AI is going to change everything across the board. But I would say the AI super cycle is breaking up a little bit, that being these incredibly high valuations. So again, that doesn't speak to everything just crashing or going to zero or a dot-com style burst, but it does speak a little bit to some corrections in the valuations assigned to these high-flying AI stocks. And those stocks happen to be the stocks that pretty much prop up the entire S&P and market. You're talking pretty much all of the max seven, for example. And recently, insiders have been starting to kind of ring the bell that this super cycle might be a little bit overvalued. So again, we're not talking a crash or a bubble or anything. We're just saying, for example, SoftBank sold their whole stake in NVIDIA and Peter Thiel dumped a massive portion of his portfolio. And then also you've had these comments about AI like Sam Altman on the podcast, where he made some comments that were misinterpreted a little bit about the valuation of OpenAI. And overall, again, it's not at all that people are saying this is a wait all over again, but people are saying, hey, maybe we take some profits, we've made a ton of money and it's the end of the year. So this is the time to take some money and to just de-risk for a period of a few months. Now that's number one. Number two, I think is even bigger and that is the betrayal of the Fed. So the narrative for a long time now, as we came out of this post COVID era of high inflation is that the Feds are gonna bring us into this glorious rate cut cycle. So as interest rates go down, the economy does better, money and debt gets cheaper and everyone makes more money. But that hasn't happened. And the probability that the Fed is gonna make another rate cut in December fell from about 90% a week or two ago to about 35% today. And the reason for that is twofold. Number one, inflation and number two, jobs. And those are the sole two reasons the Fed exists to maintain those two things. And inflation, number one, is remaining above target, but the big problem here is not really inflation, it's the job market. Essentially, the job market has been sliding off a cliff for a while now. That's probably exaggerating a little bit. It's just the numbers haven't been so good. But then the government shut down for 43 days. We didn't get data. Data just came out, I think today, and it's not good. The US economy added something like 110,000 jobs and unemployment still rose to over 4.4%. So if inflation is stickier than expected and the job market is cooling off pretty rapidly and we don't have good data per se about jobs, then the Fed just isn't going to cut rates or they're gonna delay that rate cut cycle for longer. And what happens if that's the case? Well, all the whole market, the whole stock market has to reprice and that alone could take a few points off all kinds of indexes and stocks. Now, also tying into that, the 10-year US treasuries just spiked, I think, above 4.1%. And when yields go up of treasuries, then valuations of especially high growth plays are going to come down. It's basically just money gets more expensive and with less money, less capital, more expensive debt, then valuations have to be implicitly repriced. Effect number three here is crypto is the kind of canary in the coal mine. Crypto has crashed hard over the past month or so and liquidated a ton of people who were especially leveraged in smaller coins and even in Bitcoin. And Bitcoin itself has crashed from, I think, 125,000 down to like 85,000 in a matter of days. And when traders in crypto lose a lot of money or get liquidated, have to cover their margin losses, what do they do? They don't just sell crypto, they sell stocks. Crypto is typically also the higher risk side of the crypto stock market relationship, which is more correlated as institutions and more mainstream traders have come from the stock market into the crypto world. And so what happens when the riskier side of your portfolio starts to not do so well? You de-risk across the board. And so that could contribute to liquidations in other markets like the stock market. Okay, now effect number four here is just the consumers are generally tired. The consumer market in the US is getting weaker. Part of that is the job market, and that is really significant. Part of that is fear about things like AI. Consumers and especially younger consumers just aren't spending as much as they used to. And that's driving down the performance of the S&P 493. So basically most of the market, if we ignore the AI superstars of the current cycle. And so we're seeing companies like Target and Home Depot and Chipotle and basically all the food and restaurant companies cut guidance and just not perform very well across the board. And usually all of that is a leading indicator of something like a recession. So as consumers continue to weaken and the data shows that, that's going to be repriced into the valuations of companies, which will also again, obviously bring down the indexes. And so part of what people are feeling is that you have this select part of the economy that's doing really well and is pulling GDP and everything up, but it doesn't actually represent what could be a problem in the next year to even five years, because the rest of the economy may just not be keeping up in turn due to just a weaker consumer base. Okay. So based on those four things, that fifth thing I want to touch on is just the time of year. So you have tax loss harvesting right now, which is basically means if you're down on a position, you want to sell. So you pay less than taxes around this time of year. And also this is kind of a risk off period of the year. It's the holidays. You can see my lights here in the background. People are not trading as much. And so that's just going to kind of naturally make things drift down pretty often, at least historically. Also October, November, historically is not a great month or two for the market. And then also it's not just this time of year, but where we are compared to the last two or three years, the market, the S&P has had a massive run up. We're talking 20 plus percent consecutive back to back years. And this year has been no different. So if you've made a ton of money in the last few years, you're going a little bit risk off toward the end of the year, then a correction of 5, 10, 20% is not the worst thing in the world. You might just be selling off a little bit just to de-risk again. Okay, that in mind, my synopsis of what's going on right now is this is a correction. There is nothing fundamentally broken or new that signals, hey, a crash. There is no AI super bubble. There was just a repricing of the valuation of some of these stocks, which do still have great earnings. Nvidia being case in point. Corwave being another example of something that's actually doing really good. We're talking 55 billion in revenue backlog, but the stock's still down 50 plus percent because of lower guidance. And the same thing with the Fed. Something like a rate cut cycle just taking longer or being slower doesn't mean everything broke. It just means that, hey, valuations need to be slightly repriced. And consumer data has been bad for a while, and it's just getting incrementally worse, but that's not major league worse than the Fed is going to respond accordingly. Now, may that get a lot worse? And could that be really like structurally bad in the short term? Sure, but that's not really the place that the macro data says we're at yet. So overall, there are definitely problems here, but this isn't a structural crash. So I would suggest just pay attention to that structural data, right? The things that are keeping the economy propped up. And until that point, I see this personally as a pretty good pullback and a spot to just accumulate more shares of good companies that you want to hold for the long term. So stay safe out there. I hope we have better news about the market in the next one. Happy holidays, and I'll see you all in the next one. Cheers.