9th Oct: US stocks tumble after jobs report, Bitcoin stabilizes above $19,000, Malaysia's 2023 budget - Yay or Nay? - Weekly Newsletter

4 rules about money that you should learn:

1) Pay yourself first.

2) Invest or save a large sum (if not all) of your pay raises.

3) If you do not find a way to earn while you sleep, you'll never achieve financial freedom.

4) Investment is not only tied to stocks, crypto, or money markets. Buying a book is an investment. Subscribing to the gym is an investment.

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Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 12.30 PM on 9th October 2022 and completed at 4.30 PM the same day.

Here’s a quick recap on what I covered in my previous issue (2nd October):

i) On Tuesday (27 Sept), we conducted a Twitter space with 2 extremely knowledgeable speakers: Certified Financial Planner Ooi Hann and Economist Sani Hamid. The 1.5 hour session covers a variety of challenging topics, including Malaysia's weakening currency, the sterling pound crisis, tips to prepare for a recession, etc. You can listen to the full replay on Spotify and YouTube.

ii) Bitcoin's resilience is shocking. It spent almost 3 weeks trading in a tight range between $19,000 and $20,000. I mentioned that I projected some volatility during the release of the inflation data on 13th October, but I can't tell which direction Bitcoin will go since we're entirely unsure if inflation will come out hotter or cooler than expected (more will be discussed below).

iii) Retail interest in crypto is declining - the HODL mentality dominates the market. On Chain Data metrics from Glassnode has shown Bitcoin's network growth falling into bear market territory. However, the spending behavior of long-term holders remains muted, which could be the reason for the market stability we're currently seeing.

iv) In an emergency response to the UK government's tax cuts, the Bank of England ramps up its money printer. Up to £65 billion has been allocated in quantitative easing.

Just days later, the chancellor announced a U-turn on the tax cuts he proposed two weeks ago. The move comes after a global backlash and criticism that the tax cuts were for the rich. The unexpected reversal halted the sterling pound's freefall and restored confidence in UK markets.

v) The war continues. Vladimir Putin signed documents to annex 4 new regions in Ukraine. In his chilling speech on Friday (30 Sept), the Russian president labelled Donetsk, Luhansk, Zaporizhzhia and Kherson as part of Russia - an attack on any of these regions within Ukraine would be an attack on Russia. Putin also said that he would use whatever means necessary to defend his land.

Now to this week’s news…

i) Bitcoin is maintaining its tight range between $19,000 and $20,000. When compared to tech stocks in the US, Bitcoin's stability is adamant. In the past few weeks, US equities have been largely on a downtrend, fueled by uncertainties in the market that the Fed will maintain its aggressive stance (or be even more strict) going into 2023.

ii) The dollar index on the hand, has resumed its rally and is showing no signs of slowing down. I've been talking about the strength of the dollar since the Ukraine war started in February. Tracing back to all our discussions with economist Mr. Sani and a few other qualified speakers, it is clear that the greenback will continue to rally indefinitely, at least until the war is over.

iii) The possibility of Bitcoin decoupling from equity markets should not be ruled out, especially if it manages to hold the $19,000 support. However, considering Bitcoin's current market cap of $370 billion (which is tiny), the likelihood of it paving its own trajectory is low, as a large part of Bitcoin's market cap is from the traditional finance sector.

To keep things simple, I am placing a higher probability for Bitcoin to resume its downtrend.

US equities slide after jobs report hints further rate hikes.

i) On Friday (7 Oct), the S&P, Dow Jones, and Nasdaq fell ~3% on average after the government unveiled its monthly jobs report, which turned out to be better than expected.

The S&P posted its heaviest loss in three weeks, with 94% of stocks in red after the announcement.

If the jobs report is better than expected, shouldn't it be good news? Why did the markets tank, you ask?

Well, because inflation is inversely correlated to the labor market. Consider Jerome Powell's recent statements. The reason why the Federal Reserve is aggressively raising rates is because of the "tight" labor market and "strong" jobs growth. When the unemployment figure is low, inflation tends to trend higher, because more people are earning and hence have better ability to spend.

Tying back to the most recent monthly jobs report, the US Bureau of Labor Statistics reported that the rate of unemployment had dropped unexpectedly to 3.5%, from 3.7% a month ago. US employers have also added 263,000 new jobs last month, down from 315,000 in August but well above Wall Street's expectations.

ii) Investors fear that a stronger than anticipated jobs report will make inflation sticky, which will in turn, push the Federal Reserve to constrict the economy further with more rate hikes. The former US Treasury Secretary, Larry Summers, believes that the unemployment rate needs to be at 6% for inflation to cool. This is well above the most recent report at 3.5%.

With that, stock markets in the US bled significantly, but Bitcoin has yet to follow this trajectory. This, again, leads me to believe that the downside is more likely for Bitcoin.

I consulted Mr. Sani Hamid (economist and certified financial planner) on the recent stock market downturn.

He believes that...

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