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  • Writer's pictureHolzberg Wealth Management

Our Thoughts On Cryptocurrencies and the FTX Bankruptcy.

HWM Market Recap - December 2022

Holzberg Wealth Management Newsletter
Executive Market Summary

It has been said that you can tell the pioneers because they are the ones with arrows in their backs, and while crypto and the blockchain survive, FTX is gone. There are 18,000 cryptocurrencies, with Bitcoin being the most well-known. Some are coins and intended to be used like any other currency, only digital; others represent ownership of assets (similar to how stocks represent ownership of a corporation); and some are treated as a digital claim on an asset or service. Crypto has no central issuing or regulating authority; it uses a decentralized system of computers with blockchain as the software. Think of the blockchain as a digital accounting system that can issue and/or track who owns something and what they own. Cryptocurrencies are only one of blockchain’s many applications. FTX, on the other hand, was an exchange where people could trade various digital assets, including various cryptocurrencies.

In recent years, crypto innovation has become overhyped in the public sphere. Some items have run up, and then way down, in price (such as Bitcoin), and some participants have disappeared altogether (like FTX). On November 2nd, problems at FTX leaked to the press. At the beginning of the week, the company was worth $30+ billion; by the end of the week, it had filed for bankruptcy. To paraphrase Ernest Hemmingway, the bankruptcy went slowly at first and then all at once. This is not to say that cryptocurrencies and the blockchain are going away; they are not. Businesses in the crypto space that know how to manage risk with effective supervision will prosper and work to add these innovations to the mainstream. After all, the creation of email did not eliminate the USPS, FedEx, or UPS.

The more things change, the more they stay the same. Not long ago, Matt Damon was promoting Crypto.com in a Super Bowl commercial stating, “Fortune favors the bold.” Many examples of advertising investments in history demonstrate that this is true only if one invests early and gets out early. When speculating, timing is everything. By the time a high-risk investment is publicized on mainstream TV or appears on the front page of the newspaper, it is most likely too late for fortune-making.

While there have been many fads in recent years, they are by no means a recent phenomenon. Extraordinary Popular Delusions and the Madness of Crowds, written in 1841 by Charles Mackay, LL.D., reviews stories of manias from history. Mackay observes the fundamental tendency of humans to be easily misled into thinking illogically when influenced by popular opinion and, therefore, to develop a herd mentality that leads them to act against their own best interests. Indeed, a primary objective of being a well-educated person is to learn to think for oneself. This “madness,” as he calls it, leads to a downward spiral with deleterious effects.

The most famous example of this was the Dutch Tulip Bulb Market Bubble; today called tulipmania. Beginning around 1600, Tulips became a status symbol in wealthy Dutch and German households. By the 1630s, the middle class joined the quest for status. Eventually, prices began to soar for the most prestigious varieties, and many industries languished as most people rushed to join the tulip trade. Some sold their property and invested in the flowers. The bubble ended, as always, when the more prudent began to see that the folly could not last forever. As this conviction spread, prices fell and never rose (no pun intended) again. Many households, noble and common alike, were decimated.

“...it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” - Charles Mackay

One of my favorite market historians, Jim Stack, wrote on December 15th, 2017: “Whether speculation is in tulip bulbs, real estate, stocks, sub-prime mortgages, or cryptocurrencies, the pattern is always the same. For investors, emotions run the gamut from greed to defiance to fear at any hint of disruption in the system. Unless you have a voracious appetite for risk and a high tolerance for loss, today’s cryptocurrency bubble is best left to the speculators.”

As mentioned above, cryptocurrencies are not going away. In fact, our central bank, the Federal Reserve, has recently announced a pilot program to create a central bank digital currency (CBDC). What this portends for us all remains to be seen.

In the meantime, economic conditions continue to weaken. The Conference Board’s Leading Economic Index (LEI), a widely followed index tracking ten economic factors which change before the broader economy, is in recession territory, and we remain cautious.


Markets Overview

Monthly Changes in Major Indices

  • S&P 500: +5.38%

  • Dow Jones Industrial Average: +6.02%

  • Nasdaq Composite: +4.37%


Monthly Performance By Sector

  1. Materials (XLB) +11.75%

  2. Industrials (XLI) +7.84%

  3. Financials (XLF) +7.02%

  4. Utilities (XLU) +6.98%

  5. Real Estate (XLRE) +6.89%

  6. Communication Services (XLC) +6.87%

  7. Technology (XLK) +6.39%

  8. Consumer Staples (XLP) +6.19%

  9. Health Care (XLV) +4.80%

  10. Consumer Discretionary (XLY) +1.51%

  11. Energy (XLE) +1.37%



Monthly Top 5 Performers

Materials (XLB) +11.75%

Materials jumped to the best-performing sector in November. Its leaders included: Freeport-McMoRan Inc (+25.59%), Air Products & Chemicals Inc (+23.87%), DuPont de Nemours Inc (+23.85%), PPG Industries Inc (+18.97%), and Nucor Corp (+14.13%).

Industrials (XLI) +7.84%

For the second month in a row, Industrials was the second-best performing sector, with its leaders including: Boeing Co (+25.52%), Expeditors International of Washington Inc (+19.29%), Equifax Inc (+16.65%), Copart Inc (+15.74%), and Johnson Controls International PLC (+14.87%).


Financials (XLF) +7.02%

Financials was again the third-best performing sector for the second month in a row, with its leaders being: Invesco Ltd (+25.96%), T. Rowe Price Group Inc (+17.66%), Franklin Resources Inc (+14.33%), Intercontinental Exchange Inc (+13.33%), and Morgan Stanley (+13.27%).


Utilities (XLU) +6.98%

Utilities climbed to the fourth-best-performing sector in November. Leaders in the sector were: Pinnacle West Capital Corp (+16.53%), Atoms Energy Corp (+13.51%), Consolidated Edison Inc (+12.36%), PPL Corp (+11.44%), and American Electric Power Co Inc (+11.04%).


Real Estate (XLRE) +6.89%

Real Estate was the fifth-best performing sector, with its leaders including: Equinix Inc (+22.48%), Ventas Inc (+18.91%), Welltower Inc (+17.37%), Federal Realty Investment Trust (+12.24%), and CBRE Group Inc Class A (+12.21%).


​Political Events Influencing the Economy
  • Jerome Powell, Chairman of the Federal Reserve, announced the central bank's fourth straight interest rate hike of 0.75% (75 basis points). The good news from the meeting was that Chair Powell signaled that the Fed might lower the size of rate hikes as soon as the next meeting. However, he expects to raise rates to a peak level higher than anticipated.

  • The inflation report for October showed that the consumer price index eased to 7.7% annually and 0.4% monthly. The increase in September was 8.2% year-over-year. Therefore, October's increase was the slowest since January. In addition, the slowdown in core CPI (which removes food and gas prices), which only rose 0.3% monthly in October, is a significant drop from the 0.6% increase in September and August.

  • At the end of October, TreasuryDirect.gov (the website where investors purchase treasury securities) crashed when investors rushed to meet the deadline to lock in the record-high 9.62% interest rate for six months for Series I bonds. I bonds are an asset whose rate changes twice per year based on the inflation rate. Before the deadline, the U.S. Department of Treasury sold $979 million of I bonds, nearly as much in a single day as the entire amount sold from 2018 to 2020, per CNBC. Afterward, the I bond reset fell to 6.89% for six months, which is still the third-highest rate ever.

  • The U.S. Covid public health emergency will remain in effect through the spring of 2023 in anticipation of another winter surge. The emergency, first issued in January 2020 and renewed every 90 days since, broadens eligibility for Medicaid and the Children's Health Insurance Program (CHIP). The U.S. Department of Health and Human Services estimates that as many as 15 million people could lose their benefits from those programs once it returns to normal operations.

  • The U.S. rental market is showing signs of cooling as rents in October rose 4.7% year-over-year, the slowest annual increase in 18 months, according to Realtor.com. The U.S. median rent in the top 50 metropolitan areas in October was $1,734 -- down $25 month-over-month and down $47 from the peak in July.

  • The Department of Education removed the debt relief application from its website after a Texas federal judge declared the program unlawful. The Supreme Court agreed to take on the student debt relief case, announcing it will hear arguments in February. Whether or not you've applied, the Biden administration announced that it would hold on to the 26 million applications as it awaits a court decision. Additionally, President Biden further pushed back the pause on making student loan payments from this New Year's Eve to June 30, 2023.

  • November saw a new law in New York City take effect that requires companies with four or more employees to disclose a compensation range in every job listing. Several states, including Colorado, California, and Washington, have passed similar transparency laws, with more to be expected. In this new pay transparency wave, companies hiring all over the country are likely to include salary ranges in every job posting. Corporations like American Express Co (AXP) and Citigroup Inc (C) have already started, and a majority of workplaces are at least considering it, according to a survey from consulting firm Willis Towers Watson.

  • CVS Health Corp (CVS), Walgreens Boots Alliance (WBA), and Walmart Inc (WMT) have reached a tentative deal to settle thousands of U.S. state and local lawsuits that accuse them of contributing to the opioid epidemic. The pharmacy chains agreed to pay $13.8 billion collectively.

  • Amazon became the world's first public company to lose more than $1 trillion in market capitalization.


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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.


** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.


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