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Weekly Insights
Volume 10, Edition 22 | June 21 – June 25, 2021

Avoiding Crypto-Hype

Doug Walters, CFA
When athletes began publicly announcing earlier this year that they were taking pay in cryptocurrency, it set off alarm bells for evidence-based investors. Recent declines in crypto have turned these headlines into cautionary tales.

As a kid, I remember looking up to professional athletes with dreams of one day making the big leagues. Athletes hold a special place in the hearts and minds of fans, so it is no surprise when we see their likeness in advertisements, hawking everything from beverages to athletic wear. These endorsements are generally harmless, but a recent trend has raised some red flags for evidence-based investors.

Over the past six months or so, we have seen several athletes announce that they are taking all or a portion of their compensation in the form of cryptocurrencies. Some may be doing it on their own accord, while others, like number one draft pick Trevor Lawrence, who has converted his $24 million signing bonus to crypto, are doing it as part of an endorsement agreement with crypto firms. Hopefully, Blackfolio has paid Lawrence a lot for this endorsement as Cryptocurrencies have fallen about 40% since his signing, which could be a $10 million loss for him in a matter of weeks. A simple investment in the S&P 500 over that time period would have netted around $1 million.

I’m sure few are crying in their coffee over Mr. Lawrence’s losses. If he stays healthy, there are likely more millions where those came from. But there are two sad aspects of this story:

  • The first is the apparent lack of guidance from the NFL for these newly minted millionaires. The average player only survives in the league for two and half years. Those that stay longer have to contend with the potential for brain damage and other injuries. These players need a solid financial plan, not a high-risk gamble of their newfound wealth. The NFL is a powerful organization and should be fending off these crypto preditors.
  • The second is the impact these role models will have on their adoring fans. Cryptocurrencies may or may not be the future of currencies, but they are definitely not investments. They are currently backed by nothing more than hype, and often, criminal activity. We do not pretend to be able to predict the future. Many have become very rich speculating in crypto, and more may come in the future. But it is not an investment, and we worry that those fans without disposable cash will follow their heroes down the crypto rabbit hole.

Over the span of a career, be it sports or otherwise, disciplined investing that focuses on evidence and avoids speculation is a proven winner. So keep it simple and enjoy your wealth for a lifetime!

Doug Walters, CFA, Chief Investment Officer

At its core, investing is not hard. There are well-studied investments that historically have provided investors with attractive long-term returns. Over the span of a career, be it sports or otherwise, disciplined investing that focuses on evidence and avoids speculation is a proven winner. So keep it simple and enjoy your wealth for a lifetime!

Headlines This Week

Coming Together

  • President Joe Biden announced that a bipartisan group of senators reached an infrastructure deal.
  • While a much smaller package (smaller by about $600 billion than that initially planned at about $1.2 trillion), Joe Biden is happy that both republicans and democrats were able to produce a deal together.
  • How the bill will be paid for remains a mystery. The left may also not back the deal without assurance of passing the $1.8 trillion American Families Plan. The right might not sign the bipartisan bill if they see it contingent on the additional bills passing.

Major Milestones

  • The new Covid-19 variants Delta and Kappa are spreading across the world and the US. These variants are much more contagious and therefore posing a greater risk for the unvaccinated population.
  • On Tuesday, Dr. Fauci said that the US is unlikely to meet its goal of giving one shot to 70% of the US population by July 4th. Currently, almost half of the US population is fully vaccinated.
  • Pfizer and Moderna may be granted full FDA approval of their vaccines in the coming months.

U.S. Economy

  • New home sales fell about 5.9% in May due to higher prices for building materials.
  • Initial weekly unemployment claims remained above the estimated 380,000 claims. However, continuing unemployment claims are trending lower.
  • The final reading of the first-quarter GDP was in line with expectations of 6.4%.
  • Personal income declined slightly in May while consumption remained flat.

U.S. Gross Domestic Product

The U.S. Economy grew at a 6.4 percent yearly pace in first quarter of 2021. Source: Bureau of Economic Analysis (BEA)

The Week Ahead

Labor Market Check-Up

June’s Nonfarm Payroll numbers will be out next Friday, with all eyes checking in on the labor market recovery.

  • Around 620,000 jobs are set to be added, reducing the unemployment rate to 5.7% from 5.8%.
  • This data release could continue the trend of the US job market, adding jobs at a slower rate than expected.
  • One suspect of the slow labor rebound continues to be the generous unemployment benefits given in the March stimulus package, leaving over 9 million jobs unfilled.
  • Some states start to roll back these benefits, but job growth could underperform until they expire in September, even as the economy reopens.

Got Oil?

The Organization of Petroleum Exporting Countries (OPEC) and its allies will meet next Thursday to discuss oil supply increases.

  • As oil prices have been steadily increasing this year now at a two-year high, OPEC has come under pressure to increase supply to stabilize prices.
  • The group is considering boosting the collective output by 500k barrels a day starting August when it meets next week.
  • To put that in perspective, OPEC slashed production by 9.7 million barrels a day early last year as demand shrunk.
  • Over the past year, cumulative additions will have brought almost 4 million barrels a day back online.
  • As the half a million barrel a day increase is widely expected, any amount less than that could have oil prices climbing even higher.

International Inflation

More headlines to look out for next week include US Consumer Confidence, German and Eurozone Inflation, and Canadian and UK GDP.

  • Germany’s inflation numbers for June next Tuesday will preview what to expect from the Eurozone data on Wednesday.
  • Forecasts point to a minor decrease in annual inflation, which is somewhat surprising as the region has seen oil prices increasing alongside a reopening boom.
  • If the numbers come out with an upside surprise, the European Central Bank is unlikely to worry as policymakers have stressed that transitory inflation is expected and even gone as far as to consider raising its inflation target.

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