“The market does what it wants, when it wants to do it,” wrote Charlie Bilello, founder, and CEO of Compound Capital Advisors.
Bilello recently shared how in 2020, we have seen a “lifetime supply of material,” the things that the market hasn't been expecting.
It has been the “real-time personification of collective human psychology, with fear and greed on full display,” that provided us with bizarre results. The crypto market is not new to such kind of happenings, but sometimes, even the crypto space manages to surprise.
We saw retail investors paying more than 735% premium to gain exposure to the second-largest cryptocurrency by market cap. Although the premium on Grayscale Ethereum Trust has collapsed since then, it remains particularly high with ETHE at over $70 (each share represents 0.09377463 ETH) while Ether is trading at $244.
However, things were even more bizarre in the mainstream market. If you thought “stocks can’t go up during recession,” you have been proved wrong when stocks rallied hard in Q2 of 2020.
After crashing in March, stocks jumped, Nasdaq climbed to make a new all-time high. The tech stocks were mainly responsible for this as while Apple and Amazon saw their valuation rising more than $10.5 trillion, Tesla has been up 230% YTD.
Even stocks of those companies that went bankrupt saw substantial gains. And Nicola Corp. garnered a market cap of $26 billion with zero sales or earnings.
Not only stocks rallied hard, the terms “oversold,” or ”at support” and “overbought” or “at resistance” lost their meaning.
These stocks were driven by all the free money pumped by the central banks. If you thought the Fed was “out of bullets” and won’t do anymore, the central bank proved wrong through unprecedented measures, which now has many experts warning about the inflation.
The Fed’s balance sheet entered 2020 at around $4 trillion, only to surpass $7 trillion in late May.
But 2020 didn’t only see the stocks skyrocketing but also plunging into nothingness and then continuing to go lower.
Can asset prices go below $0, this year showed us that yes they could. In April, the price of crude oil went negative for the first time. At that time, May futures for US crude oil WTI fell to minus $37.63 a barrel. (can Bitcoin fall to zero?)
The oil market saw its worst crisis in a generation where traders were willing to pay to get somebody to take crude off their hands after the lockdown to stop the spread of coronavirus pandemic wiped all the demand while the market was over-supplied.
Moreover, this year the national debt continued to rise to new highs while the interest rates on some US Treasuries also plunged into negative territory.
There are still five and a half months left in 2020, and the government is planning to put more money into the system while inflation has started to be seen in goods prices, and the recession has been declared.