In case you weren’t following the crypto scene, “hodl” is a typo for “hold” and someone that became a meme for crypto fanboys to buy and hold crypto for the long run.

close up of coins

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As Josh Brown reminds us, this week is roughly the one year anniversary of when most of the world suddenly realised that people were “making tons of money” from investing in something called “bitcoin”.

Plenty of other cryptocurrencies followed but we haven’t really heard of the widespread use case being implemented. That basically means that the usefulness of bitcoin and other cryptos have not been proven yet. The only thing that has been proven is that the technology consumes a shit ton of energy.

I hate to say I told you so but I told you so (here, here, and here).

The next shoe is already dropping

airport bank board business

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By the way, remember when I said that bitcoin and cryptos were just a symptom of easy money going into certain areas of the market and those areas ride a lot on optimism which has a high chance of not coming true?

That whole setup largely explains why tech has been getting hammered the way it has. Just a few months ago, we were talking about companies with trillion dollar market caps. As of today, Apple’s market cap has fallen to just under $750b and is no longer the largest publicly-traded company as measured by market cap. As of writing, that honour belongs to Microsoft.

Now, don’t get me wrong. I’m not saying that Apple is a lousy investment or a company on the brink of disaster. What I’m saying is that the fact that what’s happening in the markets right now is all a reflection of Mr. Market’s mood swings. Just a few months ago, he was totally positive on tech which propelled Apple and Amazon to trillion dollar market caps. Right now, the bipolar Mr. Market is obviously running the other way.

 

In local news

So what does all the above mean for the local market?

Surprisingly, the STI has held up relatively well despite the carnage in tech. Possibly because the STI is financials-heavy and our markets don’t really have a huge pie in the tech sector. The property and financial sector will hit the STI much harder than anything in tech and to be honest, those sectors have been hit pretty hard already in the last few months.

However, MAS has come out to warn that interest rates are on their way up and that households need to “be prudent”*. For some months now, I’ve been saying the same thing. That if mortgage holders aren’t able to service their loans with an interest rate of at least 3%, then they need to be very careful.

The STI is going to fall much further if an economic downturn happens and interest rates in the U.S. continue to march upwards as that will directly impact defaults in the loan sector. I mean, what could be worse than losing your job while your loans get more expensive?

Having said that, valuations on the STI are not demanding. If you ask me, it’s on the cheap side (but not dirt cheap!) but the macro headwinds seem to be blowing hard.

Notes:

*It’s nice that MAS gives a mention that interest rates in SG are closely linked to rates in the U.S. If you want to know why, here was my take on it.