Monthly Market Debrief

Market Snapshot

The stock market continues to sprint uphill hitting all time highs near daily. Donald Trump’s election win rallied the market in early November. Then… the CPI report came out showing that prices went the wrong direction increasing to 2.6%. The Fed continues to talk about rate cuts while inflation has never actually hit their 2% target. I am not saying I was right about the Fed cutting rates too early, but I am saying the soft landing has yet to happen.

After hitting an all time high on November 12th, the S&P 500 fell 2.6% over the next three days following the CPI report. 

Thankfully, investors shook off their concerns and pushed the markets to newer all time highs making November the best month of 2024 for all three major indexes, with the S&P 500 closing at over 6,000 for the first time.

Continue to ignore those who say the market “must” come down. Don’t try and predict the market. Invest in it, forget about it, and be happy. 

Company Highlight - MicroStrategy Inc

No, I didn’t miss a decimal point. MicroStrategy was up a whooping 58% in November and 254% this year, beating NVIDIA. So what does this company do?

MicroStrategy was founded in 1989 as an analytics software company then expanded with some mobile applications and cloud services. It went public in 1998 with a $1.1 billion evaluation and hovered around $2 billion until 2020. Enter bitcoin. 

In August of 2020, the company bought 21,454 bitcoins at $11,652. This started consistent bitcoin purchases with their current total at nearly $38 billion in bitcoin. Since November 11th alone, they have bought over $13.5 billion of bitcoin. 

Their strategy is supported by the “pro-crypto” President-Elect Trump promising to create a national crypto stockpile. On election day, bitcoin was around $68,000. By November 30th, it hit $96,000.

So how has the market cap of a company with $38 billion in bitcoin risen to $92 billion? It is not their software business which reported $496 million in revenue in 2023. Essentially, MicroStrategy has become a bitcoin ETF with a valuation that far exceeds their holdings. It genuinely doesn’t make sense. All my podcasts were talking about this company because it defies logic. 

Last week, they issued $3 billion in debt with 0% interest and over 50% premium on the stock price. That means, people lent the company money FOR FREE with a stock conversion price (the value of the debt if they converted it to stock) over 50% higher than the current stock price. People believe the underlying value of bitcoin will increase so much that the debt will be profitable. Basically, people are giving MicroStrategy money for free to go buy more bitcoin. 

So why don’t people just use that money and buy actual bitcoin?? Most investors are likely using this offering as leverage for other option trades. It’s too complicated for this letter (read: I don’t understand it at all), so we won’t get into it now. 

All that to say, be careful out there. Invest in ETFs because you never know what company is a secret crypto ponzi scheme. 

Current Event - Undersea Cables 

Have you ever wondered how the internet in America talks to the internet in Europe talks to the internet in China? Long undersea cables, like really really long cables. A lot of them.

These cables transmit data for everything from cat memes to nuclear weapon capabilities. Ever since they were first placed, nations have conducted dangerous operations to place listening devices on the cables. Ivy Bells was a successful US operation to place a device on a Soviet cable during the Cold War.

These cables are vulnerable to complicated wire taps and simple cutting operations. On November 18th, two cables connecting Finland-Germany and Lithuania-Sweden in the Baltic Sea stopped working. Accusations quickly started to point at one Chinese bulk carrier ship that had taken a path over both cables at the time they stopped working.

Back in September, the US warned of this exact thing. US intelligence agencies “detected indications” of Russian activity to sabotage undersea cables. I wonder if they picked up this intelligence through…. an undersea cable we tapped?? A true full circle moment, possibly.

The ship is accused of dragging its anchor across the sea floor for over 100 miles. Although incompetence can’t be ruled out, it is unlikely in the calm weather a ship wouldn’t notice poor performance and a dragging anchor. Although a Chinese ship, most countries think Russia is still behind the attack. It doesn’t help that a few days earlier it was docked at a Russian port.

The ship and crew is still under investigation. We will see what the investigation reveals.

What We’re Listening To:

Podcast - Morgan Housel: Understand and Apply the Psychology of Money to Gain Greater Happiness. This is a Huberman Lab podcast (which many of you probably rolled your eyes at). Put aside your preconceived notions and give this a listen. If you have read the greatest money book ever (The Psychology of Money), you’ll love some additional insight from the author. If you haven’t, you will want to read it.

Debrief on Deck

Next week, we will talk about debt consolidation. It’s honestly not complicated… but how do banks make money doing it?