There has been so much news and commentary in the run-up to the Labor Day weekend, today we just want to offer our very quick comments so that traders trying to digest all this news can act based on perhaps greater insight. As always, we at iTrust cannot say whether buyers or sellers are more right in any given environment because buyers buying and sellers selling are who and what makes markets. Having written that, we point out:
1) the big news in the Digital Currency space today is the introduction of a potetial new buyer: Van Eck and SolidX are launching a digital currency ETF for institutional investors. If their ETF gains traction by gathering institutional investors such as endowments, retirement assets, foundations, universities, etc., that capital will go into buying Digital Currencies. Please see the companies’ press release, below.
2) occasionally over the past few weeks, each of the 11 “sectors” within the S&P 500 index of the largest market-cap US stocks have all traded in the same direction, ie all up or down all on the same day. Though this is still rare, it has happened occasionally recently. Historically, on most days, sectors like IT may trade up if there is speculation that corporate buyers will spend more money on communications or computing while more conservative sectors like utilities or consumer staples may trade down on those days as investors may “cycle out” of the conservative sectors into the more cyclically-tied sectors on such days. Of course, on “risk off” days, the opposite may be true as investors cycle out of sectors like IT and into the more conservative sectors. However, recently, there have been some articles about what investors can do to achieve diversification within their investment portfolios when all the equity sectors trade in the same direction. Historically, US Treasury bonds and gold have been seen by many investors to be good sources of portfolio diversification. From what we can tell, some investors may now be investigating whether some digital assets such as digital currencies might provide some diversification benefits for investor portfolios. “The jury is still out” and subject to debate, but the fact that some investors just seem to be investigating these possibilities is raising speculation that new investor dollars may find their way into digital currencies. Though these factors would be purely technical (ie not fundamental), if they come to pass they would be a very powerful technical factor. We very strongly encourage investors to pay attention to these potential factors and potential future actors.
Over the next few days, we will seek to explain the “magic” of diversification and how diversification, in and of itself, can reduce risk for a given expected return profile, or, stated differently, increase expected return for a given risk level.
For now, though, we know this is probably enough for a one-day update.
VanEck’s and SolidX’s press release:
Tim Shaler is Chief Economist of iTrust Capital. He is a published Real Estate economist, was a portfolio manager and asset allocation expert at his previous firms and is an adjunct professor at Webster University. His MBA (Finance) and MA in Russian Economic History are both from the University of Chicago.
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