I have something special for you.
Instead of my typical article or video, I’m sharing my recent interview with Agora Uncensored.
Garrett Baldwin and I chat about the big picture in our current market, and how it’s affecting the specific sectors I follow and trade in — the macro and the micro, you could say.
Here are some of the highlights:
- What’s going on with the Federal Reserve and the housing market. (1:15)
- The four financial services I offer, and my amazing team. (4:05)
- Why growth stock investing is like rice on a chessboard. (4:55)
- Why I consider myself a “momentum trader.” (9:05)
- Crypto investing vs. central bank digital currencies (CBDCs). (11:45)
Check out the video below for more:
If you’d like to read a transcript instead, keep reading!
Q&A: Ian King Talks Market Momentum, Crypto & CBDCs
Garrett Baldwin: Hi everybody. Welcome back. I am Garrett Baldwin, editor of Agora Uncensored. We are taking a look behind the company, the trades and having private conversations exclusively for Agora Uncensored readers.
We have a very special guest back. He was one of the first interviews we had at Agora Uncensored and we’re doing it in studio this time. This is Ian King, the editor of Strategic Fortunes.
Ian, welcome back. Great to be with you and everyone here in the audience watching. Tell us what’s going on in your world. The weather is perfect down here.
Ian King: The weather has been perfect. The market, not so much this year. It’s been a tougher year for investors, but if you look at the history of bull and bear market cycles dating back to WWII, 77% of the time you are in a bull market the remaining 20% of the time you are in a bear market.
We’re just kind of moving through that bear market part of the cycle right now. That’s what’s been happening. We are looking for the best opportunities we can with the markets down and position ourselves for the next bull cycle to start.
The Federal Reserve & the Housing Market
Garrett: Let’s take a step back for the people who had not seen the previous interview or don’t know your background. You started as a bond trader at Salomon Brothers focusing on the mortgage markets. You’re the person I want to go to and talk about what’s going on in the housing market right now.
We’ve seen a huge shift in this market. The same mortgage you could have had for $500,000 last year, now that $2,500 payment is like $337,000. What are you seeing in the housing market with the focus on the asset prices, but also with what the Federal Reserve is doing?
Ian: When you look at the mortgage market there are a lot of comparisons people are trying to make to the financial crisis, especially yesterday. You saw mortgage purchase apps down 40% year over year (YoY). It means basically the demand for buying has dried up.
Refinances are down 90%, which you would expect because the interest rate on a 30-year mortgage has gone from 3% earlier this year to about 7% currently. I think the main difference in the housing market now and in 2008 is that 90% of mortgages right now are 30-year fixed.
In 2008, it was different. We had a lot of floating-rate bonds. When interest rates went up in 2008, you had a lot of forced selling. I don’t think you’re going to see that in the markets. You’re not going to see the same type of housing crash we saw back 12 or 14 years ago now.
The complexion of the people who own the mortgages has changed. You’re not going to have forced sellers. It’s bad news for millennials who are trying to start household formation, start families and buy new homes.
The other bad news too is with mortgage rates so high, it means someone who might typically sell their house and downsize, like a retiree, is going to say, “OK, I have to take out a 7% mortgage when I locked in at 3%.” There’s a huge amount of refinancing that happened over the last couple of years.
It meant people were able to lock in the equity in their house for basically 3% over 30 years. That was probably the greatest trade so far this century when you refinanced your house over the last couple of years when rates were so low.
Garrett: So people shouldn’t be as concerned about this financial cycle with housing as we were in 2008?
Ian: I think you should be concerned if you are looking to buy a house more than anything else. Specifically because you aren’t going to have that forced selling. So where is the supply going to come from? We know new home building has not accelerated, especially on the low end.
Builders have been building high-end houses for the last decade and not really worried about the first-time homebuyer. The other thing about where does the supply come from, well, divorces and people who die. That’s the only forced selling you have.
Maybe you’ll have a case where enough of that happens, where there’s enough forced selling that it will bring down home values. But it’s not going to be like 2008 where all the sudden people realize their monthly payment went from $1,000 to $2,500 or something like that and they are forced to get out of their house.
Garrett: Let’s get away from illiquid assets and let’s talk about liquid assets. You have four services and a free newsletter. I’m not going to ask you to name all five of them, like if you had five kids and you’d have to remember all their names.
Ian: I love them all individually, Garrett.
Garrett: Really quickly, do you even sleep? That amount of research has to be a unique process to constantly be providing that much information to so many readers.
Ian: I have a great team behind me. I’ve got a number of analysts and editors who help. We have a whole video production team. It’s not just a one-man show. I would like to say it is, but nobody is capable of producing as much research as our entire team does for all the different services. I do get to sleep, to answer the question.
About My Trading Philosophy
Garrett: We’ll get to the team in a second. I want to ask you a question that a lot of people are always curious about. Sometimes editors leave. Sometimes people depart and we roll services up into other leadership. What is that process like to take on readers that they may not be familiar with you and you may not be familiar with them?
Just a little bit on that process. I know you are going through that right now.
Ian: Sure. We had a colleague leave recently and I wound up inheriting a number of his publications. I think it was an easy transition because our philosophy in investing is very similar. I look for where you can find the most growth in the market.
Some people want to invest in value. I get emails all the time asking, “Why don’t we buy this value stock?” That’s just not our forte. We are high growth, high risk areas, especially in technology which happens to accelerate faster than people’s linear expectations.
A good parable about this is the chess parable. It talks about the guy who invented chess went to the king at the time and the king wanted to reward him for creating this incredible game. The king says, “What can I reward you with?”
The gentleman says, “I want you to start on the first square with one grain of rice.” Remember, there are 64 squares on a chessboard. “And every square, I want you to double that amount.”
By the time he got through the first half of the chessboard, the man owned a football field worth of rice.
It was the second half of the chessboard where he owned what would be equivalent to Mount Himalaya of rice. The king wound up beheading him because he was never going to pay his debt. That was a story to explain exponential growth.
Things might start slowly, but if the trajectory is going to continue to double or grow at an increased rate, you’re just going to see massive growth ahead. That’s the pace that technology has increased since the Information Age started.
One way to explain it is Moore’s Law, which says that the size of a semiconductor halves every 18 months. So you can get the same kind of computational power on one semiconductor every 18 months at half the size. That’s been constant since semis were invented in the 1950s, although it’s slowed down a little bit I would say in the last decade or so.
Garrett: That’s a great comparison on exponential growth. I have heard the chess parable before. The other comparison is if you drop a speck of water on a football and double it during a game, how long until Soldier Field in Chicago is underwater. It’s 46 minutes.
Ian: That’s incredible.
About My Team
Garrett: That speaks to the idea of what the potential is of the things you’re trying to identify. Again, let’s talk a little about your team because I know you’re not doing everything on your own. We are going to be interviewing Amber Lancaster as part of this interview process.
I want to talk about that collaboration because it’s unusual in this publication environment to have a former hedge fund manager and a Bloomberg data analyst working together. What is that process like?
Ian: Amber is so special. She is incredibly dedicated to what she does. If there is any piece of information or alternative information, Amber finds it. She comes up with great ideas. But I think what’s more important here is Amber and I, our values are aligned.
Amber is a purpose-driven person. It means she knows she’s making a difference in the lives of our readers. When you have that value, you are going to work harder and exceed all your competition. I think that’s my number one requirement.
People say, “Go into finance because you’ll make a lot of money.” If you go into any field looking to make more money you are going to fail. You have to go in with a purpose, with a mission. The most successful people in finance don’t enjoy the splendors.
Look at Warren Buffett. The guy is driving a Dodge K-car from the 80s and still lives in the same house since the 1960s. For him, it’s how can he beat his competition evert day and succeed. For us it’s how do we bring great ideas to our readers.
About Market Momentum
Garrett: Absolutely. People know me. They know I’m a momentum trader. They know I focus on that and other anomalies, value and insider buying. But I want to hear how you define momentum and how you trade it because I think you have a much different approach than I do.
Ian: Yes. There’s momentum in earnings or revenue forecast. You can have increased momentum whereby a company reports its earnings and then guides higher. Then you see it has fundamental momentum.
There’s also technical momentum, which we saw for 2020 and 2021. Not so much this year. Those are the different factors of momentum we look at when we give trade advice. Or areas where we think momentum is going to pick up if it’s been accelerating to the downside or decelerating and might have an opportunity to turn around.
Garrett: Just so everybody knows, momentum is an anomaly. It’s one of the most powerful anomalies in the market. In this year, as trading momentum I have always effectively returned to certain trades I have found to be reliable in these type of conditions.
We’ve had a significant amount of bouncing up and down. Lots of bull traps, bear market rallies. I have returned to shorting ChargePoint every now and then or trading the S&P 500, the SPY momentum in oversold conditions.
I have been able to do this a couple times this year. What are the things you go back to and return to every time you are looking for a trade idea that you know works for the type of systems you operate?
Ian: That’s a great question. When I worked at a trading firm a long time ago it felt like the best traders, the ones who were the most productive, traded one or two stocks they knew very well. It was a different scenario back then because you could read the tape and you could understand when institutional orders were coming in.
Now, everything is quantitative. There are algorithms that come in and push odd lots at the market. You don’t really know who the buyer or seller is. I think in cryptocurrencies there is still an opportunity to trade technical levels just because the larger quant funds haven’t moved into that market yet.
It’s very difficult for them because they have to figure out how they are going to custody the crypto assets. They have to figure out whether or not their investors will allow them to buy this asset class.
I think for the last five or six years, crypto — whether it be technical analysis or momentum — has been a lot more predictive than traditional stock markets. There’s a lot less noise. Things go down to a certain level of support, then move up to resistance and stay within a trading range.
If you’re a technical trader or momentum trader or short-term trader, those are the kind of assets you want to work with.
About Bitcoin as an Investment
Garrett: One of the most important, I think, interviews I have done this year was sitting down with you talking about bitcoin and why bitcoin pulled back the way it did. Falling under $20,000. I had just gone to the SALT Conference. I was surrounded by a lot of crypto investors, people who were starting crypto projects.
They all had these really intense long-term projections for the end of the year that we were going to hit $100,000, hit $1 million by the end of 2030. You really broke down what is happening with the Federal Reserve.
Has your view shifted in any way for the short term on bitcoin? And then where do you think we’re going to be headed into 2023 or 2024?
Ian: Great question. I think that we are probably in a sideways holding pattern, in bitcoin in particular. I think what’s happening in central banks — before this we talked about what’s happening in the UK where they are doing quantitative easing again.
I think central banks are pretty much hand tied. They have a couple tools in their book which is cut rates to zero and also do quantitative easing, which is purchasing long-term assets. That causes inflation and devaluation of fiat currencies.
I don’t see them creating new tools any time soon. If we do get in a state of quantitative easing again, I think the crypto assets, which are alternative currencies, permissionless, they are not governed by a central organization, you can buy them anywhere in the world.
People are now looking at them as a store of value. Institutional managers are allocating a percent of their portfolio to the crypto market, specifically to bitcoin and Ethereum. I think that narrative is going to continue. You could see a renaissance in crypto assets.
Everyone says, “This is going to be bad.” Think about a situation in Argentina where you’ve had runaway inflation for literally the last century. You have a scenario now where you can get out of your fiat currency and buy Bitcoin.
But I think cryptocurrencies will act as a macro stabilizer. It’s going to keep governments honest with their fiscal deficits, with how much they spend, with how much their central bank can print, which is sort of a misleading term, because you had that alternative.
It’s sort of like the sword of Damocles where it’s hanging over the king’s head by a horse hair. If he does anything wrong it’s going to fall. You kind of want that asset class out there to straighten governments and fiscal deficits to more in line with what is historical.
About Central Bank Digital Currencies (CBDCs)
Garrett: What do you think the response will be with the Fed potentially moving down the road and starting its own crypto? We want to talk a little bit about CDBCs.
Ian: CBDCs.
Garrett: CBDC or CD?
Ian: CBDC — central bank digital currencies.
Garrett: OK. It’s a lot of letters. It’s a lot of alphabet soup. Explain what’s going on here. This is a massive development over the next four to five years, particularly as some of these central banks are threatened by these decentralized projects around the world.
Ian: Sure. Just to be clear, central bank digital currencies (CBDCs) are like the opposite of cryptocurrencies. When you think of a cryptocurrency, it is an asset class that has no centralized government. If there’s a centralized government it’s usually a decentralized autonomous organization which has voting and can change the protocol. That’s cryptocurrencies.
On the other hand, you have government trying to create CBDCs which are effectively a new form of money. If you think about how American money has basically been cash, before that it was gold, then it moved to deposit notes which turned into cash.
Later, obviously now we have digital cash where you can Zelle anyone money or you can send PayPal. What the central bank is trying to do is create a cashless society where there’s no such thing as cash. The main purpose of that is to break the zero lower bound (ZLB) in macroeconomics.
I said before the central bank only has a number of policies: they can cut rates to zero and do quantitative easing. Both are a hammer and a sledgehammer. With a CBDC, they think they can be more precise. It’s more surgical.
You have dollars in a bank. If all of a sudden Citibank said they were going to impose negative interest rates on you, what would you do with your cash? You would get it out of there.
Garrett: Absolutely.
Ian: You’d either put the cash somewhere in your backyard, bury it somewhere, put it in a safe somewhere, or you would spend it on something or you would invest it. Because you cannot take cash out of the bank, that effectively means that the Fed can set an expiration date on your cash.
They can drain your reserves over a certain period of time. If they impose a negative 5% interest rate, that means over 20 years or so you are not going to have anything left in that bank account. It’s a huge development. The other part is they will be able to track the velocity of money throughout the economy.
They now look at credit card data and bank data, but they will be able to look at everyone’s individual transactions, what they’re buying, what they’re spending their money on.
Garrett: Going into their bank accounts, actually seeing in real time what you’re buying and where you’re moving your money?
Ian: Right, because there’s no cash. So if you think about a future where there are algorithms, artificial intelligence and machine learning programs that are extremely effective in locating any anomaly in society, you might have a bit of cause for concern.
I think one of the great liberties of being an American is being able to have the choice without having government interference. If you have something like a digital dollar, the Fed could overnight say anyone who drives a gas guzzler or a car that gets less than 15 miles per gallon, we are going to impose a tax on you at the pump.
We’re going to do that on an individual basis. So they do that to incentivize people to get more fuel efficient cars. Maybe you think that’s a great idea. To me, I don’t. I like the variety of choice.
Garrett: That sounds horrifying.
Ian: Exactly. Especially if it’s retroactive. They didn’t tell you that before you went and spent money on something that doesn’t get you 15 miles per gallon. I think that is definitely one of the dangers of society.
This is not a new theory to me. I have actually been thinking about this for quite some time. After I left the hedge fund I did some private investing. One of the meetings I took was with a company — 11 years ago now. A nondescript company out in California.
I signed an NDA so I won’t share too much information. But basically, they created a way to print a digital dollar that they Federal Reserve can use away from the banking system. The device was a piece of hardware the Fed could plug in, they would create all these digital dollars and then unplug it so nobody could hack into it.
Now, that got me thinking about cryptocurrencies. Initially when I heard about Bitcoin I was a skeptic. The first time I heard about Bitcoin I was walking in lower Manhattan during the Occupy Wall Street Protests. This was back in 2011.
In Zuccotti Park you had hundreds of people, mostly hipsters and millennials, that were sleeping in tents overnight. There was a sign that said, “Please donate. Send Bitcoin here.” It piqued my interest. What is this asset they are trying to raise?
I was skeptical at first. I was worried about potential illicit uses of it. It wasn’t until Ethereum came along that I kind of understood that you now have an alternative currency to the government in Bitcoin, but you also have something that’s programmable.
What Ethereum allows you to do is create specific conditions where a contract has to be settled. That can be anything from sports betting online, which is a massive industry; to gaming, which is $250 billion a year; to the whole financial sector, which is trillions of dollars a year, moving to the blockchain because of what Ethereum will allow you to do with financial services contracts.
Garrett: These are all things that I don’t see on CNBC. I don’t see people talking about CBDCs on Bloomberg that often. Just the idea of crypto. It gets attention in the mainstream press, but not down on a level that you bring on a day-to-day basis.
If people are interested in learning more about your views on crypto and what you think the best projects are, what the best place to do that?
Ian: Check out my service, Next Wave Crypto Fortunes.
Garrett: OK. Next Wave Crypto Fortunes. You can also learn more at IanKingGuru.com. I’m going to get you out of here on one last question. You’ve been here quite a while. You’ve been with Banyan Hill for how long?
Ian: Five years now.
Garrett: Five years. So I asked this question earlier, but if you started this process all over again and you were interviewing yourself for the role you took, if that person were to ask you, “What’s it like being here? What’s it like working here?” What the first thing you would tell yourself?
Ian: Go all in. I think this has been the most rewarding endeavor of my life. I am able to basically impact outcomes. I love learning. For me, that’s first and foremost. Literally in my career I have left jobs because I felt like I wasn’t learning enough.
What this allows me to do is learn as much as possible. In doing so, I am allowed to teach people. If you want to be able to master something you have to be able to explain it in a way everybody can understand, which is what I love about the creative process here.
I am learning about some type of new technology or some type of new investment strategy and I am able to share that with other people. For me that’s purpose-driven work. I would tell myself to join Banyan. Hands down. No problem.
Garrett: Ian, thank you so much for your time. Everybody, this is Ian King. He is the editor of Strategic Fortunes and a couple other services. He claims he sleeps. If they want to learn more about crypto and the things you are tackling now, where would they do that?
Ian: They can check out Next Wave Crypto Fortunes. That’s our specific crypto-focused service. You can follow me on Twitter: @InvestWithIan. Or you can check out our website. Also, the Winning Investor Daily channel on YouTube.
Garrett: Alright, thank you so much for your time today. Again, it’s IanKingGuru.com. He’s got four services and one free e-letter. He claims he sleeps. Here he is. Thank you so much for joining us today. I am Garrett Baldwin with Agora Uncensored. We’ll see you next time.
Thanks for Tuning In!
I hope you enjoyed that. I certainly had a good time chatting with Garrett!
But before I sign off for today, I just want to say thanks for being part of the Winning Investor Nation! I couldn’t do it without you.
Regards,
Ian King
Editor, Strategic Fortunes
P.S. For more ongoing AI coverage, check out Ian King AI energy insights here.