The Doomsday Narrative Continues

Newsletter of the week 23 September - 30 September. This week’s newsletter covers the potential Credit Suisse insolvency issues, The US Job Report, The BNB smart-chain hack, A Birdseye view of the stock market and Bitcoin price action.
by Yoaquim Boom
October 15, 2022

In this week’s report

  • Credit Suisse, the new Lehman Brothers, or just inflated fear?
  • Unemployment rates continue to rise, what are the effects?
  • Binance BNB chain hack, how much and how?
  • Overall stock market overview.
  • BTC price analysis.
  • Nasdaq price analysis.

Credit Suisse

Credit Suisse has been potentially facing solvency issues, this has most certainly been the talk of the week.

As we covered in last week's newsletter some pension funds have recently been bailed out by the BoE, which included the worlds largest fund Blackrock.

The potential crash of Credit Suisse and BoE pension fund bailout alone perfectly represent the rising fragility of the global economy.

The primary difference between Credit Suisse and the Lehman Brothers case in 2007 is the fact that Lehman Brothers were not at imminent risk for bankruptcy during the beginning of the Great Financial Crisis in 2007, however once sentiment worsened about the investment bank bankruptcy quickly became a inevitable possibility.

So is Credit Suisse on the brink of insolvency and in imminent need of a bailout or buyout?

No, but the market is certainly losing confidence in Credit Suisse due to the low odds of the long-term solvency of the bank.

Although the market is showing signs of extreme caution, Credit Suisse's insolvency is not quite an immediate concern.

Defaulting is not currently the key problem for Credit Suisse, market confidence is the key point.

Problematically, if the confidence continues to drop the main risk for an investment bank like Credit Suisse is that this decrease in creditworthiness will lead to funding issues.

Trouble finding buyers for its short-term debt would pose a great threat to the solvency of Credit Suisse.

A lot of folks are drawing comparisons to 2008’s Lehman Brothers meltdown.

While the market does appear to think there is a fairly significant chance of default that would require a bailout, this would almost certainly not play out any time soon unless some global catalysts cause this default.

While certainly significant to the market, this headline has stirred more FUD than the risk to the international financial system.

Job Report

In the job market, we saw some data this week to show that US job openings fell by 1.1M in August, the largest decline since April 2020.

In August, the number of quits and layoffs both remained relatively flat, showing that companies are not looking to rehire for positions at the time.

So we’re seeing an obvious halt in hiring which will affect numerous sectors of the economy.

Pausing the hiring of new employees is always step 1 before laying off existing employees.

The unemployment rate is a great indicator for the economic cycle but often lags behind the actual markets.

The Fed wants us to look at the delayed indicators so that panic does not ensue. Let’s see the coming week what happens with the big numbers like CPI etc. coming out.

BNB chain hack

Binance’s BNB Chain was forced to temporarily shutdown on Thursday the 6th of October due to a "potential exploit" that on-chain evidence suggested could have targeted up to 570 million dollars in cryptocurrency.

Initial token movements suggested that up to 2 million BSC tokens, worth roughly $570 million, were targeted by the attacker.

But the Binance CEO Changpeng Zhao later estimated in a tweet the attacker was only able to get away with $100 million of that.

"Due to irregular activity we're temporarily pausing BSC," (BNB Chain is composed of BNB Beacon Chain and BNB Smart Chain 'BSC').

BNB Chain tweeted from its official account, later confirming that the activity was a "potential exploit" and characterized the exploit as being 'contained'.

The chain has come back online in full function since the hack and BNB Chain announced that it will hold a series of on-chain governance votes that will decide whether the hacked funds should be frozen.

There will also be a vote on a bug bounty reward system to prevent future hacks from happening.

On-chain data shows that this afternoon two massive withdrawals of 1 million BSC tokens from the BSC token hub by an attacker that hacked crypto assets through their cross-chain swaps, bridges, and borrows.

Finally, BNB's verified Twitter promised "all funds are safe" and said that it will further "help freeze any transfers" (that seemed unsafe).  

Price Analysis : Big Picture Stock Overview

While the major indexes continuing lower is still more likely than not, countertrend rallies tend to come once the index reaches a high level of extension below key moving averages in a bear market.

In these extended downtrends, you tend to see shorts taking profits, this can lead to a nice rally in between the immense bear pressure.

Admittedly, a mass of short closings seems unlikely due to the doomsday narrative which is extremely prominent currently in the markets.

Most stocks look like they want lower and have continued to put in lower as seen in the S&P 500 and even the usually relatively strong QQQ has been underperforming.

To me, it would appear that this isn’t the bottom and is a short rally before continuing lower is more likely than a long-term bottom.

That being said, things change very quickly in the markets and anything is possible.

The Nasdaq (Fig. 1) still seems extremely strong in comparison to the S&P 500 (Fig.2).

Fig. 1 4H NASDAQ Feb 2022 - Sep 2022 (TradingView)

Fig. 2 1D S&P 500 Sep 2021 - Sep 2022 (TradingView)

Price Analysis: Bitcoin

Comparatively to the stock market bitcoin has shown consistent strength by attempting to rally for a while but has faced continuous rejection.

Bitcoin has also shown to be more stable than the US30 and other stocks for a while.

No new lows have been put in for Bitcoin since the June low.

In comparison, the S&P 500 which has been as much as 2% under its June lows BTC has shown great strength.

The final target for BTC still seems clear anywhere from 9-14k.

In light of the final target, the current descending triangle seen in Figure 3 is no good sign for Bitcoin bulls.

A breakout to the upside is possible with the right global market conditions but it is nothing to bet the house on.

Fig. 3 1D BTC Apr 2022 - Sep 2022 (TradingView)