There’s red everywhere you look. It’s almost like Shocktober for the markets. Yet somehow the carnage could have been worse, as different rescuers have emerged on bad news cycle days as Nvidia did with the announcement of 78% revenue growth in Q4 year over year this week1. But the signs are there. We wrote last week of the meme stocks breaking. The first sign of any deterioration is the speculators getting hammered when those investors realize the pockets they’ve been stuffing their gains into have holes in the bottom.
This week we’re seeing the next level of speculative risk cracking and breaking beneath the feet of investors who have too quickly forgotten that crypto has horrific downside potential. Bitcoin is now down around 26% from its all-time high of $109,000. 14% of the downside came this week and it’s the worst week for Bitcoin since November 2022 when the FTX exchange collapsed. If you think that’s the worst case, you couldn’t be more wrong. (We have a saying around here: I’d agree with you, but then we’d both be wrong).
The 3 worst declines of Bitcoin are the following2: from 11/30/2013 Bitcoin dropped 85%; from 9/14/2010 to 10/8/2010 it collapsed 94% as it did from 6/8/2011 to 11/17/2011. If you’re looking for something more recent, no problem. From 11/20/21 to 11/21/22 it dropped 78% and from 4/14/21 to 6/22/21 it dropped 55%. We have gotten to know you all over the years and not one of you (or any of us either) have the stomach to lose that much of your wealth. Ethereum has dropped more than 20% in the last 5 days alone3. It’s getting really ugly in the speculation space. If you are in the space ask yourself if you are so sure of an unending dominance for crypto? After all it may only take one quantum computer a nano-second to crack open all the crypto coding a few years from now …
So what comes next? We’ve seen portents of that as well. In the time after Nvidia posted stellar numbers the company has still been a market casualty as it cratered 8.5% on Thursday. This is the tempest formed when lofty expectations meet lofty valuations. Companies have to be perfect in everything they do, and even if they are, they’re going to get punished with any news that could be construed in anyone’s imagination as potentially negative.
And there is some negative news … Initial jobless claims are up to $242,000 vs. $221,000 estimated, Warren Buffet’s Berkshire Hathaway has squirreled away $325 billion in cash, and the real estate market is rotting with January pending home sales down 5.2%4, a low.
The Magnificent 7 aren’t coming to the rescue this time, at least not yet. YTD moves in the Magnificent 7 include: Tesla -30%, Nvidia -11%, Alphabet (Google) -11%, Microsoft -7%, Amazon -5% as is Apple -5%. The lone winner is Meta Platforms (Facebook) up 12%. The Nasdaq is down 5% this week alone5.
It’s time to recalibrate. It’s time to reconsider allocations to your investments and make 100% sure the income you’ll need is there so that we’re not having to sell positions in a few months at reduced prices. The same mathematical principles that allowed you to grow your 401(k)s while you worked by dollar-cost averaging into a rising market are the very same principles that will cause deterioration of your investments when you sell stocks to create retirement income in a falling market.
We could be completely and unequivocally wrong. It’s always possible for markets with shaky fundamentals to overperform expectations – there are just way too many variables and unknown future breaking news to be certain of anything when it comes to the stock market. Contrary to popular belief advisory firms and family offices don’t have a crystal ball and our Magic 8-ball is dusty and faded. But it’s easy to see the risks quickly rising like that unexpected wave that silently grows into a monster right when your back is turned to the ocean. If any of you have ever been crushed by a wave like that, you’ll never forget the feeling you had as you turned to it a moment too late, your heart stopped and your stomach rose to form a lump in your throat. (Nor do you forget looking in awe afterwards at your broken Boogie Board).
Don’t wait until the moment is too late and the wave has already broken over your head. It’s time to hear what we are saying.
If you listen to us, we’ll change your financial world …
Sincerely,
The WTA Investment Committee
Sources:
1https://www.sun-sentinel.com/2025/02/26/nvidia-fourth-quarter-sales-surge/
2@Charlie Bilello
3@TheKobeissiLetter
4@LizAnnSonders
5https://www.cnbc.com/2025/02/27/stock-market-today-live-updates.html
