The Runway, the Stablecoins, and the Condo Hangover

Welcome back to The Cypher!

The week started out…fine. It is ending with renewed concern about war with Iran. Traditional equities, especially AI stocks already laboring under questions about valuation, took it on the chin. Cryptocurrencies, perhaps accustomed to this sort of treatment, held up relatively well.

Against that backdrop, we examined three datasets that might tell us whether conditions are improving: the Strategic Petroleum Reserve and its withdrawal rate, aggregate stablecoin supply, and the national condo bust.

TL;DR: The SPR will not force the war to end anytime soon, stablecoins are beginning to look less negative, and the condo correction may be approaching something resembling normalcy.

Idea 1: The Strategic Petroleum Reserve Has A Long Way To Go

Crypto Twitter is circulating the claim that the Strategic Petroleum Reserve has only 42 days left. It does not.

Using the most aggressive withdrawal rate observed during the previous wartime period, the SPR has roughly 224 days of gross inventory runway. A sustained heavy draw points closer to 277 days.

To empty the reserve in 42 days, the government would need to withdraw about 7.54 million barrels per day. That is more than five times the prior wartime record and roughly 71% above the SPR’s stated maximum design rate.

Takeaway: So, yes, the reserve is being drawn down. No, the United States is not six Tuesdays away from storing gasoline in decorative mason jars. The war may end for many reasons, but the imminent exhaustion of the SPR is unlikely to be one of them.

Relevant Tickers Impacted: SPY, RSP, QQQ, MAGS, IGV, GRID, GLD, IEI, TLT (Note that inclusion is descriptive, not prescriptive, as long duration instruments, such as IEF and TLT bear the most acute risks).

Idea 2: Stablecoins Are (Were) Telling A Story

Stablecoin supply has historically provided a useful signal for crypto markets, although it tends to move with the urgency of a committee reviewing committee procedures. When the smoothed supply trend rolls over, Bitcoin has often declined afterward.

BTC’s recent rally has not been accompanied by a meaningful increase in aggregate stablecoin value. Does that make it a false rally?

Maybe. Aggregate supply has at least stopped falling sharply. That is an improvement, but it is not yet confirmation of renewed liquidity entering the market.

Takeaway: The stablecoin signal has gone from clearly negative to approximately neutral. That is better, but this indicator does not yet provide meaningful support for a bullish case.

Relevant Tickers Impacted: BTC, IBIT, MSTR, STRC, COIN, RIOT (Inclusion is descriptive, not prescriptive; note that not all tickers are strongly correlated with BTC’s price movements.)

Idea 3: The Condo After Party Has Ended

Condos saw breathtaking price gains from mid-2020 through mid-2022, rising 50% to 70% in some cities. Across the decade leading to the peak, prices climbed roughly 180% to 350% in these markets. With a 20% down payment on a property that tripled in value you’d be approaching 1,000% return (in equity). That’s crypto moon-boy math with granite countertops.

Like all bubbles, the party eventually discovers closing time. Thirty markets are now down between 15% and 33% from their peaks.

The image tells the story. The Y-axis shows how much appreciation remains since 2000. The X-axis shows the decline from peak prices. Upper right = pretty good. Lower left = expensive round trip.

Tampa, Reno, and Manhattan remain resilient. Austin effectively round-tripped roughly 25 years of real gains.That is a very long journey to arrive back at the same airport.

Takeaway: A condo correction was probably inevitable. Some markets are considerably cheaper now, but cheaper does not mean finished getting cheaper. This is worth watching.

Relevant Tickers: Z, RDFN, VNO, SPG, HD, LOW, ITB, VNQ, XLRE (Inclusion is descriptive, not prescriptive; some commercial names may decouple from sector trends.)

Final Remarks

“I will tell you how to become rich. Close the doors.

Be fearful when others are greedy. Be greedy when others are fearful.”

– Warren Buffett

Applied to the current market, Buffett’s advice might produce an uncomfortable shopping list.

AI stocks, particularly semiconductors and infrastructure names, are beginning to approach investible territory. Bitcoin may be inexpensive. Condos may be worth examining in the right cities.

None of that means prices cannot fall further. It means the distance between “wildly expensive” and “interesting” has narrowed.

The war with Iran continues to weigh on markets, but geopolitical pricing can reverse quickly when conditions change. Until then, Buffett’s other great contribution to investing may be more useful: waiting patiently for a spectacular deal.

We believe knowledge is power. If you learned something, share The Cypher. Help others before a CNBC anchor starts yelling at them in all caps.

Happy Trading!

The Team:

Sebastian Purcell, PhD

Julian von Loesch, PhD

David LaRoca, PhD

Elyse Purcell, PhD

Todd Mei, PhD

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