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Trader With 380% Gains in 2022 Tells Us Why He’s Fully Allocated to Cash (Szn 5, Ep 6)

Last updated on March 16, 2023

Season 5, Episode 6 feat Mark Szemeszki

This podcast episode brought to you by Covey — Covey is designed to find, reward, and train the next top investment managers —from any background—that anyone can copy, so everyone can win.

Mark Szemeszki joins the podcast to discuss his highly profitable short crypto trades from last year and why his business cycle theory has him sitting in cash.

Content Highlights

  • Three-hundred-and-eighty percent (380%) returns last year. How did he do it? (2:47);
  • The macro view and leading indicators are pointing to a recession right now, which makes risk-taking more problematic in the short term (4:17);
  • His short crypto trades predate the FTX saga (7:33);
  • More on his business cycle theory (10:32);
  • Inflationary pressure is real, including from China’s reopening (13:37);
  • More information on catalysts sought when shorting altcoins (16:17);
  • Shorting the narrative on altcoins is a good strategy if you can get a good entry point (20:20);
  • Background on the guest (25:08);
  • More on his trades last year (27:13);
  • Probably 99% of crytpo currencies are useless, even Bitcoin and Ethereum (29:37).

More Information on the Guest

Quick Highlights From Our YouTube Channel

Transcript

Nathaniel E. Baker 0:09
Mark Szemerszki joining us from Denmark. You are on the podcast because our partner site covey.io. And you place to the very top of the returns for participants on that website with 380% returns in your portfolio over the past year. Past performance is not a guide to future results, as we all know. But I’m very curious to how you achieved this return over the past year. And then I’m also curious to find out about how you are positioning your portfolio going forward. I just noticed that it is right now 100% in cash, that could be due to some issue, but you’re nodding your head. So that appears to be correct. So let’s start off with telling us how you did this returns over the last year, what kind of trades and positions you had on?

Mark Szemerszki 1:35
Okay, so just to first start up on this question, I joined Covey a little bit earlier, so I had some time to test this website and how it works. So I played around with the leverages, and what kind of financial assets are available on COVID. And I have a method, which is kinda too short altcoins which start to increase in price compared to Bitcoin and s&p 500 meaning that I’m following the correlation between these three assets, meaning that s&p 500 Bitcoin and altcoins. Moreover, I’m following the financial assets which are related to macroeconomics macro economical performance, like how does it look like for example, gold or DXY, and VIX, of course, what to look up on the volatility, because, according to my thesis, like my macro thesis is that around two weeks ago, three weeks ago, we were in a zone that it was not certain that we will have a soft landing, or we will have a recession after all, but in my opinion, if you look at now, the leading indicators and the yield curve, there are parameters, which shows 100% probability that we will have a recession after 18 months, 12 months or something like this. So knowing that I have always a short term play and the long term play, and I’ve always tried to position it on the on the long term, meaning that even though short term I’m not right, and long term, I will be right eventually. Let’s hope so. So that’s how I speculate.

Nathaniel E. Baker 3:34
Okay. you introduce a bunch of stuff there. So I just wanted to cut you off, because there’s a bunch of stuff right there. Yeah. For us to talk about. Before you go any further though. I want to ask you about you say the correlation between Bitcoin altcoins. And the s&p? Yes. Okay. These are they don’t all move together. Certainly Bitcoin and altcoins I would suspect would move together. And I just thought that Bitcoin was basically a risk gauge in general, which meant it would kind of move with the s&p. But you’re saying that’s different?

Mark Szemerszki 4:08
Yeah, I mean, there is a high correlation, usually. But however, there are those events meant, for example, Bitcoin goes up, and s&p 500 goes down. And the alt coins are going up, VIX, it’s going down and DX y is going up like these are really rare pieces. And I think it happened already once or twice. And these open up opportunities, meaning that something is off with market pricing in the short term. And there are other other events which are paying as well for example, there was now some code like z k roll ups narratives. So it says that to be honest, I have no idea what this z k roll ups means in technicalities, but basically According to my observation, like It’s like another layer on a cryptocurrency and it’s going to make it much more efficient and blah, blah, blah, blah. But to be honest, to me, it doesn’t matter, because to me, it seems that the mercury economics indicator shows recession. And even though these odd coins go up, like 200 300 percentage, it’s not sustainable. Is that possible is sustainable?

Nathaniel E. Baker 5:29
So it sounds like you bet on the mean reversion almost like you have a quarterly, okay?

Mark Szemerszki 5:35
Yeah, it’s it’s quite complex play and you have to really pay attention for the riskiness as well, because I had before you invited me to this podcast, actually, I made the mistake because I was too aggressive and I was not facing into the street. Bit by bit, I was pretty aggressive. So I put like, 100% of my portfolio on a trade and I lost like 20% in like three hours. So that

Nathaniel E. Baker 6:04
you’re the first person the first trader in history to ever be aggressive in his trades, too aggressive. But yeah, but that all that that is a pretty big bet. There. Okay, so So you had this Bitcoin short on last year? It was short versus the s&p, and you put that on before the whole FTX break down and everything else?

Mark Szemerszki 6:24
to be honest, I think I was shorting generally cryptocurrency because this this FTX moments or even how should I elaborate, it was actually a black swan event, because it’s, it’s almost came like nowhere, because no one really expected that it can happen. I’m sure there were people who were already started the investigation and they realized something that something is off with them, how did they make that lot of money, so something was not alright with them. So they came from nothing really fast. And they made like, they created their algorithm, their backends their, their UI, and everything went surprisingly well, until they had liquidity problems. And until they realized that they were actually making their valuation higher and higher, using their coin. So something that was off as well, me personally, I didn’t really look into that. But then then you start to raise interest rates, and when you start to tighten up, then there should be some consequences. Like everybody needs liquidity. So yeah,

Nathaniel E. Baker 7:35
yes, yes, indeed. So at what point last year, did you go short Bitcoin? Do you remember?

Mark Szemerszki 7:40
I think it topped around 64,000. Right.

Nathaniel E. Baker 7:43
Or something’s like last year, the year before?

Mark Szemerszki 7:46
I’m not certain, but it had a double top. I remember I and the first top. I was short. Back then. However, I didn’t realize that it’s going to do a double top. So there I’ve actually lost some money. Like, person or money. Now initially device. Yes.

Nathaniel E. Baker 8:15
But then it reversed in your favor.

Mark Szemerszki 8:20
Yeah.

Nathaniel E. Baker 8:22
I’m looking here. It’s funny how fast we forget. Yeah, the 60,000. That was in in October of 2021. So that was that was the double top that you’re talking about? Yeah, just early, it started 2022 or 38,000? or so. And, and went up to 47,000. In March?

Mark Szemerszki 8:52
Yeah. Yeah. I mean, double totally depends how it depends on your perspective

Nathaniel E. Baker 8:59
yeah, so that turns out to be the high for the year in March. And then it went down, of course, as well as low as like, whatever it was in the 14 1000s, I guess.

Mark Szemerszki 9:07
Yeah.

Nathaniel E. Baker 9:09
Very interesting. Okay. So that was your trade for last year. Now, you’re talking you talk about some of these these macro inputs that you have a yield curve inversion, and how these are all pointing to recession? Tell me talk to me about that, what are these macro inputs that you have right now.

Mark Szemerszki 9:25
So, basically, I have this business cycle theory, you know, which starts with the expansion and after that peak, and after the tightening and after that phase, which actually shows that we will have the financial markets bottom so basically, everything wiped out the businesses which could which were not sustainable. They were wiped out. And to be honest, if, if, if you like, think and look at the financial markets, you actually start to notice that at the time when everything buttoned, that time, actually, productivity and technology somehow starts to grow. It’s somehow it’s like a renew, it’s just renewal, the economy renew itself, like, it’s like, it comes into equilibrium, it kills the, the participants are not should not get money, like liquidity for the IDs, basically. And then, this time, the economy became really expansionary due to the COVID, as everyone knows, so it’s it had a fiscal stimulus, monetary stimulus. So, in my opinion, now, everybody became addicted to this liquidity, and it still needs time to, to, to resolve this problem. And currently, if you look at the wage growth, the the labor market, actually the rich, it’s still growing. And in order to have a lower inflation, unemployment has to rise. In my opinion, unemployment is a crucial point, pushing down inflation. And until it doesn’t, it doesn’t increases, then, in my opinion, the Fed has a really tough job to push down. And if you look at the yield curve, the yield curve inversion inversion, yes. So you have the two years and, and the 10 year care, those are inverted. And historically, it says, like 100% probability, and above that we have the smaller yield curves as well, which I don’t remember exactly, but I think it’s the two year and three months of yield curve inversion, which is a smaller one. That’s actually history. Crete has a good recession. concernant. And besides that, economically leading indicators as well. So in my opinion, now, at this point, the probability is higher, it shows higher for recession than too soft landing. But it’s personal, like, no one knows the future.

Nathaniel E. Baker 12:12
Oh, well, you don’t? Well why are you on the podcast then? Come on? No, I’m kidding. No, that’s fair. Now the question that I would have, and like you said, it is all about that. And as if unemployment is still low, and inflation is so high, and we saw last week, the PCE deflator came in much higher than anticipated. So inflation is pressure is real. So the Fed can’t cut rates. I think that was all part of the equation we knew. But if you’re saying that there’s going to be a recession, shouldn’t that reduce the pressure on the Fed and then allow the Fed to cut rates if we had if we do have a recession sooner rather than later?

Mark Szemerszki 12:52
Yeah, that’s, that really depends. I mean, I got I get your point, according to my observation, if they are going to cut rates, then it’s going to result in higher inflation, which is not going to not good for long. So so it depends what what they will have, they will look at it, like do they want to save the economy? Or do they want to push down inflation? And if I’m looking Jill geopolitical reasons, as well, it depends, because as you know, like China, it’s opening up, and in my opinion, that’s going to export inflation, to invest and us and everybody in the in the short term. In the long term, it’s good for everybody. But in the short term, looking at China has QE, and it has the monetary tools to do this expansionary to expand its economy, then it will have consequences on the Vert. So, in my opinion, it’s really complicated. And knowing about the war between Russia and Ukraine, what what really gets through, like, what’s going to happen there. So in my opinion, the VIX price really love looking at this uncertainty. Like To be honest, I do not get it. Why people are so certain that financial markets are going to perform well in the future. Yeah, like they actually think that soft landing is possible. Yeah.

Nathaniel E. Baker 14:30
Yes, indeed. And many have been on this podcast, and I have good points, but so do you. And so as a result of your views here, now you are in 100%. Cash? Yes. And what would you what would it take for you to change that?

Mark Szemerszki 14:45
I haven’t talked about like in detail. What am I looking at? Like? I introduced you about the correlation. Strategy. I mean, starting strategies like a method but tell us first to filter what’s going on. And after that, I’m looking into To the liquidations, like the proper liquidation, which can happen, meaning that you can get the term looking at, I don’t know, the future, and the futures market on an odd coin pair, which is USD T and scale or something like that. And this is related to COVID. So you can look it up that at what level it will initiate liquidations, and when the liquidation is initiated, then it’s going to push up or down the price depending on where it’s located the liquidation level? And what meaning that you have, for example, you have I don’t know Bitcoin, and it is 20,000 today, and you can see that there are, I don’t know, 10,000 futures open contract, it’s positioned at the 15,000 level. So those are long. And if it goes below that, then it’s going to be liquidated or on the opposite side, if it’s 25,000. Bitcoin price 25,000. And so on the 25,000 level, there are 15,000 short positions, then it’s going to initiate liquidation as well if they push up the bitcoin price, meaning that if they push up the bitcoin price, then the price of Bitcoin will increase much rapidly.

Nathaniel E. Baker 16:36
Okay, because of the way that these options traders have positioned.

Mark Szemerszki 16:41
Yeah, I mean, it futures, futures markets. Yes,

Nathaniel E. Baker 16:44
you’re right futures. And you’re saying that these alt coins also have futures prices?

Mark Szemerszki 16:49
Yeah

Nathaniel E. Baker 16:51
I didn’t know that.

Mark Szemerszki 16:52
Yeah, they use actually perpetual futures.

Nathaniel E. Baker 16:57
Okay, so here’s somebody who’s I’m a novice in the whole, complete. Yeah, send the whole Bitcoin crypto world. So there’s a way that you can see here, what the futures are pricing. And I guess what the bets are?

Mark Szemerszki 17:11
Yes, and that’s another thing that you can addition to this liquidations, what you can look look up, you can take a look at order flow, meaning that you can take a look at the limit orders on on the market, let’s say you have 10,000 limit orders on 25,000 Bitcoins, so they want to sell the Bitcoin for 25,000. And so that will get absorbed. So meaning that microstructure wise, you can somehow see how this, how the momentum is going to play out. And as I told you, I’m trying, I tend to position it towards long term meaning that even though like short term, it pushes up like another 20 or 30%. There, it’s like it hurts. And I would think twice that Okay, should I close my position? Or should I let it open? But depending on these parameters, I decide what I’m going to do.

Nathaniel E. Baker 18:23
Interesting. Okay. So and right now these parameters are not giving you any clear direction one way or the other.

Mark Szemerszki 18:30
Now, to be honest, now I’m I’m clueless what to do. And sometimes it’s better to do nothing rather than losing money.

Nathaniel E. Baker 18:40
Correct? Correct. What kind of levels would you need to see here to until you’re comfortable taking, taking a position?

Mark Szemerszki 18:47
Well, I think shorting narratives like crypto narratives, which I think that’s a pretty good strategy. If I believe we will have a recession and the Fed will cut rates because if not, then it’s going to hurt. But yes, I have other ideas, but it will, it will specifically focus on the option markets because there it has these levels as well. What I’m talking about, however, options market introduces other levels, for example, Delta level, or GM GM level, which has a similar dynamic like liquidations what I taught you, I haven’t really explored that that mattered yet. I actually have wrote my master thesis about that, but I still need more time to to explore. However, this narrative plays currently But yeah, work well.

Nathaniel E. Baker 20:02
And so these altcoins that you mentioned, what are they called?

Mark Szemerszki 20:05
Basically, it doesn’t matter. It shouldn’t be Bitcoin or etherium. Because these are too big. And it should be small. It should have smaller market caps. Meaning that I think, if you look it up on on on coin Gecko, or or, or what’s the other site where you can look at these coins?

Nathaniel E. Baker 20:26
I don’t know

Mark Szemerszki 20:29
Coin market cap. I think then these coins position it between 100,200 market cap. Okay. Is that? Yeah, I mean, that’s more or less because there are smaller ones, I would say. Like middle cap. Yeah. Like it’s

Nathaniel E. Baker 20:46
a mid cap. altcoins for okay, but you don’t have any positions right now?

Mark Szemerszki 20:50
No, no, no.

Nathaniel E. Baker 20:50
Okay. Interesting. All right. That’s all very interesting. Mark Szemerszki I want to come back and ask you some more about this about your views on markets. And more importantly, about your background, you touched on it, your master’s thesis, that will be the what we kick off the second half of the show with, but let’s first take a short break and come right back. If you aren’t a premium subscriber, you will not get the break. So don’t touch the dial. We’ll be right back. In fact, we already are.

Welcome back, everybody. This is the segment of the show where we ask our guests to tell us a little bit more about themselves. And what they’ve been doing in their life, and professionally, especially to get them to this point. And yeah, so what are you doing other than trading? And it’s it sounds like you’re still in school there and in Denmark? But yeah, tell me.

Mark Szemerszki 22:00
Yes. So basically, I have, like a little history, how they ended up in Denmark. But yeah, I always start like, how did I get interested in economics and finance. So basically, I was 18 and 19. And my family wanted to push me to become an engineer. But instead of that, I was really interested in history and economics. So it was not really a clear path for me. And somehow, I ended up in Denmark, where I started sales and marketing. And I noticed that Well, I think pursuing finance would be much better for me knowing that I liked math. And in Denmark, this education locked net. So I started accounting and finance. And they’re a majored in finance, and they finished accounting and finance ministers. And during my education, I started to look at option trading and, and futures trading. And I just wanted to try myself out because, you know, theory and practice, it’s do other thing. And it’s really, really different. But, as everybody knows, in 2020, when oil went negative, One really good example, where it’s better to start practically to do something with yourself. And

Nathaniel E. Baker 23:36
yeah, interesting. Very cool. All right. So let’s talk about so you got 380% returns last year 380. And this was all off of the Bitcoin short.

Mark Szemerszki 23:49
Um, to be honest, I made some besides that I speculated on oil price, meaning that I’m not specifically speculating on stocks, but I would specify specifically these speculate on indexes, like okay, or big commodities.

Nathaniel E. Baker 24:12
Okay, so it’s basically the future it sounds like index futures are interesting indexes.

Mark Szemerszki 24:16
Yes, index ETFs, or whatever. ETFs exist. Yes. Yes.

Nathaniel E. Baker 24:20
So what led you to your long oil last year?

Mark Szemerszki 24:25
it was the time when Russia attack on Ukraine. So it was a it was an external shock, shock to oil. So it started to go increase and I just went on the train. I didn’t. I didn’t get the trade from the bottom part. But I think the war was another external shock, which led to this inflationary period what we face now as well.

Nathaniel E. Baker 24:56
No question. Yeah, in fact, the war actually delay The Fed’s rate hike their first rate hike. I believe they even said so they were ready to hike in February and then they didn’t until a month later.

Mark Szemerszki 25:08
Yeah, it’s the same day how the they had the COVID cut, because they already started to raise rates, but they had to cut. So basically, that’s another reason I think the recession has a high probability because they already started to cut, they only started to raise because they know that something is off with the system. And I think that time something was off with the repo market, which was another indicator of the have some mistake, mistakes errors in the system.

Nathaniel E. Baker 25:43
Yeah, yeah. You’re going back to 2019. Now, when they were when they were raising rates, yes. Yeah. Interesting. Okay, and so now so you so what kind of instruments doo doo? Are you looking to trade now? Is it would it still be indexes, and bitcoins and altcoins?

Mark Szemerszki 26:02
My honest opinion is that 99% of the cryptocurrencies are useless.

Nathaniel E. Baker 26:09
what’s the 1% that aren’t? Are you just saying was it just a matter of a figure of speech?

Mark Szemerszki 26:18
Yeah, I mean, it was a figure of speech. My my honest opinion, I do not really believe in Bitcoin either, and neither in Aetherium and defy and these other cryptocurrencies, but I could see the ratio, the rationalism behind bitcoin and Aetherium, I could see, but I’m not like, a really huge believer.

Nathaniel E. Baker 26:39
Okay. So for the other ones, just from a fundamental basis, you’re Yeah. But okay, so what would let you what’s, what’s stopping you from shorting them? And

Mark Szemerszki 26:51
so, the thing is, with humans, humans are drawn to narratives. And that’s all these have been, and this one change, in my opinion. So until you have this herd effect, then who knows? Like, it could generate such a huge momentums at times, then that on the long term, I wouldn’t really short Bitcoin. So meaning that long term, I wouldn’t get into a position that I’m like, okay, Bitcoin is going to go to zero. I think Bitcoin won’t go to zero. And most certainly, I think it will have a really rough time. But it could go up, actually quite high, knowing that narratives are actually can drive people. And it can end it can create huge momentum and creating that narrative that we have this fed created business cycles, or whatever, that we inflict all of our fiat currencies, like it can draw many people behind bitcoin.

Nathaniel E. Baker 28:07
Sure, sure. I see. So that can keep it from collapsing, I guess. But ultimately, I mean, when you have a recession, especially if it’s a deflationary recession, then people are going to need to liquidate assets and you figure something as speculative as Kryptos. Yeah. would fall victim to that one would think, right?

Mark Szemerszki 28:29
Yes, yes. Yes, of course. Like I think it’s going to hurt really, really bad. Badly. Bitcoin, like, it will go to zero. Closer to it. Yes.

Nathaniel E. Baker 28:46
Interesting. It’s interesting that you said, a lot of things you’re talking about here, it sounds almost like economically, you might be expecting stagflation, which is, you know, low economic growth with inflation, like we had in the 70s here in the US at least fairer you think not,

Mark Szemerszki 29:03
I think I elaborated on on the beginning of the the liquidity and how I think economic growth it’s actually performs. So meaning that when we hit the rock bottom, there should actually innovation and technology should rise, in my opinion, but it could happen that we are going to have this stagflation, like, two or three years, but like, it really depends. Like yeah, it in my opinion, depends on the verse together, what how it’s going to play out like the geopolitical issues, the trading network, what’s going to best publish to the tune? And there are many other external factors to decide that if it’s this, we will have this stagflation a period or not. Right and us I think that’s I’m definitely it’s it’s it’s a huge country, which has a huge balance in terms of trade, trade balance. So it’s hard to describe that we will have stagflation, but I think it, it is probable that we will have.

Nathaniel E. Baker 30:20
How do you know when you say that there’s technical and technological innovation at the bottom? How do you know when we’ve reached bottom?

Mark Szemerszki 30:28
That’s a good question. To be honest, I haven’t really talked it through yet. I think I cannot turn switch for this question at this moment.

Nathaniel E. Baker 30:38
That’s, that’s, that’s an honest more of an honest answer than many people give. Okay, all right. So but but not a not an environment to take risks. What do you think of Have you thought at all about bonds? There’s some talk now, about people taking buying short duration bonds, because you get a coupon?

Mark Szemerszki 30:57
Yeah. Yeah, I think it’s a valid strategy right now, you do it with these short maturities. And I think it could work out however, someone should be. Some should be aware that don’t prices, like bond prices still can decrease. Yeah. So if they make this play, then they have to be aware that in my opinion, it hasn’t worked on yet.

Nathaniel E. Baker 31:29
All right. Mark Szemerszki thank you so much for joining me contrarian investor podcast today. So in closing, can you maybe tell our listeners how they can find out more for more information about you?

Mark Szemerszki 31:40
So basically, I just created a Twitter account for myself because I haven’t I was using and it’s MSzemerszki and I haven’t really published anything yet, but I will work on it.

Nathaniel E. Baker 32:02
Okay, okay. @Mszemerszki, you’re on there, and the covey, link, I’ll put that out there as well. I believe people can access to that. Cool. Awesome. Well, thank you, Mark, for coming on. Very interesting conversation. It was great having you. Thank you all for listening. And with that, we look forward to speaking to you again next time. See you then.

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