Daniel Kostecki knew the future, and yet the analysts are right? [Interview]

Exactly 2 years and 3 months ago Daniel Kostecki gave an interview in the Forex Club, in which he revealed his approach to investing, shared the backstage of a stock market analyst's work and presented his market tips for the following quarters. If you haven't read this interview (it is available here), we encourage you to do it before reading the conversation below. Are you curious how it went? As an encouragement, we can only say that shockingly good!

From January 2023, he is the Chief Analyst at CMC Markets Polandpreviously worked as a company analyst Conotoxia, but also the director of the Polish branch of this broker. Despite much more duties, he still finds time to comment on market events on your Twitter. We could not resist the temptation to question him about future market prospects in these extremely interesting times. We also decided to check whether analysts only like to tell themselves about coffee grounds, or whether they really sincerely believe in their forecasts and monetize their knowledge on the stock exchange.

Once again, we would like to thank our interlocutor for the knowledge and experience that he decided to share with us. We hope that the latest forecasts will also come true!

PS They do not constitute any recommendations or investment advice, so treat them as a non-binding "fortune-telling" :).

Daniel Kostecki - He knew the future, and yet the analysts are right?

Forex Club: It's been ... 25 months since our last interview in the Forex Club. So my first question - how are you?

Daniel Kostecki: Alright, thank you so much. 25 months, not much, but during that time a lot has happened both in me and in the financial markets. The tremendous volatility caused by the effects of Covid and the war shook markets and the economy as a whole. This has often led to unprecedented events, such as huge drops in stock and bond prices all at once, and witnessed a massive rise in inflation and an unprecedented rate of interest rate increases. Apparently you've seen a lot, but there is still something new, and this time on a huge scale. Personally, it gave me more experience and probably a few gray hairs, having experienced so much fluctuation and being involved in the markets at that time. After investing relatively easily during Covid, the current markets are much more demanding.

FC: As not only an analyst, but also the director of the Polish branch of Conotoxia, responsibilities have certainly increased. And those that do not have much to do with the markets. How do you find yourself in this role? Do you still have time to trade actively?

UK: In fact, I have not been “actively” trading for several years. After 2014, when I took the position of director of the market analysis department, I did not have much time for day-trading. It seems to me that the more time passes, the longer time horizons I adopt. In college, it was trading during the day or holding a position for several days. Currently, this horizon has definitely lengthened. Thanks to this, there is more time for other duties, be it life or work. By the way, it is an interesting experience as the approach to trading changes with the changing situations in life. Probably only after retirement will I be able to return to day-trading;). Additionally, the approach to capital changed during this time. Day-trading mostly took place on relatively small amounts, because the goal is usually to earn a "day wage". A small amount + leverage. Meanwhile, longer horizons require more capital and less or no leverage. However, then one specific transaction is enough for a long time to feel its financial effects. This, too, I think is a significant change.

FC: Has your strategy changed over the last 2 years? Do still # you race withTFI? In September 2020, your 3-year cumulative rate of return was over + 450%. How is it today?

UK: I'm not racing anymore, because I have outdone everyone else (joke), but that's how most people invest in Covid. It was hard to lose money back then. After the covid boom, I closed a large part of the position. I invested these funds in real estate in the form of plots of land in Masuria, and implemented my plan to buy my own residential property without a loan. It has always been important to me in order not to have financial obligations. The investments allowed me to achieve this, which I am personally very pleased with. Currently, therefore, it is the largest item in my "wallet", and still cryptocurrencies, which you will probably also ask about ... 🙂

FC: That's right! First things first. In the last interview, you gave some signals, which, to put it mildly, proved to be a great success, for example, the weakening of the dollar (it lost around 5% against the euro), an increase in oil prices (they rose by nearly + 200% to the peak), or cryptocurrencies - including time on BTC began gigantic increases (+ 500%). The predictions about the government's policy on lockdowns also came true. Before we get to the question you probably already have a feeling, let me ask: Did you profit from it?

UK: Much like the answer to the previous question, but I was also left with some cryptocurrencies. Here, I think I learned another very valuable lesson from the market. This volatility and the current bear market has highlighted my greed and confidence and my disregard for other scenarios. The current bear market has shown me how important humility and clear thinking are, not just the pursuit of profits with blinders on. Nevertheless, I realized some of the items, and with what I have, I'm still in the black overall, so in the worst-case scenario, the adventure with crypto will be my greatest emotional roller-coaster in my life.

FC: Okay, now it's time for a more obvious question - what are your outlooks at the moment? Do we have a low on the indices? What about the oil? Do you think cryptocurrencies will face a several-year winter?

UK: After the cash / dollar phase of the cycle, it seems to me that we are entering the bond phase in the United States. This is usually not an exciting time, as it is simply doing nothing and cutting off the coupons. In the US, they may have the advantage that bonds may pay more interest than inflation will soon rise there, i.e. a positive real interest rate will appear. In Poland, or more broadly in Europe, there is no such possibility in the near future. Inflation may still be above interest rates, which forces capital to protect against losses, but does not provide any investment guidance. You could say that the Covid period gave investors the opportunity to earn hundreds or thousands of percent, and now 10 or 12 percent. you have to give it back, such a natural sequence of things.

Nevertheless, if I were to identify interesting markets, I would financial sector in the USA (e.g. ETF about the ticker XLF extension). High interest rates are good news for banks, and according to forecasts in 2023 the US economy is set to recover. Part of this recovery will be financed by credit. So the increase in demand along with the increase in the interest margin sounds good. It may look interesting when it comes to riskier assets silver. An ounce of silver at the time of writing this answer costs $ 21. Meanwhile, the same ounce, but in the form of a silver coin (and the most common American Eagle) costs $ 35. This has the potential for futures prices to rise by around 40-50%, as physical silver is scarce on the market and still in demand.

Is on Bitcoin do we have a dimple? For months, probably most crypto enthusiasts have been wondering about it. The cycles after 2012 and 2016 clearly showed that you have to take into account corrections of the order of 80%. The current one differs only in the scale of the money invested, hence it is more media oriented. Before it was millions of dollars, hundreds of millions, and now it is billions. Nevertheless, it is still the same cyclically. We have 30 months after the last halving, i.e. a period of cyclical low / consolidation before a possible new wave of growth. Historically, the first impulse was around 170 percent. Hence, in the first quarter of 2022, we may see BTC over 30. USD. If, however, cyclicality fails, so do levels> 100k. USD at the end of 2021, you know what may happen next ...

FC: You mentioned the ETF. In recent years, passive investing has become very fashionable with the use of these instruments. So what do you think about this approach at the present time? Isn't this the perfect time to start building broad-market exposure with a long-term view in mind?

UK: In this case, the passive ETF can be actively traded. That is, the trader creates his own basket that he can juggle with changing circumstances, and the ETF's job is to reflect the underlying index. So we are not talking about strategy here buy and forget, but about the selection of generalized instruments for the sector, country or risk. ETFs allow you to have exposure, for example, to the entire sector, and it is up to its creators to choose companies for the portfolio and their weight. All this, of course, can be checked on the issuer's website, what is the investment policy. It seems to me that the question concerns buying, for example, a wide one S & P500 index and hold. I, on the other hand, wanted to draw attention to sector rotation, i.e. a more active approach to passively managed funds.

FC: In the last interview, we asked you about your most painful transaction. You mentioned the transaction on GBP / USD and a drop of 400 pips in a few hours. Recently, the volatility in currencies is similar to that of a few good years ago. The cable has recently managed to complete a session with a fluctuation amplitude close to 600 pips, and 350 pips has become the standard. Have you "severely" made a mistake in recent months, or is the current Daniel Kostecki not making such mistakes?

UK: As I mentioned before, my biggest "mistake" right now was letting my own greed cover my eyes. This did not lead to a loss, but led to an unrealized profit. I don't know what's worse at this point :). While I am able to deal with the risk, there is an issue in the bull market, to paraphrase the classic, when to leave the dance floor, undefeated. Perhaps many investors experienced it during this period of strong boom. Then, according to the stock market saying - Investors can be divided into profitable and long-term ones. For me, it is a confusion of these two issues. 

FC: Failures always happen. After all, there are no infallible traders. How are you dealing with them now? Do they influence your future decision-making in any way or has experience already taught you everything?

UK: First of all, timing, i.e. the moment of entry / exit in connection with events in the market environment. Waiting for BTC levels to skyrocket, knowing that we are moving towards QT and increases by Fed, led me to focus on the price level rather than the exit time. It seems to me that the price in such moments is secondary, and the timing is crucial and it does not matter at what price the transaction is made. This is what the last year has taught me. The price is a product of some market-related events and what its level will be when the environment changes, it is very difficult to predict.

FC: Pandemic, war, energy crisis. What do you think will be next?

UK: In two / three years we process economics textbooks, and the entire world society has accelerated economic studies. From a recession in a pandemic, to a surge in economic growth after lockdowns, to a slowdown / recession during the war along with a burst of inflation, which is basically stagflation. This, by the way, is amazing in terms of the pace of change and events. There is no deflation in this puzzle. I think that this is what we will be heading for - maybe not necessarily in Poland, but for example the Bank of England expects inflation to drop to 0%, so it will be easy to brush against deflation. China already has deflation in its PPI, and the United States may be next. Only after this episode is there a chance to go straight, i.e. a very moderate GDP growth with very moderate inflation.

FC: So we will have to wait for the next boom. However, if you were to create a simple wallet for the next two years - what would be in the basket and with what share?

UK: 10 percent BTC, 10 percent silver, 20 percent gold, 20 percent US bonds (AGG), 40 percent. financial sector in the US (XLF). 

FC: Thank you for the conversation!

Neither the author of the interview nor Conotoxia Ltd. are responsible for the investment decisions made on the basis of the information contained in this interview.

The above commercial publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of 16 April 2014. It has been prepared for information purposes and should not constitute the basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this publication. Copying or reproducing this work without the written consent of Conotoxia Ltd. is prohibited.

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