Online Course Notes For Financial Markets
Gold and silver jumped overnight while the US Dollar took a header.
Other commodities are up as well, except for copper and iron ore. And coffee (thank goodness!)
Bitcoin rose above $40,000 before settling to just below $40,000.
Here is the crypto monitor as a 10:50AM EST.
Bitcoin surged to over $40,000 as a flurry of short-covering intensified a rally apparently sparked by speculation over Amazon.com Inc.’s involvement in the crypto industry.
A job posting from the retail giant seeking an executive to develop the company’s “digital currency and blockchain strategy” stirred questions among analysts over whether the move could eventually lead to Amazon accepting Bitcoin as a method of payment.
As the largest digital token gained on the speculation, investors rushing to cover bearish bets fueled the rally, with the coin up as much as 15% to $39,681 on Monday. More than $950 million of crypto shorts were liquidated on Monday, the most since May 19, according to data from Bybt.com.
Compass Crypto Volatility Index Bitcoin – 20%
Both Bitcoin and Ethereum are up big today.
Bitcoin and Bollinger Bands.
Bitcoin and Ichimoku.
An Elliott Wave Analysis of Bitcoin.
Elder Impulse System and Bitcoin.
Elder Impulse does not refer to President Biden’s rambling, often incoherent speeches.
Since the Covid outbreak of March 2020, The Federal Reserve entered markets in force, spiking their assets purchases and continually expanding their balance sheet.
Consequently, stock and bond market volatility (as measured by VIX and MOVE) have been repressed.
But commodities are a different story.
Crude oil futures are tracking The Fed’s balance sheet pretty closely while coffee “Arabica” futures have soared since July 17th. On the other hand, lumber futures prices have declined considerably since spiking in early May. Steel rebar prices have risen dramatically since mid-December 2020, a month before Biden’s inauguration as President.
Now, that’s volatility.
Home price growth jumped from 4.28% YoY pre-Covid to 14.59% after Fed intervention.
Fed Reserve Chairman Jerome Powell using his stock and bond market volatility repression beam.
Yesterday’s dive in equity markets have been nearly erased as the Dow rose 600 points today. But the alternative asset Bitcoin fell below 30,000.
Bitcoin is down around 3% today with Dash down 9%. It seems like winter for cryptos.
What does the Ichimoku cloud look like for the New York Stock Exchange? The cloud is below the current NYA level (white line).
Bitcoin/USDollar cross? The same. Bitcoin/USDollar cross lies above the cloud.
If you trust technical studies like Ichimoku, that is.
Ever since the US Dollar went off the gold standard, it is only the good faith and credit of the Federal government with its taxing authority that stands behind it. Ethereum and Bitcoin and also Fiat currencies with no backing. And while Goldman Sachs prefers Ethereum to Bitcoin (as risk-on devaluation bets), “Gold is a value buy” according to Goldman Sachs’ Jeff Currie and his Commodities Research group.
But today it looks a race to the bottom for fiats.
Since May, we have seen both Bitcoin and Ethereum fall from record highs as the US Dollar crawls back.
And while Goldman Sachs prefers Ethereum to Bitcoin (as risk-on devaluation bets), “Gold is a value buy” according to Goldman Sachs’ Jeff Currie and his Commodities Research group.
Ah, the good ol’ days of the gold-backed dollar.
Not …
Banks like JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley are taking a cautious approach as they wrestle with how best to offer their clients access to cryptocurrencies. While several now clear crypto futures, most have largely steered clear of other services, according to a Bloomberg analysis of the offerings from some of the world’s biggest banks. The Basel Committee on Banking Supervision said June 10 that lenders will face the toughest capital requirements for holdings in Bitcoin and other crypto assets.
Cryptos are acting very crypt-like (as in dying) with most of the cryptos down 15% today.
Why? A good guess would be China’s crackdown on non-PBOC crytos. And then we have Senator Elizabeth Warren advocating for the US government to seize control of the crypto market and have The Fed offer a cypto alongside it normal money printing functions.
The banks have been quicker to embrace the underlying technology that underpins such digital assets. JPMorgan has been a longtime proponent of Ethereum, the world’s most-used blockchain that uses smart contracts to accomplish blockchain-based tasks that are impossible with Bitcoin.
In one example, JPMorgan is using its private version of Ethereum to conduct overnight repurchase agreements where digitized U.S. Treasury bonds are swapped for JPM Coin, the bank’s version of a digital dollar. It says it’s doing more than $1 billion of such trades a day.
Not surprised that Elizabeth Warren wants to regulate cryptocurrencies.
Students, go to Fred and type in PPI Final Demand. Create a chart and choose Change From Year Ago.
What you will find is that the PPI Final Demand is up 16.8% in May since the same month last year.
Consumer purchasing power keeps declining since the creation of The Federal Reserve System in 1913. This chart shows the decline in purchasing power since the peak of the housing bubble in 2005.
Margin debt hits another all-time high.
The Federal Reserve’s theme song should be “If we print the money, honey, you’ve got the time … to invest.”
Here is a chart of various asset prices since the Covid virus struck in March 2020 when The Federal Reserve massively increased their balance and lowered their target rate to 25 basis points.
The Case-Shiller National home price index (HPI) is up 13.2% since Covid and Fed intervention. The Russell 2000 index is up a staggering 123.2% and the MSCI US REIT index is up 79.6%. Commodity prices are up 48.8%.
Notice that before Covid struck and The Fed intervened with a massive increase in M2 Money, commodity prices were falling and the Russell 2000 was pretty flat. Home prices were increasing, but not at a 13.2% clip.
Is this inflation, economic growth and/or a massive asset bubble produced by The Federal Reserve? The economy is growing and Washington DC is doling out money like there is no tomorrow. But if the economy is so hot, why is The Fed holding off on rate increases given that inflation is heating up?
Housing is hot in Russia, Turkey, Portugal and, of course the USA. New Zealand too.
The USA, Canada and Colombia (along with the UK, the EU, Sweden, Norway, Finland and Saudi Arabia) are at zero or near zero. Throw in Australia at 0.05 and Japan at -0.1% and we have the makings of a global bubble.
Inflation may be transitory if Washington DC somehow can’t keep spending and slows down.
Here is an interesting interview with David Hunter.
Yesterday’s GDP report was great with real GDP growing at a 6.4% annualized pace.
To get 6.4% annualized GDP growth, The Federal Reserve had to print a massive amount of money. Even with a great GDP report (preliminary), M1 money velocity is at a historic low. In other words, the US economy got relatively little for all the money it is printing.
Things improved if we look at the broader definition of money, M2. Again, despite the excellent real GDP report, M2 velocity for Q1 actually declined since The Fed went ballistic printing money. Again, the bang for the buck, so to speak, is near the historic low.
Today’s release of personal income and spending shows that personal consumption expenditure (PCE) rose 28.5% YoY in April. Zowie!!
And the PCE PRICE index grew at 3.58% YoY, the highest since 2008.
The good news is that The Fed is slowing its M2 growth rate YoY. We shall see if Q2 GDP growth slows as well.
Then we have this chart showing the massive expansion of The Fed’s balance sheet and the near-zero Fed Funds effective rate. Fuel for the Veloci(ty)raptors! We will discuss the relationship between bank reserves and money supply when summer class begins on June 21st.
Another troubling chart is average hourly earnings of all employees, year-over-year. That is 0.3% in April and is not a great signal for Q2 GDP.
Then we have CPI growth (aka, inflation) growing at 4.2% YoY, the highest since 2008 and The Great Recession.
We shall see if President Biden’s $6 trillion budget 1) gets through Congress and 2) whether the money passes through to workers.
Lastly, I want to reiterate the decline in purchasing power of the consumer dollar since the creation of The Federal Reserve in December 1913 when the dollar had a base index of $994.2. The index is now at $37.4. That is a 96% loss of consumer purchasing power since The Fed’s creation.
Yes, The Fed’s veloci(ty)raptors are hard at work destroying the US Dollar.
