It has been a tough 7 days for Bitcoin, Ethereum and the NASDAQ composite index as The Fed is anticipated to raise their target rate AND engage in quantitative tightening.
While the NASDAQ composite index has been deflating over past 7 days, Bitcoin and Ethereum plunged in recent days. What is going on??
The Russell 2000 value (white) and growth (green) indices are both deflating.
With regards to anticipated Fed rate increases, Fed Funds Futures are signaling almost 4 rate hikes in 2022 and 4 by the February 2023 meeting.
Then we have the massive increase in The Fed’s balance sheet after COVID struck in early 2020. Now, with the S&P 500 skyrocketing (until 7 days ago), why is The Fed buying sooooo much Agency MBS??
For Bitcoin, there’s only been one constant recently: decline after decline after decline. And the superlatives have piled up really quickly.
With the Federal Reserve intending to withdraw stimulus from the market, riskier assets the world over have suffered. Bitcoin, the largest digital asset, lost as much as 8.7% Friday and dropped below $38,000 to its lowest level in six months. Since its peak in November, it has lost 40% of its value. Other digital currencies have suffered just as much, if not more, with Ether and meme coins mired in similar drawdowns.
Bitcoin’s decline since that November high has wiped out more than $570 billion in market value, and roughly $1.17 trillion has been lost from the aggregate crypto market. While there have been much larger percentage drawdowns for both Bitcoin and the aggregate market, this marks the second-largest ever decline in dollar terms for both, according to Bespoke Investment Group.
“It gives an idea of the scale of value destruction that percentage declines can mask,” wrote Bespoke analysts in a note. “Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”
Bloomberg
With the Fed’s intentions rocking both cryptocurrencies and stocks, a dominant theme has emerged in the digital-asset space: cryptos have twisted and turned in nearly exactly the same way as equities have.
The banner headline is … US existing home sales declined 4.6% MoM in December. But that isn’t the interesting news. The interesting news is the mystery of the missing housing inventory. While various pundits told us that inventory would be returning … it isn’t. And the median price of existing home sales is up 14.85% YoY with insane Fed stimulus still in play.
That was December. What will January bring with rising mortgage rates? Freddie Mac’s 30-year commitment rate rose to 3.56% today.
When will housing inventory for sale start to increase? Probably about the same time The Fed ACTUALLY starts raising interest rates and paring back on the monetary stimulus.
Massive Federal stimulus (both fiscal and monetary) have led to bidding wars among the wealthiest Americans. Despite clamoring for The Fed to increase rates and speed-up the shrinking of The Fed’s balance sheet, nothing has happened … yet.
(Bloomberg) — Home buyers willing to spend almost a $1 million are competing the most for a piece of the red-hot U.S. housing market.
Homes priced between $800,000 and $1 million saw the highest rate of bidding wars at 64.6%, followed by 62% for homes between $1 million to $1.5 million and 61.7% for homes above $1.5 million, according to December data from Redfin Corp.
“Buyers should anticipate that they may not win a house until their sixth or seventh bid,” Candace Evans, a Redfin team manager in New York, said in a statement. “If you’re the type of person who falls in love with a house, this is not your market.”
Salt Lake City had the highest bidding-war rate of 37 U.S. metropolitan areas analyzed, with 74% of offers facing competition in December, the firm said. Tucson had a 73.1% bidding-war rate and followed by 71.1% for San Diego.
Prospective buyers are competing for homes as relatively cheap mortgage rates and a proliferation of remote-working opportunities in the wake of the Covid-19 pandemic boost demand for homes in smaller cities. The number of available homes in several of the hottest markets continue to shrink.
Nearly 60% of home offers written by Redfin agents across the U.S. faced competing bids in December, the firm said. It was the lowest rate in 12 months but an increase from 54% in December 2020 as pandemic-driven demand for housing remains strong.
Vacation homes, which are often pricey and have increased in popularity due to Covid-19, may have contributed to bidding wars in the high-end market, Redfin said. Townhouses had a bidding-war rate of 62% followed by 61.3% for single-family homes, the firm said.
Now its a race against the clock as potential home buyers try to beat Powell and the Gang as they raise mortgages rates.
Yes, Federal stimulus has made the top 1% increase their share of total net worth that includes $800,000+ homes.
Well, Omicron is hitting hard. Not the virus itself, but governments’ reaction to the virus. The NY Empire Manufacturing Index has tanked into negative territory.
New orders are down 5%.
On the energy front, West Texas Intermediate Crude Oil futures are up 79% since January 1, 2021 while regular gasoline prices are up “only” 50% over the same period.
How about inflation and the Treasury yield curve? Inflation has soared to 40-year highs under Biden as energy prices (WTI Crude Futures) have soared 79%.
Container ships are still backed-up at LA and Long Beach ports. I thought Mayor Pete was supposed to fix the port congestion problem!
Since the 2020 Covid outbreak, the top 1% have been on the Stimulypto gravy train. The top 1% in terms of share of total net worth (blue line) is near the all-time high while the bottom 50% share of total net worth (red line) is at the all-time low.
So, you thought all that Covid relief spending along with Fed monetary stimulus would help the bottom 50%?
Inflation is burning out of control. While home price growth has been off the cherts (as Jean-Ralphio would say), commercial real estate has jumped incredibly at 22% YoY. The Bloomberg charting function hasn’t updated for the Q4 NCREIF report yet so I had to manually write-in 22% on the following chart.
So, what will happen IF The Fed follows through with its monetary stimulus reduction? JPMC’s Jaime Dimon warns that The Fed could hike 7 times in 2022 and not be ‘sweet and gentle’.
It is somewhat mystifying that markets would be soooooo sensitive to 3 rate increases from The Fed, particularly since the Taylor Rule suggests that The Fed’s target rate should be 17.36%. Even if you don’t like the Taylor Rule or disagree with its inputs, you must admit that the gap between where The Fed is (0.25%) and where they should be (17.36%) is … k-razy.
Confounded Interest - Anthony B. Sanders 
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