President-elect Joe Biden is scaring the world to death with his $11 trillion spending fantasy coupled with his $2 trillion Covid stimulus package. And The Federal Reserve has a lot of printing to do to pay for Biden’s spending fantasies (that Speaker Pelosi will undoubtedly approve). All has led to US inflation expectations to rise to 2.11%.
Bitcoin has finally backed-off its meteoric rise just as gold has backed-off its meteoric rise back in July.
Bitcoin rose with Fed money printing but backed-off as money printing slowed. Note: The rapid rise in money printing was pre-Biden and largely due to Covid and government shutdowns.
Bloomberg Galaxy was down 7.5% on Friday while Bitcoin is down slightly today. ZCash is the big loser today with Monero as the only gainer.
But with Biden’s prodigious appetite for spending other people’s money, we can see fear in the eyes of taxpayers.
President-elect Joe Biden’s team has held preliminary talks on how it could oust Fannie Mae and Freddie Mac’s regulator (Mark Calabria), a move that would let the new administration fill a post that’s crucial to the mortgage market and its goal of boosting affordable housing.
One candidate the transition team is considering as a potential Calabria replacement is Susan Wachter, a professor at the University of Pennsylvania’s Wharton School of Business, said the people who asked not to be named in discussing private conversations.
Well, there are only so many options to increase affordable housing that are in the realm of reason: 1) increase loan-to-value ratios on purchase (insured mortgages) and 2) lower the credit score required. Fannie and Freddie already have a sizeable affordable housing mission. so short of shutting down Fannie and Freddie, and expanding the FHA (aka, SUPER HUD), Fannie and Freddie may be cajoled into expanding their affordable housing mission.
After the housing market crash (and ensuring financial crisis), lenders and government insurance companies reduced the mortgage originations by low credit score borrowers. Yet home prices started to grow again despite the lack of originations by low credit score borrowers. In fact, the FHFA purchase only home price index YoY is almost back to the housing bubble peak of 2005.
Venezuela currently has an inflation rate of almost 2,500 percent, according to Steve Hanke. This corresponds to Bloomberg’s Cafe con Leche index of the cost of a cup of coffee with milk (or espresso with scalding milk) which is now 1.767 MILLION Bolivars in Caracas Venezuela (or 5,790% for the last 12 months).
In 2017, with the bolivar in freefall, Maduro vowed that the nation would create a cryptocurrency called the Petro, backed by reserves of oil, gas, gold and diamonds. The Petro launched in 2018.
The Washington Post economic reporter Matt O’Brien said that “The petro might be the most obviously horrible investment ever… The petro is about creating something useless – that’s why only foreigners can buy them, but only Venezuelans can spend them“.
Which brings me to non-Venezuelan cryptocurrencies or “electronic tulip bulbs.” Like the tulip bulb craze that swept Holland in the 1600s, cryptocurrencies are a highly speculative investment. Take a look at Bitwise, a cryptocurrency fund that trades at 197.392% Fund Percent Premium. Sounds more like Pennywise, the clown from Stephen King’s “It” franchise. It fell from $139 on 12/16/2020 to $60.39 on 12/31/2020. That is a quite a loss.
Bitcoin, for example, experienced a flash crash, but has rebounded.
But while Bitcoin is down, Ethereum is way up.
Cryptocurrencies have a place for processing, for example, financial transactions. Or oil transactions like Venezuela is trying to do. And if you want to play the volatility game, cryptos may be your cup of tea … or oil.