MacroGuy1 Macro Report - 2022-03-17

MacroGuy1 Macro Report - 2022-03-17

Current World Economic Snapshot – Thursday March 17, 2022

(All times expressed below are New York – Eastern Standard Time)

The chart below shows a powerful signal for the price of Bitcoin to rise. From Jan 19 to May 19, we had a move from $4k to $10k. Then from Feb 20 to May 21 we had a bull run from about $6k to $60k. All these moves coincided with BTC flowing out of Coinbase, which can be explained by the fact that when BTC flows out into secure wallets, it’s being sent there to keep for the long-term and not to be exchanged. That is a removal of supply and therefore a support to the price.

Continuing the theme of Russians and Ukrainians moving their savings into Bitcoin, we can see in the chart below the volume dominance of BTC vs. Ethereum has increased to 66%, its highest level in the past year. BTC having the quality of limited supply would seem to be the reason for attracting investors keen to preserve the value of their assets.

We can then see below how Ukrainians and Russians flocked to BTC when the invasion began and then how the Russians stepped up purchases after they were banned from SWIFT.

The Fed raised rates by only 0.25% on Wednesday. If you look very carefully in their statement, they removed the details about shrinking the balance sheet that were in previous statements, so it was in fact a very dovish statement, despite the rate rise.

Six rises are planned by the end of the year, taking us to 2%, but that still seems to little too late to control inflation, and in this environment, you want to be in assets that protect you against inflation – especially Bitcoin and other high-quality Cryptocurrencies.

Powell was asked if he made a mistake by acting too late, and his response was that with hindsight he would have acted sooner, but nobody knew inflation was coming. This is very disingenuous because it was pretty obvious when that amount of money was printed that it would lead to inflation, and economists in the private sector did warn them, but the Fed ignored that view.

Feb export prices spiked 3%, bringing the YOY rise to 16.6%. That increase reflects the cost of domestic production. Since costs to produce for export should be the same as costs to produce for domestic consumption, 16.6% more accurately reflects than does a 7.9% CPI.

The government is following a line of denying the Fed’s responsibility. On CNBC, Senator Elizabeth Warren claimed inflation is caused by COVID-19 causing people to buy more goods and fewer services, and greedy businesses gouging customers. But service sector prices are up big too and margins have fallen as businesses have not fully passed on their cost increases.

An inverted yield curve is one of the most reliable predictors of a recession. The yield curve has now inverted from 5 to 10 years, as 5-year Treasuries now yield more than 10-year Treasuries. This shows bond investors still don't get it. They are correct in thinking the economy is headed for recession, but wrong to think that means inflation will go away.

In less popular news, China revealed extremely strong industrial production numbers on Monday that smashed expectations. Question is - What can you believe when it comes from China?

UK earnings rose strongly, jobless claims fell significantly, German Economic sentiment was very negative, US Producer Prices rose slightly less than expected, but still very high at 0.8% for the month. US retail sales were a big disappointment! Oil inventories in the US were much higher than predicted, which in our opinion reflects the nimbleness of the US producers to quickly expand production when demand is high.

Upcoming Market Events and Predictions

Thursday

  1. Building permits and housing starts are released at 8.30am, these are expected to be positive for the market as the US housing sector continues its boom.
  2. The Philly Manufacturing index and the Initial Jobless Claims index are also released at 8.30am. These are the best indicators of the strength of the US economy that we will have this week. Powell made the comment in his speech yesterday that he would focus on fighting inflation even if that caused an increase in unemployment. That is very easy to say when unemployment is low, but if it begins to increase, he will need to “put his money where his mouth is".

Friday

  1. Existing home sales for February, at 10am, are expected to come in at 6.1m. This figure is an important and difficult to manipulate statistic issued by government. We believe that this will come in as strongly as forecast, but future months may start to show slowing sales as higher prices discourage demand.
  2. US Baker Hughes Oil Rig Counts come in at 1pm. The trend, growing or contracting, is the operative number here. We expect to see strong increases in the oil rig counts and a corresponding fall in the oil price, ceteris paribus.
  3. Michelle Bowman of the Fed speaks at 3pm. She is considered to be a Hawk in analysis by Wells Fargo of her voting patterns, but in her speeches last month, she emphasized that changes to interest rates and asset purchases should be directed by the data, and she had no pre-conceived desire to raise rates. We do not expect her speech to reveal anything that Powell did not say yesterday.

She may discuss the usefulness and implementation of a US central bank digital currency. She has previously expressed skepticism, but her position has recently begun to shift to be more positive about the idea. However, the priority for her is “the preservation of an intermediated banking model” – in other words, she wants the Fed to keep control of the money system, which is contrary to the concept of Decentralized Finance.

Conclusion

Some very strong fundamentals are now aligning to create a bull market in Bitcoin. Inflation is bad for stocks, earnings and the economy, but good for Crypto and commodities.


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