SVET Reports

SVET Markets Weekly Update (March 13–18, 2023)

Week 11 provided an epic illustration of everything that is wrong with CeFi, crowned by empty rhetoric that scapegoats technological entrepreneurs and cryptocurrencies. It is very encouraging to see that BTC added 31 percent, going from 20455 to 26834, despite the growing rejections of innovations from part of elderly politicians. On the other hand, NASDAQ traders showed their optimism about the possibility of an FOMC policy reversal much more conservatively, dragging the index up by only 5.3 percent from 11041 to 11630.

Notable Macroeconomic Updates:

Inflation Rate (Feb): 6 percent (fact), 6 (consensus), 6.4 (previous);
Core Inflation Rate (Feb): 5.5 percent (fact), 5.5 (consensus), 5.6 (previous);
Retail Sales (Feb): -0.4 percent (fact), -0.3 (consensus), +3.2 (previous);
PPI (Feb): -0.1 percent (fact), +0.3 (consensus), +0.3 (previous);
Building Permits (Feb): 1.524M (fact), 1.34M (consensus), 1.339M (previous);
Michigan Consumer Sentiment (Mar): 63.4 (fact), 67 (consensus), 67 (previous).
I am sure that the majority of professional economists who have been critical of the Fed all this time thought on Monday that “I told you so” doesn’t fully express what we all felt while listening to Biden’s speech.

The sheer size of the incompetence of our so-called “monetary authorities” is staggering. We do not need to have them to create the spectacular mess we currently face. Any type of free-market, self-adjusting system would generate the same types of financial cataclysms without Mr. Powell’s brainless assistance. However, these crises would occur much earlier and for a much shorter period of time.

Nowadays, politicians often rush to the microphones without thinking things through and propose new, unnecessary regulations on top of the already existing ones, simply to secure their positions at the top of the bureaucratic pyramid. Next, they will appoint scapegoats who have nothing to do with the real culprits of this debacle.

Whatever actions they take, they won’t change the equation or its result: the contemporary centralized monetary system cannot be fixed; it can only be replaced by a new system that is based on free competition among independent market agents, enhanced by a decentralized, impartial consensus mechanism to settle all disputes, and supplemented by UBI to soften sharp but short downturns for the most vulnerable groups of the population.

We cannot implement that system without first replacing the current generation of old orthodox ideologists who govern with much younger, more imaginative, and more tech-savvy political representatives. Of course, it would be even better to replace politicians with code, but that is a different story altogether. :)

It will probably take a long time before we can realistically start talking about fundamentally redesigning the current financial system, which dates back to the sixteenth century, and converting it into the twenty-first-century open-to-everyone, on-chained, 24–7 market. Meanwhile, traders have to do with the same old Powell, his political cronies, and their outdated fantasies about how the real market works.

Some traders (especially those in the crypto market) still have enough optimism to think that, faced with the destruction he caused, Powell will try to avoid political backlash by repenting and pivoting from QT to QE. This is how BTC’s unprecedented 18-percent two-day rally (from 20,455 to 24,113) can be explained. On the other hand, NASDAQ players kept much cooler heads and reacted more reasonably to the SVB relief program, causing the index to rise only 1.3% (opening: 11,041, closing: 11,188).

On Tuesday, the BLS reported that the Consumer Price Index increased to 300.84 (+0.4 percent) in February, which was a slight increase from January’s figure of +0.5 percent. The increase in CPI almost perfectly met the market’s expectations of 300.86. The indexes for gasoline, shelter, and apparel saw the greatest increases, with each rising by 1.0, 0.8, and 0.8 percent, respectively. However, gas services and fuel oil decreased by -8.0 and -7.9 percent.

With inflationary pressure continuing to mount, the positive performance of the tech stocks can be attributed to most traders still attempting to ride on the back of SVB-relief news, resulting in the NASDAQ closing at 11428 (open: 11357, +0.6 percent). On the other hand, BTC, which had been pumping up during the weekends, corrected from 25832 to 24990 (-3.3 percent) during the day session.

Credit Suisse panic aside, Powell’s monetary adventurism continues to cause confusion among investors on Wednesday. Most were uncertain which way the FOMC decision will go next week. The NASDAQ and BTC are reflecting this nervousness, with the former fluctuating up and down during the day session (open: 11431, close: 11434) and the latter correcting 1.8 percent from yesterday’s 6-month high (open: 24808, close: 24366).

That was not helped by the BLS reporting PPI down 0.1 percent in February, which went against market expectations of a 0.3 increase. Food decreased by 2.2 percent (with eggs down by 36.1) and energy decreased by 0.2. However, the index for services increased by 0.3 percent. Additionally, retail sales decreased by 0.4 percent in February, below market forecasts of a 0.3 percent increase. The biggest decreases were seen in furniture sales (down 2.5 percent) and food services (down 2.2), while non-store retailers increased their prices by 1.6.

On Thursday, the Census Bureau reported that building permits jumped 13.8 percent in February, marking the highest reading in five months and the largest increase since July 2020. This is compared to a rise of 0.1 percent in January and market expectations of 0.2 percent. Regionally, the highest increase was seen in the West (30.0 percent to 381 thousand), with the South (10.9 percent) and Midwest (9.6 percent) following suit. However, permits were down in the Northeast (-2.8 percent to 103 thousand).

On the other hand, the Philadelphia Fed Manufacturing index, which had been deeply in negative territory, increased by 1 point to -23.2 in March, compared to market expectations of -15.6. The Philadelphia Fed’s report also showed a decline in employment (-10.3) among firms that responded to the survey. In addition, the firms reported overall increases in prices.

It appears that traders disregarded economic fundamentals, which encourage FOMC to continue its quest to demolish consumers’ wealth. Instead, traders focused on government rhetoric (Janet Yellen talking to senators) insisting that the banking sector is holding strong. This sentiment was compounded by the announcement that First Republic Bank, the third bank with the highest percentage of uninsured deposits after SVB and Signature, is set to receive $30 billion from 11 of the largest banks.

Additionally, many traders are betting that the FOMC, faced with a banking crisis, will be reluctant to raise rates by more than 0.25 points, if at all, during its March 21–22 meeting. As a result, the NASDAQ rose by 2.9 percent (opening: 11,384, closing: 11,717), while BTC remained below 25,000 (opening: 24,720, closing: 24,953).

On Friday, we observed traders grappling with conflicting thoughts and actions. Some were focused on the despicable macro-fundamentals, while others were just following technical momentum. This led to a division of players into two groups. One group expressed themselves fully by trading BTC after hours, resulting in a 10% increase in the price tag of BTC, going from 24,998 to 27,395 within 24 hours. The other group, however, remained sober and did not buy into the narrative that BTC is a better parking place for capital during a banking crisis. They were content with dragging NASDAQ down from 11,696 to 11,630 (-0.6%) during the day session.

This sobriety was reflected in the University of Michigan Index, which dropped for the first time in four months to 63.4 in March (compared to a forecast of 67) from 67 in February. However, the February reading was the highest in nearly a year. Overall, all components worsened, mainly due to persistently high prices.

Wednesday’s FOMC rate decision (11 AM PST) is expected to be “the crown jewel” of next week’s financial news stream. Markets are likely to remain still for two days prior to that, waiting for Powell to take (or not) another swing at economic prosperity. It’s anyone’s guess which direction prices might take after that, as technical indicators are still showing up while fundamentals are down.