SVET Reports
SVET Markets Weekly Update (August 13–19, 2023)
In Week 33, China’s worsening economic situation and US economic resilience both disappointed traders. This led to a sharp decline in the Nasdaq, which triggered a BTC flash crash. Overall, it appears that markets have entered the “uncertainty about everything” phase, which can last for a prolonged period of time.
During this phase, traders, monetary authorities, and the general public are all very confused about the nature of global events and their future direction. This leads to most players taking conservative positions, either by taking a bearish stance or withdrawing from the market.
In turn, this diminishes volumes and creates opportunities for sudden bull “attacks.” Therefore, markets may experience prolonged periods of sideways or downward movements, interspersed by sudden price spikes in both directions.
On Monday, Nasdaq was boosted by technicals, helped by a jump in shares of Nvidia and joined by other megacap stocks, including Alphabet and Amazon. Nonetheless, BTC continued its bearish side-move. Other news: Coinbase launched a grassroots movement. The Japanese economy grew faster than expected. The libertarian candidate who seeks to abolish the Central Banks is leading in the Argentinian presidential election.
Crypto
Coinbase launches Stand With Crypto Alliance to counter anti-crypto legislation and foster grassroots movement.
Comment
This initiative is highly important. We definitely need a grassroots movement to influence politicians whose position on crypto is simply unacceptable and harms the country’s future and its competitive stance on the world stage.
According to a recent survey, 63% of Americans believe that cryptocurrency is a legitimate investment, and 55% believe that it has the potential to revolutionize the financial system. However, many politicians remain skeptical of cryptocurrency, and some have even proposed legislation that would ban it outright. This is despite the fact that cryptocurrency has the potential to create jobs, boost economic growth, and make the financial system more efficient.
A grassroots movement could help to educate politicians about the benefits of cryptocurrency and persuade them to adopt more supportive policies. It could also help to build public support for cryptocurrency and make it more difficult for politicians to ban it.
In addition to the survey data, here are some other reasons why a grassroots movement is needed to support cryptocurrency:
Cryptocurrencies are becoming increasingly popular around the world. According to Statista, the number of cryptocurrency users worldwide reached ~100 million in 2022–23.
Cryptocurrencies have the potential to disrupt the traditional financial system. For example, they could make it easier for people to send and receive money internationally, and they could reduce the need for banks.
Cryptocurrencies could create new jobs and boost economic growth. For example, they could create jobs in the mining, trading, and development of cryptocurrencies.
Macroeconomics
The Japanese economy grew at a faster-than-expected pace of 1.5% in the second quarter of 2023, led by a rebound in exports and a decline in imports. This was the second straight quarter of expansion and the fastest pace since the fourth quarter of 2020.
Comment
Fed monetary policy is misguided and counterproductive. The Japanese government kept interest rates low, allowing businesses to access credit more easily. In contrast, bankers all over the World are blindly following the Fed’s lead, raising interest rates, which is making the inflation problem worse, by not allowing businesses to re-adjust and to start cutting production costs.
According to the Bank of Japan, the average lending rate for small businesses in Japan was 0.9% in June 2023. This is significantly lower than the average lending rate for small businesses in the United States, which was 4.7% in June 2023. The lower interest rates in Japan made it easier for businesses to borrow money to increase goods export.
The Fed’s monetary policy is based on the assumption that raising interest rates will cool the economy and bring down inflation. However, this assumption is based on the outdated notion that inflation is caused by too much money chasing too few goods. In reality, inflation is caused by a variety of factors, including supply chain disruptions, the war in Ukraine, and rising energy prices. Raising interest rates will not address these underlying causes of inflation, and it is likely to make the problem worse.
The Argentine central bank raised its key interest rate to 118% in an emergency move on August 14th, as financial markets reacted to Javier Milei’s surprise victory in the primary election. Milei is a far-right politician who opposes the central bank and his victory spooked investors.
Comment
There is a growing discontent with old, unqualified, and arrogant central bankers and the atrocious totalitarian financial system they have imposed on us all over the world. In Argentina, people made this clear by supporting a libertarian candidate who proposes, among other things:
Shuttering the Central Bank: Javier Milei believes that the Central Bank is the root of Argentina’s economic problems. He has proposed shuttering the Central Bank and replacing it with a free market system.
Cutting taxes: Milei believes that taxes are too high in Argentina and that they stifle economic growth. He has proposed cutting taxes across the board, including income taxes, corporate taxes, and sales taxes.
Reducing government spending: Milei believes that the government spends too much money and that this is a major cause of Argentina’s economic problems. He has proposed reducing government spending by 50%.
These proposals are exactly what we need all over the world right now. We need to get rid of bureaucratic red tape, allow free market forces to work properly, and abolish the central banking system, which constrains our basic freedoms and prevents economic growth.
Currencies
The offshore yuan depreciated to 7.30 per dollar, its weakest level in over nine months, as disappointing economic data and another interest rate cut weighed on the currency. The PBoC lowered its one-year MLF rate by 15 basis points to 2.5%, while new bank loans in China tumbled 89% in July.
The Chinese economy grew by 0.4% in the second quarter of 2023, the slowest pace in over two years. The unemployment rate in China rose to 5.5% in July, the highest level since February 2020. The value of the Chinese yuan has fallen by more than 5% against the US dollar in the past year.
Comment
The Chinese government is trying to alleviate the consequences of a prolonged lockdown, which put millions of people out of work and had a devastating impact on the Chinese economy. In an effort to stimulate growth, the Chinese central bank has maintained a very low interest rate, even as inflation has risen in other parts of the world. However, the Chinese economy is still struggling, as the US economy, a major Chinese export market, has slowed down.
On Tuesday, the Nasdaq fell on better-than-expected retail sales, concerns about China’s slowdown, and Fitch’s hints of a rating downgrade for major banks. Despite a sudden drop in the NY Manufacturing and Housing Market Index, traders ignored looming recession worries and bet on the Fed continuing to tighten monetary policy. Bitcoin remained bearishly hovering above 29K. In other news, Jacobi Asset Management launched a “first Bitcoin ETF in Europe” gimmick, and crypto miners announced a new lobbying group in DC.
Details
Retail sales in the US rose 0.7% in July, beating expectations and marking a fourth consecutive increase. Sales were boosted by Amazon’s Prime Day and strong spending in other categories, such as food services and clothing. However, sales fell at furniture stores and electronics retailers. Excluding autos, gas, building materials and food services, retail sales surged 1%.
Comments
Despite all efforts by the Boomer-infected Fed to kill the demand side of the economy, consumers are demonstrating extraordinary stubbornness, which infuriates the elders-in-charge who expect total obedience. When they say “drop your consumption level,” all we have the right to do is ask “how low?” That is how they think, and the fact that consumers do not obey only means more repressions (aka rate hikes) ahead.
Manufacturing activity in New York state declined in August, as the NY Empire State Manufacturing Index sank to -19, below market forecasts of -1.
Comment
The latest economic data suggests that the economy may be starting to crackle, but economic participants have not yet seemed to believe it. Labor market indicators point to relatively steady employment levels, but a shorter average workweek. This suggests that companies are reluctant to lay off workers, but there are simply fewer and fewer jobs available. How long can this last? The current outlook is for six months, and it is possible that the economy could start to deteriorate within that period.
Here are some additional statistical data that support this view:
The unemployment rate has remained relatively low in recent months, but the number of job openings has fallen sharply.
The average workweek has declined by 0.2 hours per week since the beginning of the year.
Manufacturing output has declined for three consecutive months.
It is important to note that the economy is still growing, but it is growing at a slower pace than in recent years. If the trend of declining employment and job openings continues, it is possible that the economy could enter a recession in the next six months.
The NAHB Housing Market Index unexpectedly fell to 50 in August, down from 56 in July. This was the lowest reading since June 2022 and well below expectations. The decline was driven by a drop in buyer traffic and expectations for future sales.
Comment
No matter how many times economic professionals, including absolute majority of non-partisan economists, repeat that a major overhaul of the real estate legislation is urgently required to allow a massive program of construction of much cheaper and technologically advanced housing units all across the country, the Boomer-heavy bureaucratic political cohort completely ignores it because of their own entrenched economic interests.
Boomers own almost all of the real estate in the country, and its ridiculous overpricing, coupled with tremendous barriers to new construction, is simply too profitable for them to let that be changed any time soon. Meanwhile, more and more hard-working families are finding themselves in an absolutely dire situation, with both galloping mortgage rates and an accelerating price of housing. What can go wrong, right?
Crypto
Jacobi Asset Management, a London-based digital asset management firm, claimed that it launched the first Bitcoin ETF in Europe on Euronext Amsterdam on August 15 as Bitcoin ETF has yet been approved for trading in the U.S.
Comment
That is a marketing gimmick.
The European Union prohibits the use of ETFs for single assets like Bitcoin or gold. This is because ETFs are regulated as collective investment schemes, and EU regulations require that collective investment schemes invest in a diversified portfolio of assets.
Guernsey, where the product is registered, is not a member of the EU, so it is not subject to these regulations. However, there are Bitcoin ETPs (Exchange Traded Products) that have been available in the EU for several years. These ETPs are structured as debt securities, and they mirror Bitcoin’s performance.
In other words, ETFs are not allowed to invest in a single asset like Bitcoin because they are considered to be too risky. However, ETPs are allowed to invest in Bitcoin because they are structured as debt securities, which are considered to be less risky.
The terms ETF and ETP are often used interchangeably, but there is a technical difference between the two in the EU. An ETF is a type of ETP, but not all ETPs are ETFs.
An ETF is a fund that tracks an underlying index, such as the S&P 500 or the FTSE 100. ETFs are traded on exchanges just like stocks, and they can be bought and sold throughout the day. ETFs are typically very liquid, meaning that they can be bought and sold easily without affecting the price too much.
An ETP is a broader term that encompasses all exchange-traded products, including ETFs, ETCs (exchange-traded commodities), and ETNs (exchange-traded notes). ETCs track the price of a commodity, such as gold or oil, and ETNs track the performance of an underlying index, but they are not backed by any assets. This means that if the issuer of an ETN defaults, investors could lose all of their money.
In the EU, ETFs are regulated under the UCITS (Undertakings for Collective Investment in Transferable Securities) Directive. This directive sets out a number of requirements for ETFs, such as diversification requirements and liquidity standards. ETPs that are not UCITS compliant are not subject to the same requirements, which can make them more risky for investors.
In general, ETFs are considered to be a more conservative investment than ETPs. This is because ETFs are backed by assets and they are regulated under UCITS. However, ETFs may not be as suitable for investors who are looking for exposure to a specific commodity or index. In these cases, an ETP may be a better option.
Crypto miners are forming a new lobbying group called the Digital Energy Council to advocate for their interests in the United States. The group will focus on policies that promote responsible and sustainable energy development, grid resilience, and national security.
Comment
That’s all nice, and it is understood that it is a gesture of self-defense. The White House is calling for a punitive 30% excise tax on mining operations for the “harms they impose on society.” However, this group does not have any first-rate names from our space backing them up on medias. Additionally, overall political support for crypto is now based on a strong antipathy of one side of the aisle to another, rather than on reasons. Nonetheless, this is better than nothing.
Macroeconomics
The cost of shipping goods worldwide rose on Tuesday (~1130), with the Baltic Exchange’s main sea freight index reaching its highest level in seven weeks. The capesize index, which tracks vessels that transport iron ore and coal, rose 1.7%, while the panamax index, which tracks ships that carry coal or grain, rose 3.4%. The supramax index also rose 3.6%.
Overall, the index has remained in a narrow corridor since June, indicating an absence of notable economic growth around the world.
Comment
The Baltic Dry Index (BDI) is a shipping index that tracks the cost of shipping dry bulk commodities, such as iron ore, coal, and grain. The index is calculated based on the average freight rates of a basket of ships (23 different shipping routes).
Why did the Baltic Exchange Dry Index reach its maximum of around 12,000 during the mortgage debt crisis of 2007–2009, even though this had nothing to do with the costs of shipments, but only increased to around 6,000 during the 2020 worldwide lockdowns and major supply chain disruptions?
There are a few reasons:
The global economy was growing rapidly at the time. This led to increased demand for dry bulk commodities, which in turn drove up shipping rates.
There was a shortage of ships available to transport goods. This was due to a number of factors, including the global economic boom and the closure of some shipyards.
Speculators were betting on the price of shipping rates to continue to rise. This artificially inflated the market and led to even higher prices.
In contrast, the BDI only reached a peak of around 6,000 in 2020. This was despite the fact that the lockdowns caused major disruptions to global supply chains and led to a surge in demand for shipping services.
There are a few reasons for this discrepancy.
The global economy was not growing as rapidly in 2020 as it was in 2007–2009. This led to a decrease in demand for dry bulk commodities, which in turn drove down shipping rates.
There was an increase in the number of ships available to transport goods. This was due to the fact that some shipyards reopened and new ships were delivered.
Speculators were less active in the market in 2020. This was due to the uncertainty caused by the pandemic.
In addition, the lockdowns also led to some temporary measures that reduced the need for shipping, such as the closure of factories and the reduction in travel. These measures also contributed to the lower BDI in 2020.
Overall, the BDI is a complex, very volatile index that is influenced by a number of factors.
On Wednesday, US Treasuries rose to their highest level in 15 years, and the Nasdaq tumbled following the release of the FOMC minutes, forming a bearish pattern on daily charts. BTC fell below 29K, confirming a downside trend. Other news: Uzbekistan created some limited opportunities for cryptocurrency businesses. Singaporean exports and imports dropped by approximately 20% due to the weak global tech sector.
Details
The US 10-year Treasury yield rose to its highest level since 2007 in August, as investors worried about the Fed’s plans to raise interest rates and concerns about inflation persisted. The minutes from the FOMC’s latest meeting showed that most officials agreed on a 25bps rate hike, but some expressed caution about overtightening. Strong industrial growth data and remarks from Minneapolis Fed President Kashkari also pressured bonds.
Comment
It appears that market sentiment has pivoted from “The Fed is done” to “More hikes ahead.” Strong economic data suggest that there is plenty of room for Powell to continue pressuring corporations into submission, and for them to start laying off employees en masse, which the Fed expects will stop service-side inflation. In that situation, many traders might decide to revert their positions and take a bear market stance for at least the next six months or so, until unemployment starts to rise to levels that might be worrisome to the Fed. However, those levels are not known.
Crypto
Uzbekistan approves a local bank to participate in national crypto card project. This bank will be a subject to the Special Regulatory Sandbox Regime. This allows the bank to offer special services in the Uzbekistan crypto space, including the development and implementation of a virtual bank card products. The Special Regulatory Sandbox Regime was created by the Ministry of Justice on December 30, 2022, and it provides a framework for entities in the Uzbekistan crypto space to test new products and services in a controlled environment.
Comment
The United States is losing its pace of innovation to other countries, even to those that have never been technologically prominent. In 2022, the United States ranked 6th in the Global Innovation Index, behind Switzerland, Sweden, the Netherlands, Singapore, and Finland. This is a significant decline from its ranking of 1st in 2011.
There are a number of factors that have contributed to this decline, including:
The increasing cost of research and development (R&D).
The declining number of STEM graduates in the United States.
The rise of protectionism and nationalism, which have made it more difficult for American businesses to innovate and compete globally. The lack of political support for innovation.
The recent incarnation of politicians in the United States have been particularly hostile to innovation. They have cut funding for R&D, drastically reduced immigration of “best and brightest” into USA, and imposed tariffs on imported goods. These actions have made it more difficult for American businesses to innovate and compete.
The only hope for the United States to regain its position as a leader in innovation is to get rid of these politicians and elect leaders who are committed to supporting innovation. We need to invest in R&D, make it easier for businesses to innovate, and create a more open and welcoming environment for entrepreneurs.
Here are some additional statistical data that support the decline of innovation in the United States:
The number of patent applications filed by US residents has declined by 20% since 2011.
The number of venture capital investments in the United States has declined by 40% since 2015.
The number of STEM jobs in the United States has declined by 10% since 2010.
These data show that the United States is facing a serious challenge in terms of innovation. If we do not take action to address this challenge, we will continue to lose our competitive edge to other countries.
Macroeconomics
Singapore’s non-oil domestic exports (NODX) fell by 20.2% year-on-year (yoy) in July 2023, worse than expected. This was the 10th straight month of contraction and the steepest drop since January. The decline was driven by faster falls in sales of both electronic and non-electronic products. Shipments of electronic products shrank by 26.1% yoy, while those of non-electronic products fell by 18.5%. Sales fell to most of Singapore’s major markets, except the US.
Comment
This 20% decline corresponds to a 10–20% layoff rate in major tech companies in the Valley. These layoffs are likely due to the policies of baby boomer politicians, who are more focused on their own safety and geopolitical dominance than on innovation.
In return for these policies, we have gotten nothing: no security, no stability, no dominance, and no economic growth. The only way forward is to get rid of baby boomer politicians and elect a new generation of leaders who are focused on our individual prosperity and constant innovations — the only way to face growing economic, social and geopolitical challenges.
Javier Milei, a new politician in Argentina, is an example of this new breed of leader. He is not afraid to challenge the bureaucracy and lay off government employees, even if it means making unpopular decisions. Milei’s policies are focused on reducing taxes, cutting regulations, and promoting free markets. He believes that these policies will create a more prosperous and innovative economy.
It is time for the world to follow Argentina’s lead and elect a new generation of leaders who are focused on innovation and economic growth. We cannot afford to continue with the failed policies of the baby boomers.
Here are some additional statistical data to digest:
The global tech industry is worth $3.2 trillion.
The tech industry employs over 200 million people worldwide.
The tech industry is growing at an annual rate of 10%.
The tech industry is responsible for more than half of all economic growth in the United States.
On Thursday, The Philadelphia Manufacturing Index skyrocketed, but traders ignored all data as the Nasdaq plunged under 13.4K on a continuing technical sell-off with a nearest support level at around 13K. This served as a catalyst for Bitcoin’s sharp (and long overdue after two months of unprecedented stagnation) correction to 25K, with other coins following suit (for example, Ethereum touched 15,500). As a result, the Market Sentiment Indicator changed sharply from bullish 53 to bearish 37. In other words, crypto is back to normal :)
Details
The Philadelphia Fed Manufacturing Index rose to 12 in August (market forecasts was -10), the first month of growth since August 2022. New orders and shipments were positive for the first time since May 2022, but employment declined further.
Comment
The recent sudden ups and downs in a number of orders suggest that the Federal Reserve’s (Fed) monetary policy has become very confusing to all market participants, not just traders. This is because the Fed has been sending mixed signals about its intentions, raising interest rates in an effort to combat inflation while also signaling that it is willing to be patient and not raise rates too aggressively. This uncertainty has created a volatile market environment, with investors unsure of how to position themselves.
One way to measure the uncertainty in the market is to look at the VIX index, a measure of implied volatility in the S&P 500 index. The VIX index has been rising in recent months, reaching its highest level since March 2020. This suggests that investors are increasingly worried about the future of the economy and the Fed’s ability to manage it.
The Fed’s monetary policy is based on the Keynesian orthodoxy, which holds that the government can use fiscal and monetary policy to manage the economy. However, the Keynesian orthodoxy has been criticized for being too simplistic and for not taking into account the complexity of the real economy. In the case of the current economic situation, the Fed’s attempts to combat inflation by raising interest rates are likely to have a negative impact on economic growth. This is because higher interest rates will make it more expensive for businesses to borrow money, which could lead to layoffs and slower investment.
The bottom line is that the Fed’s monetary policy is creating uncertainty and volatility in the market. This is likely to continue in the near future, as the Fed tries to balance the need to combat inflation with the need to avoid a recession.
On Friday, with the absence of macro news, Nasdaq tested its major support on 13.2K and managed to close in the green. BTC tried to stabilize after Thursday’s flash crash, hovering above 26K, with a possible retest on 25K. Other: A recent report (Fortune) stipulates that VC to crypto dropped 90% from the previous year.
Crypto
Crypto financing has dried up, with only $500 million raised by eight VC funds in May 2023, a 90% drop from the previous year. This is due to a number of factors, including the recent crypto crash and regulatory uncertainty.
Comment
Some venture capitalists (VCs) blame the crypto industry for its inability to address the needs of its users and challenge it to bring in another billion users. VCs are essentially saying that the crypto industry needs to start complying with regulations, stop being so revolutionary, and adopt “travel rules” (which are regulations that require crypto exchanges to share information about their customers with each other). Only then, they say, will the crypto industry be able to achieve mass adoption.
FYI:
According to a recent survey, only 1.9% of the world’s population owns cryptocurrency.
The average crypto user is a young, male, tech-savvy individual with a high income.
The majority of crypto users are located in developed countries.
Macroeconomics
Retail sales in Mexico grew 5.9% year-on-year in June 2023, the strongest since January. This was the 28th consecutive month of retail growth. Textile, self-service, and department stores recorded strong sales.
Comments
The nearshoring of manufacturing from China and other sanctioned countries to Mexico is a prime example of how market forces can shape the workforce. The influx of new manufacturers has created jobs and increased incomes, which has led to a rise in consumer spending. In 2022, the Mexican jewelry industry saw a strong growth of 19.4% year-on-year, driven by this increased demand. The jewelry industry is a major contributor to the Mexican economy, employing over 1 million people. This growth is expected to continue in the coming years, as Mexico remains a competitive manufacturing destination for companies looking to reduce their supply chain risks and costs.
In week 34, which usually marks the start of a period of vacations when many market participants won’t be at their trading stations, there will not be much macro data to inspire volatility, aside from the Durable Goods Orders report on Thursday, August 24, and Powell’s speech on Friday, August 25. Therefore, it is expected that traders will mostly be on the sidelines, waiting for any new developments around which they can build their short-term strategies.