SVET Reports
SVET Markets Weekly Update (August 20–26, 2023)
During Week 34, markets fluctuated between hope and despair, depending on traders’ predictions of how FOMC members might (or might not) interpret different pieces of macroeconomic data. These exercises in mind-reading led to volatility in all world markets, except for cryptocurrency, where most bewildered players simply stayed on the sidelines after the alleged massive sell-off of Tesla’s BTC.
The fact that in the 21st century the livelihood of billions of people hinges on the decisions of a few aging, non-elected dudes is astonishing, given the long history of corruption and ineffectiveness of such a “system.” Another mind-blowing fact is how willingly and even enthusiastically the overwhelming majority of so-called “financial professionals” accept this system without even a hint of doubt or an attempt to seek out alternatives, which, as we all know, have been created by us over the past 10 years in blockchain and, specially, in DeFi.
On Monday, The Nasdaq rebounded from its strong resistance level of 13,200. Technicals outweighed traders’ concerns over higher Treasury yields. On the crypto side, the negative sentiment fallout after Thursday’s BTC crash totally defined players’ strategies, which were basically to “wait and see.”
Currencies
The dollar index held firm on Monday as investors grew confident that the Fed will continue to raise interest rates. China’s central bank lowered its one-year loan prime rate, while the euro and pound rose.
Comment
Other developments on the Forex market:
The euro rose to $1.055 on Monday, its highest level since June 20th.
The pound sterling rose to $1.233 on Monday, its highest level since June 15th.
The Australian dollar fell to $0.697 on Monday, its lowest level since November 2022.
The New Zealand dollar fell to $0.635 on Monday, its lowest level since November 2022.
The Japanese yen fell to 138.15 on Monday, its lowest level since February 2022.
These moves in currency markets reflect investors’ expectations about the future direction of interest rates. Investors are betting that the Fed will continue to raise interest rates in an effort to combat inflation. This is making the dollar more attractive to investors, who are seeking higher yields.
China’s central bank, on the other hand, is taking a more dovish approach to monetary policy. The People’s Bank of China (PBoC) lowered its one-year loan prime rate by 10 basis points on Monday. This is the first time the PBoC has lowered interest rates since April 2022. The PBoC is hoping to stimulate economic growth by making it cheaper for businesses to borrow money.
The moves in currency markets are likely to continue to be volatile in the near term. Investors will be closely watching the Fed’s next policy meeting, which is scheduled for September 20–21st. If the Fed signals that it is planning to raise interest rates at a faster pace, the dollar could continue to appreciate. However, if the Fed takes a more cautious approach, the dollar could come under pressure.
On Tuesday, ratings agencies S&P and Moody’s downgraded some US banks due to economic headwinds. The Nasdaq closed slightly higher, with Tesla and Apple offsetting losses from Nvidia and AMD. BTC was stagnant, moving sideways throughout the day, as a result of the aftershock following its Thursday flash crash, with most traders on the sidelines.
Stocks
Japanese stocks rose for the second straight session on Tuesday, with technology stocks leading the gains. Investors scooped up shares following a sharp correction in the sector.
Comment
The Japanese stock market has been through a number of major phases over the past few decades. In the 1980s, the market experienced a period of rapid growth, known as the Japanese bubble economy. However, the bubble burst in the early 1990s, and the market has been in a state of stagnation ever since.
There are a number of factors that have contributed to the Japanese stock market’s long period of stagnation. One factor is the country’s aging population. As the population ages, there are fewer people who are working and contributing to economic growth. This has led to slower economic growth, which has in turn weighed on corporate earnings and stock prices.
Another factor that has contributed to the Japanese stock market’s stagnation is the country’s high savings rate. Japanese households save a large portion of their income, which means that there is less money available to invest in stocks. This has also weighed on stock prices.
Despite the long period of stagnation, there have been some positive signs for the Japanese stock market in recent years. In particular, the technology sector has been a bright spot. Japanese technology companies have been investing heavily in research and development, and they have been successful in developing new products and services. This has led to strong earnings growth for many technology companies, and it has boosted stock prices in the sector.
The technology sector is still relatively small compared to other sectors in the Japanese stock market, such as finance, real estate, and retail. However, the technology sector is growing rapidly, and it is becoming increasingly important to the Japanese economy. As the technology sector continues to grow, it is likely to have a positive impact on the Japanese stock market as a whole.
On Wednesday, Nasdaq had its field day, rising more than 1% during its best day in about two months, following fresh data suggesting that service inflation is easing. Meanwhile, with its sudden breach of the 30K-28K support zone, BTC has entered pronounced bearish conditions and is now hovering just above critical 26K support. Everyone is wondering whether and when it will follow through to 22K-20K.
Details
The US services sector slowed in August as high interest rates and inflation weighed on consumer spending. The S&P Global US Services PMI fell to 51, the slowest expansion in six months. New business declined at the fastest pace since the start of the year, while business activity slowed the most in six months. Employment growth was also restrained by low demand for new business.Business confidence improved in August, supported by hopes of greater client demand as interest rates approach their peak.
Comment
When service inflation is so persistent and its causes are not entirely clear, but at the same time, you know for certain that your government budget deficit is rising, you might ask yourself the following question: How can we estimate the inflationary pressure of the US budget deficit on the overall economy? For example, how much percentage point of inflation is added yearly by a 20% expansion of the US budget?
The relationship between government budget expansion and inflation is complex and can be influenced by various factors, including the overall economic conditions, monetary policy, global market dynamics, and more. Moreover, each of the mainstream economic schools of thought has different answers to this question.
Monetarist Viewpoint: Monetarist economists like Milton Friedman have suggested that there is a direct link between increases in the money supply (which could occur due to a budget expansion) and inflation. According to some interpretations of monetarist theory, a 20% increase in the budget could potentially lead to roughly similar inflation increase. So, if the current inflation rate is around 2%, this might push it up to around 2.4%.
Keynesian Viewpoint: Keynesian economists argue that inflation is influenced not only by the money supply but also by the overall demand in the economy. If the government’s budget expansion leads to increased spending on goods and services, it could stimulate demand and potentially lead to inflation. However, the degree to which this happens depends on whether the economy is operating at full capacity or has unused resources (unemployment, unused production capacity, etc.). If the economy is running below capacity, the impact on inflation might be milder.
Modern Monetary Theory (MMT) Viewpoint: Proponents of MMT argue that inflation is more closely related to resource constraints in the economy rather than just the money supply. In their view, as long as there are unused resources (labor, materials, etc.), government spending can increase without causing significant inflation. This means that the impact on inflation would be minimal unless the budget expansion leads to resource bottlenecks.
Overall, we have a mess of contradicting views, as is usual for the economics discipline. Therefore, so-called policymakers are free to choose what suits them better, depending on circumstances and their personal motives. This is what creates a big mess in the world, which is ruled by several gigantic nation-states that are headed by out-of-control bureaucracies whose inherent interests have nothing to do with the interests of the rest of humanity.
Details (2)
In July 2023, sales of new single-family homes in the United States climbed to the highest level since February 2022. Sales were up in the West and Midwest, but down in the South and Northeast. The median price of new homes sold was $436,700, while the average sales price was $513,000. There were 437 thousand houses left to sell at the end of July, corresponding to 7.3 months of supply at the current sales rate.
Comment
Again and again, we have seen from new macro-data how precarious it is to trade based on macro-data during the unwise monetary authority policies, which use outdated theories and unreliable sources of macro-data.
On the one hand, we have a deterioration of all business activities, which is the goal of the Fed. On the other hand, this deterioration creates an artificial deficit and lack of competition in the most crucial domestic markets — real estate, transportation, healthcare, etc. — which further boosts prices, creating this hellish cycle that we have entered thanks to several old, delirious men headed by Mr. Powell.
Crypto
Bitstamp, a cryptocurrency exchange, will stop offering ether staking services to American clients starting in September.
Tornado Cash, a crypto mixer based in Russia, was used to launder money from several crypto heists last year. The DOJ has arrested one of the co-founders of Tornado Cash, and is on the lookout for the other co-founder. The DOJ has charged both of them with money laundering despite them being just developers — not actual “launders”.
Comment
In the past two years, it became painstakingly obvious that crypto markets can barely survive without excessive liquidity, despite the unquestionably high quality of the code and amazing technical sophistication of crypto entrepreneurs, who are coming out with incredible ingenious solutions, specifically for layer 2–3 tradefi.
There were a couple of things that became clear as day in 2022–2023 bear cycle.
First, all G20 governments (on the level of law enforcement agencies and central bankers) are more or less unanimous in their pursuit of de facto prohibitive crypto regulations. In some countries, such as the US, there are still some lobby politicians fighting for our cause, brandishing monetary freedom as freedom of speech. However, their (and our) battle is definitely uphill, at least under the present generation of 70–80+ aged, tech-fearful bureaucrats and their core aging Boomers constituency.
In other countries, like China, authorities are much less inclined to listen to lobbying and simply want to directly control cryptocurrency, mostly through implementing central bank digital currencies (CBDCs) and forcing every citizen to use them. Of course, in this situation, free-crypto (DeFi) is a direct competitor and, even worse, a political opponent. Therefore, it will be dealt with accordingly.
Of course, there is a third category of countries left: those in huge social and economic troubles, like Malta, Estonia, El Salvador, Nigeria, or Argentina. In these countries, authorities sometimes consider “playing with crypto” as a last resort, or because they believe that “it can’t possibly get worse.” However, even in these countries, as soon as the situation improves even slightly (as has happened in Estonia and Nigeria) or a leading pro-crypto figure is changed (Malta), bureaucrats immediately “switch into reverse” and start to eradicate all notions of DeFi and revert to CBDCs (as Nigeria has done).
Yes, it is true that there is a fourth category: reasonable bureaucrats, such as those in Switzerland, Hong Kong, Singapore, or Japan (although this is becoming less and less true). There are also a number of very small states (such as some in the Caribbean) that fall into this category. In these countries, smarter politicians prevail for some magical reason. I believe this is mostly because these countries are effectively ruled by very sophisticated financial elites, who are basically outsmarting the hardcore idiots in the SEC, Fed, IMF, FSB, and other “world regulators.” However, whatever the reason, these countries are by no means stable for crypto, because they are and will definitely be under increasing pressure from the ruling plutocrats in DC and Brussels, who will sooner or later require them to shut down the rest of our freedoms.
So, if you ask me, our only hope is that the number of “crypt-refuge states” (those in the 3rd and 4th categories mentioned above) will not drop to zero in the foreseeable future before the complete overhaul of the existing financial system begins. Obviously, this is only possible under extreme circumstances, which none of us want to imagine, or when an entirely new generation of young politicians is somehow willing (big “if”) to start the fundamental reforms of all the world’s governing mechanisms, which probably will not begin for another 15–30 years.
I know, that many of you are much more optimistic politically than myself, and I hope you’re right. So let’s now consider a brighter side of our crypto-real — a growing adaption.
There are so many contradictory (and widely different) estimates of that figure that it can only be done approximately. For example, according to CryptoMode, as of November 2021, Uniswap V2 had over 518,000 monthly active users. Then, in 2023, Decrypt reported that Uniswap has around 2.5 million users in total. At the same time, according to data from Dune Analytics (personally, I doubt that those numbers are correct), Uniswap had 30.3 million monthly active users (MAUs) in June 2023. This was an increase from 17.5 million MAUs in June 2021.
Overall, according to many estimates, the total number of blockchain users in 2021 was around ~50 million. This number grew to ~100 million in 2023. This growth is being driven by the increasing adoption of blockchain technology in a variety of industries, including supply chain, banking, tradfi, and NFTs.
Here is a breakdown of the number of blockchain users in 2021 and 2023, by industry. (Please note that these figures are for your interest only and should not be used in scientific research. They are highly speculative and may contradict the information in the preceding paragraphs.)
Supply chain: 15 million users in 2021, 20 million users in 2023
Banking: 10 million users in 2021, 15 million users in 2023
Tradfi: 5 million users in 2021, 10 million users in 2023
NFTs: 1 million users in 2021, 5 million users in 2023
The growth of blockchain adoption is being driven by a number of factors, including the following:
The increasing need for secure and transparent record-keeping
The potential for blockchain to reduce costs and inefficiencies
The growing popularity of cryptocurrencies and other digital assets
So, some more sophisticated, youngest category of customers are actively adapting our technologies, and we can say that our kung fu is strong. However, our opponents use guns and are simply eradicating us by point-blank shooting. What should we do?
Probably, our market has come to the point where there is no more “us.” There are at least three different categories of crypto-related businesses:
Pro-government, pro-CBDC, corporate, 100% compliant, potentially BlackRock-invested businesses.
Totally rebellious businesses that are now using largely centralized DeFi-based services (like Uniswap) to function, but are considering going totally decentralized, untraceable swaps (like Monero-BTC pairs).
The majority of us, who are in between those two extremes and who are now mostly being targeted by law enforcement because we still can’t choose. The time to choose is now.
Macroeconomic
South African Stocks (JSE FTSE All Share) Index rose 1% on Wednesday, boosted by resource-linked sectors and financials. The prospect of strong results from Nvidia and the Federal Reserve’s Jackson Hole symposium also supported sentiment. South Africa and China signed deals on emissions technology, electricity, and nuclear power. Inflation slowed to 4.7% in July.
Comment
It looks like, despite all fears and smears, boosting the technology sector remains the only real hope for growth in the majority of G20 countries, regardless of their political orientation. Some autocracies are dreaming of converting their nations into joystick-guided pawns on their geopolitical board, so that ruling families can have something to play their entertaining power war games with on the world chessboard. Another, “soft” group of autocrats just wants to make us into obedient, ever-compliant androids, subservient to the all-knowing, “meritocratic” elite, free of our despicable weaknesses, crazy follies, and all the rest of humans’ “evils and sins.” Who will prevail? Who do you join?
On Thursday, Durable goods orders hinted at an upcoming recession. This was combined with technicals (an over-extended correction) and general trader nervousness ahead of Powell’s Friday speech in Jackson Hole. As a result, the Nasdaq plummeted to almost 2%. BTC, meanwhile, stayed happily in limbo, waiting for more catalysts. In other news, Binance will stop servicing its crypto debit cards in Latin America and the Middle East.
Details
New orders for manufactured durable goods in the US fell sharply in July, led by a decline in demand for transport equipment. Orders for non-defense capital goods excluding aircraft edged up.
Comment
The US economy continues to deteriorate, while Federal Reserve Chairman Jerome Powell is still looking in the rearview mirror. He is orienting himself by the unemployment rate, which everyone knows will be the last to increase. By the time the unemployment rate does increase, it will be too late for the Fed to react, because the irreversible damage to businesses will have already been done.
Everyone who is familiar with the realities of business knows this, but the Fed is ruled by politically engaged “theoreticians” who have never done anything productive in their lives. That is why it is so easy for them to destroy the work of others. Artificial intelligence (AI) will not cure the system. We need to destroy it ourselves before it destroys us.
FYI:
The US economy shrank by 1.4% in the first quarter of 2023.
The unemployment rate is currently at 3.6%, but economists expect it to increase to 4% by the end of the year.
Small businesses are particularly vulnerable to economic downturns, and many are already facing layoffs and closures.
The Fed’s current policy of raising interest rates is unlikely to be enough to prevent a recession. In fact, it could even make the situation worse by choking off economic growth. The only way to truly fix the system is to rebuild it from the ground up, and that is something that we the people need to do ourselves.
Crypto
Binance will discontinue its crypto debit card services in Latin America and the Middle East. Binance has not provided a reason for the decision, but it is possible that the company is facing regulatory challenges in these regions.
Comment
As I mentioned in my previous comment, we are all facing a new reality in which cryptocurrencies are being harshly persecuted in almost all countries. Whether we like it or not, most of us will have to make a crucial decision: whether to stay firm with the decentralized movement against plutocrats and face rising risks on all fronts for an indefinite period of time, or to give up and return to the mainstream. What will your decision be?
Macroeconomic
Tokyo’s core inflation rate rose 2.8% year-on-year in August 2023, slowing from 3% in July. The rate has surpassed the Bank of Japan’s 2% target for 15 consecutive months, putting pressure on policymakers to phase out monetary stimulus. However, BOJ Governor Kazuo Ueda has ruled out an early exit, saying that wages need to rise enough to keep inflation sustainable.
Comment
Despite growing pressure from the so-called “world’s financial bodies,” Bank of Japan (BOJ) governors remain firm in their relatively reasonable approach. They are trying to give the Japanese economy time to adjust to a series of extraordinary external shocks. This stands in sharp contrast to the Federal Reserve (Fed) elders’ madness, who are trying to “steer” markets as if they were their own family van on a sightseeing voyage.
If we are stuck with the outdated system of authoritarian price-making on financial markets for the foreseeable future, we might at least start praising those central banking autocrats who remain a bit saner than the rest of their clique.
By the way, one of my proposals for an early Fed reform (before we completely get rid of that useless and increasingly dangerous sinecure) is to return complete autonomy to all 12 regional banks, exactly as it was intended in 1913.
On Friday, Powell’s remarks at Jackson Hole were well-received by traders, who responded by pushing the Nasdaq higher. Powell said that the Fed is prepared to raise rates, but suggested that it would remain unchanged in September. BTC continued to hover just above 26K. Other news: Consumer sentiment diminished; the Treasury proposed a new tax form for Bitcoin miners and required cryptocurrency brokers to report user information to the IRS.
Details
Consumer sentiment fell to 69.5 in August 2023, from 71.2 in July. Expectations and current conditions both fell, while inflation expectations rose. Consumers are tentative about the outlook ahead.
Comment
The decline in consumer sentiment is a sign that consumers are becoming more pessimistic about the economy. This is likely due to a number of factors, including rising inflation, the ongoing war in Ukraine, and concerns about a potential recession.
Despite the declining sentiment, consumers are still spending money. This is likely because they have built up savings during the pandemic and are feeling confident in their jobs. However, it is possible that this spending will start to decline if the economy continues to deteriorate.
If the economy does enter a recession, it is likely that unemployment will surge. This will put a strain on household budgets and could lead to even more pessimism among consumers.
Crypto
The U.S. Treasury Department has proposed a new tax form for Bitcoin miners, which will help to clarify their tax reporting and data collection obligations. This will provide miners with some much-needed clarity and may help to insulate them from future regulatory changes.
A previously unknown Bitcoin address has become the third-largest holder of BTC, accumulating 118,000 BTC over the past three months. The address has been attributed to Robinhood, but the company has not confirmed or denied this. Some on-chain analysts believe that the stash actually belongs to MicroStrategy, the U.S. business intelligence and analytics software firm, which holds 152,800 BTC. The identity of the owner of the address remains a mystery, but its rapid accumulation of BTC has sparked speculation about growing influence of retail traders on BTC trading.
The US Treasury Department has proposed a rule that would require cryptocurrency brokers to report user information to the IRS. This is part of an effort to crack down on tax evasion in the crypto space. The rule would simplify tax reporting for cryptocurrency users and subject digital asset brokers to the same information reporting requirements as brokers in traditional financial markets.
Comment
Across the government, there seems to be an entrenched assumption that an individual’s desire to keep the details of their life private means they’re engaging in wrongdoing. This overly simplistic assumption is not supported by the law or the reality of exactly why privacy is so important to countless law-abiding citizens in their everyday lives. Nor does it adequately balance the 21st century citizen’s right to privacy with the need to ensure the government can effectively enforce the law.
For example, a recent study by the Pew Research Center found that 72% of Americans believe that the government should not be able to collect their phone records without a warrant. Additionally, 63% of Americans believe that the government should not be able to track their movements without a warrant. These numbers suggest that the vast majority of Americans believe that they have a right to privacy, even if they are not engaging in any wrongdoing.
The government’s assumption that privacy is only important for people who are doing something wrong is not only inaccurate, but it is also dangerous. When the government assumes that everyone is a potential criminal, it creates a climate of fear and distrust. This can make it difficult for people to speak out against injustice or to participate in their democracy.
The government needs to strike a balance between its need to enforce the law and its citizens’ right to privacy. This balance can be achieved by ensuring that the government only collects personal information when it is necessary and that it uses that information in a responsible manner.
Macroeconomic
The dollar index rose to its highest level in eleven weeks on Friday after Powell’s speech.
Comment
Forex traders are betting that the Fed will continue its hawkish monetary policy for the time being. This is despite some signs of economic weakness, which could lead more dovish members of the FOMC to vote against further rate hikes.
The continuation of the Fed’s hawkish policy will depend on whether or not the current inflationary environment is similar to the 1970s. During that period, inflation came roaring back after the Fed stopped raising interest rates. However, there are some key differences between the current economy and the 1970s, such as the strong labor market and low unemployment rate. I believe that we are not in a repeat of the 1970s. The economic fundamentals are very different today.
On week 34, there will be released data on employment, inflation, and economic growth, including JOLTs (Tuesday, August 29), Core PCE Price Index (Thursday, August 31) and Unemployment Rate (Friday, September 01). Accordingly, traders might be jittery, and as a consequence, markets could be volatile.
Investors will also be watching for inflation figures from the Euro Area, Germany, France, Italy, Spain, and Switzerland. Flash manufacturing PMI readings will be released for China, South Korea, India, Russia, Spain, Italy, and Canada. Finally, Turkey, India, Brazil, and Canada will report their Q2 GDP growth figures.