Thursday's Markets Update (October 12, 2023)

12 Oct 2023 by rate3

On Thursday, CPI rose and Nasdaq fell due to rising Treasury yields and higher-than-expected inflation. Investors were spooked by the prospect of another interest rate hike later in the year, again. BTC and ETH continued to edge down on bearish technicals. Other news: DappRadar reported a USD 600 million inflow of investments to on-chain gaming.

US core consumer prices rose by 0.3% in September 2023, in line with expectations and matching the increase in August. This is a sign that inflation is still high, but may be starting to plateau. Prices for services unrelated to energy, like housing and medical care, rose at a faster pace, while prices for new vehicles remained steady and prices for used cars and trucks fell. Overall, core consumer prices rose by 4.1% compared to the previous year.

At the same time, unemployment claims remained unchanged at 209,000 for the week ending October 7th, below expectations and near the seven-month low. This data suggests that the labor market remains very tight, even as the Federal Reserve raises interest rates. This could give the Fed more leeway to keep rates higher for longer in an effort to combat inflation.

Comment

Data from the past 3-4 months suggest that the Fed's aggressive tightening policy may lead to stagflation. Inflation is likely to persist because corporations will continue to raise prices as demand shrinks and energy prices will go only higher.

At the same time, the labor market remains tight due to a combination of cumbersome labor laws, political pressure, and employers' reluctance to part with trained employees. Plus the real unemployment is underestimated because of the outdated, low-tech government's data processing system.

Additionally, capital is flowing into the country and into Treasuries and bonds as investors seek refuge from geopolitical risks. This, combined with rising energy prices, is also keeping inflation high. This is also driving up real estate prices to unsustainable levels. At the same time, innovative technology sectors that require extensive venture financing are slowly but surely being wiped out.

It reminds me the Japanese economic stagnation, also known as the "Lost Decades", but with inflation replacing deflation. Key factors of the Japanese economic situation include: the bursting of the Japanese asset price bubble in the early 1990s, a lack of structural reforms to the Japanese economy and an aging population.

The asset price bubble was caused by a combination of factors, including easy credit from banks, government stimulus spending, and speculation. When the bubble burst, it led to a sharp decline in asset prices, such as stocks and real estate. This caused banks to become reluctant to lend money, and businesses to invest less. This led to a recession and a prolonged period of deflation.

The Japanese government implemented a number of policies to try to stimulate the economy, but these policies were largely unsuccessful. The government also failed to implement structural reforms to the Japanese economy, such as deregulating the labor market and reforming the financial system. This made it difficult for Japanese businesses to compete in the global economy.

Finally, Japan's aging population has also contributed to its economic stagnation. As the population ages, there are fewer workers to support the economy. This is also leading to a decline in consumer spending.

The Japanese economic stagnation is a cautionary tale for other countries. It shows that even a highly developed economy can experience a prolonged period of economic stagnation if the right policies are not implemented. Right policies in our situation is abolishing of politician's control over the economy and complete decentralization of all governance systems.

Crypto

Even though the crypto and gaming markets are facing challenges, investors are still putting a lot of money into blockchain gaming startups. According to a report by DappRadar, blockchain games received about $600 million in venture capital investment in the third quarter of 2023.