SVET Reports
SVET Markets Weekly Update (October 9–13, 2023)
On Week 41, Nasdaq rose despite the new war in the Middle East on expectations that slowing inflation, increased recessionary worries and the prospect of surging government war expenses would make it more politically difficult for Powell to continue his hawkish policies for much longer. At the same time, BTC and ETH both confirmed a bearish trend due to lack of interest in crypto and continued growing regulatory pressure.
On Monday, the Nasdaq rebounded on technicals despite lingering concerns over the Israel-Hamas conflict and rising oil prices weighed on markets. Tech stocks mixed, with some stocks down and others up. Travel stocks declined sharply, with Carnival, United, Delta, and American all down more than 4% due to fears of travel disruption. Energy stocks surged, with Exxon Mobil and Chevron up more than 3% each. Defense stocks also saw gains, with Northrop Grumman, General Dynamics, Lockheed Martin, and Raytheon Technologies all up over 4%. BTC and ETH declined on concerns over a possibility of more rate hikes, prompted by higher energy prices from the potential escalation of the Middle East conflict. Other news: Crypto investing decreased 63% in Q3; Tornado Cash remains the top Ethereum network crypto mixer, despite harsh government persecutions.
Comment: Investments In Times Of Global Wars.
Historically, stocks have displayed a remarkable capacity to maintain their value even during major conflicts. Analyzing data spanning World War II, the Korean War, the Vietnam War, and the Gulf Wars, it is apparent that the average return for large-cap stocks during these tumultuous periods stood at an impressive 11.4%. Thus, for those with a long-term investment horizon, equities can be a prudent avenue for wealth preservation and growth during times of war.
An industry that often thrives amidst the backdrop of war is the defense sector. Companies involved in the production of weapons and armaments tend to fare well during wartime environments, as governments typically bolster their defense expenditures. Furthermore, energy companies may also experience an uptick in performance during times of conflict, as the demand for energy resources can surge in response to geopolitical tensions.
For those with a penchant for a more aggressive approach, short selling presents itself as a potentially lucrative strategy in a bear market, specially for industries prone to a sharp downfall during wars, such f.e. as tourism and airlines. Additionally, employing options strategies, such as buying puts, can be an effective means of capitalizing on a market downturn, as these instruments gain in value as the market experiences a decline.
It is essential to underscore that these strategies, while grounded in historical data and financial wisdom, are not foolproof and may not universally apply to all situations.
Crypto
Crypto funding plunged 63% in Q3 2023, with VCs investing just $1.9 billion, according to Bloomberg.
Despite Treasury Department sanctions in August 2022, Tornado Cash remains the top Ethereum network crypto mixer. Recent data shows $77.35 million passing through its Ethereum Mainnet contracts in the last month. The mixer spans seven chains and enables users to conceal transfers of ten crypto assets, with ETH on Ethereum being the most used. Although it saw a drop after sanctions, it previously handled over $700 million in ETH at its peak in July 2021.
Comment: How Do Wars Influence Crypto Markets?
Several studies have undertaken investigations in this domain, attempting to discern patterns and trends. Most of them posit that the the recent war in Europe may be an explanatory factor behind the recent downward trajectory in cryptocurrency prices. However, it is essential to approach these findings with caution and a degree of skepticism.
As an illustration, examinations of the SP index reveal that although there was initial uncertainty during the first month of the conflict, the market typically began to exhibit positive trends after three months. In 75% of instances, the SP 500 showed positive performance twelve months following the military event. Crypto markets have been highly correlated with stocks during past two years (f.e. the correlation between Bitcoin and the S&P 500 was 0.8 on August 25, 2023), so they might exhibit the mentioned SP’s dynamic in a future.
Overall, the higher volatility is the most plausible scenario as traders will be faced by growing geopolitical risks and an economic ambiguity on both crypto and stock markets.
Beyond the realm of trading volume and price dynamics, the war has showcased the multifaceted role that cryptocurrencies play in contemporary geopolitics.
On one hand, cryptocurrencies have been employed for malicious activities, including ransomware attacks and sanctions evasion, underscoring the challenges posed by their pseudo-anonymous nature.
Conversely, cryptocurrencies have also been harnessed for positive purposes amidst the conflict. They have facilitated donations and aid contributions to those affected by the war, highlighting their potential as a means of circumventing traditional financial intermediaries and enabling direct peer-to-peer transactions. Additionally, cryptocurrencies have served as a reliable store of value for individuals and businesses in war-affected regions, offering a degree of financial stability and autonomy amid economic uncertainties.
Moreover, cryptocurrencies have contributed to reducing cross-border transaction costs and fostering financial independence, particularly in emerging markets.
To sum up: Cryptocurrencies have emerged as both a tool and a battleground in the conflict, serving diverse purposes and offering a mixed bag of benefits and challenges for citizens in the warring nations.
On Tuesday, small businesses are reported to be less optimistic, but the Nasdaq and a broader range of stocks gained as Treasury yields fell after dovish comments from Fed officials. Tesla, Bank of America, and Amazon were among the top gainers. Bitcoin went sideways, while Ethereum continued its slump caused by its foundation’s sell-offs. Other news: Some “crypto-analytic” firms point to cryptocurrencies as the important source of the Middle East war’s financing.
Details
The NFIB Small Business Optimism Index fell for a second month in September to its lowest level in four months, as inflation and labor quality remain top concerns. Owners are pessimistic about future business conditions, and sales growth has slowed.
FYI:
The NFIB Small Business Optimism Index is a composite of 10 survey components that measure the expectations and outlook of small business owners regarding the economy, sales, employment, and other business-related factors. The index is calculated on a scale of 0 to 100, with higher readings indicating greater optimism.
A reading above 100 indicates that a majority of small business owners are optimistic about the future. This is typically seen as a positive sign for the overall economy, as small businesses are a major driver of job growth and economic activity in the United States.
A reading below 100 indicates that a majority of small business owners are pessimistic about the future. This can be a sign that the economy is slowing down or even contracting.
The historical average of the NFIB Small Business Optimism Index is 98. Any reading above 98 is considered to be above average, and any reading below 98 is considered to be below average.
Comments
NFIB Chief Economist Bill Dunkelberg said, “Sales growth among small businesses has slowed, and the bottom line is being squeezed, leaving owners few options beyond raising selling prices for financial relief.”
What all world’s governments, inundated by 70+ “rulers”, stopped to understand is that they are riding people, not numbers. When you squeeze people’s families, they will react. First by raising prices — a.k.a. increasing inflation — in their shops and then by something else. We have already seen how fast it might initially lead to throwing stones into someone’s shop windows or invading unguarded property and, then, to much much worser acts of barbarism.
That Baby Boomers, still, would not see that as the direct consequence of their inability to fundamentally change the governance system in order to adapt to new realities, most of which have been always driven by implementing new technologies from within the society, and continue to blame all social calamities on “extremists-terrorists” is understood.
Old ruling bureaucrats, incapable of embracing the changes, always blamed the stupidity of their outdated “policies” on someone else — on “nationalists” in America 1861, on “anarchists” in Europe 1914 and then in 1939, on “communists” in Korea 1950, on “religious extremists” in Yugoslavia 1991, on “terrorists with nuclear weapons” in Iraq 2003 — et cetera, et cetera. The list goes on and on.
In our day, only complete decentralization and the transfer of major governance mechanisms to the “bottom” of our society to millions of interconnected individuals, forming fluid, rapidly changing independent societies, helped by algorithms, might save our civilization from the chaos to which Baby Boomers are leading us now with their famously rigid brainlessness.
Crypto
Ethereum price fell sharply, after the Ethereum Foundation started selling coins. This is due to a number of factors, including an increase in the supply of tokens, sales by Buterin and the Ethereum Foundation, and weaker-than-expected demand for Ethereum futures ETFs. These factors have created negative sentiment around Ethereum, which has weighed on its price.
Some “crypto-analytic” firms have attempted to use the current crisis in the Middle East to rise demand for their products from part of government agencies by blaming cryptocurrencies for playing a major role in financing the current conflict, citing unsubstantiated “UN research” that allegedly stated that crypto may constitute up to 20% of that war financing today.
Comment
We have come full circle in 10 years, from ETH emerging in 2013 to the current situation when, after the widely acclaimed conversion from PoW to PoS, ETH has started to gradually lose its practically unchallenged stance with investors.
Of course, most of this is due to the current unprecedented combination of deepening economic crises accompanied by a reduction in liquidity — vital for crypto survival — and political and regulatory pressure on the crypto community imposed by three-letter agencies and politicians all around the world.
However, the more decentralized a network is, the better its chances of survival. It looks like ETH taking that leap of faith and going to PoS didn’t improve those chances.
On Wednesday, BLS data showed slowing PPI, and the Nasdaq was up slightly. However, investors stayed cautious ahead of Thursday’s CPI report. BTC and ETH continue their demise on technicals suggesting weak support at 27K and 1.6K, respectively. Other news: UK Parliament attacks NFTs.
Details
Producer prices (PPI) rose 0.5% in September, the lowest increase in three months. This was higher than economists’ expectations but lower than the previous month. The increase was driven by higher goods prices, led by a surge in gasoline costs. Prices for some services also increased, but prices for airline passenger services and other services fell. At the same time, FOMC meeting minutes showed that the Fed intends to keep interest rates at restrictive levels for a prolonged period. Of course, it happened before the Middle East war erupted.
Comment: FYI
What are the advantages of PPI over CPI as an economic trends leading indicator?
The Producer Price Index (PPI) has several advantages over the Consumer Price Index (CPI) as an economic trends leading indicator.
PPI is more timely. The PPI is released two weeks before the CPI, which gives economists and investors more time to react to changes in economic trends.
PPI is more sensitive to changes in economic activity. The PPI measures the prices that businesses receive for their goods and services, while the CPI measures the prices that consumers pay for goods and services. Businesses are more likely to adjust their prices quickly in response to changes in economic activity, so the PPI is more sensitive to these changes than the CPI.
PPI is less affected by government policy changes. The CPI can be affected by government policy changes, such as changes in taxes or subsidies.
Overall, the PPI is a more timely, sensitive, and reliable leading indicator of economic trends than the CPI, and its current slowing down might be a positive sign for traders, as it strengthens the position of “doves” in the FOMC. Still, Powell pays more attention to the CPI, so it is more watched by analysts.
Crypto
The UK Parliament’s Culture, Media and Sport Committee published a report highlighting the challenges and risks of NFTs. The report found that NFTs have revolutionized the art and sports sectors, but they also pose significant copyright infringement, misleading advertising, and fraudulent sales concerns. The committee urged the government to work with NFT marketplaces to protect artists’ copyright and to ensure transparent advertising practices. Fan tokens also pose potential financial risks for fans, despite being presented as a fan engagement tool.
Comment
The hypocrisy of Boomers is astonishing. They defend the current centralized, financial system, saying that the Fed stands for the “interests of the Society” by “mediating” the inconveniences of the “free market, which does not exist any way.”
The Fed does this by decreasing rates when it’s recession and increasing them when there’s inflation. Boomers only do not answer the question of who and when might flawlessly defines what “recession” is and for whom this recession is really going on — and for whom it is not.
That is what is happening now. Boomers accumulated 7 Trillion worth of assets during their unusually long lives, and for them, investing in Treasuries for 5% is a dream they don’t want to end. For the rest of us we have to work hard and to invest even harder to just make the ends meet.
At the same time, all Fed’s officials and top decision makers bureaucrats are Boomers — so, please, don’t tell me that it’s a “coincidence” that they insist on keeping rates higher even now, when already two wars are raging, inflation is getting to its lowest at 3%, and several sectors of the economy (real estate, tech, and finance) are going to hell.
Of course, all “definitions” are a question of “taste,” and that’s the point. Either we are following the capitalist system, where market forces and competition on all fronts decide what to produce, what not to produce, and what rates to maintain, or we delegate that to 2–3 old dudes, which is what we’re doing now.
In that case, please, stop calling this system “free and democratic.” It is the Stalinism in its purest form, expressed by other means, when the financial fate of billions of people is decided based on the personal interests of a narrow group of privileged individuals in their “golden ages” with delusional views on almost everything.
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.
On Friday, Michigan Consumer Sentiment index is down, but the daily decline of Nasdaq and other stocks might be attributed more to technical factors aligned with rising geopolitical concerns prompted by the escalation in the Middle East conflict. Meanwhile, BTC and ETH are trading sideway below their key support levels (27K and 1.6K) amid rising worries that they might get lower before getting higher. Other news: Bloomberg reports Coinbase trading volumes dropping more than a half in Q3 2023.
Details
The consumer sentiment fell to a five-month low in October, according to the University of Michigan. Consumers are more worried about inflation and the economy than they have been in months. However, they believe the current downturn will be temporary.
Crypto
Bloomberg report found that the CoinBase trading volume decreased by more than 50% in the third quarter of 2023.
On Week 42 Investors will be focused on the start of the earnings season in the US, as well as speeches from Fed officials and data on retail sales, building permits, housing starts, existing home sales, and industrial production. Internationally, inflation rates and China’s Q3 GDP growth rate will be closely monitored. The UK, Germany, South Korea, and Indonesia will also release key economic data and interest rate decisions.
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