5-Min Monday Macro & Crypto: 9th Sept 2024

Red Red, waiting for FED

Sep 09, 2024

I spend hours reading, researching and talking to the smartest founders and investors every week. This is my attempt to give you a short 5-10 minutes summary on how I am thinking about Macro & Crypto markets and what lies ahead. Hundreds of hours summarised, so you don't have to.

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You can also hear more detailed thoughts on our podcast “Greed is Good”

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“Most geniuses—especially those who lead others—prosper not by deconstructing intricate complexities but by exploiting unrecognized simplicities.”

— Andy Benoit via Shane Parrish (Farnam Street)

MACRO - Red Red, Waiting for FED

The Hashtalk Poll that counts this week

Last Week Hashtalk Poll Results - Click here

THE BIG MACRO PICTURE

Signs of Weakness but not on the brink yet

Manufacturing Continues to Contract
August's ISM Manufacturing Index came in at 47.2%, solidly in contraction territory. While it's a worrying sign, it's not exactly the floor falling out—more like the economy is limping through a foggy day.
Non-Farm Payrolls Disappoint
The latest report shows just 142,000 new jobs, with the unemployment rate ticking down slightly to 4.2%. Although revisions for June and July reflect even weaker performance, the market has shrugged it off, likely viewing this as “already priced in” amidst a surge in part-time work. Think of it as a patch job rather than a full repair.
Job Openings Drop to Multi-Year Low
Job openings fell to a 3.5-year low of 7.67 million in July, adding more fuel to the argument that the Federal Reserve may need to be more aggressive with rate cuts. It’s as if the job market engine is sputtering, begging for a tune-up from the Fed.
Markets Wait on a Historic FOMC Meeting
Across equities and crypto, it’s been a rough week, with red dominating the screens. The key question now: Did the Fed miss an opportunity by not cutting rates by at least 25 bps in July? And will they try to make up for it by slashing rates by 50 bps at the upcoming September 18th meeting?

Why a 50 bps Rate Cut Could Be on the Horizon

Clearly Weakening Data: The soft jobs data, compounded by revisions, paints a worsening picture that could push the Fed to take more drastic action.
Political Timing: The next FOMC meeting after September is set for November 7th, which conveniently comes after the November 5th election. Any rate cut after that would be too little, too late from a political perspective. Pressure is likely mounting on Powell to act before then.
Market Losses and Election Sensitivity: With stocks down around 25% from their peak, a continued market slump would spell disaster, especially ahead of the election. Both the Fed and Democrats likely want to avoid an economic free fall at this critical time.
Tame Inflation and Stable Commodities: Inflation remains relatively well-behaved, and commodity prices are steady. This might give the Fed room to act without the fear of reigniting inflation. It’s like knowing you have the perfect conditions to bake a cake—you don’t wait until your ingredients spoil.

Yen Moves Could Signal Something Bigger
The Japanese yen has returned to August levels of 143, hinting that pension funds may be quietly shifting money out of U.S. equities as rate differentials narrow. Investors don’t want to get caught off guard like they did last time, and the yen might be telling us there’s more brewing beneath the surface.

In summary, while the economic situation is weakening, it’s not a freefall just yet. However, with the pressure mounting from all angles, the Fed might finally decide to throw a 50 bps rate cut into the mix on September 18th.

THE MACRO ZEITGEIST

This month’s market pulse is tuned into three pivotal events:

Trump vs. Harris Debate on September 10th: The spotlight is on as Trump and Harris go head-to-head. Harris has stirred the pot with her corporate tax plans, including price controls and taxing unrealized capital gains. Meanwhile, RFK Jr. and Tulsi Gabbard have thrown their weight behind Trump. It feels like we’re in a historical deadlock, where either candidate could trip up at any moment. But, in my opinion, a Trump win would likely be more favorable for risk assets, particularly crypto, whereas the market thinks, Kamala would take the debate.
U.S. FOMC Rate Cut Decision on September 18th: While a rate cut seems baked in already, the fact that it’s happening signals the start of a new macro cycle, especially in this high-stakes election year. With years of liquidity tightening potentially giving way, Q4 is shaping up to be nothing short of epic.

GLOBAL MACRO - CHALLENGES EVERYWHERE

Canada: Juggling Immigration and Housing Woes
The Bank of Canada recently lowered its interest rate to 4.25%, as unemployment climbed to a three-year high of 6.6%. Yes, 6.6%. With elections just around the corner, this move feels like a Band-Aid on a bullet wound—too little, too late. Canada’s housing market is caught between a rock (soaring demand due to high immigration) and a hard place (limited supply), creating a situation that will likely be a key election battleground.
China: Deflating the Bubble, One Slow Sigh at a Time
China's economy is stumbling, but instead of bold actions, its central bank is handing out promises like free samples at the mall. The strategy? Slow and steady deleveraging, carefully deflating the balloon without letting it pop all at once. Property and stock markets may be taking the brunt now, but this method of gradual unwinding is long-term thinking at its finest—like letting air out of a tire instead of waiting for a blowout.
Europe: German Recession Spells Trouble for the Euro
Germany’s economic engine is sputtering, with July’s output down 2.4%, largely due to competition from China and sluggish global demand. If Germany catches a cold, the Euro might get the flu. A prolonged recession here could send shockwaves through the Eurozone, potentially pushing the continent toward deeper economic trouble.
Australia: Canada’s Twin in Immigration and Housing Struggles
Much like its northern counterpart, Australia is wrestling with its own immigration and housing conundrum. With annual growth at just 1.0%, the country faces a similar dilemma of balancing high immigration rates with an overstretched housing market—like trying to fit more people into a lifeboat that’s already sinking.

The global economy is facing a precarious moment, with each region encountering its unique but interconnected set of challenges. Time will tell how well these countries navigate the rough waters ahead.

DATA TO WATCH THIS MONTH

September 11 - U.S. Consumer Price Index for August
September 17 - U.S. Retail Sales
September 18 - U.S. FOMC Interest Rate Decision
September 27 - BTC CME August (BTCU24) Options Expiry

To sum up this week’s macro outlook:

The economy is clearly weaker and makes a solid case for FED to cut 50 bps. Q4 still looks promising but it’s going to be a very bumpy ride. We could dip further as market awaits FED certainty. Choose your trades carefully.

STOCKS, BONDS, FX

NVIDIA + Growth vs Value Trade

STOCKS

Market Movements and Future Outlook

On Friday, U.S. stock markets experienced a sharp decline following the August jobs report, raising concerns about the Federal Reserve's upcoming interest rate decisions. Here’s a breakdown of the situation:

Tech Sector Turmoil: The S&P 500 and Nasdaq Composite plunged by 1.7% and 2.6% respectively, with the Nasdaq experiencing its worst week since early 2022. It’s as if the tech sector hit a bump in the road, with Nvidia and Alphabet each falling 4.1%, and Broadcom nosediving over 10% after a disappointing revenue forecast despite robust AI performance. Tesla also saw a significant 8.5% drop, undoing previous gains amid regulatory concerns in Europe. Think of it as a tech parade suddenly caught in a rainstorm.
Broader Market Movements: The Dow Jones also fell by 1%, reflecting broader market unease. Meanwhile, gold futures and Bitcoin also faced declines, as if the entire financial ecosystem was holding its breath.
Bright Spots: In contrast, some companies managed to shine through the gloom. Dollar General rose 2.7%, recovering some recent losses, while SBA Communications and United Airlines posted gains despite the general market downturn. It’s a reminder that even in a storm, there are occasional rays of sunshine.
Looking Ahead: While technology stocks may not be the primary casualties, the ongoing rotation in stock markets suggests a shift is underway. With expectations of falling policy rates in the U.S., new winners and losers are likely to emerge among equities. Smaller companies, in particular, might benefit from lower interest rates, as they often rely more heavily on external financing. It’s like shifting gears in a car; as the road ahead changes, different vehicles will take the lead.

As the financial landscape continues to evolve, investors should prepare for ongoing volatility and seek opportunities among emerging winners in this shifting market environment.

BONDS

US 10-Year Bonds: Balancing Risks and Rewards

Current Valuation: The US 10-year bonds are currently trading at a yield of around 4%, which seems fairly valued. It's akin to a well-balanced meal—nutritious but not overly indulgent.
Risk Asymmetry: The risks associated with these bonds are not evenly distributed. In the scenario of a "soft landing" for the economy, where growth moderates without slipping into recession, interest rates are likely to rise only marginally. Think of this as a gentle breeze on a calm day—noticeable, but not disruptive.
Recession Risks: Conversely, if the risk of a recession escalates, interest rates could fall significantly. This is similar to a storm hitting suddenly; the bond market would respond with a sharp drop in yields as investors flock to safer assets.
Market Reactions: Thus, the bond market faces an asymmetric risk profile: minimal upside if the economy stabilizes, but potentially significant downside if economic conditions worsen. It’s like walking a tightrope where the safety net is much closer to the ground if things go awry.

In summary, while US 10-year bonds are currently priced reasonably, the potential for interest rate fluctuations is unevenly skewed based on economic outcomes.

CRYPTO

Bitcoin Outlook: Navigating the Market

Simple Supply-Demand Dynamics: Bitcoin's supply is finite, yet we've seen a steady stream of selling since May 2024. Combine this with tepid demand, and you have a classic recipe for a market meltdown. It’s like trying to keep a leaky boat afloat with a shrinking supply of buckets—eventually, the water will win.
Surprising Resilience: Despite billions in supply, hefty miner sell-offs, large ETF outflows, and lackluster new demand, Bitcoin remains above $50,000. This level is proving to be a robust resistance point, akin to a sturdy dam holding back a rising river. As sellers become fatigued and production costs surpass the current price, Bitcoin's strength at this level suggests it could be setting the stage for an impressive rebound.
Anticipating an 'UPTOBER': With potential rate cuts and a new macro cycle on the horizon, Bitcoin might just surprise us all with a significant upside move. Prepare for an "UPTOBER," where the cryptocurrency could potentially take off like a rocket, defying current trends.
Bottoming Out: I believe $48,000-$50,000 is likely the floor for Bitcoin unless there’s a major macroeconomic collapse. We've weathered massive Bitcoin sales, regulatory shifts, and political uncertainty. If Trump wins the upcoming election (which I consider likely), the next 12 months could be transformative. And hey, don’t forget me when you’re lounging on your yacht with a martini!
Short-Term Caution: In the short term, we might see a brief dip below $48,000. It’s wise to proceed conservatively this month, as discussed in the macro section, and wait for stronger bullish signals (possibly in Q4) before making any big moves.
ETF Outflows and Investor Behavior: ETF outflows have accelerated recently, totaling $1.2 billion over the past 10 days. Baby boomers are notably absent, and as Jim Bianco points out, new purchases are mostly trickling in from online retail accounts. Meanwhile, seasoned investors understand the value of self-custody and might prefer to keep their holdings close to home, much like guarding a prized treasure.

In summary, while Bitcoin faces headwinds, its current resilience suggests potential for significant upside, especially if macro conditions align favorably.

Ethereum and Solana Market Insights

ETHBTC: Drifting with Bitcoin
ETHBTC continues its downward drift, largely mirroring Bitcoin's movements. It’s like two dancers in sync—if one stumbles, the other follows suit. Despite this, Ethereum ETFs have yet to ignite interest, proving to be a “sell the news” event. Much like waiting for a firework show that never quite sparks, the anticipated demand for ETH ETFs hasn't materialized.
ETH's Price Range
At current prices around $2,000 to $2,300, Ethereum is starting to look appealing again, particularly with BlackRock’s involvement. BlackRock’s success hinges on making this work, as their fees are on the line. However, for Ethereum to thrive, Bitcoin needs to perform well, which in turn depends on a turnaround in equities. Everyone is on edge, awaiting tomorrow’s debate and the September 18th FOMC decision. Proceed with caution—it's like navigating through foggy weather.
Solana's Consolidation
Solana is currently consolidating with solid support at $125, while the memecoin season seems to be winding down. Think of Solana as a car stuck in traffic—it's holding steady but not making much progress.
Meanwhile, $SUI is emerging as a potential "next Solana," which is an interesting theory. Personally, I’m not convinced. However, I anticipate Solana may see renewed interest next week, coinciding with the Solana Breakpoint conference in Singapore. Expect memecoins to resurface on Solana, like a splash of color in a fading painting.

In summary, while Ethereum faces challenges and Solana consolidates, upcoming events and price levels could provide opportunities for rebound and renewed interest. Keep an eye on developments and tread carefully in these uncertain waters.

The only other narrative in town for now seems to be on $VISTA - EtherVista. Pump.Fun + DEX on ETH. with a macro of around 25mn right now and a part of our ‘52 Trades in 52 Week Trade”. $Neiro is another one on $ETH that is back from nadir $300mn to $23mn and back to $180mn - we have not participated in this as too much going on.