5-Min Monday Macro & Crypto: 12th August 2024
BOJ done, eyes on FED Data, August seems chop chop
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“Things turn out best for the people who make the best of the way things turn out.” - John Wooden. Nicknamed “the Wizard of Westwood,” he won ten NCAA championships over a 12-year period as head coach for the UCLA Bruins, including a record seven in a row
Source: Tim Ferriss
MACRO
TL:DR: Massive Dump on Monday, back up Friday, Now Chop Chop August 😢
THE MARKET ZEITGEIST
Markets bullied BoJ to about-face. That means there will be no more rate hikes from BoJ anymore. This week Ueda and BoJ learned the hard way that they have no choice but to keep a lid on rates and JGB yields. A debt trap they cannot get out of. I am sure everyone and their grandmother has a doctorate by now, in how this Yen Carry and BoJ rates work. I am not going to bore you any further with that. Point to note here is that there were massive INFLOWS into Japanese stocks this week: 3rd largest inflow YTD at $4.0bn. THE DIPS in JAPANESE STOCKS WERE BOUGHT. NO MORE DIPS. NO MORE FORCED LIQUIDATION CASCADES.
Things should be smoother on the BoJ / Yen / Carry Trade front. But I don’t see markets going back to ATH in a jiffy either as markets will stay jittery and watching every inch of new data coming out of US with a magnifying lens.
THE BIG MACRO PICTURE
Next on - markets have almost certainly coerced FED into a Sept rate cut, followed by many more in coming months. It is quite clear from the data that is coming out of US that the economy is slowing down. Slowing but growing. There is no contraction / recession YET. We had a ‘slightly ’ better than expected initial jobs claims number but it is clear that higher-for-longer real rates are hurting the US consumer.
FED is in an extremely difficult situation. It is a given that FED will reduce rates by at least 25 bps in Sept. This will push the USD/JPY lower making US assets less attractive and leading to sell offs in equities and bonds. If FED doesn’t cut or cuts less that 25 bps expected, equities will fall harder as conditions would remain tight with a possible recession around the corner (although recession is not my base case). So the Fed is in a bind: if they cut aggressively, the USD/JPY collapses and foreigners sell assets. If they hold off or cut less than expected, assets collapse as recession expectations grow and foreigners sell so the USD still tanks.
While unemployment is rising, and reaching crucial levels, Americans, still have jobs and things are “just fine” Slower, but not contracting. There is no recession or hard landing coming soon.
Plus Yellen has a lot of TGA & “Other” ammunition that can push liquidity into the system indirectly without calling it such. Remember the BTFP buttplug during Silvergate crisis last March? And don’t underestimate FED - they have unlimited amount of options to calm things down as well, including 550 bps of cuts that they can afford. Harris & Yellen are not going to let things go south in an election year. Period. Arthur Hayes covers this in detail in his newsletter again this week see below under Interesting Articles
That reminds me of the quote from Lord Keynes
"MARKETS CAN REMAIN ILLOGICAL FAR LONGER THAN YOU OR I CAN REMAIN SOLVENT:"
MEANWHILE IN THE BACKGROUND
Harris continues to lead against Trump for the first time on Polymarkets. That is not good for crypto or risky assets. unless Harris comes up with her own “Harris for Crypto” campaign. Or I should say Trump is better for my crypto bags, Harris’s intentions are unclear.
MACRO SUMMARY
I believe 25 bps is a very sweet spot for now but if US payroll / CPI / labour / credit card etc data continues to disappoint, big cuts are coming ahead. This should be taken positively and could be a much needed turning point in the markets. Till such time in August, we have to deal with uncertainty, and markets don’t like that. Hence things could be volatile for a while but range bound IMO. The risk to this thesis is unknown behaviour from Iran and / or Harris taking a steeper lead from Trump,
DATA TO WATCH THIS WEEK
Producer Price Inflation PPI - Tuesday 08:30 AM EST (previous 0.2% , expected 0.1%)
Consumer Price Index CPI - Wednesday 08:30 AM EST (previous 3% , expected 2.9%)
Initial Jobless Claims - Thursday 08:30 AM EST (previous 233,000 , expected 232,000)
Retail Sales Month-Over-Month - Thursday 08:30 AM EST (previous 0% , expected 0.3%)
STOCKS, BONDS, FX
WHAT HEXT - TAKE EACH DAY AS IT COMES
With above macro thoughts in mind, we are still on phase for a soft landing. That means stocks should do well and large tech trades are still on. Any dips are to be bought. This is NFA, DYOR and usual disclaimers please.
The hedge funds and traders had run ahead of themselves. Central banks had got complacent. Markets gave them a bolt. And thats about it. Shaken but not down.
Meanwhile Meta seems to be killing it
Small businesses and consumers will start spending soon on hopes of few rate cuts this year - which is our base case. See above in Macro. But as suggested above, keep an eye on the data. That could change everything in a jiffy. That is not something we can, our any one can predict. NFIB survey (Tuesday) show lift in business confidence index from 92 to >98 (50-year average) would be big optimistic signal.
LESSONS & OPPORTUNITIES FROM THIS MINI DUMP
We have been in the camp of 25 bps since last few months. And that is right round the corner now. We have also written about how AI trade is overdone and linked the GS bearish report on AI in last two weeks newsletter. We stick with that. AI trade is done for now until these AI companies show some real revenue vs cost spend.
With 25 bps cuts now and more to come in coming months, sectors small caps and sectors like REITS, emerging markets (Brazil & India are my favourite with a weaker dollar and thriving stock market) and housing ar every attractive.
CRYPTO
THE BIGGER PICTURE
We have been institutionalised. And we are ourselves to blame for this. The PvP circus that we have build for ourselves, has allowed the TradFi outsiders to take control of crypto narrative from degenerate brothern. You are no longe run control. “Suits” and their ETF’s are. Make no mistake. And play accordingly.
last 6 months, there have been only two plays in town:
Meaningless memecoins with hats and cats. Don’t get me wrong, I am equally to blame and I have enjoyed the thrill to make a quick 10-100X. I am a degenerate after all. But I am also very practical and I smell BS after so many years. I still make mistakes, but lesser so.
VC pumped bags that were dumped on you Mr retail by an ecosystem of “Awesome founders”, market makers, VC’s and exchanges. You are the liquidity exit. And you always have been.
You see it’s been very clear that our own crypto brethren have been out for our lives leaving the door open for outsiders.
From hereon, macro and $BTC narratives will be controlled by ETFs and they will in turn be controlled by the Suits. Yes there will be one or two outliers but you will still be an exit liquidity there because you are not a part of that cabal.
As suggested above, memecoins are becoming very difficult to make money on unless you are insider or sniper. Degens are constantly losing money and starting to give up as 50,000 new coins are pumped every day by you fav cabal. This is not sustainable. Is this the end of memcoin narrative?
No, not really. Degens will be degens but a new narrative must be round the corner as by definition these degens need to make 10-100X prompto.
The supply of new coins via new projects, and 100’s of new L2s issued this year worries me. And there is an equal supply of new tokens by best projects like Monad, Berachain etc coming on in next 6 months. Who will buy them? Where is the new money coming from? There isn’t any. These new coins are just diluting the existing cryp[to holders money. Which means that older altcoins will continue to bleed. And that means the majors dominance will continue to increase.
I will write a more detailed and proper article on this. And how we can capitalise on that.
THE MAJORS
Bitcoin is witnessing a death cross right now, last seen in Sep 23’. When the 50-day Moving Average (MA) crosses below the 200-day MA, it forms such a "death cross."
Most of the times, this is a lagging indicator and marks the local bottom. See Sept 23’. RSI was also falling and this marked the bottom and market started to rise.
Add this technicality to our macro view above, we should stay in a choppy range bound market for August and then start to see some major rallies when Sept rate cuts come closer. Last week, we saw BTC dip below $50K. Now everyone is watching $55K as new bottom. I believe markets will not wait for that and any dips above %6.5 will start getting bought. if we run below $55K, that would be temporary IMO and quickly reverse from there. But drop below $54K and we could see next buying opportunity around $49-51K area.
Meanwhile ETH is having a brutal month, thanks to Jump Trading selling another 11,501 Ether (about $30 million) and redeemed another $48 million worth of Ether in preparation for selling. But this selling pressure is also coming to an end as they only have another 21,394 Wrapped Lido Staked ETH (wstETH) worth about $65 million.
That has invalidated the ETH Death Cross as bulls need to reclaim the 200 day which is about ~25% higher than the current price from about $2600 to $3200
As for Solana, it continues to outshine both BTC & ETH, thanks to the degenerate and their memecoin mania.
HOWEVER, now that tools like pump.fun are issuing 50,000 coins per day. Yes per day, I think that could kill memecoin narrative. It becomes extremely difficult to catch and make 10X on a good coin until it’s already at $50-100mn FDV. Moreover, the cabal and insiders and snipers have already cornered the supply and you can hardly make money. More and more degens are realising that. Some are moving to ETH and some are just exiting.
I am keeping an eye as I have not made up my mind what next for memecoins and if there is any other narrative for crypto. And if memcoins ar Eno longer a narrative in coming days, then what for Solana? ETF perhaps?
We stay long term bullish on entire crypto sector as rate cuts come into play because:
This mini correction where BTC dropped from $70K to $50K in four days, is half reversed already and funding rates are fully reset.
The major overhangs that we had for months and years related to Mt Gox, Germany, US govt, FTX, Grayscale etc is mostly absorbed.
Macro looks OK, and we are stepping into the next massive macro easing cycle as discussed above.
BoJ will not raise rates again this year atleast. Ueda is too scared now
Harris & Yellen will not allow any further shocks to markets in an election year. That is their voter bank. STONKS MUST GO UP ONLY.
Crypto is a major election issue this time and both parties will try to woo the voters
Many countries like Russia and earlier El Salvador are going all in. Soon every country will start hoarding crypto just like Gold. Digital gold nararitive will catch up
All my wealth manager friends over the weekend have for the first time started pitching crypto to their clients here in Asia. Most have bought BTC in their personal portfolio as well. One of them has FTM as well and I am proud of him that he even knows FTM. Although he its down 90%.
Most corrupt CeFi firms are gone - FTX, 3AC, BlockFi, Genesis, and Celsius and we are gradually moving to a more decentralised world
INTERESTING ARTICLES
Arthur Hayes -
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