Bloomberg: Americans Trade Depreciating Dollars For Bitcoin
Low-yielding dollar savings accounts aren’t cutting it for Americans anymore. Bloomberg: Americans Trade Depreciating Dollars For Bitcoin
A Bloomberg article claims that Americans are foregoing the safety of the dollar for more speculative assets like stocks, gold, and Bitcoin (BTC).
High Saving Rates, Low Yields
Because of the COVID-19 lockdown, the personal savings rate in the U.S. is at a historic high. The yield offered by the financial institutions on savings accounts, however, is close to zero. At the same time, assets as Bitcoin, equities, and gold, all have made double-digit gains since March. This is making them an attractive option for investors.
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Race To The Bottom
The article mentions a 28 year-old Californian, who told the reporter that he is going to convert his $15,000 savings held in a high-yield savings account at Ally Bank into Bitcoin. He says that he is doing so because he expects long-term economic stagnation.
The reality is even worse than what the Bloomberg article posits. It is no secret that the dollar is rapidly depreciating against other leading fiat currencies. In fact, according to the Financial Times, July is the dollar’s worst month in a decade.
With another round of stimulus checks around the corner and most of the nation still affected by COVID-19 restrictions, it is possible that this problem will only get worse. Americans may likely have more depreciating fiat on their hands in the short term, and could seek to convert their holdings into higher-yielding assets. However, there is no such thing as a free lunch. In the investment world, high-return comes with high-risk.
‘High Probability’ Bitcoin Rises As USD Sinks To 2008 Levels, Says CEO
The U.S. dollar is at risk of falling below the lower end of a 12-year trendline as some analysts argue that this may be a bullish turning point for Bitcoin’s price.
The United States dollar index is currently testing the bottom of a 12-year trendline. But some traders are calling it the “most pivotal moment” for the global reserve currency since 2008, as they believe that continuous depreciation will likely boost the price of Bitcoin (BTC).
For over three months since April, the dollar has declined against other reserve currencies. Some investors believe that the fall in the value of the dollar has affected the price of Bitcoin. Prominent cryptocurrency trader Scott Melker said:
“This is arguably the most pivotal moment we have seen for the United States Dollar since it bottomed in 2008. This channel has been intact for over 10 years. If it breaks down, hide yo’ kids and buy a metric ton of Bitcoin.”
Why The U.S. Dollar Could Have An Impact On Bitcoin
In recent weeks, as BTC rose to as high as $12,000, investors pointed at the declining dollar. Jay Hao, CEO of OKEx, said a depreciating dollar raises the chances of a BTC rally.
The value of the dollar affects Bitcoin because traders typically price BTC against it. When the dollar depreciates, the asset that BTC is trading against is lower in value. Hence, when the dollar drops, it might increase the likelihood of BTC upside. Hao said:
“If the dollar continues to depreciate, there is a high probability that Bitcoin will continue to rise.”
Mark Wilcox, a Bitcoin analyst, raised a similar point. He pinpointed the biggest monthly drop of the dollar as the driving factor of BTC in the past several months.
Wilcox explained that rather than Bitcoin increasing in value, it is the dollar that actually declined in price. He said, “bitcoin didn’t go up, the dollar went down,” referring to the U.S. dollar index.
Analysts say the dollar has been declining relative to other reserve currencies due to the slowing U.S. economy. The U.S. has the highest number of coronavirus cases, which is causing the rate of economic growth to slow down.
“The thing that’s changed in the last few days is that it’s not just gold which has gone up against the dollar, but almost everything,” explained Société Générale’s global macro strategist Kit Juckes in a note. “That’s partly driven by a sense that the U.S. is having a harder time controlling the virus than others, which will see the U.S. economy underperform.”
Higher Chances Of A BTC Uptrend
Traders are seemingly cautiously optimistic about the near-term trend of Bitcoin. At the same time, Bitcoin trading activity is reaching new highs in various markets, including institutional venues such as the CME and its BTC futures contracts.
In recent weeks, the open interest of the CME Bitcoin futures market has risen to an all-time high. It indicates higher activity from accredited and institutional investors. The rising appetite for BTC coincides with a falling dollar, which could further improve the sentiment around Bitcoin.
One Pseudonymous Trader Said:
“Even big American banks are beginning to have doubts about the US dollar’s status as world reserve currency. If Satoshi was still around, he would have a grin on his face. The landscape literally couldn’t be better for Bitcoin.”
The confluence of an unstable dollar and the rapidly increasing demand for gold could both fuel the momentum of BTC in the short term.
Wall Street veteran Max Keiser, for example, predicted last week that Bitcoin is destined to continue beyond its all-time highs this year, possibly hitting as high as $28,000 before seeing a market correction.
Bitcoin Will Get Stronger After Crisis, Says US Congressman Emmer
United States Representative Tom Emmer is confident about the bright future of Bitcoin and blockchain technology.
The largest cryptocurrency, Bitcoin (BTC), is not going away once the ongoing financial crisis subsides, United States Representative Tom Emmer (R-MN) believes.
A known industry advocate, Emmer says that Bitcoin will only be getting stronger after the world eventually emerges from the economic chaos caused by the coronavirus.
Bitcoin And Blockchain Will Continue To Become More Important
“As we come out of the crisis, Bitcoin ain’t going away, it’s gonna get stronger,” the Congressman saod during an Aug. 3 interview with co-founder of Morgan Creek Digital Anthony Pompliano.
According to Emmer, both Bitcoin and its underlying technology of blockchain will “continue to become more and more important” and see further advancements due to its unprecedented value. “You just watch, it has value, when something has value, people are going to take risks and it’s going to advance,” the politician said.
U.S. Banks Are Now Officially Authorized To Custody Bitcoin
According to Emmer, Bitcoin’s future is now even more promising after U.S. regulators authorized banks to provide custody for cryptocurrencies last week.
As reported, the Office of the Comptroller of the Currency officially approved federally chartered banks to store crypto like Bitcoin on July 22. According to Emmer, Brian Brooks, Acting Comptroller of the Currency at the OCC, made a significant contribution to the future of Bitcoin:
“And now Brian Brooks is saying ‘Hey, institutions, you can start banking this stuff. You can provide a home for it, you can start working with it.’”
Representative Emmer is known for advocating cryptocurrency-powered innovation. Earlier this year, he expressed concerns about regulation smothering innovation. Previously, the Congressman has called on the government to provide more regulatory clarity for the crypto industry.
Emmer is not alone in thinking that Bitcoin will become even more solid once markets start to recover. In March 2020, billionaire investor and blockchain tech supporter Tim Draper predicted that Bitcoin will be one of the most crucial tools for recovering from the global financial crisis. “When the world comes back, it will be Bitcoin, not banks and governments that save the day,” Draper said.
Bloomberg: Bitcoin Is Stabilizing At 6X The Price Of Gold
Bloomberg suggests that the price of Bitcoin is stabilizing at six times the price of gold, yet it contends that the asset is still undervalued.
In its crypto outlook for August, Bloomberg contends that the price of Bitcoin (BTC) is stabilizing at six times the price of an ounce of gold. This speculation came shortly after the correlation between the two assets reached an all-time high.
If The Trend Continues, Bitcoin May Go To $18K
Bloomberg has professed for some time now that Bitcoin is on the verge of becoming digital gold. This is due to the asset’s inherently similar qualities, such as a limited supply and a low growth rate. The company is now taking its hypothesis a step further by claiming that there is a price ratio relationship between the assets:
“Stabilizing at about 6x the per-ounce price of gold, Bitcoin’s increasing correlation and declining volatility relative to the precious metal indicate an enduring relationship for price advancement, in our view. Unparalleled global central-bank easing should remain a tailwind for the quasi-currencies.”
It is unclear why there would be a mathematical relationship between the prices of these two assets at present. However, if this relationship persists into the future, the price of Bitcoin may appreciate to $18,000. To this effect, Bloomberg sees “the potential upside in spot gold toward $3,000 an ounce”.
Bitcoin Is Undervalued According To A Key On-Chain Metric
Bloomberg also believes there is an on-chain indicator which backs up the idea that Bitcoin is currently undervalued:
“The 30-day average of addresses from Coinmetrics on Aug. 4 translated to a Bitcoin price above $14,000, vs. about $11,000 on an auto-scale basis since 2017.”
The report points to the continued expansion of Grayscale’s Bitcoin Trust Fund, or GBTC, as a significant factor in diminishing Bitcoin’s available supply “GBTC inflows over the past year have absorbed about a third of new Bitcoin supply. If the inflow pace doesn’t subside, absorption will approach 50%, with less supply.”
Bloomberg says that something unexpected would need to happen to prevent Bitcoin’s advance in the face of prevailing “zero and negative interest rates”.
Bitcoin Will Continue Appreciating, Although At A Slower Pace Than In The Past, Bloomberg Analyst Explains
According to senior commodity strategist at Bloomberrg Mike McGlone, Bitcoin’s limited supply and increasing adoption will lead to steady, although gradual, appreciation.
Mike McGlone, Senior Commodity Strategist at Bloomberg, is convinced Bitcoin will continue to appreciate thanks to its fixed supply coupled with increasing demand.
“I don’t see what [could] make it stop doing what [it’s] been doing for the last 10 years. And that’s going up”, he told Cointelegraph in a recent interview.
McGlone sees Bitcoin’s capped supply as the main feature. He said that this potentially makes it a better store of value than gold, the total amount of which is unknown.
Given the fixed supply, Bitcoin is going to appreciate as demand for it increases. McGlone points at the growing number of active Bitcoin addresses and the increasing flow of Bitcoin into regulated exchanges as two main factors proving the increasing demand for Bitcoin.
Lastly, Bitcoin’s decreasing volatility compared to the Nasdaq index is another indicator pointing at the growing maturity of Bitcoin as an asset class.
When asked about Pantera Capital price prediction, according to which Bitcoin may reach $115,000 in one year from now, McGlone remains skeptical. According to the analyst, Bitcoin is too mature for this kind of massive rally to happen in such a short time.
“Bitcoin 10x? Maybe over 10 years, that makes a lot of sense”, he said.
Check out the full interview on our Youtube channel and don’t forget to subscribe!
Bloomberg: Biden Election Would Be Good For Bitcoin, Bad For DeFi
Biden’s administration may not have the same “hands-off” approach to crypto regulation, contends Bloomberg.
The latest Bloomberg crypto newsletter contends that the election of Joe Biden would bring greater mainstream adoption of Bitcoin (BTC), including a potential ETF approval. Further, it referred to the Trump administration’s policies with regard to crypto as “hands-off”:
“A potential Joe Biden presidency should shine favor on further appreciation in the price of Bitcoin, in our view. New leadership may change the hands-off policy of the Trump administration — to the detriment of the broader crypto market — and nudge the firstborn benchmark toward the mainstream, improving chances for an ETF.”
Considering that yesterday, the Department of Justice published a 70-page Cryptocurrency: An Enforcement Framework, the newsletter likely was written prior to that.
The author purports that the same forces would hamper DeFi’s growth. Both conclusions are based on the assumption that a “Democratic sweep” would potentially enable greater regulatory clarity for the crypto space.
The DeFi space has exploded this year in a completely unregulated environment. It is no coincidence that the perpetrators behind the KuCoin hack have been laundering their illicit proceeds through the biggest decentralized exchange, Uniswap.
Bloomberg asserts that regardless of the election’s outcome, “Bitcoin’s price will keep going up no matter who’s elected president, but at a moderating pace”. It also concludes that if Bitcoin’s price continues to grow during the next presidential term at even half of the pace it enjoyed from 2016 to 2020, it would reach $80,000 by 2024:
“Seemingly unstoppable trends in U.S. debt-to-GDP, quantitative easing (QE) and the increasing Bitcoin hash rate indicate a crypto price more likely to keep advancing during the next presidential administration, in our view. About half the 1,400% gain since the 2016 vote would get the Bitcoin price toward $80,000 in 2024.”
Yesterday, Square made an announcement that it acquired $50 million worth of Bitcoin, signifying the increased adoption of the asset by the corporate sector.
$1T Market Cap Is ‘Next Big Resistance’ For Bitcoin — Bloomberg Analyst
Bitcoin price has a clear run to an order of magnitude in gains, Mike McGlone argues as $16,000 is quickly reclaimed.
Bitcoin (BTC) hitting its all-time highs of $20,000 again is not the end but the start of its explosion to a $1 trillion asset, a senior Bloomberg analyst said.
In a tweet on Monday, as BTC/USD reclaimed $16,000, Mike McGlone, senior commodity strategist at Bloomberg Intelligence, delivered a fresh bullish forecast for the largest cryptocurrency.
Bloomberg Intelligence: BTC Will Keep Rising In 2021
Bitcoin saw lower levels over the weekend, briefly dipping to $15,800 before conspicuously rising on Monday to see highs of $16,400 at press time.
“$20,000 #Bitcoin Is Primary Hurdle Toward $1 Trillion Market Cap — The digital version of #gold but with more-limited supply and a history of adding zeros, appears to be in an early price-discovery stage and may simply continue its ascent in 2021,” McGlone wrote.
“Mainstream Adoption Is Rising.”
An accompanying chart described a $1 trillion market capitalization as the “next big resistance” for Bitcoin.
McGlone is known for his increasingly positive Bitcoin outlooks. As Cointelegraph reported, he argued in September that Bitcoin should, in fact, trade at $15,000 based on active addresses, something which soon became reality.
Brandt Signals Bull Run Still In Early Stages
McGlone is far from the only markets veteran doubling down on the lucrative prospects for Bitcoin in its current bull run.
On Monday, trader Peter Brandt suggested that based on previous bull runs from 2013 and 2017, the current price performance was only the start of the cycle.
Citigroup Says Dollar May Drop By 20% Next Year
The dollar is likely to begin a drop of as much as 20% in 2021 should Covid-19 vaccines become widely distributed and help to revive global trade and economic growth, according to Citigroup Inc.
“Vaccine distribution we believe will check off all of our bear market signposts, allowing the dollar to follow a similar path to that it experienced from the early to mid-2000s” when the currency started a multi-year downturn, Citigroup strategists including Calvin Tse wrote in a report Monday.
The Bloomberg dollar index, which has fallen about 11% from its March peak, came under additional pressure Monday following news that Moderna Inc.’s Covid-19 vaccine was effective in a clinical trial, weighing on demand for havens like the greenback, the yen and Treasuries.
Strategists have been positing for months that the U.S. election, vaccine breakthroughs and Federal Reserve policy could deal a serious blow to the currency. The election wasn’t ultimately the catalyst for a significant plunge, but Citigroup says the broad macroeconomic backdrop will be a bigger driver of the dollar going forward.
The bank expects that in addition to the impact from vaccine breakthroughs, the dollar will suffer as the Fed will remain dovish as the global economy normalizes, the rest of the world is likely to grow at a faster pace and as investors rotate out of U.S. assets and into international assets.
And “should the U.S. yield curve steepen as inflation expectations rise, this will incentivize investors” to hedge currency exposure, they said. “Given this setup, there is the potential for the dollar’s losses to be front-loaded,” with the currency spiraling lower sooner.
Citigroup is more bearish than the consensus of strategists who forecast a gauge of the currency will weaken by about 3% through the end of next year. A Bloomberg measure of the greenback is down 1.8% this month and has weakened for six of the last seven. It was down Monday.
The biggest annual decline for Intercontinental Exchange Inc.’s widely watched dollar index, DXY, came in 1985, when it sank 18.5%.
Citigroup notes that in 2001, the catalyst that kicked off the multi-year downtrend in the greenback was China’s joining of the World Trade Organization. That “spurred a wave of globalization, pushing global trade volumes higher, leaving behind the closed U.S. economy that had a much lower beta to global growth.”
“There is plenty of reason to be optimistic,” on vaccine developments, the strategists said. The distribution “will catalyze the next leg lower in the structural USD downtrend we expect.”
Morgan Creek CEO Says Bitcoin Doing ‘Extremely Well’ Due To Fed Reserve’s Dollar Devaluation
The U.S. Federal Reserve and the rise of “zombie companies” is prompting investors scramble to hedge against inflation using bitcoin and gold.
That’s according to Mark Yusko, founder and CEO of investment firm Morgan Creek Capital Management, who spoke with CNBC’s Fast Money host Melissa Lee on Thursday.
Yusko took aim at zombie companies (those that need bailouts at times of financial stress to stay in operation), calling them a “Ponzi finance scheme” and saying their inability to repay debt, default or restructure meant the “only choice” left for the Federal Reserve and other authorities is to devalue the currency.
That it is “exactly” what the U.S. central bank has been doing, alongside the central banks of Europe and Japan. “They’re going to continue to do that,” he said.
As a result, bitcoin and gold have been doing “extremely well,” according to Yusko. “Before people’s eyes, you’re having your wealth stolen through inflation.”
“Money is being devalued. Over the last three years, stocks are up about 6% a year – not really that great,” he said. “But if you denominate in gold instead of dollars they’re down 44%; if you denominate in bitcoin it’s way worse.”
Tyler Winklevoss Tells CNBC That ‘Cash Is Trash’
He believes that investors will eventually send Bitcoin’s price over $500,000.
Not one to mince words, Tyler Winklevoss reportedly told the business network CNBC that “Cash is trash.” In his view, it’s only a matter of time before investors dump the dollar and other fiat currencies for BTC:
“At some point, it is hard to look at those data points and say that Bitcoin isn’t an incredible store of value.”
His twin brother Cameron Winklevoss also said that Bitcoin (BTC) “just needs to be better than gold” to see its value rise to remarkable levels.
The twins, who run the United States-based cryptocurrency exchange Gemini, believe BTC will eventually hit $500,000 — mirroring a recent forecast from Catherine Wood, CEO of ARK Investment Management.
Crypto enthusiasts believe Bitcoin’s recent run-up is different from previous market cycles because of the influx of institutional investors into the space. Bitcoin’s maturation leap also suggests that the digital currency is carving out a permanent place in the financial system.
As Tyler Winklevoss implied, Bitcoin’s adoption curve is accelerating amid fears of a historic debasement in national currencies like the U.S. dollar. These debasement fears were at the heart of a June forecast from Goldman Sachs, which called for higher gold prices.
Unlike Bitcoin, the price of gold has languished in recent months, with the spot price now trading 14% below its August all-time high.
The bullion market has seen significant outflows in recent weeks, while holders of Bitcoin have accumulated even larger positions. Raoul Paul, CEO of Real Vision Group, recently told his Twitter followers that he will liquidate his entire gold portfolio for Bitcoin and Ether (ETH).
One by One, Dollar Is Dropping To Multi-Year Lows Against Peers
One by one, the dollar is dropping to multi-year lows against its peers in December.
The euro, the Australian and Canadian dollars, and the Korean won have all touched their highest levels in more than two years this week, while the Swiss franc is at its strongest since 2015. More weakness in the greenback may come as asset managers build record short bets.
Optimism over U.S. stimulus talks, bets on a successful roll-out of vaccines and China’s economic rebound are driving bets for global growth and against the world’s reserve currency. Some on Wall Street are warning that the greenback will undergo a bearish cycle with the Federal Reserve keeping rates low for years.
“A smooth vaccine roll-out soon can potentially be a game changer” as it may accelerate growth recovery and entrench dollar weakness, said Christopher Wong, senior foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “Procyclical-proxy currencies including the Aussie, kiwi in developed market space and won in Asia excluding Japan can benefit while the dollar remains on the backfoot.”
The dollar has declined against major peers in seven of the first 11 months of the year, according to the Bloomberg Dollar Spot Index. It has also dropped more than 8% against the Swiss franc and 4% versus the yen in 2020, two other traditional haven currencies, underlining the impact of the Fed’s unprecedented stimulus.
Fed Chair Jerome Powell said Wednesday that the central bank will keep rates low until the economy is “very clearly past the danger” from the pandemic. During the global financial crisis, when the U.S. central bank employed quantitative easing, the dollar had gone through a similar decline.
Here Are Key Levels That Were Breached This Week:
* The Euro Has Broken Through The Psychological Level Of 1.20 Against The Dollar. It Touched 1.2125 On Thursday, Strongest Since April 2018
* The Canadian Dollar Strengthened To C$1.2910 On Wednesday, Highest Since October 2018
* The Australian Dollar Rose To 74.20 U.S. Cents, Its Highest Level In More Than Two Years On Wednesday
* The Swiss Franc Soared To Its Highest Since January 2015
* The Risk-Sensitive Korean Won Rose To 1096.85 Against The Dollar, Its Strongest Since June 2018, After Breaking The Key 1,100 Level
Credit Suisse Group AG is forecasting that the euro may rise to 1.25 by the end of 2021, while Goldman Sachs Asset Management favors shorting the dollar against the yuan, and sees further gains in the euro and yen. Morgan Stanley and Citigroup Inc. have also forecast a weaker greenback.
“Risk-on sentiment seemed to catch another leg higher this week — we think this should accelerate the USD’s tilt lower in the near term,” said Terence Wu, FX strategist at Oversea-Chinese Banking Corp. in Singapore. “This round of USD weakness is still more focused in the G-10 space” although “we expect USD-Asia downside to open up in time.”
Worsening US Dollar, Inflation Metrics Bode Well For Bitcoin’s Continued Rally
Bitcoin’s price has nearly doubled in the past eight weeks as several major publicly listed companies bought the cryptocurrency to hedge against an inflation-led decline in the value of their cash holdings.
Hedging demand for the cryptocurrency may now be set to rise further, with expectations for long-term inflation reaching 19-month highs.
The U.S. 10-year breakeven inflation rate, which represents how the market foresees long-term inflation, rose to 1.85% on Wednesday. That’s the highest level since May 2019. The metric bottomed out at 0.5% in March, according to the St. Louis Federal Reserve Bank.
The money supply-boosting policies adopted by the Federal Reserve to counter the coronavirus-induced slowdown have done much to fuel the rise in inflation expectations, as well as the devaluation, or debasement, of the dollar.
The Dollar Index, which tracks the greenback’s value against major currencies, is seen near 91.00 at press time, a level last seen in April 2018, according to TradingView. The dollar peaked near 103.00 in March.
Such factors typically force both institutions and retail investors to buy traditional store-of-value assets such as gold. This year, institutions have increasingly poured money into bitcoin (BTC, +1.73%), strengthening its appeal as an inflation hedge.
“What we’re trying to do is preserve our treasury. The purchasing power of cash is debasing rapidly,” Nasdaq-listed MicroStrategy’s chief executive, Michael Saylor, told CoinDesk last month while explaining the rationale behind the company’s decision to buy bitcoin. According to Saylor, bitcoin is a better store of value asset than gold.
Several other firms have turned to bitcoin over the past few months. The trend may well continue, with Morgan Stanley predicting another 10% decline in the dollar over the next 12 months.
Bitcoin’s meteoric rally from the March low of $3,867 to Monday’s record price of $19,920 has taken place alongside a steady downtrend in the U.S. dollar (above left).
The cryptocurrency has established a trading range of $18,000 to $20,000 in the past two days. Large sell orders near $20,000 and consistent dip demand have led to price consolidation, according to Patrick Heusser, a senior cryptocurrency trader at Zurich-based Crypto Broker AG.
“If either side breaks, I believe we would see fireworks, especially to the upside,” Heusser said. Bitcoin is trading near $19,372 at press time, representing a 1.16% gain over 24 hours.
Bitcoin ‘Making Progress’ On Bid To Oust Dollar, Morgan Stanley Chief Global Strategist Says
Morgan Stanley Investment Management’s Chief Global Strategist Ruchir Sharma waxed bullish on bitcoin’s potential to usurp the U.S. dollar for payments in a Wednesday Financial Times op-ed.
* “Today, most bitcoins are held as an investment, not used to pay bills, but that is changing,” Sharma wrote. He cited increasing BTC usage in small pockets of international trade and PayPal’s recent move to tap cryptocurrencies as a funding mechaism.
* Considered in the context of falling faith in ever-growing dollar reserves, this trend could bode well for the market-leading cryptocurrency. Sharma argued that “bitcoin will gain” as its traditional competitors falter.
* Sharma cautioned the bitcoin bubble may yet burst. Even if it does, governments and their money printers should be shaken.
* “Do not assume that your traditional currencies are the only stores of value, or mediums of exchange, that people will ever trust. Tech- savvy people are not likely to stop looking for alternatives until they find or invent one,” Sharma warned.
Bitcoin Will Gain From Distrust In Traditional Finance, Says Bank Strategist
Will Bitcoin end the dollar’s supremacy one day?
Bitcoin (BTC) poses a significant threat to the world’s reserve currency, the United States dollar, according to a strategist at major American investment bank Morgan Stanley.
Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, believes that the dollar’s reign is likely to end due to global distrust in traditional finance, while Bitcoin is likely to capitalize on that lack of confidence.
In a Dec. 9 article in The Financial Times, Sharma provided a brief outline on the history of the world’s reserve currencies, noting that the dollar’s run had lasted 100 years at the start of 2020. According to the strategist, other major global fiat currencies like the euro or China’s yuan have failed to gain the world’s trust, underlining the lack of a successor for the dollar.
Sharma said that a new class of decentralized contenders — cryptocurrencies like Bitcoin — are likely to threaten the dollar’s supremacy. Bitcoin has already established itself as one of the hottest investments of 2020 by quadrupling in price since March amid the pandemic and the U.S. Federal Reserve’s continued money printing, he noted:
“The dollar’s reign is likely to end when the rest of the world starts losing confidence that the US can keep paying its bills. […] Money printing is likely to continue, even when the pandemic passes. Trusted or not, Bitcoin will gain from widening distrust in the traditional alternatives.”
Sharma also pointed out that Bitcoin is beginning to make “progress on its ambition to replace the dollar as a medium of exchange.” The strategist said that Bitcoin’s adoption is steadily growing from investment to international trade and other use cases.
“In recent weeks PayPal and its Venmo subsidiary have started storing Bitcoin with an eye towards accepting it as payment next year,” he added.
The Strategist Warned Central Banks To Pay More Attention To Their Monetary Policies If They Want To Maintain Their Position Of Power:
“Bitcoin’s surge may still prove to be a bubble, but even if it pops, this year’s rush to cryptocurrencies should serve as a warning to government money printers everywhere, particularly in the U.S. Do not assume that your traditional currencies are the only stores of value, or mediums of exchange, that people will ever trust.”
Bearish Dollar Bets Near Decade High As 2020 Draws To An End
Speculative traders are ending the year doubling down on their bets against the dollar.
Net short non-commercial positions in futures linked to the ICE U.S. Dollar Index have surged to the most since March 2011, according to the latest Commodity Futures Trading Commission data. The gauge of the U.S. currency has fallen over 6% this year as investors turned against the greenback amid unprecedented monetary easing from the Federal Reserve and a move away from haven assets.
“Hedge funds are spoilt for choice when looking for reasons to be short the dollar,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “We have a Fed that is committed to a paradigm shift in its policy that materially lowers the risk of policy normalization, and a rapidly widening twin deficit makes it easier for short dollar bets.”
A combination of negative U.S. real yields, extended valuations across American assets and a current account deficit that requires dollar depreciation to finance will likely weigh on the currency into next year, strategists at Goldman Sachs Asset Management wrote in a recent note.
“We see depreciation in the dollar continuing into 2021,” the Goldman team said. “Liquidity dynamics and virus news flow may influence the timing of dollar weakness, but not necessarily the medium-term downtrend.”
Dollar Drops On First Trading Day, Portending More Losses Ahead
The world’s reserve currency fell on the first trading day of 2021, foreshadowing more losses to come, after a slew of improving Asian manufacturing data bolstered risk assets.
The dollar hit 2018 lows against currencies including the Chinese yuan and the Malaysian ringgit, while also declining against every Group-of-10 peer. Purchasing managers indexes from Japan to Indonesia showed gains for the last month of December, data showed Monday.
“Uncertainty is diminishing and the strong global growth recovery should favor the rest of the world, so we think the USD has some overvaluation to work off,” Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management, wrote in a note. The dollar’s weakness is likely to be most notable “against the emerging markets FX complex, which should have cyclical upside and is still relatively cheap.”
Onshore yuan breached the 6.5 level for the first time since June 2018, while the ringgit crossed the 4 level mark against the dollar. The Indonesian rupiah jumped more than 1%, while the risk-sensitive Australian and New Zealand dollars rose.
“China’s growth remains strong while the U.S. and Europe struggle to contain the virus, and that is helping the yuan to extend a rally into the new year,” said Ken Cheung, chief Asia foreign-exchange strategist at Mizuho Bank Ltd. “We expect the yuan to gain even further from here, as China will lead the world in terms of economic recovery in the first half. The currency may test 6.3 in the coming months.”
Vaccine optimism and hopes for additional U.S. fiscal stimulus has ramped up demand for risk assets and weighed on the dollar. Calls for greenback declines are also gaining momentum with the likes of Goldman Sachs Group Inc. and BlackRock Inc. favoring emerging market currencies over the greenback.
Veteran Investor Bill Miller Says Bitcoin Is Cash’s ‘Rat Poison’
Investor Bill Miller, whose flagship mutual fund in 2020 beat the S&P 500 index for the straight second year, said he believes bitcoin could replace cash and markets are underpricing inflation risk.
“Warren Buffett famously called bitcoin rat poison. He may well be right. Bitcoin could be rat poison, and the rat could be cash,” Miller noted in this Q4 market newsletter, adding that the cryptocurrency has many advantages over gold as an inflation hedge.
Legendary investor Buffett referred to bitcoin as “probably rat poison squared” and as a gambling instrument in 2018. However, several public-listed companies such as MicroStrategy and Square diversified their cash holdings into bitcoin in the second half of 2020, boosting its appeal as a store of value.
Bitcoin has rallied by over 160% in the past three months and rose to record highs above $35,000 early Wednesday. The cryptocurrency’s market capitalization now stands at $670 billion, more than Berkshire Hathaway, the company Buffett helms.
According to Miller, the current relative trickle into bitcoin would become a torrent if more companies invest in the cryptocurrency, irrespective of inflation.
So far, the cost of living in the U.S. has remained well below the Federal Reserve’s 2% inflation target despite the central bank’s massive stimulus measures launched to counter the coronavirus-induced slowdown. However, Miller believes the market is likely “underestimating the risks of inflation.”
“Savings rates are unusually high and, as the economy becomes more “normal” in the second half of the year, it is likely that consumption will accelerate and, with it, money velocity. Lots of liquidity and increasing money velocity could quickly put upward pressure on inflation,” Miller noted.
The crypto community strongly believes that bitcoin is a better inflation hedge than gold, and the cryptocurrency could eventually replace the U.S. dollar as the global reserve currency. Analyst at JPMorgan said last month the cryptocurrency’s growing popularity could have a bearing over gold’s price in the long run.
Bill Miller Says Corporate Cash Could Fuel A Bitcoin ‘Torrent’
Bill Miller says the surge of attention generated by Bitcoin’s frenzied rally could ignite further gains by encouraging corporate treasurers to use the cryptocurrency for diversification.
“If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into Bitcoin instead of cash, then the current relative trickle into Bitcoin would become a torrent,” Miller of Miller Value Partners LLC wrote in a blog post published Jan. 5.
Miller joins a growing but still small chorus of names suggesting Bitcoin could be a part of corporate treasuries, something a handful of companies have already taken up. MicroStrategy Inc.’s Michael Saylor set the trend off last year when he said the Federal Reserve’s relaxing of its inflation policy helped convince him to invest the enterprise-software maker’s cash into Bitcoin. Long-time crypto advocate Jack Dorsey’s Square Inc. has put about $50 million in Bitcoin.
The price of Bitcoin hit a record high on Wednesday, crossing above $35,000 for the first time. The coin gained more than 300% last year and is up about 20% since the start of 2021. It was up 3.7% to around $35,049 as of 8:03 a.m. in New York.
The statement of support for Bitcoin is not the first by Miller, who is best known for his value stock picks at Legg Mason Inc., where he outperformed the S&P 500 for 15 years through 2005. He has been a fan of Bitcoin since 2014, saying back then that he owned the coin through his personal investments.
“Warren Buffett famously called Bitcoin ‘rat poison,’” Miller wrote in his post. “He may well be right. Bitcoin could be rat poison, and the rat could be cash.”
Consumer Prices Rise As Gas Prices Surge. An Inflation Burst Could Come In The Spring
Consumer prices accelerated last month as gas prices leapt, bolstering growing expectations from some economists for a burst of inflation that could top 2% in coming months as Americans emerge from the pandemic.
The consumer-price index rose 0.4% in February on a seasonally adjusted basis, picking up from a 0.3% increase in January, the Labor Department said Wednesday.
Core prices, which exclude the volatile food and energy categories, rose 0.1% in February. That represents a pickup from no change in core prices in the prior two months.
Over the past 12 months, the overall index rose 1.7% on a non-seasonally adjusted basis, a larger increase than the 1.4% seen in the same period ended in January. Core prices rose 1.3% over the past 12 months, down 0.1% from the year-over-year increase seen in January.
Stocks climbed in midmorning trading. The Dow Jones Industrial Average was up 1% at 32,155. The S&P 500 was up 0.6%, and the Nasdaq Composite was up 0.5%.
“Outside of another buoyant advance in energy prices in February, consumer price inflation remains very tame. Contributing to the softness, core commodity prices fell modestly on the month, registering the first decline since May,” wrote Oxford Economics economists Kathy Bostjancic and Gregory Daco.
Still, they and other economists expect to see a temporary pickup in prices in the spring as the economy emerges from the pandemic.
“As COVID-19 levels drop and the economic expansion accelerates, we’ll likely see 2% annualized inflation, or even above, but that just means all the money saved from stimulus is being put to good use,” wrote Robert Frick, corporate economist at Navy Federal Credit Union. “The odds of anything more than an inflation spike are low given employment will be increasing gradually and for other reasons, such as demographics.”
Within the report, the gasoline index was up 6.4% in February, accounting for over half of the increase in the overall index. The energy index rose 3.9% in February. The food index rose 0.2% in February, with gains in both the at-home and away-from-home indexes.
Bitcoin Can Reach $400K In 2021 As ‘Risk-Off Reserve Asset’ — Bloomberg
With institutions demanding protection from inflation and dollar depreciation, historical trends could see BTC/USD 8X from current prices, says Bloomberg Intelligence.
Bitcoin (BTC) still gets criticized for being too volatile, but one Bloomberg analyst believes that it conversely is becoming a “risk-off” choice for investors.
In a tweet on March 25, Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that this year marked a watershed moment for the largest cryptocurrency.
$400,000 BTC Would “Rhyme” With History
McGlone uploaded a chart of the BTC/USD average price and the Bitcoin Liquid Index, a price ticker specially created for institutional use.
“Well on its way to becoming a global digital reserve asset, a maturation leap in 2021 may be transitioning Bitcoin toward a risk-off asset, in our view,” he wrote.
A potential price peak this year, with previous behavior as context, could be as much as $400,000 per coin, the chart shows. This dwarfs other estimates, such as that of stock-to-flow, which calls for an average of $288,000 between now and 2024.
While McGlone did not provide exact details of the factors behind Bloomberg’s view, the idea of Bitcoin reducing, rather than increasing portfolio risk is the talking point of the year among corporates. New reports of treasury allocations to BTC appear frequently, with appetite unfazed by price action.
“My mission right now is to fix the balance sheets of the world,” Michael Saylor, CEO of MicroStrategy, one of the largest Bitcoin treasury investors, said in an interview with TIME this week.
Saylor kickstarted a trend among public companies last summer, which has seen over $52 billion converted to BTC on a cost basis, now worth over $73 billion, according to monitoring resource Bitcoin Treasuries.
Ahead of Morgan Stanley becoming the first major bank to open up access to Bitcoin funds for high net worth investors next week, however, naysayers continue to peddle familiar arguments against exposure.
“Morgan Stanley limiting crypto access to 2.5% of high net worth individual accounts, that have over $2 million in assets and have been active for over six months, shows that the bank realizes Bitcoin is very risky and wants to limit legal liability from investors who lose money,” gold bug Peter Schiff recently claimed.
Meanwhile, Fed Chair Jerome Powell likened Bitcoin to a “substitute” for gold, to Schiff’s displeasure, but added that it did not pose a risk to the dollar or to financial stability.
As Cointelegraph reported, average returns for BTC/USD have topped 200% every year since the cryptocurrency’s inception.
“Bottom line, inflation pressures remain very tame despite inventory shortages, shipping bottlenecks and surging commodity prices,” wrote Jefferies economists Aneta Markowska and Thomas Simons. “Despite these cost pressures, retailers and/or producers are unable or unwilling to pass them through to consumers. It’s likely that businesses expect these cost pressures to be transitory, and are therefore choosing to absorb them in order to avoid undue price volatility.”
Faster Inflation Is Coming. How Bad Will It Be?
The potential consequences of higher prices fall largely into three camps: transitory, irritating or troubling.
An economic debate that has been heating up for a few weeks in markets and the academic world made a notable appearance in Congress last week when lawmakers questioned Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen about inflation. This is understandable given that the answers about the scale, scope and duration of a possible surge in inflation have implications that go well beyond economic well-being and the country’s borders.
Economists are mostly split into three camps when it comes to higher inflation, which has not been on the radar screen in any meaningful sense for more than a decade. The first camp, which seems to include both Powell and Yellen, considers any surge in inflation as primarily transitory with few if any consequential spillovers.
The second thinks it could be a longer-lasting phenomenon whose potentially wider and more risky consequences would, nevertheless, be temporary and reversible. The third one fears that higher inflation could prove to be a more durable and consequential problem with multifaceted domestic and international effects.
All three camps agree that, statistically, the U.S. will experience a notable pickup in the measured inflation rate. This is due to “base effects”— comparison with an abnormally low number in a previous period; in this case specifically, the readings that followed the Covid-related lockdown a year ago were particularly stunted.
Should they remain essentially statistical anomalies, the higher inflation rates should have minimal consequences in the short term and none over the longer one. This is where the first camp loses interest in the inflation debate; it doesn’t see it posing any challenges either to the Biden administration’s fiscal plans or the Fed’s continued pursuit of ultra-expansionary policies.
The two other camps think that the base effects will be amplified soon by what, in the old inflation literature, was known as demand-pull inflation. Here, a boom in both private and public demand outpaces the ability of the supply side to respond, putting upward pressure on prices.
Already, there are initial signs of supply bottlenecks and higher transportation costs, most of which appeared before last week’s blockage in the Suez Canal, which is now disturbing supply chains more meaningfully and, once again, highlighting their lack of resilience.
The combination of base effects and demand-pull would likely keep the inflation rate above the Federal Reserve’s 2% target for a few months after years of undershoots.
The third camp thinks that either the prospect or emergence of such an outcome would, in turn, alter inflationary expectations and related behaviors, adding a “cost-push” element to the inflationary dynamic. This would be supported by structural changes in the production and labor landscapes, including intensified corporate concentration, deglobalization, disrupted movement of people and more skill mismatches.
Seeking to protect their profits from higher input costs and emboldened by lower internal and external competition, companies would opt for preemptive price increases. Meanwhile, wage earners would also seek to protect themselves, reminiscent of the “real wage resistance” of a few decades ago.
The third camp’s scenario, with its possibility of a self-feeding dynamic that would keep inflation high and rising, would pose bigger risks for the country’s longer-term economic and social well-being. The Biden administration’s drive to reshape the economy, a main driver in the transition of fiscal intervention from relief to recovery, would risk being delayed if not derailed.
This would add to inflation’s regressive influence on American society which, by imposing a disproportionate burden on the less fortunate segments, would worsen an already concerning inequality trifecta of income, wealth and opportunity. And all this would be taking place in the run-up to the 2022 midterm elections.
Meanwhile, the Fed would find itself fighting criticism of a discredited policy framework revision that naively shifted its emphasis too far away from preemptive measures based on inflation forecasts to reactive ones based on outcomes.
In this scenario, the Fed would probably feel compelled to hit the brakes hard, risking what would still be a less than full and sufficiently inclusive recovery. All of that would be bad not just for the U.S. but also for the global economy and markets.
The third scenario is not the only one posing risks. Even the second, more benign one does because of possible market reaction.
While economists and the Fed would view a spike in inflation through a longer lens, markets might well end up living more in what Bloomberg’s Jonathan Ferro labels “the moment” — that is, reacting in the short term by rapidly taking bond yields higher and risking to destabilize stocks and other risk assets that have benefited enormously from the widespread market confidence in continuing ample and predictable liquidity injections.
Coming at a time of excessive and, in some cases, irresponsible risk-taking, this could have adverse economic spillovers.
Such effects would be felt well beyond the U.S. Already, European Central Bank officials have complained about the “undue tightening” of euro-zone financial conditions because of higher U.S. bond yields. This has also contributed to a slowly widening cycle of interest rate increases by central banks in emerging economies.
In assessing all this, I end up with rather high conviction that the U.S. will experience rising inflation in the next few months because of base effects and demand-pull. While, on balance, a subsequent phase of significant cost-push effects is not strictly in my baseline, it is enough of a meaningful threat to require close and frequent monitoring.
With that comes the risk of higher market volatility and, on the political front, the prospects of more heated congressional deliberations on economic and social well-being that could make subsequent fiscal packages harder to pass quickly notwithstanding their importance for a lasting U.S. recovery.
Dollar Sinks To 2 1/2-Month Low
The U.S. dollar was trading down 0.1% at 90.17, as measured by the ICE U.S. Dollar Index DXY, 0.08%. It traded as low as 90.04, which is around the lowest for the index since late February.
A weaker dollar can help to support buying in commodities priced in the currency for overseas investors.
Inflation Doesn’t Have To Mean High Interest Rates
Issues like the semiconductor shortage are pushing up prices. Investing in production can be a better way to deal with inflation than interest-rate rises.
Does inflation always lead to high interest rates? Washington’s semiconductor ambitions point to a more logical policy response.
Inflation is back. The U.S. consumer-price index surged to a 13-year high of 4.2% in April, official data showed Wednesday. The eurozone’s figure is a weaker 1.6%, but still a two-year high. The global bond market isn’t panicking yet. The pandemic led many distressed companies to slash prices in 2020. Investors always knew that, as the economy reopened, some year-over-year increases would be huge.
The prices of most products haven’t changed much. CPI gyrations are mostly down to a few items particularly affected by lockdowns and travel restrictions, such as airfares and restaurant prices, as well as commodities. Excluding food and energy, U.S. inflation in April was just 3%.
One inflation driver stood out in Wednesday’s data: The global shortage of semiconductors. Partly because it is impairing production of new cars, the prices of used autos jumped 10% in April from the previous month—accounting for over a third of the all-items increase.
To cool the used-car economy by raising rates and inflicting pain elsewhere would make little sense. Instead, the Biden administration seeks to fix the chip shortage by investing $50 billion in onshore semiconductor production capacity. The plans will take time and are still underfunded, but they help understand that the best way to fight chip inflation is to make more chips.
To be sure, rate rises aren’t technically on the table, because officials have promised not to react to temporary increases in inflation. But here is the rub: They don’t have a clear way to define what is temporary.
Over the past few decades, for example, CPI figures have mostly been the results of a concatenation of “temporary” trends in different sectors—the costs of education and healthcare rose nonstop, while the prices of many goods continuously fell. It was different in the 1970s, when an idiosyncratic squeeze in the supply of oil fueled an inflationary spiral that pushed all costs up.
This is less likely today because labor unions aren’t as strong, and there are few indications of inflation becoming embedded in consumers’ psyches. Expensive used cars are an unlikely basis for employees to demand big raises.
However, many other factors associated with higher-inflation regimes are visibly at play, including stimulus policies, signs of labor shortages and a retrenching of globalization. In a hotter economy, bottlenecks can happen more often, giving central banks an opening to one day raise rates aggressively. Both the Federal Reserve and the European Central Bank have expressed surprise about how much the latest data is exceeding expectations.
Indeed, inflationary fears have replaced Covid-19 as the main “tail risk” in the Bank of America Fund Manager Survey. This entails protecting portfolios against higher rates by tilting allocations toward assets like gold and cheap “value” companies.
But in an era of shifting economic orthodoxies, central banks may be less trigger-happy than in the past, and more willing to keep interpreting high CPI numbers as temporary. Officials’ newfound appreciation for industrial policy could also become a key tool to ease supply pressures.
Capital expenditure has played an underrated role in the past: A surge in oil and gas exploration in the 1970s may have eventually helped cool inflation. Likewise, increases in domestic mill production will probably serve to stem the current surge in lumber prices.
Even if inflation returns, sky-high interest rates need not.
Inflation Hits A High Note
Prices are rising at their fastest clip in years, but the Fed is relaxed because expectations aren’t embedded.
Inflation might be picking up, but it isn’t like people are singing songs about it.
The Labor Department on Wednesday reported that consumer prices rose 0.6% in April from March, putting them 4.2% above their year-earlier level. Some of that gain on the year was driven by a rise in gasoline prices, but core prices, which exclude food and energy items, rose 0.9% last month and were up 3% from a year earlier. That marked the biggest 12-month rise in core inflation since 1995.
In some respects the pickup in inflation has been both predictable and predicted. Prices dipped in April last year as the Covid-19 crisis shut down much of the country. Now we have come up against the anniversary of those declines.
Beyond those so-called base effects, the supply-chain problems brought on by the pandemic have been evident for some time. It wasn’t hard to guess what might happen when the rising demand brought on by a reopening economy met those bottlenecks.
That is why Federal Reserve officials aren’t acting at all alarmed about what is happening with prices. This week several of them have said they expect price gains to pick up this year, but that they don’t believe much of the rise in inflation will persist once the supply-chain snarls have been resolved. The central bank isn’t ready to start reducing its asset purchases yet, much less to think about raising rates.
Part of why is that, eye-popping as some of the price increases over the past year have been, higher inflation hasn’t embedded itself in consumer psyches. Americans under 60 have next to no experience of what it was like when inflation was such a problem that popular musicians were singing about it, like Marvin Gaye did in 1971 (“Inflation no chance/To increase finance”) and again in 1972 (“The nation’s taxation/Is causin’ all, all this inflation”).
That is what it looks like, or rather, sounds like, when inflation expectations have reached the point where they add to upward price pressures. Moreover, it is a process that takes awhile: The inflation problems of the 1970s had their root in price increases that began to take hold in the mid-1960s.
The other thing to recognize is that, while the Fed doesn’t want people singing about inflation, it might like people to start humming about it a bit more. It has long sought to push its preferred measure of inflation (which runs a bit cooler than the Labor Department’s gauge) to consistently average about 2%, and to get there it needs consumers’ long-term inflation expectations to rise above the very low levels they have been stuck at for years.
Which isn’t to say prices couldn’t rise more than the Fed expects over the next year. The central bank could easily be underestimating how quickly demand will pick up and how persistent supply-chain problems prove to be, for instance. And if that leads Beyoncé or Taylor Swift to start singing about inflation, watch out.
Inflation Forces Investors To Scramble For Solutions
Pickup in consumer-price momentum leaves tough choices in assets like gold, bitcoin.
Signs that inflation is picking up momentum are adding a new dimension to the post-lockdown market rally, forcing investors to make difficult decisions about how to protect their portfolios from the emerging threat.
Investors have a variety of options at their disposal but face near-record prices for old standbys like gold, sending some searching for alternatives that may be even more imperfect. Inflation fears have buffeted stocks, pulling major indexes back from records. Some have even talked up bitcoin as an inflation bet, but it fell as much as 30% during a trading session last week.
The challenge facing investors was apparent this month when new data showed a surprisingly large jump in consumer prices.
Rather than rise, a collection of assets generally thought to safeguard investors against inflation fell after the report.
The price of the benchmark 10-year Treasury inflation-protected security logged its biggest one-day decline in a month.
Shares of real-estate investment trusts slid the most since January. Commodities were generally flat but dropped the following day.
The three asset classes have vacillated since, but their initial moves showed the unexpected ways that markets can behave when inflation is rising, especially when many are already expensive by historical measures.
This week, investors will gain greater insight into the inflation picture when the Commerce Department updates the Federal Reserve’s preferred inflation gauge, the personal-consumption-expenditures price index. They will also track earnings from the likes of Dollar General Corp. , Costco Wholesale Corp. and Salesforce.com Inc.
The stakes are high for investors. Inflation dents the value of traditional government and corporate bonds because it reduces the purchasing power of their fixed interest payments. But it can also hurt stocks, analysts say, by pushing up interest rates and increasing input costs for companies.
From early 1973 through last December, stocks have delivered positive inflation-adjusted returns in 90% of rolling 12-month periods that occurred when inflation—as measured by the consumer-price index—was below 3% and rising, according to research by Sean Markowicz, a strategist at Schroders, the U.K. asset-management firm. But that fell to only 48% of the periods when inflation was above 3% and rising.
A recent report from the Labor Department showed that the consumer-price index jumped 4.2% in April from a year earlier, up from 2.6% in March. Even excluding volatile food and energy prices, it was up 3% from a year earlier, blowing past analysts’ expectations for a 2.3% gain.
Analysts say that there are plenty of reasons why inflation won’t be able to maintain that pace for long. The latest year-over-year numbers were inflated by comparisons to deeply depressed prices from the early days of the pandemic. They were also supported by supply bottlenecks that many view as fixable and robust consumer demand that could dissipate once households have spent government stimulus checks.
Before the pandemic, inflation spent years struggling to climb above the Fed’s 2% annual target due in part to structural factors like aging populations in developed countries. Analysts say those forces remain, though many won’t rule out sustained higher inflation and say investors might prepare accordingly.
“We are going through an unprecedented situation—exit from a pandemic accompanied by very supportive monetary and especially fiscal policies,” said Roberto Perli, head of global policy research at Cornerstone Macro.
Protecting against inflation is tricky, however.
Treasury inflation-protected securities, or TIPS, offer the most straightforward option, as their interest payments and principal automatically increase when the CPI rises. When investors buy TIPS, the yields on the securities are lower than nominal Treasurys of the same maturity, but investors can ultimately earn a better return depending on the rate of inflation over the life of the bond.
As of Friday, the yield on 10-year TIPS was minus 0.826%—meaning investors would lose money absent any inflation—compared with 1.629% for the nominal 10-year Treasury note.
That means CPI growth would need to average at least 2.45% over the next 10 years for the inflation-protected security to pay as much or more than the nominal Treasury.
To some, this makes TIPS the safest and best inflation hedge. Investors are nearly guaranteed to get their principal back if they hold the bonds to maturity. At current yield differentials, they can earn significantly more than regular Treasurys if inflation fears are realized.
Still, TIPS returns are likely to be paltry under almost any scenario, particularly if inflation comes below expectations. TIPS prices can also fall along with regular Treasurys—as they did after the CPI report—when investors think rising inflation will push the Fed to raise short-term interest rates.
“When and if the Fed decides that it is time to fight inflation and raise rates, real yields in TIPS are going to cause losses, even if there’s inflation,” said Jim Vogel, an interest-rates strategist at FHN Financial.
History suggests there might be better hedges than TIPS when inflation is especially high. According to the research by Mr. Markowicz, TIPS returns exceeded inflation in 71% of the periods when inflation was below 3% and rising, but only 63% of periods when it was above 3% and climbing.
Markets Are Leaving Little Room For The Fed To Be Wrong On Inflation
Maybe inflation isn’t transitory after all.
Investors have faith in the Fed. Over the past three months consumer prices, excluding volatile food and energy, have risen 2%, equivalent to a shockingly high annual rate of 8.2%. Rather than panic and dump bonds, investors have piled into Treasurys and pushed 10-year yields back down to where they stood in late February. Confidence in the central bank is absolute.
To be fair, the Fed is probably right: This burst of inflation is probably transitory. The reopening of the economy released a surge of pent-up demand, while supply bottlenecks are restricting production and distribution. As things get back to normal inflation should calm down.
But investors need to consider the possibility that the Fed is wrong, too. The risk that inflation continues to overshoot is clearly much higher than usual, while the risk of undershooting is lower. Instead of leaving a larger margin of error around forecasts, bond markets are leaving little, perhaps none, with a yield of just 1.45% on the 10-year Treasury.
The bond market’s best guess on long-term consumer-price inflation, the break-even rate for the five years starting in five years’ time, is down from a peak of 2.38% to just 2.23%; that implies inflation slightly below the Fed’s target on its preferred price gauge.
Even short-term inflation expectations are priced for the Fed to hit its target after a brief bout of inflation in the next 12 months. If that proves mistaken, bond yields and inflation break-evens—the gap between ordinary and inflation-linked Treasurys—should be higher, and big technology stocks should be lower.
As Michael Pond, head of global inflation-linked research at Barclays, points out, the Fed was right the last time it bet on inflation being transitory, in 2011. The European Central Bank’s two rate increases that year are widely seen as a mistake that contributed to the region’s economic troubles.
However, the Fed isn’t omniscient, so we should dig into the data for clues.
The consensus view of temporary inflation rests in large part on the fact that monthly numbers have been so high because of a handful of supersize price rises clearly driven by the post-Covid demand surge. Used cars and trucks alone accounted for a third of May’s monthly inflation, and almost a third of April’s.
Jewelry and dress prices are up a lot as consumers party; airfares, hotels and car rental have soared; and sports teams are gouging customers desperate to see a live game. It is easy to imagine that such price rises will moderate as demand returns to normal.
There is also the logic that higher prices are their own best cure, so long as wages don’t go up a lot. Once consumers have spent their savings pile, higher prices will restrict demand unless pay goes up to match.
So-called “sticky” prices offer another attempt to extract the trend from the noise. The Atlanta Fed’s sticky-price index focuses on products with prices that are changed relatively rarely, typically because they are difficult or expensive to modify (think of coin-operated vending machines or printed menus).
Sticky prices haven’t been rising as fast as flexible prices, which rose at an annual rate of 18.7% in May thanks to used cars. But an annualized 4.5% for sticky prices in May, after an annualized 5.5% in April, is still remarkable, and the three-month rise is the highest since 1991.
It could be that the sticky-price mix is distorted by lockdown and reopening, and will prove temporary.
But the difficulty and expense of raising sticky prices means they usually carry information about corporate expectations for inflation, as companies won’t want to have to change them again very quickly. If they are still working—and to emphasize, only time will tell—then we should expect inflation to stay well above the Fed’s 2% target.
Finally there is the reading from the inflation options market. The Minneapolis Fed calculates that the implied probability of inflation averaging above 3% for the next five years has fallen from a high of 44% a month ago to 31% now. It is bizarre that investors are growing more comfortable with a forecast of inflation rapidly returning to normal even as inflation keeps coming in higher than they expected.
The inflationista story accepts all this, but focuses on the faster price rises among things that weren’t merely lockdown exceptions. The Cleveland Fed’s trimmed-mean price index strips out extreme moves both up and down to try to extract the broader trend, and shows the past three months having the fastest price rises since 1991, barring two months during the 2008 oil bubble. This isn’t just about used cars and other outliers.
I should emphasize that my worry isn’t that this is the start of a 1970s-style surge. But if inflation doesn’t quickly show signs of dropping back down to rates investors and the Fed are comfortable with, the calm of the bond markets will look like complacency.
Data Suggests The Strong US Dollar Makes Bitcoin Weaker Argument Is Flawed
Analysts and traders are linking Bitcoin’s bearish turn with the growing strength of the U.S. dollar, but data suggests otherwise.
At the moment, there seems to be a general assumption that when the U.S. dollar value increases against other global major currencies, as measured by the DXY index, the impact on Bitcoin (BTC) is negative.
For the past few weeks, analysts and influencers have been issuing alerts about this inverse correlation, which held true until March 2021.
However, no matter if you track a 20-day or 60-day correlation, the situation reversed over the past three months.
The correlation indicator (red) has been ranging above 50% since mid-March, indicating that both DXY and Bitcoin have generally followed a similar trend.
The Dollar Strengthened After The Fed Speech
As Cointelegraph reported, May’s Consumer Price Index (CPI) report showed inflation hitting a 13-year high, and Federal Reserve Chair Jerome Powell acknowledged that inflation could run higher than planned in the short term. Still, he clarified that “longer-term inflation expectations are anchored at a place that is consistent with our goal.”
The market gave the Fed a ‘vote of confidence,’ causing the U.S. dollar to appreciate versus major global currencies. Meanwhile, Bitcoin dropped 8% to a $35,300 low on June 18, further reinforcing the inverse correlation thesis.
Correlation Is A Longer-Term Indicator, Not An Intraday Metric
Even though pundits and influencers love to dissect those events and extrapolate 1-day movements, one should analyze a more extended timeframe to understand the potential impacts of the DXY index on the Bitcoin price.
Notice how both markers weakened during May, after a relatively flat period in late April. It seems premature, at least, to call the recent decoupling an inverse correlation. Multiple forces could be behind Bitcoin’s failure to sustain a $40,000 support on June 16 and the subsequent price correction.
For starters, Liu He, Vice Premier of China and a member of the all-powerful eight-person politburo, led a meeting on preventing and controlling financial risks on May 24. Among the decisions was a crackdown on Bitcoin mining and trading activities.
Bitcoin’s hash rate dropped to the lowest level since November 2020 as miners are starting to move away from China. Huobi temporarily suspended futures trading to Chinese users, while Futures platform Bybit revealed it would have closed accounts registered with Chinese phone numbers.
Furthermore, on May 26, the United States Securities and Exchange Commission Chair Gary Gensler said the regulators are looking forward to working with fellow regulators and Congress to fill gaps in investor protection in crypto markets.
Therefore, the potential U.S. regulation and the current China crackdown on mining and trading activities seem vital to Bitcoin’s recent underperformance. Once those issues are no longer threats, the gap that has been created from DXY’s positive move could fade away.
Inflation Threat May Be Boosted By Changes In Globalization, Demographics and E-Commerce
Economists see shifts in these long-term trends putting upward pressure on prices.
For the past few decades, the Federal Reserve has succeeded in keeping inflation low—perhaps too low. It had an assist: Shifts in the global economy, including globalization, demographics and the rise of e-commerce, helped keep prices in check.
Some economists say these so-called secular forces have begun to reverse in ways that the pandemic has intensified.
“The factors that were…playing a significant role in that low-inflation environment last cycle are beginning to fade,” said Sarah House, director and senior economist at Wells Fargo.
That could have important implications for the Fed as it grapples with how much of the current inflation pickup is temporary, and for the U.S. economy as a whole. Ms. House said it means that either inflation will run higher in the years ahead or the Fed will have to keep monetary policy tighter than it otherwise would to meet its 2% inflation target.
Economists point to several secular shifts that could give rise to new inflationary pressures.
Globalization Goes Into Reverse
Global trade more than doubled from 27% of world gross domestic product in 1970 to 60% in 2008, buoyed by falling barriers to trade and investment. In the U.S., it soared from 11% of GDP in 1970 to 31% in 2011. Global competition compelled companies to build elaborate international supply chains, sourcing materials and products in the cheapest possible place.
They were aided by access to cheap labor, as the fall of the Berlin Wall and China’s shift toward a market economy in the 1980s and 1990s more than doubled the workforce integrated with the global economy.
Consumers in wealthy nations benefited. U.S. “core” goods prices, which strip out volatile energy and food prices, rose just 18% between 1990 and 2019. Prices for core services, most of which are produced domestically, surged 147%. Increased import content explains some of that gap, said Blerina Uruci, senior U.S. economist at Barclays. “In some ways, countries like the U.S. were importing disinflation or even deflation from their trade partners,” she said.
But the benefits of globalization “would appear to have been largely spent in a number of respects, not the least of which is the move toward anti-globalization and increasing protectionism,” said Peter Hooper, chief economist for Deutsche Bank Securities.
What changes have you noticed in the prices that you’re paying for goods and services? Share your experience in the form below, or join the conversation.
Following the U.S.-China trade war of recent years, the average U.S. tariff on imports from China exceeded 19%, six times as much as before, according to Chad Bown of the Peterson Institute for International Economics, a think tank.
Laundry equipment prices fell 5.8% annually between 2012 and 2017. After then-President Trump announced tariffs on imported washing machines in January 2018, prices for washing machines shot up 12% in the first half of that year. Laundry equipment prices edged lower over the next year or so but are still at 2013 levels.
As China’s share of global solar-panel sales rose to 60% by 2011, thanks largely to state support, solar-panel prices fell sharply. The cost of solar photovoltaic modules plummeted from $3.50 per peak watt in 2006 to 41 cents in 2019, according to the U.S. Energy Information Administration.
Since the U.S. imposed tariffs imposed on solar panels in January 2018, the rate of price decline has flattened, and the uptake of solar technology has slowed, according to the Solar Energy Industries Association, a trade group.
The broader inflationary impact of recent tariffs is complicated, said David Weinstein, a Columbia University economist. While tariffs raised the prices of most affected goods, prices for others fell as the trade war strengthened the dollar, he has found. The barriers also drove inflation expectations lower and may have muted inflation by slowing U.S. growth and employment.
In general, however, globalization had put downward pressure on prices by making it hard for businesses to raise them, something the pandemic seems likely to reverse, said Mr. Weinstein. The Covid-19 crisis exposed vulnerabilities of complex, far-flung supply chains for essential goods such as medical supplies and semiconductors, prompting an embrace of onshoring that may decrease competition and lift costs.
“Obviously that pays off when you have a pandemic,” Mr. Weinstein said. “But in all the years you don’t…that will tend to raise prices and tie up resources producing stuff that could be more cheaply obtained from abroad.”
From Demographic Plenty To Scarcity
The U.S., China and many large advanced economies now face a demographic squeeze that could contribute to inflation.
The larger the share of a country’s population that is working-age, the more the population tends to save, since workers in aggregate produce more than they consume. That restraint on demand tends to put downward pressure on prices. Dependents—children and retirees—have the reverse effect: They consume more than they produce.
As the U.S. population ages, the number of dependents grows more quickly than the number of people in the workforce, and inflation picks up, said Manoj Pradhan, founder of Talking Heads Macroeconomics, an independent macroeconomic research firm, and co-author of “The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival.”
Baby boomers wield disproportionate spending power, said Peter Berezin, chief global strategist at BCA Research, noting this generation holds a little more than half of all U.S. household wealth. “If you have a group that’s still spending but not producing you have an increase in consumption relative to production that’s more likely to give you an inflationary impulse.”
But with most baby boomers now retired, U.S. working-age population growth will slow to just 0.2% a year between 2020 and 2030, according to the United Nations, from 0.6% in the prior decade and 1.1% during the aughts. The pandemic boosted retirements by about 1.5 million, said Mr. Berezin. “At least for the next couple years, there will be this hit to the actual size of the labor force,” he said.
A paper by Mikael Juselius, a Bank of Finland economist, and Előd Takáts, of the Bank for International Settlements finds lengthening lifespans initially nudge inflation lower because they spur earners to save even more for their retirement. Eventually, though, a rising ratio of dependents to workers adds to inflationary pressures.
Many economists argue that aging is deflationary, noting that in Japan, which has one of the world’s oldest populations, the central bank has struggled for two decades to lift inflation from zero or below.
But Mr. Juselius said that in Japan, the inflationary effect of increasing retirees is canceled out by falling births. U.S. birthrates haven’t fallen enough over the past decade to similarly offset aging and inflation, he said.
Mr. Juselius notes that his findings don’t account for how increased immigration could counter the inflationary effects of aging. Plus, the last economic expansion suggests that demography isn’t always destiny, said Ms. Uruci of Barclays. “We learned that if you run labor markets hot enough, you’re going to bring discouraged workers into the labor force,” she said.
Nearly 14% of retail sales are now conducted online, more than five times as much as in 2005. The price transparency from having retail prices clearly marked and aggregated online, as well as advances in delivery speeds, forced businesses to compete on price both online and offline, and to face more rivals, a phenomenon sometimes called the “ Amazon effect.”
In 2017, Goldman Sachs found that online price competition may have shaved as much as one-tenth of a percentage point from annual core goods inflation.
Digital platforms such as Uber and Airbnb likely created deflationary pressure in services, too, notes Ms. House, the Wells Fargo economist. To gain users, these businesses prioritized market share over profits, often resulting in unsustainably low prices.
There are signs this is reversing; Uber and Lyft fares have increased during the pandemic, and the ride-share companies face increasing pressure to turn profitable. Uber fares in the U.S. surged 27% between January and May, Chief Executive Dara Khosrowshahi recently tweeted.
Mr. Berezin said it is unclear whether the rise of e-commerce has made the world more competitive, noting that retail margins haven’t declined. Alberto Cavallo, an economist at Harvard Business School, using data from 2015 and 2016 found that goods on Amazon weren’t much cheaper than at traditional retailers, but price changes have become more frequent in large retailers that compete with Amazon, which means supply-chain disruptions may get transmitted more quickly to consumers.
Taylor Schreiner, director at Adobe Digital Insights, said that his firm’s data-tracking project has found a long-established trend of falling prices for goods bought online, such that online prices fell an average of 4% a year from 2015 through 2019, according to the company’s Digital Economy Index, which tracks online prices since 2014 across 18 categories.
The pandemic halted this dynamic. Online prices have risen 2% since March 2020, according to Adobe data. Prices for sporting goods, furniture and appliances bought online rose sharply since the pandemic’s onset. Those for electronics fell just 1.8%, while computer prices were down 1.2%—compared with an average annual decline of around 9% for both from 2015 to 2019.
This partly reflects temporary pandemic-induced disruptions to supply chains and consumer behavior, said Mr. Schreiner. However, there are few signs of the deflationary trend resuming even as supply-chain disruptions ease and consumers revert to pre-pandemic habits, he said. “If prices remain flat or even rise, the economy will need to move forward without e-commerce holding down [overall] prices,” he said.
Bank of Canada Boosts Inflation Forecast, Dials Back Bond Buying
The Bank of Canada took another big step to rein in emergency levels of stimulus, once again tapering its bond purchases in a sign of optimism about the speed of the recovery.
Policy makers led by Governor Tiff Macklem said Wednesday that they would reduce their weekly purchases of government debt by one-third to C$2 billion ($1.6 billion). Officials held the benchmark overnight interest rate at 0.25%, while indicating they don’t expect any hikes before at least the second half of next year — in line with previous guidance.
The decision to taper advances the central bank’s gradual return to more normal policy, which has put Macklem on the vanguard of unwinding stimulus among his peers. It’s the third time officials have downsized the asset purchase program, and it reinforces expectations the Bank of Canada will be among the first central banks in advanced economies to hike rates.
“This adjustment reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook,” Macklem said in the opening statement of his press conference.
Wednesday’s decision was widely predicted by economists, and is in line with market expectations of a hiking cycle that starts in the second half of next year, with multiple increases needed to cool an economy that will likely be running too hot in 2023.
Swaps trading suggests investors are fully pricing in a hike over the next 12 months, and a total of four over the next two years, which would leave Canada with one of the highest policy rates among advanced economies.
The Federal Reserve isn’t quite as optimistic as the Bank of Canada is in the near term. Chair Jerome Powell is preparing to tell Congress on Wednesday that the U.S. economy isn’t ready for bond tapering. “Reaching the standard of ‘substantial further progress’ is still a ways off,” he said in prepared remarks.
In the U.S., investors aren’t pricing in any rate hike over the next year, and only two over the next two years.
“For now, Governor Macklem remains one of, if not the most hawkish major central banker,” Frances Donald, chief economist at Manulife Asset Management, said by email.
‘Strength And Durability’
The Canadian dollar erased gains after the statement, trading little changed at C$1.2513 per U.S. dollar at 12:19 p.m. in Toronto trading. It had been up as much as 0.7%, as some investors anticipated an even more hawkish stance from the Bank of Canada. The loonie is the second best performing major currency so far this year, up 1.7% against the U.S. dollar.
Yields on Canadian government five-year bonds were down three basis points to 0.93%. That’s still 12 basis points higher than equivalent U.S. yields.
Bank of Canada officials reiterated that future taperings will depend on their assessment of the “strength and durability” of the recovery.
Analysts anticipate the outlook will allow Macklem to reduce purchases to about C$1 billion per week later this year, which would bring the central bank near a neutral pace where holdings remain unchanged as securities mature.
The pace of purchases of Canadian government bonds was as high as C$5 billion last year, with the central bank acquiring a net C$320 billion of the securities since the start of the Covid-19 pandemic. The bank owns about 44% of outstanding Canadian government bonds.
The Bank of Canada has said it wants to stop adding to its holdings of government bonds before it turns its attention to debating rate increases, but officials chose not to accelerate the projected timeline for a possible hike on Wednesday.
The bank reiterated guidance that it won’t raise its benchmark rate until the recovery is complete and inflation is sustainably at 2%. New projections released alongside the rate statement show that won’t happen until the second half of next year, in line with its previous forecasts.
In its latest Monetary Policy Report, the Bank of Canada revised higher its profile for output and inflation amid growing optimism that households will start spending hoards of cash they’ve accumulated over the past year.
Bank of Canada Taps Regulator as Macklem’s New Top Deputy
The bank now sees households spending 20% of the excess savings accumulated during the pandemic, something it hadn’t predict in its April report.
Still, the central bank maintained plenty of caution in its forecasts, sticking to projections that the run up of inflation will be temporary in an economy that will continue to carry slack for some time. The Ottawa-based central bank emphasized the importance of achieving a “full and inclusive” economic recovery, while Macklem underscored how he will be looking at a long list of labor market indicators to gauge the extent to which a full rebound has occurred.
While conceding that inflation will remain above 3% for much of the rest of this year, the central bank said the uptick reflects factors like gasoline prices, base effects from last year’s lockdowns and supply chain constraints that should fade. They see consumer price gains falling back down to near their 2% target later in 2022 because of lingering excess supply.
The economy will be in a period of excess demand by 2023, the Bank of Canada projected.
$60K Is Now More Likely For Bitcoin Than $20K, Bloomberg’s Senior Strategist Asserts
The analyst also treats the latest crypto ban in China as bullish for Bitcoin and the U.S. dollar.
Bitcoin (BTC) has a better probability of recovering back to $60,000 than breaking below its current support level of $30,000 to target $20,000, believes Mike McGlone, senior commodity strategist at Bloomberg Intelligence.
A screenshot from McGlone’s latest analysis on the flagship cryptocurrency, first shared by Bloomberg senior ETF analyst Eric Balchunas, shows him comparing Bitcoin’s ongoing price action with the “too-cold” period of the 2018–2019 trading session.
In detail, the BTC/USD exchange rate entered a prolonged consolidation period near $4,000 following an 80%-plus crash in 2018, but a sudden run-up in 2019 sent its prices to as high as $14,000 on some exchanges.
McGlone, who’s known for his previous bullish calls on Bitcoin, noted that BTC, which has been consolidating near $30,000 since May, could post a similarly surprising rally while aiming to hit a refreshed resistance target near $60,000.
“The more tactical-trading-oriented bears seem to proliferate when Bitcoin sustains at about 30% threshold below its 20-week moving average, allowing the buy-and-hold types time to accumulate,” the strategist wrote.
The Moving Average Trio
Bitcoin’s bearish and bullish cycles appear to wobble around three key moving average indicators: the 20-week exponential moving average (20-week EMA; the green wave), which serves as interim support/resistance, the 50-week simple moving average (50-week SMA; the blue wave), and the 200-week simple moving average (20-week SMA; the orange wave).
During bull trends, Bitcoin prices typically stay above the three moving averages. Meanwhile, bear trends see the cryptocurrency’s prices closing below the 20-week EMA and the 50-week SMA, as shown in the chart above.
The 200-week SMA typically serves as the last line of defense in a bear market. So far, Bitcoin has bottomed out twice near the orange wave, each time sending the prices explosively higher. For instance, a take-off from the 200-week SMA in 2018 drove Bitcoin prices to almost $14,000.
Similarly, the wave support capped the cryptocurrency’s downside attempts during the COVID-19-led crash in March 2020. Later, the price bounced from as low as $3,858 to over $65,000.
Bitcoin is now in its third drop below this trendline since 2018. The cryptocurrency has broken below the 20-week SMA (near $39,000) and is now targeting the 50-week SMA (circa $32,200) as support. If the old fractal is repeated, it should continue falling toward the 200-week SMA (around $14,000).
However, McGlone believes there could be an early rebound. As a bullish fundamental, the strategist pointed toward the recent China crypto ban.
Tether Takes The Cake
Beijing announced a complete ban on cryptocurrency operations in May. The decision stonewalled the mining operations in the country, which were forced to either cease or move their base outside. Bitcoin prices fell sharply in response.
Nevertheless, McGlone highlighted China’s rejection of open-source software crypto assets as a plateau in their economic ascent. In a tweet published Friday, the analyst attached an index showcasing booming volumes and capitalization of U.S. dollar-backed digital assets, including Tether (USDT).
He then pitted the rising demand for digitized dollars against the Chinese yuan-to-dollar exchange rates, noting that the logarithmic scale of market capitalization fluctuations between the two fiat currencies was below the baseline zero between 2018 and 2020. That means the yuan was depreciating against the dollar.
The scale just went back above zero, signaling interim growth for the yuan against the dollar. But its uptrend still appeared dwarfed by Tether, whose market cap rose by more than 40% above the baseline.
“China’s rejection of open-source software crypto-assets may mark a plateau in the country’s economic ascent, we believe while extolling the value of the U.S. dollar and Bitcoin.”
Additionally, Petr Kozyakov, co-founder and CEO of global payment network Mercuryo, noted that while the United States government has not officially launched a central bank-backed digital dollar as China has, the availability of many other alternatives — including Tether, USD Coin (USDC) and Binance USD (BUSD) — could pose a challenge to the Chinese-controlled digital yuan.
“These cryptocurrencies are pegged 1:1 against the U.S. dollar and as shown in the chart McGlone shared, the dollar is leading the digital rise over the Chinese Yuan,” Kozyakov said.
“While China’s crackdown has had an impact on Bitcoin’s price as it hovers above $30K on 23rd June, fundamentals have improved vastly since 2018 due to institutional FOMO. […] Bitcoin should recover to $50K by the turn of the year.”
The Chinese Economy Will Keep Growing
However, rejecting McGlone’s take, Yuriy Mazur of CEX.IO Broker noted that the Chinese economy should continue flourishing with or without cryptocurrencies, saying that it has nothing to do with the demand for digital assets.
“The Chinese government is too smart to miss out on something the world deems valuable,” Mazur told Cointelegraph.
“So, expect them to take considerable measures to roll out a Yuan-backed cryptocurrency (in the future) that they have complete control over.”
Most Executives See Digital Assets As Strong Fiat Alternative In Next 5-10 Years: Deloitte
Cybersecurity, regulation and privacy are seen as the biggest obstacles to global adoption of digital assets, according to a Deloitte survey.
More than three quarters – 76% – of executives globally think digital assets will be a “strong alternative to or replacement for” fiat in the next five to 10 years, Deloitte’s 2021 Global Blockchain Survey found.
* Even more, 78% of respondents said that digital assets will be important to their industry in the coming 24 months.
* The survey of 1,280 senior executives and practitioners was conducted March 24 through April 10. One-third of respondents were based in the U.S., with the rest in Brazil, China, Germany, Hong Kong, Japan, Singapore, South Africa, the UAE and the U.K.
* The most commonly identified barriers to adoption were cybersecurity, regulation and financial infrastructure, according to the survey. Data security and privacy regulation must change to enable blockchain adoption, said 68% of survey participants.
* Respondents that had already deployed blockchain and/or digital assets in their core business, or “pioneers” as Deloitte labeled them, more commonly identified regulation, privacy, and cybersecurity as barriers to acceptance.
* Among those, 70% said that digital assets’ greatest impact will be access to funding sources. The next most common answer was “compliance and transparency.”
* Protection against data collection from big tech and other private firms was the most commonly identified potential benefit of central bank digital currencies among respondents.
Gold, Bond Portfolios Are ‘Naked’ Without Bitcoin, Bloomberg Strategist Asserts
The declaration appears as Bitcoin pops back above $50,000, with its addition in a Gold-Bond portfolio outperforming the S&P 500 index.
What is protecting an investment portfolio from potential stock market volatility? As per Bloomberg Intelligence’s Mike McGlone, a merged exposure of Bitcoin (BTC), gold, and government bonds.
The senior commodity strategist, who sees BTC heading to $100,000, pitted derivatives in a new report representing the three safe-haven assets against the performance of the S&P 500 index, finding that the trio has been outperforming the benchmark Wall Street index at least since the start of 2020.
The Bitcoin-Gold-Bonds index took data from the Grayscale Bitcoin Trust (GBTC), SPDR Gold Shares (GLD) and iShares 20+ T- Bond ETF (TLT). The three funds enable investors to gain exposure in the market without requiring to hold/own the physical asset.
Bitcoin More Profitable Than Gold And Bonds
McGlone noted that Bitcoin did some heavy lifting in making investors’ risk-off strategy successful, adding that their portfolios “appear increasingly naked” without the flagship cryptocurrency even if they remain exposed to gold and bonds.
The statement took cues from the performance of Bitcoin, gold, and the 10-year US Treasury yield against the prospect of rising quantitative easing and debt-to-GDP levels. Since March 2020, Bitcoin has risen almost 1,190%, which comes to be extensively better than spot gold’s 25.93% spike.
Meanwhile, the U.S. 10-year bond yield has jumped from its record low of 0.33% to 1.326% in the same period.
However, despite a healthy spike, the returns on the benchmark government bond have come to be lower than the core U.S. inflation of 5.4%, suggesting that investors who hold bonds as safety against risky equities are making an inflation-adjusted loss.
As a result, lower yields have created avenues for corporates to borrow at meager rates for expansion, thus giving equities a boost. Additionally, investors in the secondary markets have started moving their capital into non-yielding assets like Bitcoin and gold, anticipating higher payouts.
Yield Rebound Ahead?
Former bond investor Bill Gross, who built Pimco into a $2 trillion asset management firm, noted that bond yields have “nowhere to go but up.”
The retired fund manager said that the 10-year U.S. Treasury note yields would rise to 2% over the next 12 months. Therefore, bond prices will fall due to their inverse correlation with yields, resulting in a loss of about 3% for investors who bought debts all across 2020 and 2021.
Federal Reserve purchased 60% of net US government debt issuance over the past year with its $120 billion a month asset purchase program to boost the US economy. However, in August, the U.S. central bank announced that it would slow down its bond-buying by the end of this year, given the prospects of its 2% inflation rate target and economic growth.
“How willing, therefore, will private markets be to absorb this future 60 per cent in mid-2022 and beyond,” questioned Gross, adding that the US bond market would turn into an “investment garbage.”
“Intermediate to long-term bond funds are in that trash receptacle for sure.”
Rising rates could threaten to draw capital out of overvalued U.S. stocks. At the same time, as a risk-off trade, funds could also start flowing into the Bitcoin market. Julian Emanuel, the chief equity and derivatives strategist at brokerage firm BTIG, shed light on the same in his interview with CNBC in February. Excerpts:
“This is the environment where that catch-up trade is going to show its ability […] You’re coming from such a low absolute level of rates that higher rates actually is likely to be supportive for alternatives like Bitcoin.”
To McGlone, the capital inflow into Bitcoin and the rest of the cryptocurrency market, including Ethereum, would be about finding the next-best investment opportunity. He said that digital assets may represent the “higher-beta potential,” adding:
“We see Ethereum on course toward $5,000 and $100,000 for Bitcoin.”
Bloomberg Senior Strategist Calls Bitcoin A Global Reserve Asset On The Path To $100K
Following a massive correction, digital assets led by Bitcoin and Ethereum are on track for new highs, according to a new report from Bloomberg.
Bloomberg’s senior commodity strategist Mike McGlone has doubled down on call for six-figure Bitcoin (BTC), arguing that the first-born cryptocurrency is well on its way to becoming a global reserve asset that complements the United States dollar.
The September edition of Bloomberg’s Crypto Outlook called $100,000 BTC and $5,000 Ether (ETH) the “path of least resistance” after the two assets survived a more than 50% correction through the summer.
“Crypto-assets appear in a revived and refreshed bull market with the 2H benefit of a steep discount from previous highs at the start,” wrote McGlone, referring to the second half of 2021. He said portfolios lacking BTC or ETH exposure are “naked,” as evidenced by the relative underperformance of gold and government bonds:
“Portfolios of some combination of gold and bonds appear increasingly naked without some Bitcoin and Ethereum joining the mix. A macro risk-off decline is a primary threat for the crypto bull market.”
While predictions for six-figure Bitcoin are nothing new, McGlone’s long-term forecast puts BTC near the center of the global financial system. “[W]e believe Bitcoin represents the digital future,” McGlone said after explaining that the dollar has advanced more than 300% against major peers since President Richard Nixon nixed the greenback’s gold peg in 1971. He further explained:
“We foresee a future of Bitcoin, the digital reserve asset, complementing the dollar reserve currency.”
Bitcoin’s most passionate supporters have long argued that the cryptocurrency would mature to become a global reserve asset. Their conviction stems from Bitcoin’s superior monetary policy in an era where central banks have inflated the money supply, contributing to wealth inequality and higher prices for goods, services and assets.
Bitcoin’s value proposition has also been recognized within institutional circles, with JPMorgan Chase and BlackRock arguing that BTC is eroding gold’s market share as a storehold of wealth.
Bitcoin price broke towards $51,000 on Friday as the broader cryptocurrency market rallied to over three-month highs. The total market capitalization of all cryptocurrencies reached $2.4 trillion during Friday’s high compared with a low of around $1.2 trillion in mid-July.
Inflation is Hurting 80% of British Businesses, Survey Says
The British Chambers of Commerce said 80% of U.K. businesses are feeling the effects of higher prices as well as shortages of goods and workers, a finding that adds to concerns about inflation.
The lobby group said its survey of 1,000 companies showed 80% saw an increase in their prices in the past year and almost half said those gains were significant.
The figures add to evidence that inflation is picking up, which the Bank of England has said is likely to result in higher interest rates in the coming months. Companies cited rising costs of vehicle fuel, shipping containers, electricity and natural gas as the biggest burdens.
“These figures present a deeply worrying picture of the difficulties that businesses are currently facing,” Shevaun Haviland, director general of the BCC, said in a statement on Thursday.
Steel costs were cited by half of manufacturers, while paper, plastics, chemicals and semiconductors also registered as in short supply.
Peru Lifts Its Key Rate To Curb Fastest Inflation Since 2009
Peru’s central bank tightened monetary policy for a fourth straight month after inflation accelerated to its fastest pace in more than 12 years.
Policy makers, led by bank President Julio Velarde, raised their key interest rate by a half-point to 2%, as forecast by six of eight economists surveyed by Bloomberg. One analyst expected an increase of 75 basis points while one saw a quarter-point hike.
Consumer prices in Peru and across Latin America have jumped as economies reopen to pent-up demand and shortages of goods due to tangled supply chains, forcing central banks to increase borrowing costs.
Earlier on Thursday, Mexico hiked its reference rate by a quarter point for its fourth consecutive meeting, sticking to a steady adjustment pace, while Uruguay accelerated the withdrawal of monetary stimulus with a 50 basis-point increase.
While inflation in Peru has pushed well above the 1%-to-3% target range, the economy may post the fastest expansion in decades, allowing policy makers space to damp domestic consumer demand.
What Bloomberg Economics Says
“At the current tightening pace of 50 basis points per meeting, Peru’s benchmark rate will reach neutral in six months. Forward guidance from Thursday’s gathering points to a moderation in rate hikes, skipping some meetings or ending the cycle early next year.
Room to move ahead with those plans will depend on new inflation data and prices pressures effectively waning per central bank expectations. The outlook remains challenging.”
— Felipe Hernandez, Latin America economist
After the pandemic hit, Peru’s central bank slashed its key interest rate to 0.25%, the lowest in the region, and kept it at that level until early August. Inflation was last within the target range in May, but has more than doubled since then to hit 5.83% in annual terms last month.
What Does Inflation Mean for American Businesses? For Some, Bigger Profits
Nearly two out of three of the biggest U.S. publicly traded companies reported fatter profit margins than they did before the pandemic; ‘a very unprecedented environment’.
Companies are paying higher wages, spending more for materials and absorbing record freight costs, pushing up economic inflation gauges. They are also reporting some of their best profitability in years.
Executives are seizing a once in a generation opportunity to raise prices to match and in some cases outpace their own higher expenses, after decades of grinding down costs and prices.
Industries from retail and manufacturing to biotech have seen their profits rise. Other industries, largely those still climbing out of pandemic lockdowns, such as travel, or those too weighted with inflationary costs, have raised prices but not experienced a profit boost.
Mattress maker Sleep Number Corp. has pushed through three major price increases this year. So has Carrier Global Corp. , a manufacturer of heating and cooling equipment, which typically changes its prices once a year.
Nearly two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019, before the Covid-19 outbreak, data from FactSet show. Nearly 100 of these giants have booked 2021 profit margins—the share of each dollar of sales a company can pocket—that are at least 50% above 2019 levels.
“Honestly, this is a very unprecedented environment. We haven’t seen this in probably 30 years,” said Glenn Richter, the chief financial officer of International Flavors & Fragrances, a supplier to big food companies.
Widespread inflation makes it easier to broach the topic of raising prices with customers, Mr. Richter said. IFF’s profits increased during the most recent quarter compared with the same quarter two years ago, in part because of its acquisition of DuPont de Nemours Inc.’s nutrition business; its net margin dipped over the same period. The company expects to boost its profit margins next year.
Profit margins often rise with inflation. The risk to companies is that they overreach, raising prices faster than their competitors, or farther than customers will tolerate, losing sales and market share that may take years to recover.
The risk to the economy is that price hikes not only stick, but convince customers more increases are inevitable, spurring inflationary demand and sparking a vicious cycle. How long inflation is likely to last is a central concern for economists and politicians.
Inflation hit a 31-year-high last month. Americans are paying more for an array of products and services, including necessities: food, gas, rent and furniture. The consumer-price index, a key economic indicator, increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%.
President Biden’s administration has maintained that inflation is temporary, and tied the rising costs to the effects of the pandemic on supply chain holdups and labor shortages.
Asked if prices would be down by next fall, Treasury Secretary Janet Yellen said Sunday on CBS’s “Face the Nation” that “it really depends on the pandemic. The pandemic has been calling the shots for the economy and for inflation.” She said if issues around labor supply and demand normalize, prices could “go back to normal” sometime next year.
However, some economists have said some degree of higher inflation could stick around for the next few years. Entrenched inflation could mean Federal Reserve officials might have to raise rates sooner or more than they expected to, potentially dampening growth. It’s also a sign of American spending power from large savings amassed during lockdowns and from federal payouts.
“Whenever you have a strong economy, companies will try to capture a greater share of the pie,” said Gregory Daco, chief U.S. economist for consulting firm Oxford Economics. “If they have a strong market position and strong demand, then they have the leeway or capacity to increase prices.”
His data show that a measure of profits for all U.S. corporations, as a share of gross domestic product, in the second quarter of this year was the second highest recorded since 1960. One quarter in 2012 came in slightly higher than this year.
Higher prices aren’t the only factor pushing up profitability, economists and executives say. Intense demand for many kinds of goods—including computers, automobiles and luxury goods—has been a major driver of both economic growth and corporate profitability. As volume rises and fixed costs like rent and equipment are spread out more, most businesses make a bigger profit on each sale.
“The starting point is the strong demand,” said Parag Thatte, a strategist at Deutsche Bank. While some parts of the economy still lag—including recreation, transportation and restaurants and hotels—three-quarters of the S&P 500 companies, as measured by market value, are in industries where output is significantly above where it would have been absent the pandemic, thanks to intense demand, he said. “That has enabled companies to raise prices.”
The maker of Coach handbags and Kate Spade dresses has been spending more money on airfreight to ensure it has enough goods in stock for the crucial holiday season. Despite those added costs, Tapestry Inc. has increased its year-to-date profit margin to 14.5% from 10.7% in 2019, FactSet data show.
“For Coach, the rise in [prices] isn’t really about inflation,” said Todd Kahn, Coach’s CEO. “It’s about reducing discounting,” as well as emphasizing the brand’s value to customers, he said.
A Tapestry spokeswoman said the company’s own adjusted measure for operating margin was 19.9% in the quarter ended Sept. 21, compared with 12.3% in the same quarter of 2019.
Ametek Inc., a manufacturer of industrial instruments for aerospace, medical and other companies, says its price increases have been able to more than offset the expenses from supply chain snags and worker shortages this year.
“In the third quarter, our pricing continued to more than offset inflation,” CEO David Zapico said earlier this month on an earnings conference call. “We’re going to stay up ahead of inflation, and I expect that to be true next year.”
Ametek’s operating-profit margin—which generally compares income before interest and taxes to overall sales—rose to 23.4% so far this year, from about 22.8% in the first nine months of 2019, according to the company. The margin growth would have been even higher if not for recent acquisitions, the company said.
Sleep Number’s price increases are expected to offset $140 million in elevated labor, shipping and commodities costs this fiscal year, but will also result in profit margins 3 percentage points above 2019 levels, finance chief David Callen said. Stronger demand and improved efficiency are also contributing to the margin expansion, the company said.
“Each time we’ve seen this build, we’ve taken additional pricing,” he said. The company expects prices to increase by around 6% for the year, compared with estimates earlier in the year of somewhere in the low-single digits. So far the price increases haven’t affected consumer demand, Mr. Callen said.
Corteva Inc., a maker of agricultural chemicals and seeds, said price hikes in its seed business will more than make up for higher materials costs. In a statement, a Corteva spokeswoman said the price increases reflect the value the company is delivering to customers, and have helped increase profit margins together with supply-chain and productivity initiatives.
Not every business has been able to push up prices fast enough to keep pace with inflationary pressures. Profit margins at Carrier have declined to 8.7% this year from 11.9% in 2019 despite its three price hikes.
Carrier said its profit margins declined because of its separation last year from United Technologies Corp. The company expects to push through additional price increases before the year is out.
“I have certainly not gotten the impression that the additional price increases have been more difficult,” Carrier finance chief Patrick Goris said in an interview. “Everyone, including customers, recognizes that in the current environment, there is little choice to get those increases and to pass them on.”
There are some signs that demand is cooling, and with it, consumers’ and businesses’ willingness to absorb price hikes, said Mr. Daco of Oxford Economics. Once supply bottlenecks ease and consumer spending shifts, he said, it could dampen companies’ ability to raise prices further.
“You may be left with cooling demand and hotter supply,” Mr. Daco said. “We should not necessarily be falling into the trap of projecting what we’re living through today and assuming it’s the new normal.”
High-End Arabica Coffee At 9-Year High With Supply Risks Worsening
Prices for high-end arabica coffee beans touched nine-year highs Monday with turmoil in Africa adding to crop woes in South America and skyrocketing costs for farmers.
Ethiopia, the world’s third biggest grower of arabica beans, is in the throes of civil war, with government forces battling rebels from the northern Tigray region. Curfews were recently imposed in the Oromia region, and U.S. Secretary of State Antony Blinken expressed concerns Friday that the African nation could implode.
The beans used by companies from Starbucks Corp. to Nestle SA’s Nespresso brand have already jumped 77% this year after frost and drought dealt devastating blows to crops in top shipper Brazil. Excessive rains have also curbed output in second-ranked Colombia.
The March contract rose as much as 2.8% to $2.2825 a pound on ICE Futures U.S., the highest for a most-active contract since January 2012.
Besides war and adverse weather, a host of other factors are pushing up coffee. Farmers are facing rising costs for everything from fertilizer to labor and fuel. Freight costs have soared, hurting trade flows. Some South American producers have defaulted on contracts, exacerbating financial stress for coffee companies short on supplies.
Buyers are turning to certified stockpiles to meet near-term needs. Helping the move Monday is a public holiday in Brazil, which is keeping sellers at bay, said Carlos Mera, analyst for Rabobank International in London.
“Several other factors continue to pressure prices upwards, particularly those that affect coffee flow such as limited vessel space, access to the Brazilian port of Santos and the growing risk of potential defaults in Colombia,” said Jorge Cuevas, chief coffee officer for Sustainable Harvest, an importer in Oregon.
“We continue bullish with the market’s upside target in the medium term at $2.80 a pound,” Marcelo Fraga Moreira, analyst for Archer Consulting in Sao Paulo said in a report.
In London, robusta coffee futures rose 1% to $2,299 a ton. The cheaper variety, which is used in instant beverages, has risen 66% this year. Vietnam, the top supplier, has seen flows affected by the supply crisis and surging costs for Asian routes.
Bank of England Boss Says He’s ‘Very Uneasy’ About Surging Inflation
Bank of England Governor Andrew Bailey told U.K. lawmakers he is “very uneasy about the inflation situation” amid mounting evidence that a shortage of workers will drive up wages.
Bailey told the House of Commons Treasury Committee on Monday that the labor market is looking “tight” but that he wanted to see what happened after the furlough program ended before voting to raise interest rates.
The governor spoke one day before the Office of National Statistics releases the first official data since furlough ended on September 30, which will provide an early clue to the BOE’s likely course of action.
Moment of Truth
The end of furlough left over 1 million workers facing an uncertain future.
Investors and economists expect policy makers to increasing borrowing costs in December to curb inflation, which the central bank expects to peak at around 5%, more than double its target.
Bailey said all the signs suggested wage pressures are building. He pointed to the 450,000 workers who have become inactive since the start of the pandemic and an estimated “300,000 to 400,000” reduction in the working population due to emigration and other factors.
“The labor market has tightened already,” he said. However, at around 1 million, the number on furlough at the end of the program was more than the BOE had expected. He reiterated that his decision not to raise rates in November had been “a very close call.”
“The real puzzle is what happened at the end of furlough,” he said.
Huw Pill, the BOE chief economist, said there was no evidence yet that higher inflation was seeping into general pay levels. While starting salaries may be rising, that has not necessarily lifted pay for existing employees.
Michael Saunders, an external BOE rate-setter who voted for a hike last month, said there was “no risk of a wage price spiral” because the central bank would raise rates to bear down on inflation.
In Inflation Denial? Your Grocery Bill Will Wake You Up
Americans haven’t had to worry about inflation for decades. Some still aren’t.
Americans are paying higher prices for groceries, gas and holiday gifts, yet many are living and spending as if it isn’t happening.
The U.S. consumer-price index hit a 31-year high in October, as the price paid for goods and services rose 6.2% from a year ago, according to the Labor Department. The index is a gauge of inflation, largely measuring how much it costs an individual to pay for everything they need in their lives.
Despite the increase, consumer spending was up 0.6% in September, according to data from the Bureau of Economic Analysis. And credit-card balances rose by $17 billion in the third quarter, according to the Federal Reserve Bank of New York.
And while new vehicle sales cooled off from last year, J.D. Power estimates 54% of vehicles to be sold within 10 days of arriving at a dealership for the month of October.
Americans haven’t had to worry about inflation for decades. As prices rise at a pace not seen since the 1990s, many haven’t experienced the havoc that inflation can cause on their wallets. Some are so far failing to reconcile the reality of price increases with the lifestyle changes required to adapt.
And if they don’t begin to make changes now, they will likely need to make changes later, say economists and other financial experts.
“I don’t think this is an environment where people are going to rush to spend consistently so that they get ahead of what’s going to be ever-higher prices tomorrow. Instead, I believe it’s going to hit the household in a way that slows things down,” said Alex Lin, senior U.S. economist at Bank of America.
Deb Kuo, a former real estate and facilities manager in Phoenix, said she hasn’t made many changes to her spending, although she is aware of rising prices. At her local grocery store, in particular, she noticed an increase in the price of eggs.
“At this point, it’s not making really much of a difference in terms of day-to-day spending or budgeting decisions. And that could be because it’s still kind of creeping up on us slowly, like the frog in the boiling water who doesn’t know they’re being boiled until they have already boiled, right?” said Ms. Kuo.
Ms. Kuo said she is in a position where making small substitutions won’t make or break her finances. She and her husband moved to Phoenix during the pandemic, bought a house and threw themselves into a home-renovation project.
Some who didn’t lose work because of the pandemic were able to stash significant savings and aren’t making changes, according to Wendy Edelberg, director of the Hamilton Project, an economic-policy initiative within the Brookings Institution.
These groups may be able to more easily absorb rising prices because they are secure in their post-pandemic financial lives. Many were able to boost their savings and make progress toward financial goals during the pandemic, said Ms. Edelberg.
“Eighteen months ago, we were really staring at a deflationary abyss,” said Brian Levitt, global market analyst at Invesco. “We were in a world where we had shut off the global economy in essence, and demand had just collapsed.”
Now, fears of continuing inflation and a supply-chain crunch are combining. Some households are reassessing their post-pandemic budgets, Mr. Lin said.
Should inflation continue to rise, he predicts people will make substitutions for some things but otherwise slow down on spending overall. At a certain point, he said, accepting its real-world impact is unavoidable.
“All of a sudden, the grocery bills become more expensive, then the gasoline bills become more expensive,” Mr. Lin at Bank of America said.
Amanda Brennan, a librarian in Roselle Park, N.J., said she first noticed the price increases in pet food purchased for her three cats. She noticed the increase after the bill already hit her wallet because, like many Americans, she and her wife set up subscriptions for many household essentials.
“A lot of our stuff that we like we set up recurring payments, just automatic, and I’ve noticed them going up on their own,” she said. “I’m expecting things like my order to stay the same all the time, and then one day it’s like $30 more, and I’m like, ‘What is happening?’”
Ms. Brennan keeps a detailed spreadsheet tracking expenses and, along with her wife, is trying to substitute existing items so that they’re able to stick to the original budget, like pricing out different options for cat food.
Their usual grocery list, once setting them back $175, now adds up to $225 at the checkout counter, she said.
Ms. Brennan said she and her wife agreed to set up a time to audit their own spreadsheet, looking to better understand where these price increases are most affecting them. Before this point, though, she said the “mental energy” that such a task required felt like a Herculean hurdle.
U.K. Inflation Hits 10-Year High, Stirring Expectations of Rate Rise
Economists and investors believe the BOE could act as soon as next month to tame price growth.
Annual inflation in the U.K. accelerated to its fastest rate in a decade, strengthening expectations the Bank of England will be the first major central bank to lift interest rates from pandemic lows as worries over global inflation intensify.
Consumer prices increased 4.2% on the year in October following a 3.1% rise in September, the U.K.’s Office for National Statistics said Wednesday, the fastest rate of inflation since December 2011 and more than twice the BOE’s 2% target.
Economists and investors believe the BOE could act as soon as next month to tame price growth, moving in front of the U.S. Federal Reserve and the European Central Bank in the gradual process of withdrawing stimulus from recovering economies even as supply-chain snarl-ups slow growth.
Investors in interest-rate futures markets believe a rate rise in December is a near-certainty, according to data from CME Group, especially as data released earlier this week showed the U.K. labor market shrugged off the closure in September of a flagship government wage-subsidy program.
“I am very uneasy about the inflation situation,” BOE Gov. Andrew Bailey said in testimony to U.K. lawmakers on Monday.
The pickup in price growth was faster than the 4.0% rate economists polled by The Wall Street Journal were expecting.
Inflation accelerated mainly due to a surge in energy and fuel prices, but there were increasing signs that higher costs due to persistent bottlenecks in global supply chains are being passed on to consumers. Core consumer prices, which exclude the often-volatile categories of food and energy, climbed 3.4% in October from a year earlier, higher than September’s 2.9% rise.
“The case for December liftoff just got stronger,” Sanjay Raja, senior economist at Deutsche Bank in London, said in a note to clients.
Inflation is picking up across the world as economies rev up and consumers, flush with savings, splash out on goods ranging from cars to electronics. Consumer-price inflation in the U.S. reached 6.2% in October, and 4.1% in the 19-nation eurozone.
Central bankers believe the current spell of price growth won’t last, as the world economy settles back into more normal patterns of growth and consumption as Covid-19 recedes.
But that process looks set to play out over a longer period than policy makers were anticipating, testing central banks’ resolve to keep borrowing costs very low to propel their economies clear of the pandemic.
Fed officials have backed away from characterizing price pressures as “transitory” and have approved plans to begin dialing back asset purchases.
Central banks from Canada to Australia to Norway, New Zealand and the Czech Republic have already begun withdrawing pandemic-era stimulus or nudging up borrowing costs to keep their inflation targets in their sights.
A rate increase next month would make the BOE the first of the world’s big central banks to lift rates. Mr. Bailey and other officials at the bank have reiterated that they, too, believe price pressures will fade.
But they have also judged that inflation is unlikely to fall back to the BOE’s 2% annual goal in the next two to three years without gently lifting borrowing costs. The BOE expects inflation to exceed 5% within months.
A rate rise would come at a risky moment, with the U.K. economy losing momentum as the reopening rebound from the Covid-19 lockdown fades and supply-chain snarl-ups crimp growth. At the end of the third quarter, the U.K. economy was still 2.1% smaller than it was at the end of 2019. Economists don’t expect the country to recover the lost ground until early next year.
Biden Urges FTC To Probe Gasoline Market With Prices Up 50%
President Joe Biden urged the Federal Trade Commission to probe possible illegal conduct in U.S. gasoline markets, though any inquiry by the agency is unlikely to have an immediate impact on pump prices paid by consumers.
In a letter to Wednesday to FTC Chair Lina Khan, the president expressed concern about the difference between pump prices and the cost of wholesale fuel, while citing what he said was “mounting evidence of anti-consumer behavior by oil and gas companies.”
“I do not accept hard-working Americans paying more for gas because of anti-competitive or otherwise potentially illegal conduct,” Biden said in his letter to Khan, calling for an investigation.
The FTC is an independent agency that is not directed by the White House, though Biden selected Khan as its chair and the agency can choose to follow the president’s suggestions.
Biden wrote to Khan as Americans are feeling the effects of higher prices across much of the economy, an issue that’s also hurting him politically as his poll numbers continue to sag. The October consumer price index was up 6.2% from a year earlier, with energy costs a major driver. Gas prices were up 49.6% from October 2020.
But his letter is mostly symbolic. It’s not uncommon for state and federal regulators to open investigations of gasoline prices when they soar. Few of those probes translate into real action.
A White House official said the agency could decide to begin an investigation to collect data on how gas companies set prices, as well as data on actual pricing. Biden asked the commission to “further examine what is happening with oil and gas markets, and that you bring all of the commission’s tools to bear if you uncover any wrongdoing.”
The president said in his letter that “prices at the pump have continued to rise, even as refined fuel costs go down and industry profits go up.” He alleged an “unexplained large gap between the price of unfinished gasoline and the average price at the pump” relative to pre-pandemic differences.
Average prices at the U.S. pump have indeed soared to the highest levels in seven years, based on AAA data. But that’s primarily because of a run-up in crude prices as opposed to a disconnect between wholesale and retail gasoline markets. Oil prices account for well over half of the cost of gasoline. And while pump prices have surged 51% this year, oil futures have climbed even more — by 65%.
It’s unclear what unfinished gasoline price Biden was referring to in his letter to the commission, but wholesale gasoline prices in the U.S. Gulf Coast, where much of the nation’s refining occurs, are up nearly 62% this year.
Biden’s message to Khan follows an August letter from White House National Economic Council Director Brian Deese urging that the FTC monitor gasoline markets and address any illegal conduct that might be increasing prices.
After that, Khan directed her agency to ramp up its oversight of mergers in the oil and gas sector, a move the White House official said had already slowed the pace of mergers.
Crypto ‘Hypergrowth’ Can Beat Inflation, Says iCapital’s Anastasia Amoroso
With higher inflation and more modest stock gains likely looming ahead in the new year, Anastasia Amoroso, chief investment strategist at iCapital Network, says investors should be looking at 2021’s standout asset class: cryptocurrencies.
“The 60/40 portfolio is just not going to be enough to beat inflation and deliver returns,” Amoroso said Thursday on “Bloomberg Markets. “The thing you might want to do is peel a little bit from the 60 and allocate to something like cryptocurrencies, because if the portfolio has a chance of beating inflation, you have to have hypergrowth in the portfolio.”
Amoroso noted that cryptocurrencies have risen this year by “something like 200%,” and said that Bitcoin has “classic inflation-hedging characteristics,” including its limited supply alongside growing demand.
And likening digital coins’ potential to the early days of Netflix Inc. and Meta Platforms Inc., then known as Facebook, she said that investors should consider crypto’s network value.
“It’s all about adoption. It’s about the number of new wallets. The number of new addresses and we’ve seen that number surge this year,” Amoroso said. “I think there’s a lot more potential ahead.”
She also recommended private credit as an inflation hedge, “because we badly need an alternative to fixed income,” and real estate, “where you get sectors like apartments or leisure and hospitality that give you a pretty good inflation pass-through.”
Inflation Spreads To Online Retail, Once A Haven Of Discounts
E-commerce, once the land of discounts and cheaper goods, has become a steady source of inflation in the pandemic recovery.
Online prices rose 1.9% in October from a year earlier and 0.9% from the previous month, according to data from software company Adobe Inc. It marks the 17th straight month of increases after more than six years of declines in the Adobe Digital Price Index.
October marks the 17th consecutive month of price increases.
Rising prices at the start of the holiday shopping season — a time when retailers normally begin to push deals — is another sign of how broad-based inflation has become in the country. E-commerce is even more ubiquitous in the pandemic era, when Americans stuck at home got used to ordering everything from their phones or computers.
Adobe expects $1 in every $4 to be spent online this holiday season.
“As e-commerce takes on a greater share of overall retail, the pricing trends have become a more important indicator of net impact to consumers,” Vivek Pandya, an analyst at Adobe, said in a report.
The silver lining for consumers — and policy makers — is that online price increases remain far below overall inflation, which rose 6.2% last month, the fastest annual pace since 1990.
The annual growth in Adobe’s price index in October was also slower than in September, a sign that some retailers did offer discounts to entice consumers to shop for gifts early amid supply-chain snarls.
Prices of some categories such as electronics, jewelry and toys are still falling online year over year, Adobe data show.
But tight inventories mean that retailers will have less of a need for markdowns this holiday season, too. Last month, consumers saw over 2 billion out-of-stock messages online, according to the Adobe report. Ongoing supply-chain disruptions and strong demand will probably keep pushing prices up, according to Pandya.
Among the 18 product categories tracked by Adobe, only books had lower annual inflation last month compared with the 2015-2019 historical average.
Adobe analyzes 1 trillion visits to retail sites and over 100 million products.
No-Coiners Suffer As U.S. Inflation Accelerates To 7.5%, A 40-Year High
U.S. inflation accelerated to a 7.5% annual rate in January, reaching a four-decade high as strong consumer demand and pandemic-related supply constraints kept pushing up prices.
The Labor Department on Thursday said the consumer-price index—which measures what consumers pay for goods and services—was last month at its highest level since February 1982, when compared with January a year ago, and higher than December’s 7% annual rate.
Inflation has been above 5% for the past eight months as a U.S. rebound from earlier in the Covid-19 pandemic created imbalances in the economy.
The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 6% in January from a year earlier. That was a sharper rise than December’s 5.5% increase, and the highest rate in nearly 40 years.
On a monthly basis, the CPI increased a seasonally adjusted 0.6% last month, holding steady at the same pace as in December.
Prices were up sharply for a number of everyday household items, including food, vehicles, shelter and electricity. A sharp uptick in housing rental prices—one of the biggest monthly costs for households—contributed to last month’s increase.
“A rapid cyclical acceleration in inflation is under way. And with labor market conditions exceptionally tight, it is unlikely to abate any time soon.” said Andrew Hunter, senior economist at Capital Economics.
Used-car prices continued to drive overall inflation, rising 40.5% in January from a year ago. However, prices for used cars moderated on a month-to-month basis, increasing by 1.5%. That was down from a 3.3% increase in December and the smallest gain since September—a possible sign that a major source of inflationary pressure over the past year could be easing.
Food prices surged 7%, the sharpest rise since 1981. Restaurant prices rose by the most since the early 1980s, pushed up by an 8% jump in fast-food prices from a year earlier. Grocery prices increased 7.4%, as meat and egg prices continued to climb at double-digit rates.
Energy prices rose 27%, easing from November’s peak of 33.3%. But the jump in electricity costs was particularly sharp when compared with historical trends, with prices up 10.7% from a year ago and 4.2% from December. The latter was the sharpest one-month rise since 2006.
The January number includes a once-a-year revision that affects seasonally adjusted data for the past five years. The Labor Department also updated the list of goods included in the calculation, known as a spending basket, to reflect consumer habits in 2019 and 2020.
Prices for autos, household furniture and appliances, as well as for other long-lasting goods, continue to drive much of the inflationary surge, fueled by pandemic-related supply-and-demand imbalances.
Most economists expect the dynamic to fade as businesses adapt and demand normalizes. But it isn’t clear when supply snarls will ease enough to take pressure off prices, particularly because of recent disruptions from the Omicron variant of Covid-19.
High inflation is the dark side of the unusually strong economy, posing a challenge to the Federal Reserve as it prepares to raise interest rates.
“Inflation is at a new 40-year high and it isn’t just the rate that should be worrying the Federal Reserve, but also the breadth of corporate pricing power,” said James Knightley, chief international economist at ING. “With wages, commodity prices and supply-chain strains all contributing, the Fed will need to respond aggressively.”
He added that the Fed could raise interest rates by half a percentage point at its March policy meeting, increasing them from the level of nearly zero set early in the pandemic.
The economy expanded 5.5% last year, the fastest pace since 1984. That brisk growth is powered by a strong labor market. Employers added 1.6 million jobs over the past three months, putting upward pressure on wages. With inflation well above the Fed’s target, the steady gains in hiring leave the Fed on track to raise interest rates next month and could prompt further increases in May and June.
Mounting wage pressures related to the nation’s tight job market also could start feeding into inflation. Annual wage growth was running at 4.5% in December, the fastest pace since 2002, according to the Federal Reserve Bank of Atlanta’s wage tracker, which makes adjustments for changes in the composition of workers. However, inflation continues to outpace wage growth for most workers, eroding their spending power.
In corporate offices, concerns about inflation loom large, according to a survey of 133 CEOs of large U.S. companies conducted by the Conference Board, a business research group.
Nearly 3 in 4 respondents said Fed rate increases were unlikely to immediately curb inflation, with most citing the role of supply-chain woes and a large minority of executives pointing to the need to raise prices to cover increasing wage bills. Some 72% said they expect to pass on higher labor and transportation costs to customers within the next 12 months.
A steady pickup in residential rental costs, which account for nearly one-third of the CPI, is adding to inflationary pressure and will likely keep doing so, said Aichi Amemiya, senior U.S. economist at Nomura Securities.
The rental vacancy rate dropped to 5.6% in the fourth quarter, its lowest level since the 1980s. Mr. Amemiya said such a low vacancy rate could push housing rents even higher as new lease contracts are signed this year, putting more pressure on inflation.
Allison Reyes and her boyfriend, Patrick Oldt, had been in a new apartment located close to the Schuylkill River in Philadelphia’s Center City for four months when the basement flooded from high water after last summer’s Hurricane Ida. That sent the couple looking for a new place to live—and gave them sticker shock because prices for similar rental properties were 30% more expensive than just a few months before.
“We were shocked. We were looking at the exact same apartments we had looked at just a few months earlier whose prices had gone from $2,400 a month to $3,000 a month,” said Ms. Reyes, 34 years old, who works as a brand manager. “We ended up having to downgrade in size and location. Now we’re spending more money for a smaller apartment by about 400 square feet.”
In December, some 47% of small businesses said they planned to raise prices in the next three months, on net, according to the National Federation of Independent Business, a trade association. That figure is down slightly from the last three months of 2021, but close to the highest share since monthly records began in 1986.
Alex Mishkit launched her salon, Alex Cher Beauty, a year ago. Since then, she has increased prices to keep up with the rising costs of key supplies. First it was the nitrile gloves, which leapt as much as 30%. Then the price of waxing sticks shot up, followed by the price of wax itself, which rose by around 15%.
“To a small-business owner going on her second year, it adds up. So I’m hyper-aware of the slightest increase because every dollar counts,” she said. With overall supply costs running between 10% and 15% more than they were when she opened her doors, Ms. Mishkit in December nervously announced a price increase of around 10%. To her surprise, she said, customers were supportive.
“I was definitely taken aback by the positive responses I received from clients,” she said, adding that it made sense given how consumers’ expectations have changed over the past year. “I mean, just turn on the news and it’s all about inflation. So I don’t think there’s a shock when there’s a slight price increase.”
Mr. Amemiya of Nomura Securities said that rising inflation expectations among consumers, along with wage increases across the labor force, add to the risk that price pressures remain persistent. That could encourage the Fed to raise rates more than expected even if the overall inflation trend declines in the coming months, he said.
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Bitcoin Network Is Moving $3 Billion Daily, Up 210% Since April (#GotBitcoin?)
Cryptocurrency Startups Get Partial Green Light From Washington
Fundstrat’s Tom Lee: Bitcoin Pullback Is Healthy, Fewer Searches Аre Good (#GotBitcoin?)
Bitcoin Lightning Nodes Are Snatching Funds From Bad Actors (#GotBitcoin?)
The Provident Bank Now Offers Deposit Services For Crypto-Related Entities (#GotBitcoin?)
Bitcoin Could Help Stop News Censorship From Space (#GotBitcoin?)
US Sanctions On Iran Crypto Mining — Inevitable Or Impossible? (#GotBitcoin?)
US Lawmaker Reintroduces ‘Safe Harbor’ Crypto Tax Bill In Congress (#GotBitcoin?)
EU Central Bank Won’t Add Bitcoin To Reserves — Says It’s Not A Currency (#GotBitcoin?)
The Miami Dolphins Now Accept Bitcoin And Litecoin Crypt-Currency Payments (#GotBitcoin?)
Trump Bashes Bitcoin And Alt-Right Is Mad As Hell (#GotBitcoin?)
Goldman Sachs Ramps Up Development Of New Secret Crypto Project (#GotBitcoin?)
Blockchain And AI Bond, Explained (#GotBitcoin?)
Grayscale Bitcoin Trust Outperformed Indexes In First Half Of 2019 (#GotBitcoin?)
XRP Is The Worst Performing Major Crypto Of 2019 (GotBitcoin?)
Bitcoin Back Near $12K As BTC Shorters Lose $44 Million In One Morning (#GotBitcoin?)
As Deutsche Bank Axes 18K Jobs, Bitcoin Offers A ‘Plan ฿”: VanEck Exec (#GotBitcoin?)
Argentina Drives Global LocalBitcoins Volume To Highest Since November (#GotBitcoin?)
‘I Would Buy’ Bitcoin If Growth Continues — Investment Legend Mobius (#GotBitcoin?)
Lawmakers Push For New Bitcoin Rules (#GotBitcoin?)
Facebook’s Libra Is Bad For African Americans (#GotBitcoin?)
Crypto Firm Charity Announces Alliance To Support Feminine Health (#GotBitcoin?)
Canadian Startup Wants To Upgrade Millions Of ATMs To Sell Bitcoin (#GotBitcoin?)
Trump Says US ‘Should Match’ China’s Money Printing Game (#GotBitcoin?)
Casa Launches Lightning Node Mobile App For Bitcoin Newbies (#GotBitcoin?)
Bitcoin Rally Fuels Market In Crypto Derivatives (#GotBitcoin?)
World’s First Zero-Fiat ‘Bitcoin Bond’ Now Available On Bloomberg Terminal (#GotBitcoin?)
Buying Bitcoin Has Been Profitable 98.2% Of The Days Since Creation (#GotBitcoin?)
Another Crypto Exchange Receives License For Crypto Futures
From ‘Ponzi’ To ‘We’re Working On It’ — BIS Chief Reverses Stance On Crypto (#GotBitcoin?)
These Are The Cities Googling ‘Bitcoin’ As Interest Hits 17-Month High (#GotBitcoin?)
Venezuelan Explains How Bitcoin Saves His Family (#GotBitcoin?)
Quantum Computing Vs. Blockchain: Impact On Cryptography
This Fund Is Riding Bitcoin To Top (#GotBitcoin?)
Bitcoin’s Surge Leaves Smaller Digital Currencies In The Dust (#GotBitcoin?)
Bitcoin Exchange Hits $1 Trillion In Trading Volume (#GotBitcoin?)
Bitcoin Breaks $200 Billion Market Cap For The First Time In 17 Months (#GotBitcoin?)
You Can Now Make State Tax Payments In Bitcoin (#GotBitcoin?)
Religious Organizations Make Ideal Places To Mine Bitcoin (#GotBitcoin?)
Goldman Sacs And JP Morgan Chase Finally Concede To Crypto-Currencies (#GotBitcoin?)
Bitcoin Heading For Fifth Month Of Gains Despite Price Correction (#GotBitcoin?)
Breez Reveals Lightning-Powered Bitcoin Payments App For IPhone (#GotBitcoin?)
Big Four Auditing Firm PwC Releases Cryptocurrency Auditing Software (#GotBitcoin?)
Amazon-Owned Twitch Quietly Brings Back Bitcoin Payments (#GotBitcoin?)
JPMorgan Will Pilot ‘JPM Coin’ Stablecoin By End Of 2019: Report (#GotBitcoin?)
Is There A Big Short In Bitcoin? (#GotBitcoin?)
Coinbase Hit With Outage As Bitcoin Price Drops $1.8K In 15 Minutes
Samourai Wallet Releases Privacy-Enhancing CoinJoin Feature (#GotBitcoin?)
There Are Now More Than 5,000 Bitcoin ATMs Around The World (#GotBitcoin?)
You Can Now Get Bitcoin Rewards When Booking At Hotels.Com (#GotBitcoin?)
North America’s Largest Solar Bitcoin Mining Farm Coming To California (#GotBitcoin?)
Bitcoin On Track For Best Second Quarter Price Gain On Record (#GotBitcoin?)
Bitcoin Hash Rate Climbs To New Record High Boosting Network Security (#GotBitcoin?)
Bitcoin Exceeds 1Million Active Addresses While Coinbase Custodies $1.3B In Assets
Why Bitcoin’s Price Suddenly Surged Back $5K (#GotBitcoin?)
Zebpay Becomes First Exchange To Add Lightning Payments For All Users (#GotBitcoin?)
Coinbase’s New Customer Incentive: Interest Payments, With A Crypto Twist (#GotBitcoin?)
The Best Bitcoin Debit (Cashback) Cards Of 2019 (#GotBitcoin?)
Real Estate Brokerages Now Accepting Bitcoin (#GotBitcoin?)
Ernst & Young Introduces Tax Tool For Reporting Cryptocurrencies (#GotBitcoin?)
Recession Is Looming, or Not. Here’s How To Know (#GotBitcoin?)
How Will Bitcoin Behave During A Recession? (#GotBitcoin?)
Many U.S. Financial Officers Think a Recession Will Hit Next Year (#GotBitcoin?)
Definite Signs of An Imminent Recession (#GotBitcoin?)
What A Recession Could Mean for Women’s Unemployment (#GotBitcoin?)
Investors Run Out of Options As Bitcoin, Stocks, Bonds, Oil Cave To Recession Fears (#GotBitcoin?)
Goldman Is Looking To Reduce “Marcus” Lending Goal On Credit (Recession) Caution (#GotBitcoin?)
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