Things That Will Provide Rocket-Fuel For Bitcoin Over The Medium To Long-Term

Things That Will Propel Bitcoin Upwards Over The Medium To Long-Term Include: A Weak Dollar, Global Liquidity, Mistrust In Government. Things That Will Provide Rocket-Fuel For Bitcoin Over The Medium To Long-Term

Dollar Hits Four-Month Low On Weak US Jobs Data

“This is what a growth scare looks like. The market is now realizing that the economy is indeed slowing,” said Wasif Latif, president and chief investment officer at Sarmaya Partners in Princeton, New Jersey.

The dollar index was last down 1.1% at 103.21 and got as low as 103.12, the lowest since March 14. It is the largest one-day percentage drop since November.

Ultimate Resource On A Weak / Strong Dollar’s Impact On Bitcoin

Central Banks Are In Sync On Need For Fresh Stimulus

How Will Bitcoin Behave During A Recession?

1). Light To Moderate Recession (Liquidity Crisis)

(2.) Sovereign Debt Crisis / Currency Crisis

Treasury yields also tumbled, with interest rate sensitive two-year yields dropping as low as 3.845%, the lowest since May 2023, and benchmark 10-year yields reaching a low of 3.79% for the first time since Dec. 27.

The greenback weakened 1.84% to 146.62 Japanese yen and got as low as 146.42, the lowest since Feb. 2.

The yen has gained since hitting a 38-year low of 161.96 against the dollar on July 3, boosted by interventions by Japanese authorities and traders unwinding carry trades in which they were short the yen and long U.S. dollar assets.

It got an extra lift on Wednesday when the Bank of Japan hiked rates to 0.25%, the highest since 2008.

The Japanese yen and Swiss franc were also boosted by safe haven demand amid the stocks selloff and geopolitical concerns.

The dollar weakened 1.58% to 0.859 Swiss franc, the lowest since Feb. 2.

The euro gained 1.12% to $1.0912 and reached $1.0927, the highest since July 18.

Sterling strengthened 0.53% to $1.2807, bouncing back from a one-month low after the Bank of England on Thursday cut interest rates from a 16-year high.

In cryptocurrencies, bitcoin fell 2.74% to $62,878.

The U.S. dollar dropped to a four-month low on Friday after a weaker-than-expected employment report for July raised expectations that the Federal Reserve will cut interest rates by 50 basis points in September as the economy sours.

Employers added 114,000 jobs, below expectations for an increase of 175,000. The unemployment rate rose to 4.3%, above economists expectations that it would be unchanged on the month at 4.1%.

Traders are now pricing in a 71% probability that the Fed will cut rates by 50 basis points in September, up from 31% before the data was released and from 22% on Thursday, according to the CME Group’s FedWatch Tool.

A cut of at least 25 basis points is fully priced in for September and 116 basis points of easing is now expected by year-end.

The U.S. Labor Department said that Hurricane Beryl, which made landfall in Texas on July 8, had “no discernible effect”, opens new tab on the jobs data, discounting one theory that may have explained the weakness.

“There’s no silver lining anywhere as far as I can tell. They say they didn’t have any kind of hurricane effects, and if they did, it’s not enough to offset the degree of softness that we’re seeing,” said Steve Englander, head of global G10 FX research at Standard Chartered’s New York Branch.

Some economists, however, were not convinced that Beryl had no impact, and saw some spots of brightness in Friday’s jobs data.

The Fed kept interest rates unchanged at the conclusion of its two-day meeting on Wednesday and Fed Chair Jerome Powell said that interest rates could be cut as soon as September if the U.S. economy follows its expected path.

Chicago Fed President Austan Goolsbee said on Friday the U.S. central bank should move in a “steady” way, a mild pushback against the market pricing for rate cuts.

Softer jobs data, a weak manufacturing report and some disappointing corporate outlooks in recent days have increased fears that the economy is worsening at a faster pace.

But despite Friday’s weak jobs report, Englander notes that “most of the other indicators are not consistent with a really sharp slowdown at the moment… Everything is soft, but nothing is catastrophically soft.”

New economic releases will now be even more closely watched for confirmation on whether the growth outlook is as bad as feared.

The funeral of Hamas leader Ismail Haniyeh took place in Qatar on Friday following his assassination two days ago in Iran’s capital Tehran, which investors worry may lead to a widening conflict in the Middle East.

Updated: 8-19-2024

How The Treasury Is More Powerful Than The Fed

The central bank sets interest rates, but the federal government decides what kind of bonds to sell to the public.

Decisions made by the Treasury get much less attention than those made by the Federal Reserve, but they can be even more consequential for interest rates — and the entire US economy.

A case in point is the current debate over the maturity of the bonds and bills the Treasury sells at auction.

An influential report published last month argued that the Treasury is issuing too much short-term debt, undermining the Fed’s efforts to slow down the economy.

Then former Treasury Secretary Steve Mnuchin said earlier this month that the Treasury should discontinue the 20-year bond because of lack of demand.

These apparently contradictory pieces of advice illustrate a basic principle and the dilemma that follows: In an ideal world, the Treasury would issue more longer-term debt. In the real world, however, it is not clear bond buyers want it.

The question is why. Many savers and pension funds would be better off owning longer-term bonds, as their short-term holdings expose them to unnecessary interest-rate risk.

Yet they prefer short-term debt because of both misguided financial industry practices and government regulations.

The maturity of the nation’s debt is important in part because it determines how much interest the US pays on its debt: Different maturities command different interest rates.

But the Treasury should not just choose to issue debt with the lowest rate, since rates change over time in unpredictable ways.

Long-term rates seem relatively high today, for example — but given the size or the nation’s debt and its demographic challenges, there are reasons to think they will go even higher. Locking in rates today could save taxpayers money or protect them from extra risk.

Over the last 40 years, the share of bills — that’s debt to be paid back in one year or less — averaged about 20% of outstanding debt. In the near-zero-rate environment of the last 15 years, it fell even further, only to rise again in the last five years.

This change comes at a bad time, because the maturity of the debt determines the shape of the yield curve. That report, from my Manhattan Institute colleague Stephen Miran and the famous economist and pessimist Nouriel Roubini, argues that the Treasury’s decision to sell more shorter-term securities is the equivalent of “one-point cut in the Fed Funds rate.”

In their view, the Treasury is usurping the Fed’s power: If the Fed won’t reduce rates, the Treasury will.

The Treasury, for its part, maintains that while it takes such macro factors into consideration, it sells largely what the market demands. US Treasuries are the world’s safest and most liquid asset.

The government must meet the needs of the market and not create too many surprises or it risks financial turmoil. And the market wants shorter-term debt.

This is very different from the situation in the UK, where demand for long-term gilts is high in large part because pension funds there buy them to hedge their liability risk, which they do for both regulatory and non-regulatory reasons.

In the US, most pensions are in the public sector, and regulations encourage investment in much riskier assets.

Only about 20% of US public-pension portfolios are even in fixed income. There is not much effort to hedge interest risk. What little they have in bonds tends to be in shorter-duration securities — the typical duration of the larger public pension’s fixed-income portfolio is five or six years, even though the duration of their liabilities (the benefits they must pay) is typically longer than 12 years.

This duration mismatch creates an unnecessary risk.

This risk could be avoided if pensions bought more longer-term bonds instead. But pensions have no incentive to hedge, because their regulatory guidance suggests they measure their liabilities based on their expected rate of return.

The higher that number — that is, the riskier the investment — the smaller a pension’s liabilities appear (even if their true value is based on the yield curve). If public pensions in America were held to the same standards as private-sector pensions or pensions elsewhere, odds are they would have more invested in long-term bonds.

Equally concerning are the portfolios of Americans with a defined contribution plans such as 401(k)s. Think of the money you need in retirement as a series of bond payments; you would need them to pay out over 20 years, which means a duration of about 10 to 14 years.

But most retirement target-date funds set the duration of payments at about five years. So individual savers face the same duration mismatch that public pensions do — but without the government guarantee.

This is because the retirement industry has trained investors to focus on how their investment is doing each year, rather than on how to maintain a consistent income in their retirement. If the industry were targeting the latter goal, then savers would demand longer-duration assets, too.

Adjusting regulations, such changing guidance for default investment options, could right this.

The future of interest rates is always unknown. America’s heavy debt burden suggests rates will rise eventually, but they may fall before then — especially if there is a recession in the next few years. And bond investing can be risky, as is issuing debt.

That’s why the Treasury should lock in low rates on more of its debt while it can. It is also why pension funds and individual savers face unnecessary risk in retirement.

There is a single solution to both of these problems: Savers and pension funds should hedge their risk by buying longer-term debt, which would increase the demand for long-term Treasury bonds.

So far, however, between misguided regulation and a misunderstood risk, there is a bias for debt of shorter duration. All of which means that, in the long term, pension regulations may be far more consequential than what the Fed does next month.

Updated: 8-24-2024

Latest US Jobs Revision The Largest In 15 Years Sees A Decline By As Much As A Million!!!

Goldman Sachs indicates it could be as large as a million. JPMorgan Chase & Co. forecasters see a decline of about 360,000.

US job growth in the year through March was likely far less robust than initially estimated, which risks fueling concerns that the Federal Reserve is falling further behind the curve to lower interest rates.

Goldman Sachs Group Inc. and Wells Fargo & Co. economists expect the government’s preliminary benchmark revisions on Wednesday to show payrolls growth in the year through March was at least 600,000 weaker than currently estimated — about 50,000 a month.

There are a number of caveats in the preliminary figure, but a downward revision to employment of more than 501,000 would be the largest in 15 years and suggest the labor market has been cooling for longer — and perhaps more so — than originally thought.

The final numbers are due early next year.

Such figures also have the potential of shaping the tone of Fed Chair Jerome Powell’s speech at week’s end in Jackson Hole, Wyoming. Investors are trying to gain insight as to when and how much the central bank will start lowering interest rates as inflation and the job market cool.

“A large negative revision would indicate that the strength of hiring was already fading before this past April,” Wells Fargo economists Sarah House and Aubrey Woessner said in a note last week.

That would make “risks to the full employment side of the Fed’s dual mandate more salient amid widespread softening in other labor market data.”

Once a year, the BLS benchmarks the March payrolls level to a more accurate but less timely data source called the Quarterly Census of Employment and Wages, which is based on state unemployment insurance tax records and covers nearly all US jobs. The release of the latest QCEW report in June already hinted at weaker payroll gains last year.

Former President Donald Trump called attention to the upcoming revisions at a campaign rally in Howell, Michigan on Tuesday, noting that job gains in the year through March may turn out to have been much weaker than government data initially showed.

As it stands now, the BLS data show the economy added 2.9 million jobs in the 12 months through March 2024, or an average of 242,000 per month.

Even if the total revision is as high as a million, monthly job gains would average around 158,000 — still a healthy pace of hiring but a moderation from the post-pandemic peak.

Omair Sharif, president of Inflation Insights LLC, is optimistic the revision will end up toward the smaller end of the range of estimates, in part because QCEW data tend to be marked higher due to reporting lags.

Labor Risks

The preliminary revision may reignite the debate over whether the slowdown in the labor market risks a more abrupt downshift in the economy.

Employers substantially scaled back hiring in July and the unemployment rate rose for a fourth straight month. While that contributed to a $6.4 trillion global market selloff, the S&P 500 has fully recovered.

“Markets, having recently experienced a growth scare that led to concerns that the Fed is behind the curve, will be monitoring Wednesday’s release of the benchmark revision to see if the market’s initial reaction was, in fact, correct,” said Quincy Krosby, chief global strategist at LPL Financial.

While other employment indicators have since reassured markets that the job market is on solid footing, policymakers are still highly expected to start lowering borrowing costs in September.

Powell and his colleagues have recently said they’re focusing more on the labor side of their dual mandate, and he’ll take the benchmark revisions into account in his Friday speech at the Fed’s annual symposium.

“While the payroll revisions due Wednesday have long been anticipated by the Fed, this will frame the atmospherics and will underline that the picture of strength in payrolls is not as vigorous as it had appeared in real time,” Evercore ISI analysts Krishna Guha and Marco Casiraghi said in a note Monday.

The government’s preliminary benchmark projection will be followed by final revisions that are incorporated into the January employment report to be released in February.

Birth-Death Model

For most of the recent years, monthly payroll data have been stronger than the QCEW figures. Some economists attribute that in part to the so-called birth-death model — an adjustment the BLS makes to the data to account for the net number of businesses opening and closing, but that might be off in the post-pandemic world.

Things That Will Provide Rocket-Fuel For Bitcoin Over The Medium To Long-Term

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