Fed cuts rates and stocks explode: TBL Weekly #111
Good morning Readers! Welcome to TBL Weekly #111 — grab a coffee, and let’s dive in.
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Doves fly in Washington
With the biggest news event of the week being the Fed's 50 basis point rate cut, the stock market broke out to new all-time highs. Thursday's video uncovers why we believe muted interest rate uncertainty will be supportive to risk markets, but the upshot of the Fed's move is less worry for bond holders that interest rates will become misbehaved to the upside. Interestingly, the Fed's swift action on rate cuts could itself be the catalyst to bring back those inflation expectations. Our first chart looks at the S&P 500 making new highs.
Bitcoin performed modestly well this week in response to Fed cuts, but its lower highs over the past half year don’t give bulls the edge. Selling pressure if and when bitcoin approaches $70,000 again will determine if this consolidation will continue.
When might inflation come back? As the yield curve, and we might be looking at the return of inflation about two years from now. The 2s5s yield curve, which looks at the slope for three years but starting two years from today, has expressed a lower policy rate and growth rate over that time horizon. Until recently: 2s5s appears to be on the brink of un-inversion. This means that policy moves priced into the market might firmly boost growth and inflation, but only starting in two years. With 2s trading still over 1% lower than the new, sub-5% policy rate, the path of rates over the immediate time horizon is still lower. A suddenly steep 2s5s would mean the Fed has finally gone far enough—we are clearly nowhere there yet.
DXY is at a crucial zone here just north of 100. When yields fall, the dollar falls, which would help the entire world. It also helps commodities, and gold making new all-time highs would be somewhat attributable of late to a general dollar weakness. I’m watching DXY closely because I believe the direction of global risk markets will largely be determined by DXY’s next move.
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In case you missed it: TBL on YouTube
Teaching Bitcoin Part 1: Asset or Money? with Michael Howell
Nik was joined by legendary financial analyst Michael Howell for a bitcoin educational series titled “Teaching Bitcoin.” Part 1 of this new series covered whether bitcoin is an asset or money, comparing bitcoin's size to other asset classes, whether bitcoin threatens banks and governments, and bitcoin's decentralized nature.
If you don’t have the 70 minutes to spare, here are some of the key insights:
Bitcoin functions as both property and money; its dual nature as an asset and currency allows it to satisfy diverse financial needs, positioning it uniquely in the global market.
Bitcoin’s volatility stems from its role as an inflation hedge, outperforming gold. Historically, bitcoin’s performance as an inflation hedge suggests its resilience compared to traditional assets.
Understanding bitcoin mining is key. Mining bitcoin not only supports its network security but also plays a crucial role in understanding global liquidity dynamics and price fluctuations.
As bitcoin disrupts traditional banking and asset management, it offers new opportunities and challenges for real estate and investment sectors.
Dangers of SIM Swaps: How Steal Bitcoin from Exchange Accounts with Mark Kreitzman
Nik interviewed Mark Kreitzman of Efani to discuss mobile security, bitcoin theft, social engineering hackers, and SIM swaps. This episode covered illegal SIM swapping, data breaches, and why it's so crucial to keepbitcoin in cold storage to prevent theft.
If you don’t have the 29 minutes to spare, here are some of the key insights:
SIM swapping involves transferring a victim’s phone number to a hacker’s device, allowing unauthorized access to sensitive accounts and information.
With a significant increase in data breaches, hackers have more tools to execute SIM swaps, making awareness and proactive measures essential for everyone.
Efani’s model limits access to customer data for mobile carriers, reducing the risk of SIM swaps. This approach can serve as a blueprint for better data security practices across the industry. Efani’s $5 million insurance policy offers financial protection against losses from SIM swapping, encouraging users to adopt safer mobile solutions.
Many users store bitcoin on exchanges, making them prime targets for SIM swap attacks. Educating users on secure storage methods is crucial to safeguarding their assets.
Fed Slashes: Risk On: First Rate Cut Since 2020
Nik recaps the latest in global macro after the Fed slashed rates by 50 basis points. As the promise of greater liquidity and less interest rate uncertainty hit financial markets, risk is rallying with stocks reaching an all-time high and bitcoin's price increasing by 6%. This episode covers the Fed cut, QT, stocks, bitcoin's price, housing market, and what is motivating the Fed right now.
If you don’t have the 47 minutes to spare, here are some of the key insights:
The Fed’s 50 basis point cut signals a shift towards lower interest rates, enhancing market liquidity and investor confidence. This could lead to further rallies in risk assets.
The MOVE index’s behavior indicates market sentiment and risk appetite, emphasizing the need for investors to focus on volatility rather than just rate changes.
The Fed prioritizes the financial system’s stability, often acting in ways that may not directly benefit consumers but provide relief to banks facing liquidity pressures.
A growing focus on liquidity highlights that debt and credit availability are more pivotal to market performance than traditional economic indicators like GDP.
As the Fed cuts rates, bitcoin’s price is likely to benefit from increased liquidity and lower borrowing costs.
Understanding the interplay between rate cuts and treasury yields is critical; certainty in interest rates can lead to reduced volatility and a more favorable environment for equities and bitcoin.
Continuous monitoring of the Fed’s balance sheet and interest rate policies will be essential, as any shifts could significantly impact market dynamics moving forward.
Teaching Bitcoin Part 2: Hashing and Mining with Michael Howell
Nik was joined by legendary financial analyst Michael Howell for Part 2 of a bitcoin educational series titled “Teaching Bitcoin.” This episode delves into the intricacies of bitcoin's cryptography, mining mechanism, and decentralized network. Topics such as hashing algorithm and bitcoin's supply schedule, difficulty target, and difficulty adjustment are also covered.
If you don’t have the 70 minutes to spare, here are some of the key insights:
Public-private key pairs enhance security by allowing users to share addresses without compromising ownership, crucial for bitcoin’s decentralized nature.
SHA-256 hashing creates a unique, fixed-length output, ensuring data integrity and making bitcoin transactions secure and verifiable.
Mining not only introduces new bitcoin but also validates transactions, turning computational power into a resource that maintains scarcity.
Bitcoin acts as both an asset and a currency; its fixed supply of 21 million coins positions it as a store of value while allowing for transferability.
Bitcoin operates on a decentralized network where participants verify transactions, preventing double spending and maintaining trust in the system.
The mining difficulty adjusts every two weeks to ensure that blocks are mined approximately every 10 minutes, maintaining a steady supply and security.
Bitcoin’s inception during a financial crisis reflects its role as an alternative to traditional monetary systems.
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TBL on Substack
Every week, we bring you our global events recap TBL Thinks. This week we covered the union strike at Boeing which led to a halt of production for its most popular planes; increasing reliance on credit cards for borrowing for American consumers in the absence of other traditionally available avenues such as personal loans, HELOCs, and mortgage refinancing; and the new partnership between Intel and Amazon within which the two will coinvest in a custom semiconductor for artificial intelligence computing, also known as a fabric chip, in a multiyear multibillion-dollar framework.
Check out TBL Thinks here:
What TBL Pro Is Reading
Our Mean, Median, Mode report is a weekly quantitative report summarizing bitcoin price analysis and global macro narratives to position investors and bitcoin watchers with the data that matters.
Nik also published his weekly letter on “Get Your Scissors, We’re Going to the Moon” with an updated price outlook. It covered the 2s, 10s, 2s10s, 2s5s, Chinese Yuan, DXY, S&P 500, and Bitcoin. “Instead of trying to understand the narrative, the economy, or what Powell will do, it always serves me well to get back to prices. The story often tells itself.”
Read more by going TBL Pro.
Next Week with Nik
Fed speakers will do their best to explain the recent rate cut and what the market should expect for the Fed’s final two meetings of the year in November and December in the coming days, but markets are already waiting for the next unemployment report on October 4th and will probably look past most data. We will watch the S&P 500 to give us a sense of if less interest rate uncertainty will be the dominant market theme.
I’ll also be watching SOFR volumes, which are continue to set higher thresholds. The Fed failed to stop its balance sheet contraction at the most recent meeting, presumably to limit the amount of doves released into the wild, but we’re not sure how wise that is given SOFR volumes and the way SOFR rates have been struggling around difficult calendar days in which dealers require funding before month-end balance sheets are struck for regulators and shareholders. If QT ends, QE won’t be far behind, even if it is a mild “GDP-targeting” style of QE. Distortion will return to bond markets and volatility will leave the room—wee have long believed this will support risk markets including bitcoin, but the timing will largely be dependent on what happens with the economy and financial system.
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Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk.
Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys.
Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account.
Last weeks "Teaching Bitcoin" episodes with Michael Howell were some of the best Bitcoin explanation content I watched since Gensler's MIT lectures a few years ago. Succinct, packed with info, but in my opinion, simple enough to grasp most of it even if you are a beginner. I'll definitely be sending them to nocoiner friends when they start asking about bitcoin, probably soon.
I especially liked this week's content. I liked the foray into different territory with Mark from Efani. If all your sponsors can deliver good conversations like that, bring em on!