Fidelity+Bitcoin, Stocks+Treasuries, Inflation+Fed
Fidelity opening the floodgates, historic regime shifts in correlation, and our latest Fed, rates, and risk outlook.
Yesterday was a doozy. Rates adjust quickly to changes in the expected path of monetary policy, and yesterday’s price action was more a reminder of this than a surprise. Today’s post includes a reaction to the recent Fidelity/bitcoin news, a regime shift in correlation between stocks and Treasuries, and a full update to our Fed and rates outlook post-September CPI. And we dive.
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Fidelity unleashes the…trillions.
Stocks and Treasuries are now correlated after two decades of inverse correlation. This has had monster implications for portfolios this year.
The Fed’s forceful words are pushing policy rate expectations all the way to 4.5%.
The Bitcoin Layer maintains a more muted expectation for the path of policy rates despite all signs pointing to a Fed Funds rate of 4% by the end of this year.
Fidelity Considers Adding Bitcoin To Its Brokerage Platform
Fidelity has been a softer-spoken but integral proponent of bitcoin for several years. It started mining bitcoin in 2014, offered a hedge fund trading platform in 2018, and in April of this year created a 401k product to allow company employees to invest in bitcoin, the first of which was Microstrategy.
Now, it’s opening the gates for its 34 million brokerage accounts to trade bitcoin.
According to a Wall Street Journal report, Fidelity, home to one of the world’s largest brokerage platforms is reportedly considering opening up its brokerage clients to start trading bitcoin.
The liquidity profile of Fidelity Investments is ginormous: $10 trillion in assets under administration. All of it would have access to trade bitcoin. We’ll remind readers just how susceptible bitcoin is to global liquidity—it ebbs and flows with the tide very closely. So when locked assets worth $9.9 trillion, 23-times the size of bitcoin’s market cap, suddenly have access to bitcoin, well…
Inflows, inflows, inflows.
Despite the market downturn, adoption continues. Institutional allocators are demanding bitcoin onramps for allocation, and investment providers are creating them.
Nothing escapes bitcoin’s gravity. Businesses like Fidelity create onramps for accelerating its pull.
Correlation regime shift
For my entire career on the desk, stocks and Treasuries have been inversely correlated. Risk on, risk off—when stocks go down, investors seek protection and buy Treasuries; when stocks go up, investors sell Treasuries to chase risk. This has turned completely on its head this year, as the selloff in Treasuries is pressuring stocks due to a rapid adjustment in the present value of expected cashflows (when the discount rate increases as Treasury yields rise, the present value of future earnings declines). This dynamic has caused a complete regime shift in correlation between stocks and Treasuries: