Welcome to TBL Weekly #104—the free weekly newsletter that keeps you in the know across bitcoin, rates, risk, and macro. Grab a coffee, and let’s dive in.
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. Good morning TBL Readers, happy Saturday ☕ There are decades when nothing happens and there are weeks when decades happen. This week alone, the economic cycle took a drastic turn in just a few days time. Months’ worth of developments happened in a blink. Let’s break it all down, using this 5-day chart of 2s as our storyline. Monday and Tuesday were placid in terms of market events. Economic data came in as-expected or marginally beat expectations. Then Wednesday came, and the Fed confirmed the market’s expectation of one 25-bps rate cut coming at the September FOMC. Powell has done well at forwardly guiding the market this cycle so as to not spook it, so the Fed’s announced incremental maintenance cuts, which have been expected for months, didn’t drive any crazy price action in 2s. The market loves certainty…which is also why the next two days would be an insane departure from the norm. A whisper on Wednesday evening of the next morning’s soft ISM surveys is likely what sent 2s tumbling before market close. Then came Thursday: ISM Manufacturing data missed expectations across all components except prices paid, ginning up more uneasiness and growth fears, seen here in 2s, which declined by 15 bps. Stocks also fell dramatically on Thursday due to the very same growth fears. Then the big kahuna. Friday saw one of the most abysmal employment reports in recent memory, and it was case-closed on the economy’s direction. As far as the market was concerned, we had officially moved from growth scare to full-on recession trade. Two-year Treasury yields cratered by 27 basis points on Friday. Game over.
Friday’s drop in 2s was the 2nd-largest one-day drop since SVB last March, and the 3rd-largest since 2008. Can you say, cycle shift?
The market’s pricing for rate cuts went from 25-bps incremental rate cuts for financial stability to a full-on recessionary “stop the bleeding” cut pricing. In the span of two days, the market has moved from 2-3 small 25-bps cuts to hedge economic slowdown tail risk to 80% odds that September’s cut size increases to 50 bps and 4-5 cuts coming by the December FOMC; a five-siren recessionary foghorn:
These developments have been a payoff Nik and I have long been waiting for. Our commentary about the moves in rates and what they’ve meant over the last 1.5 years as the cycle progressed have now all materialized in a 48-hour window, and we’re elated that we have helped you stay ahead of the curve as a loyal TBL reader. Now let’s assess the damage. Nonfarm payrolls missed expectations by 61k jobs—they came in at +114k in July, the lowest July for job gains since 2019:
Average hourly earnings decelerated from 3.9% year-over-year to 3.6% annual pace in July, making for high-quality wage disinflation that the Fed has so desperately wanted to see for confidence that the inflation fight has been won. Unfortunately, with the goal of seeing the whites of its enemy’s eyes before making a move (waiting so long to perform the first rate cut), the Fed may have taken this disinflation confirmation at the expense of a severe unwind in the labor market. With nominal wage growth still running 160 basis points above the Fed’s long-run target, it is starting to look like the juice simply was not worth the squeeze on this one. And lastly, the unemployment rate sharply ticked higher from 4.1% to 4.3% versus the expectation of it staying flat at 4.1%. Take note that this is partly due to mass layoffs by those businesses affected by the recent hurricane, and many analysts are projecting UNR to fall back down to ~4.1% by next month’s release. Still, speaking in terms of cycles, a spike of this size was enough for markets to put on the recession trade. It’s the same pattern, every single time:
It is only August and we've already blown past the Fed's 2024 and 2025 unemployment projections. If the Fed isn’t panicking yet, their internet may be down:
Efani delivers premium mobile service with unparalleled protection against SIM swaps and privacy invasions. Safeguard your crypto assets and personal data with the industry's most advanced security measures. Protect Yourself Now. If you value your privacy and security, Efani Secure Mobile is the answer. Don’t wait until it’s too late, protect yourself today. Use code TBL at checkout for $99 off the Efani SAFE Plan. With the recession scare comes fear of lending to companies, and corporate credit spreads for both investment grade and high-yield borrowers spiked 16 basis points and 52 basis points respectively. This spike in corporate funding stress has coincided with a massive selloff in equities and other risk assets like bitcoin:
When the economy doesn't do well, people lose their job and stop spending which hits earnings. And when earnings don’t do well, stocks don’t do well. The market is a discounting mechanism, and it is now discounting these recession fears into the pricing of everything, including stocks. Given that the rates trade has moved from maintenance cuts to brace-for/react-to recession cuts, the stock-yield correlation has now inverted:
Here’s another view of the same dynamic. We’ve ended the ‘bad news is good news’ regime, and bad economic news is now bad news for stocks:
We’re no longer looking at data to confirm the downturn, the downturn has arrived. Our analysis now turns to gauge the magnitude of the downturn, its fallout, and as always, its impact on financial assets.
❌ DON’T WRITE YOUR SEED ON PAPER 📝 It’s estimated that ~30% of Bitcoin is lost forever. Poor seed phrase security is a big reason why. This is why we use Stamp Seed, a DIY kit that enables you to hammer your seed words into a durable plate of titanium using professional stamping tools.
Take 15% off with code TBL. Get your Stamp Seed today! Next Week with NikIn the week ahead, the entire world will need to recalibrate its economic expectations. As Joe pointed out around the 4.3% reading, it will be hard to miss this front page headline tomorrow at the Wall Street Journal: Lousy Jobs Report Forces Fed to Reckon With Hard LandingHard landing, they now say. And let me explain why. The financial media has tried to convince you for two years that we are heading for a soft landing. It was always a lie, but now they’ll pretend like they didn’t spend a couple years saying the opposite. It begins with headlines like the above. I’m not picking on the WSJ, only pointing out that the Fed’s narratives—trying to achieve a soft landing by not overtightening—are bogus.
Notice how the headline doesn’t ask if we are heading for a hard landing or a soft landing; it advances straight to how to reckon with the worse outcome. So that is precisely what global investors must ponder over the weekend: if they didn’t sell risk and buy Treasuries on Friday, should they be doing it on Monday? If Monday is bad, does Tuesday go by without a leak from the Fed on a 50 basis point cut for September? It’s easy to imagine the momentum of the new “hard landing” narrative through email chains over the weekend, and professional investment houses will need a plan Sunday night as opposed to Monday morning. The collapse in yields was too dramatic to warrant anything else. Recalibration is of top priority, sending the economic calendar for the remainder of August, dare we say, into irrelevance.
With the importance that will be placed on the unemployment rate rising to 4.3%, we imagine that investors will begin to overlook any decent economic data. They will focus on bad releases or indications from the Fed on the speed and timing of rate cuts. With the immense rally in 2s, particular buyers were buying for a move down to zero percent, not just to catch a fall to 3%. Yes, I’m invoking ZIRP, not because it’s my base case, but more to prove out the way investors operate: probability distribution. Their approach is never trying to predict the exact path, rather to suggest the odds of one thing happening versus the next. For example, the probabilities of a hard landing in the minds of portfolio managers could have just risen from 50% to 80%—the type of move that might cause an entire asset allocation rotation out of risk and into Treasuries. We regularly try to teach you about this dynamic of the bullish impulse for US Treasuries as an asset class; it’s how the investment management works. Risk managers must own the risk-free asset going into a recession, or they’ll get fired.
We receive ISM Services on Monday, an important release that could accelerate the move to lock in 1% of rate cuts by the end of this year, with a starting point of 50 basis points in September. Treasury auctions 3s, 10s, and 30s next week which won’t settle until the following week. SOFR traded back down to 5.35% after month end—with a recession looming, will banks (read: Jamie Dimon’s “fortress” balance sheet) be hesitant to lend out reserves in the repo market? If the Fed will be quick to respond to anything, it’s Dimon telling his desk to hold back. If you’re enjoying today’s analysis, consider supporting us by joining TBL Pro. As a TBL Pro member, you get full access to all research as it drops, access to the comment section, and access to Nik & Joe for a live Q&A every month. Here are some quick links to all the TBL content you may have missed this week: MondayUS government HODLing bitcoin? Yes, please. Explosive price action is contemplated in today’s Mean, Median, Mode—a weekly quantitative report summarizing bitcoin price analysis and global macro narratives to position investors and bitcoin watchers with the data that matters. TBL Pros are loving the increased interaction: our next Virtual Q&A is now scheduled for Thursday, August 22nd—link for August’s Zoom is below.
In this video, Joe breaks down all of the mania surrounding bitcoin over the last 72 hours. He first discusses Trump's proposed Strategic National Bitcoin Stockpile, alongside Senator Cynthia Lummis' bill to create a Strategic Bitcoin Reserve. He then breaks the news that the Biden-Harris administration has likely begun the sale of the US' existing bitcoin holdings, moving $2 billion into a new wallet for a likely OTC sale to thwart Trump's plans of a reserve using our existing seized BTC holdings. He then takes a look at bitcoin's price action being driven largely by leveraged trading, wanting to see spot accumulation before we have a solid chance at moving sustainably higher. He rounds out the video discussing the US National Debt hitting $35 trillion as of this morning, and why bitcoin offers a solution not just for the government, but for individuals looking to hedge themselves from the recklessness.  WednesdayIn this episode, Joe and Nik sit down with Senator Cynthia Lummis of Wyoming for a detailed discussion of the United States' unsustainable debt problem, and how Bitcoin can help address it. Senator Lummis discusses the establishment of a Strategic Bitcoin Reserve (SBR), how Bitcoin can strengthen the US dollar's position as the world reserve currency, the geographic distribution of the SBR's private keys, what Proof of Reserves for the SBR will look like, and how holding Bitcoin on the United States' balance sheet for 20 years can take our unsustainable debt situation, with $35 trillion in national debt at a 125% debt-to-GDP ratio, and potentially cut it in half. Check out—The BITCOIN Act of 2024 with Senator Cynthia Lummis  FridayBlink and you miss it—rates reprice quickly. Just a couple months ago, markets were focused on the balance of risks, implying that the risk of inflation and the risk of recession were pulling about even. Well, those days are over, and the balance of risks transformed into recession risk with two major economic releases. Today’s letter includes 18 charts from around the global macro world, including a check on repo rates and SOFR metrics, some Fed balance sheet study, the coming flood of Treasury bills, today’s disastrous unemployment report, and yesterday’s horrific ISM manufacturing, price study on rates, and finally, a price study on bitcoin and its evolving relationship with the stock market. Did you do what I said and get your mortgage refi docs ready? Judging by the Fed’s MBS holdings, somebody certainly did. In this episode, Joe sits down with Felix Jauvin, macro analyst and host of On The Margin at Blockworks Macro. They dive into the latest economic data, discuss the Federal Reserve's rate decisions, and explore the intricate dynamics between macroeconomic signals and Bitcoin's market behavior. Felix shares his insights on current market conditions, the Fed's September cut, and the broader implications for risk assets. Tune in to gain a deeper understanding of how macro factors shape the financial landscape and Bitcoin's unique position within it. Check out—Navigating Economic Waves: Felix Jauvin on Market Signals, Fed Cuts, and Bitcoin's Role  Our videos are on major podcast platforms—take us with you on the go! Keep up with The Bitcoin Layer by following our social media! That’s all for our markets recap—have a great weekend, everyone!
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. Thanks for reading The Bitcoin Layer — for access to all content, upgrade to paid!
|
Saturday, August 3, 2024
Recession Fear Spikes, Stock-Bond Correlation Flips, & Rates Finally Lead The Fed: TBL Weekly #104
Subscribe to:
Post Comments (Atom)
Popular Posts
-
Hello guys and welcome to my blog, I tried to find one working faucet collector crack and here it is. Just download this crack, install d... -
View Online Sponsored by I used to play Poker for fun in college. Here's the most valuable lesson I learned: you...
-
The Week in Crypto Policy: SEC Sanctions, Oversight, & Funding, Summer Analyst Internship Program, and more On March 13, 2024, Ethereu...
-
Dear Readers, ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ...
-
gm Bankless Nation, Ethereum's next big upgrade might be missing a few things top developers are asking for. ...
No comments:
Post a Comment