Dear Member,
Our new pick will be ready next week. I apologize for the delay.
In the meantime, let’s do a quick market update.
The crypto sell-off this week was not surprising considering the chaos going on with stock and bond markets.
In fact, I think crypto held up pretty well considering it’s still viewed by most investors as a “risk asset.” This suggests to me that bitcoin, at least, may be evolving into a role that could be described as a “speculative flight to safety” or a “speculative store of value.”
Economically speaking, the world is in uncharted waters here. Due to the Federal Reserve’s unprecedented actions over the last 10 years, we find ourselves in a pickle. Inflation is ticking up, so we “should” normalize interest rates, yet nobody wants the party to end. Least of all President Trump, who called the Fed “crazy” for continuing with interest rate increases. Trump undoubtedly fears that the end of a bull market could hurt his popularity.
He may be onto something. Christopher Whalen, an economist and analyst I respect, happens to agree with Trump. Here’s an excerpt from an article he just wrote:
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President Donald Trump has been criticizing the Federal Open Market Committee for raising interest rates. The reaction of the U.S. equity markets is self-explanatory. But while the economist love cult in the Big Media may take umbrage at President Trump’s critique of the central bank, in fact Trump is dead right.
First, the Fed’s actions in terms of buying $4 trillion in Treasury debt and mortgage paper has badly crippled the value of the fixed income market as a measure of risk. The Treasury yield curve no longer accurately describes the term structure of interest rates or risk premiums. This means that the Treasury yield curve is useless as an indicator of or guide for policy. Nobody at the Federal Reserve Board understands this issue or cares. |
How can we keep raising rates for a sustained period? The housing market would be battered. Stocks would fall. A recession would seem inevitable. Nobody wants the easy-money party to end.
This is the pickle the Fed finds itself in. And while it’s talking tough about raising rates now, we know what the Fed tends to do when things get tough – print money and monetize debt.
The result of more rounds of QE (quantitative easing) and Fed shenanigans would almost certainly be inflationary and could potentially cause the dollar to lose significant value on world markets.
Note: I’m not saying a crash is imminent or anything like that. I do, however, see turbulence on the horizon and suspect the Fed will swoop in to the market’s rescue (again) within the next few years, and it won’t end well.
The fundamental case for crypto keeps getting stronger. My advice, as always: keep holding.
Adam