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Is there a right way to regulate crypto? Yes, and this is how

Cryptocurrency is a promising asset class for people and investors, but the lack of proper regulation slows down its innovation.
Cryptocurrency is becoming increasingly mainstream. Between the entrance en masse of traditional financial

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Cryptocurrency is a promising asset class for people and investors, but the lack of proper regulation slows down its innovation.

Cryptocurrency is becoming increasingly mainstream. Between the entrance en masse of traditional financial institutions — from investment funds, to banks, to insurance companies — to the multitrillion-dollar market capitalization, crypto is truly unignorable. 

As such, it is also increasingly on the radar of regulators around the world, particularly in the United States. How can this industry balance stability and investor protection on the one hand with the promotion and support of innovation on the other?

There are three paths to regulating crypto. The first is to not regulate it as much, but given the incredible growth and increasing overlap with traditional financial markets, it is unlikely that regulators will find that path tenable.

Another option is to regulate the industry from on high, without deep engagement or consultation from good-faith companies in the crypto space. This way could be perilous and could sacrifice the powerful financial innovation of blockchain that could be harnessed for good.

The third — and we believe the only truly viable option — is regulation that involves an ongoing partnership with the industry itself. Many in the crypto industry already see this sort of proactive, innovation-oriented regulation as something that will greatly advance the industry.

Related: Blockchain will thrive once innovators and regulators work together

Bitcoin regulation in historical context

Bitcoin (BTC) was born over a decade ago as a peaceful protest against the expansive monetary policy of the great financial crisis of 2008. What started as a niche industry for cyberpunks, libertarians and, quite frankly, people wanting to buy weed more conveniently and anonymously has morphed into a concentration of mind power, with 46 million Americans owning Bitcoin. The sheer scale of crypto as an asset class, with a market capitalization peaking north of $2 trillion, puts it on the radar of every lawmaker and regulatory agency in the world. To expect crypto to march onward in the unsupervised manner of its early years is simply unrealistic. Mainstream asset classes cannot go unnoticed, and the influx of new investors needs protecting.

Related: Europe awaits implementation of regulatory framework for crypto assets

As entrepreneurs, our concern about regulation does nt stem from a desire to run amok. If history is any guide, too often the regulation on innovative businesses is imposed by legislators who are, quite understandably, not into the intricate details of industry-native processes and have little or no practical experience. This gap between innovators and regulators opened up decades ago with the massive expansion of internet-based companies, and has resulted time and again in unnecessarily burdensome rules that do little to serve their purported purpose. The alternative is of no benefit to advanced jurisdictions because nimble companies will usually seek offshore tax havens with little regulatory friction and lax rules, which ultimately hits state coffers, especially in post-COVID-19 remote-work-adjusted societies. The reality is: Legislation lags behind innovation, which occurs at a significant pace.

The matter gets even more complicated when one considers the decentralized finance (DeFi) space. These solutions, colloquially referred to as “noncustodial” or “unhosted” — meaning there is not a centralized third-party intermediary, but the intermediary is the software itself — present challenges when it comes to putting them into existing rules, especially in financial intermediation and securities laws.

Related: Authorities are looking to close the gap on unhosted wallets

CeFi as bridge between DeFi and regulation

Our hypothesis is that the most productive legislation will come from regulators working with good-faith actors in the crypto space who wish to actively engage with them. What does that engagement look like? One part of it is taking proactive steps to work within the existing regulatory frameworks in order to better identify where gaps and friction remain.

To take the example of DeFi above, while it presents new regulatory challenges, there are ways to ease this burden initially. Centralized finance (CeFi) companies can be the interim solution, serving as a bridge between the traditional financial sector and the regulatory framework that encapsulates them on one hand and the decentralized finance space on the other. These companies very well understand the sector from both the infrastructure point of view and the needs of their users.

Until we reach the conclusion that the current regulatory framework does not apply for blockchain companies or the sector gets specific legislation, CeFi businesses have been on a license acquisition crusade, culminating in a significant number of licenses from regulators across the globe, with more pending authorizations in the pipeline. This means that they are perfectly placed to allow DeFi projects to piggyback on our infrastructure, as they are just starting to consider allocating funds to legal expenses and lobbyism.

Also, they can rely on established Know Your Customer (KYC)/Anti-Money Laundering (AML) procedures prescribed by the Financial Action Task Force (FATF), as well as fiat on- and off-ramps to broaden their offering and bring it to their users in a manner that is compliant with the incumbent rules.

Related: FATF draft guidance targets DeFi with compliance

Key concerns of regulators and how the industry can help

If one part of being an engaged partner to regulators is seeking to work within existing frameworks first, another part is having a perspective on key areas of legitimate concern for regulators, so they can work with industry rather than against it to develop solutions.

Crypto is volatile. Despite being in a downward trend, volatility is here to stay. As a disciple of Benoit Mandelbrot and a student of capital markets, let me tell you: Volatility tends to cluster — i.e., volatility begets more volatility. This is what attracts many people to the space — the promise of multiple X on their initial capital. Of course, volatility works both ways. Yes, Bitcoin can go up 15x in 12 months, but it can also undergo corrections of 30% in a matter of hours. Such rapid, severe corrections occur in every bull cycle. However, it just so happens that those corrections usually precede larger legs up, as the March 2020 crash showed.

The more recent correction of May, while not as severe, was important because it showed the remarkable resilience of the DeFi space. There were cascades of liquidations, yet the protocols stood their ground (for the most part) and performed as designed even as Bitcoin slumped 35% and Ether (ETH) close to 40%, futures traded in severe backwardation, and implied volatility in the options market surpassed 250%. In my former life, I was a trader in equities futures, and I have vivid memories of the S&P 500 flash crash of May 6, 2010, where the indexes lost 10% within minutes, only to retrace those losses a short period after. It was anything but orderly as the most advanced, sophisticated, regulated and monitored markets experienced total mayhem. It took five months for the Securities and Exchange Commission and CFTC to gain a preliminary understanding of what actually happened.

It is also worth noting that despite the May correction, Bitcoin is up 27.26% in 2021 and has surged 284.58% over the past 12 months. Meanwhile, the S&P 500 has added 11.95% year to date and 34.63% over the past year. Gold is flat for the year and has gained 11% in the past 12 months. In short, much of the volatility concerns around Bitcoin have to do with one’s time scale — and moreover, the investment strategies one is using.

Within this overall framework of volatility, there is one aspect worth discussing further: leverage.

As the best-performing asset of the past decade, Bitcoin is unique in many aspects, and investing requires a certain mindset and the right time horizon. Day trading any asset — but even more so, cryptocurrencies — is a one-way ticket to obliterating your trading account. 100x, 135x and 500x leverage means you get liquidated when the underlying asset moves less than 1%, which in crypto might mean seconds. Here’s a great thread on volatility and cascades of liquidations. Spoiler alert: Although objective and informative, it comes from someone who profits enormously from excessive leverage.

Bitcoin and other crypto assets are a great addition to any well-diversified portfolio and should be bought and holded for extensive periods of time during which, history has shown, Bitcoin has outperformed every other asset, except perhaps the U.S. dollar against the Zimbabwe dollar. Should you put your kid’' college funds in crypto after it has 15x-ed in 12 months? Probably not. And definitely not with any sort of leverage, as even 2x leverage can get you liquidated in a March 2020 sort of correction, which saw intraday prices dip more than 50%.

Related: Risk management in crypto: Aka 'the art of not losing all your money'

At our company, we have little tolerance for leverage and have been advising our extensive customer base to be cautious since at least January. A client depositing $100,000 worth of Bitcoin gets an instant crypto credit line of $50,000 with us. Compare that to a trading platform that allows traders to enter trades with 100x leverage. That means, in order to buy a position of $100,000 in BTC, the margin required is $1,000. The rest of the $99,000 is borrowed at rates that are lucrative for the lender. Additionally, exchanges and prop shops profile their clients — they are quick to identify those high-rollers engaging in 100x levered trades, then they gladly take the other side of the trade, as everything these clients deposit can instantly be booked as profit.

In our opinion, leverage in the crypto space would be a reasonable place for regulators to look when analyzing who is focused on investor protection. The legitimate purpose of protecting investors in nascent industries is a difficult balancing act, as it sometimes borders on the stifling of innovation. But the reverse is true as well: “Innovation” cannot be used as an excuse for rapacious behavior because 100x leverage is not innovation. Forex got it pre-Satoshi, and no, it does not contribute to the betterment of society.

Companies need to work with their respective national bodies to ensure the right type of investor protection legislation is implemented. This approach is far more constructive than the alternative: stubbornly insisting that the current regulatory framework is obsolete and doesn’t capture the cutting edge of crypto and fintech.

Crypto and money laundering

On money laundering, most crypto industry participants have the same feeling: On one hand, we are happy to play by the rules. On the other, crypto has been unfairly maligned when the massively preferred currency of money laundering has been and remains the U.S. dollar.

Any widely accepted currency is prone to money laundering, and the fact remains that the incumbent financial system and the U.S. dollar are the preferred means for illicit purposes. It is not just about the medium of exchange itself. Do the rewards of aiding the finance of illicit activities outweigh the repercussions? Just type in your search engine the name of a major bank plus money laundering and you will see how large the problem is. Then try to find out how many of the complaints were civil vs. criminal, and what percentage ended up with settlements with “no admission of guilt.” As long as a slap on the wrist and a few percentage points of the gains from abetting illicit activities remains the punishment, there is little to no hope that money laundering will suffer any significant blow.

There is no data to support that Bitcoin plays a meaningful role in the transnational money laundering scene. Crypto is also far from being as anonymous as people may think. The fact that a system can be misused does not mean the system should be outlawed; otherwise, we would have long parted ways with banking, cash, fiat currencies, the internet and just about any manifestation of human ingenuity. Yet, we hear the concerns, and we are making sure that in the history books, they will be nothing more than temporary FUD — fear, uncertainty and doubt.

There is another important point on money laundering concerns. We use plenty of tools — such as the sophisticated algorithms of Chainalysis, CypherTrace and Coinfirm — to trace the origins of cryptocurrencies and show a detailed flow of funds. This allows us to draw definitive conclusions on the status of a particular crypto deposit and apply the risk-based AML approach of the FATF. Sure, there are obfuscation tools and cross-chain techniques that make tracking more difficult, but nothing more than what already exists in the banking sector — cross border transfer, offshore jurisdictions, etc.

As someone who has a significant portion of their net worth derived from cryptocurrencies, let me say: Getting fiat currencies from the sale of crypto into the banking system is a Herculean task, so it is the furthest thing from a “money launderer’s dream.” Top tier-one banks require extensive proof of funds from early Bitcoin investors, including, but not limited to, the cryptographically signed messages of the earliest wallets. So, I am not sure how a darknet drug dealer would transfer crypto wealth into the U.S. dollar or euro in any meaningful amounts. Their best hope is to stay within crypto and pay for goods and services with crypto. Sounds similar to the method that the drug cartels have been using since before Pablo Escobar’s days.

Why protect crypto? It’s the only truly free market

In the crypto markets, regulators have something truly unique. The cryptomarket is the only free market, where there is no central bank to engage in interventionist policies, to control interest rates and the money supply. There is no lender of last resort, which in traditional markets has created some moral hazard and has encouraged aggressive long positions. There is no Fed put, no Plunge Protection Team, no bailouts.

In crypto, the market forces of supply and demand and of leveraging and deleveraging get to play out without an arbiter. While this can be dramatic at times, it adds to the antifragility of the space and makes it quick to adapt to new circumstances. While painful for novice investors who come in late to the party and usually with leverage, none of the corrections in crypto cost any government taxpayer money.

This means that crypto cannot be a systemic risk and no company within it can ever be “too big to fail,” which is a net positive for the advancement of innovation. Unlike traditional finance, in crypto, it’s those that develop good products and services that survive.

If crypto has been in a bubble in the past years — and it might very well be — equities have been in a bubbly state for the better part of the last decade. Tesla’s normalized price-to-earnings ratio is 676.35, and as Lyn Alden put it:

“The S&P 500 is arguably the second most expensive it has ever been in absolute terms, which doesn’t bode well for long-term returns.”

But the bubble in crypto should be viewed as a byproduct of the aggressive monetary policy by the world’s central banks and fears of 1970s type inflation, so eloquently said by Paul Tudor Jones, the guy who put “hedge” in the term “hedge funds.”

Related: Forecasting Bitcoin price using quantitative models, Part 2

The future of regulation

There is no doubt that the next Google, Amazon, Facebook or Apple will come out of the crypto space. But for the crypto market to sustain and surpass its current market capitalization of $2 trillion, it needs to continue its path to maturity.

This is why as innovators, but also as licensed institutions, we welcome a constructive dialogue with all key stakeholders of the regulatory process that will ideally translate into clear rules around the way business ought to be structured. It is for the benefit of all involved — regulatory bodies, businesses and retail clients — to have clear guidance and regulatory certainty. This will lead to sustainability, innovation, security of funds, consumer protection, sound AML procedures, and ultimately, more revenue for the jurisdictions that decide to embrace crypto, echoing the United States’ embrace of the internet in the early 2000s.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Antoni Trenchev is the co-founder and managing partner of Nexo, a provider of instant crypto credit lines. He studied finance law at King’s College London and Humboldt University of Berlin. As a member of Bulgaria’s parliament, Trenchev advocated for progressive legislation to enable blockchain solutions for a variety of e-government services, most notably e-voting and the storage of databases on a distributed ledger.

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Best Stocks To Buy Now? 5 Cybersecurity Stocks To Watch This Week

Would these cybersecurity stocks be sound investments amidst the current focus on digital security?
The post Best Stocks To Buy Now? 5 Cybersecurity Stocks To Watch This Week appeared first on Stock Market News, Quotes, Charts and Financial Information…

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Do You Have These Tops Cybersecurity Stocks On Your Watchlist?

Among the top tech stocks of 2020, cybersecurity stocks continue to maintain their momentum well into the current year. Because of this, it would not surprise me to see them become the most active stocks in the stock market today. Understandable, as organizations, businesses, and governments all made the jump to the digital space, demand for cybersecurity services would rise. With the world being more exposed to cyber threats than ever, this would be the case. Just this year, there has been a slew of major cyberattacks across the board in the U.S. From tech companies to infrastructure management firms, the list continues to grow.

As a result, the U.S. government unveiled the bipartisan Cyber Incident Notification Act earlier today. This bill would make companies responsible to report hacks and attacks on their systems to the government. In passing this bill, the government would incentivize private companies to bolster their cybersecurity measures. Accordingly, I can understand if investors are keen to invest in the industry now.

Meanwhile, cybersecurity firms are also actively tracking new emerging trends in the world of cybercrimes now. Recently, Zscaler (NASDAQ: ZS) found that Internet-of-Things (IoT)-specific malware attacks rose by 700% compared to pre-pandemic levels. Elsewhere, tech giant Microsoft (NASDAQ: MSFT) is bolstering its cybersecurity portfolio via the acquisition of two digital security firms just this month. With all this action in the industry, could these top cybersecurity stocks in the stock market be worth your time?

Best Cybersecurity Stocks To Watch Ahead Of August 2021

CrowdStrike Holdings Inc.

Starting off, we have CrowdStrike, a cybersecurity company that has reinvented security for the cloud era. Namely, its CrowdStrike Falcon platform is used to detect threats and stop breaches. Through its Falcon platform, the company has created the first multi-tenant, cloud-native, intelligent security solution that is capable of protecting workloads. This would cover on-premise, virtualized, and cloud-based environments running on a variety of endpoints such as laptops, desktops, and IoT devices. CRWD stock currently trades at $268.96 a share as of Friday’s close.

Last month, the company reported its first-quarter financials for the fiscal year 2022. In it, the company reported that its annual recurring revenue (ARR) was $1.19 billion. Furthermore, this was driven by a net new ARR of $144 million. CrowdStrike also added 1,524 net new subscription customers during the quarter. It also delivered a record operating and free cash flow for the second consecutive quarter, at $147.5 million and $117.3 million respectively. Given the impressive financials, will you add CRWD stock to your portfolio?

top cybersecurity stocks (CRWD stock)
Source: TD Ameritrade TOS

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Okta Inc.

Okta is a leading independent identity provider. The Okta Identity Cloud enables organizations to securely connect their employees to the right technologies. It boasts more than 7,000 pre-built integrations to applications and infrastructure providers, Okta customers can easily and securely use the best technologies for their business. The company’s software is used by over 10,000 organizations. OKTA stock closed Friday’s trading session at $257.91 a share.

In May, the company reported strong first-quarter financials. Firstly, it posted total revenue of $251 million, an increase of 37% year-over-year. Subscription revenue made a huge chunk of this revenue at $240 million. Secondly, the company reported that its remaining performance obligations grew by 52% year-over-year to $1.89 billion. Okta also ended the quarter with $2.69 billion in cash, cash equivalents, and short-term investments. All things considered, will you watch OKTA stock?

best cybersecurity stocks (OKTA stock)
Source: TD Ameritrade TOS

[Read More] Good Stocks To Invest In Today? 4 5G Stocks To Watch

McAfee Corp.

McAfee is a global computer security software company that is headquartered in California. Its consumer solutions are able to adapt to the needs of millions of users all over the world. Furthermore, the company’s software is used to protect over 600 million devices and queries over 60 billion daily real-time threats. MCFE stock currently trades at $26.80 as of Friday’s closing bell and has been up by over 40% in the past year.

On July 13, 2021, the company announced a new partnership with Visa (NYSE: V) to offer holistic security solutions for Visa Business cardholders. Namely, this is because small businesses are now finding themselves a key target of hackers, with almost a third of data breaches in 2020 involving small businesses. The rise in threats underscores the need for small businesses to ensure their digital assets are protected and McAfee will capitalize on this demand. For this reason, is MCFE stock a top cybersecurity stock to watch right now?

top cybersecurity stocks (MCFE stock)
Source: TD Ameritrade TOS

[Read More] Best Cyclical Stocks To Invest In Now? 5 Names To Know

CACI International Inc.

Another name to know in the cybersecurity world now would be CACI International Inc. In short, it is a computer and information tech company. With its massive portfolio of software services, CACI caters to the needs of several divisions under the U.S. federal government. This includes but is not limited to the defense, homeland security, intelligence, and health care branches to name a few. Now, CACI stock is currently trading at $268.63 a share as of the end of Friday’s closing bell. This activity could be thanks to its latest announcement.

Earlier this week, CACI was awarded a $1.4 billion contract by the U.S. military’s Defense Threat Reduction Agency (DTRA). Through the current Decisive Action Task order, CACI will continue to provide the DTRA with ”mission expertise” in the battle against weapons of mass destruction and threat networks. CACI CEO John Mengucci highlights that CACI’s 14+ years of experience working with the DTRA is a testament to the quality of the company’s services. Simply put, CACI is expanding on its previous work with the U.S. military which could be putting it on investors’ radars. With that in mind, would you say CACI stock has more room to grow?

top cybersecurity stocks (CACI stock)
Source: TD Ameritrade TOS

[Read More] Up And Coming Stocks To Buy Right Now? 3 Retail Stocks In Focus

Palantir Technologies Inc.

Following that, we will be taking a look at Palantir Technologies Inc. For the uninitiated, the company specializes in big data analytics and also provides cybersecurity services. Through its comprehensive software portfolio, the company caters to a wide array of end markets. The likes of which include the military, health care, and defense industries among other government bodies. With organizations shifting their assets to the digital medium, Palantir’s services would be vital amidst these times. As it stands, the company’s shares currently trade at $21.81 apiece as of Friday’s close.

Well, for one thing, Palantir seems to be keeping busy on the operational front. As of this week, the company’s data-management service, Foundry, is now available to early-stage companies. Through its “Foundry for Builders” service, Palantir is looking to serve the needs of smaller companies. Palantir COO Shyam Sanker commented, “We’re excited to expand the use of Palantir Foundry to hypergrowth startups. These organizations have ambitious goals and are building their digital infrastructure around Palantir Foundry from Day 0.” With the company expanding its addressable markets now, will you be keeping an eye on PLTR stock?

cybersecurity stocks to buy (PLTR stock)
Source: TD Ameritrade TOS

The post Best Stocks To Buy Now? 5 Cybersecurity Stocks To Watch This Week appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Lower for Longer

The Delta variant of the virus has emerged as an important economic force, just as more countries appeared to adopt the attitude that we should now live with it like we do with the flu, which kills hundreds of thousands every year.  While the existing…

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The Delta variant of the virus has emerged as an important economic force, just as more countries appeared to adopt the attitude that we should now live with it like we do with the flu, which kills hundreds of thousands every year.  While the existing vaccines seem to have lost some of their ability to prevent the illness, they remain a power prophylactic against hospitalization and death.  Nevertheless, new social restrictions have been introduced in some high-income countries, even those like Israel, that have been fairly successful in vaccinating a large part of their population.  

The virus is once again raising the prospects of slowing the economic recovery that was unevenly unfolding.  The preliminary July PMI for Australia, UK, France, and the US disappointed. Expectations for the trajectory of monetary policy are being impacted.  Consider that the implied yield of the December 2022 Eurodollar futures fell to 40 bp in the middle of last week from 55 bp on July 1.  A similar futures contract in the UK, the December 2022 short-sterling implied yield fell from 58 bp in mid-July to almost 40 bp on "Freedom Day" as the UK dropped all social restrictions and mask requirements.  The implied yield of the December 2022 Bank Acceptances in Canada fell 20 basis points from July 14 to nearly 105 bp ahead of the weekend.   In Australia, the December 2022 bill futures contract's implied yield fell a little over 60 bp on July 6 to 36 bp last week.  

The December 2022 Euribor futures contract has been considerably steadier as it is widely accepted that the European Central Bank will not lift rates until after 2023.  The implied yield has been confined to a -42 bp to - 50 bp trading range since the end of April.  The yield finished last week at -49 bp, falling about five basis points since the ECB meeting.  The ECB's new forward guidance signaled that bond purchases and low rates will prevail until the staff forecasts that the 2% target can be sustained.  In June, the staff forecasts projected 2023 CPI at 1.4%.  

The signal of lower for longer helped drive European bond yields to new 3-4 month lows. The French 10-year bond yield had been offering a positive yield since the second half of April but recently moved back below zero.  One has to pay Greece 50 bp to lend to it for two years, which is a little more than one would pay to Italy for the same maturity.  Greece takes about 15 bp a year from those lending to it for five years, while Italy's five-year yield has dipped below zero for the first time since early April.  The amount of negative-yielding bonds in the world has increased to almost $16 trillion from below $13 trillion in late June, and that does not include Japan's 10-year bond, where the benchmark yield is less than a basis point. 

The ECB's dovishness likely minimizes the impact of the preliminary July CPI figures.  In July 2020, the eurozone saw consumer prices fall by 0.4% on the month and again in August.  This speaks to a likely acceleration of the year-over-year pace from 1.9% in June.  Also, note that since at least 2000, prices gained less in July than in June (and consistently rose more in August than July).  The monthly increase in June was 0.3%.  The Bloomberg survey shows economists anticipate sharp month-over-month declines in Italian and Spanish prices.   French CPI is also expected to have fallen slightly in July.  German inflation may have ticked up. These considerations suggest the year-over-year rate may have edged above 2%.  

The eurozone will provide its first estimate of Q1 GDP at the same time as the CPI figures on July 30. Recall that in Q4 19, before the pandemic struck, the eurozone economy was stagnant.  Last year contracted in H1 before recovering in Q3.  However, unlike the US experience, the eurozone economy contracted against in Q4 20 and Q1 21.  Despite the spread of the Delta mutation and the floods in parts of Europe, including Germany, the recovery now appears to be on more solid footing, and the EU Recovery Funds are at hand.   The regional economy likely expanded around 1.4%-1.5% in Q2 and is poised to accelerate further here in Q3. 

The highly contagious, though less lethal mutation (if vaccinated), has pushed investors to reconsider the recovery theme that had two drivers last November, the US election and the vaccine announcement.  Of course, this does not mean that it is the only development in the market, but it seems to be a relatively new and powerful one.  The US dollar rallied as the pandemic first struck, partly as a safe haven as US Treasuries were bought and partly as a function of the unwinding of dollar-funded purchases of risk assets (e.g., emerging markets).  

When things began to stabilize at the end of last March 2020, and the NBER now dates the end of the US recession as April 2020, the dollar trended lower and accelerated into the end of the year and began to recover in early January.   From the end of March through December last year, the Antipodeans and Scandis led the move against the greenback and appreciated roughly 20%-25% against the US dollar.  These currencies are often perceived to be levered to world growth and are often more volatile than the other majors.  Over the past three months, they have been the weakest, losing 3.0-6.50%.  

The opposite is also true in the sense that the Swiss franc and Japanese yen, other currencies often used for funding, hence the appearance of safe-haven appeal, were the worst performers against the dollar in the last nine months of 2020 (rising about 8.25% and 4.5% respectively). However, over the past three months, they have been among the most resilient in the face of the dollar's surge.  The Swiss franc is off less than three-quarters of a percent, while the yen is off by about 2.4%.  

A challenge for investors and policymakers is the evolution of the virus that renders some of the high-frequency data rather dated and arguably less impactful outside of the headline risk posed.  The Federal Reserve has succeeded in securing for itself much room to maneuver and is not tied to a particular time series, like the monthly jobs report or data point.  The FOMC statement is likely to hardly change from the previous one.

Discussions about the pace and composition of the Fed's bond-buying will continue.  Still, Fed Chair Powell was speaking for the central bank when he told Congress recently that the bar to adjust the purchases (substantial further progress toward the Fed's targets) has not been met.  The Jackson Hole symposium at the end of August has long been seen as the first realistic window of opportunity for the Fed to signal its intention to slow, possibly alter the composition of its bond purchase, and shape it more formally at the September FOMC meeting.  Ahead of Jackson Hole, there is one more jobs report, and the early call is for around a 750k increase.   

Reporters may try to draw Powell out but are unlikely to have much more success than the US Senators and Representatives.  There is ongoing interest in the size of the reverse repo facility, for which the Fed now pays five basis points at an annualized rate, the same as a six-month bill. In addition, Powell pushed back against suggestions by some officials that the central bank's MBS purchases are lifting house prices beyond the access of many American families.  Will reporters press him on this or the buying of inflation-protected securities that arguably distort the price discovery process and the break-even metric?  

Stable coins' regulatory framework may be questioned.  Recall that just before Biden took office, the Comptroller of the Currency allowed federally chartered banks to used distributed ledgers (blockchain) and conduct business with stable coins.  There is a push to treat stable coins as securities for regulatory purposes.  While the ECB recently announced it was going forward with a research and design phase of its development of a digital euro, the Federal Reserve's report is expected in September.  Powell said what many officials seem to believe that the introduction of a digital dollar would likely dry up demand for stable coins and crypto.  

The day after the FOMC meeting concludes, the US reports its first estimate of Q2 GDP.  The median forecast in Blomberg's survey has crept up in recent days to 8.5% at an annualized pace, up from 6.4% in Q1.  The NY Fed's GDPNow model puts growth at 3.2%, while the Atlanta Fed's model is closer to the market at 7.6%, while the St. Loius Fed Nowcast stands at 9%.  

Even before this surge in the virus in the US, where about half of the adult population is fully vaccinated, we suggested there was a reasonable chance that Q2 marks the peak in growth.  Fiscal policy will increasingly be a drag, pent-up consumer demand will be satiated. Monetary policy is near a peak. Perhaps the recent increase in the rate paid on deposits at the Fed and on the reverse repo facility and the recent sales of corporate bonds bought in 2020 mark the end of the easing cycle.   We have also underscored the restrictive impact of doubling the oil price since the end of last October.  

While there does not appear to be an iron law, it would not be surprising to see price pressures peak with a bit of a lag.  This dovetails with the timeframe suggested by both Powell and Yellen. Some recent industry data suggests that the US used car market (accounting for around a third of the recent monthly increases in CPI) is normalizing in terms of inventory, and prices have softened in the wholesale markets.  We note that input prices and prices paid components Markit PMI have fallen in June, and the preliminary report suggests a further decline is taking place this month.  Airfare and the price of hotel accommodations, and food out of the house, appear to be a one-off adjustment rather than persistent increases.  

The US will report June personal income and consumption figures ahead of the weekend, but the data will already be embedded in the GDP estimate.  On the other hand, the PCE deflator, which the Fed targets rather than the CPI, may draw attention.  It is expected to post a sharp 0.7% increase on the month for around a 4.2% year-over-year.  It rose by 0.4% in May and a 3.9% year-over-year rate. The core rate, which the Fed does not target but makes references from time to time, is expected to accelerate to 3.7% from 3.4%.   

Lastly, the infrastructure debate in the US Senate looks to come to a head in the days ahead.  It could, in turn, shape the political climate until next year's midterm elections. The latest wrinkle is that what might serve as the basis of a compromise in the Senate may be rejected by a number of Democrats in the House.  The failure to find a bipartisan solution for even the physical infrastructure components will not defeat the Biden administration but force it to rely on the reconciliation mechanism, which is confined to fiscal policy.  It would likely hamper the administration on non-budgetary fiscal issues.  The debt ceiling looms.  The Congressional Budget Office sees the Treasury running out of room to maneuver in October or November.  Biden's spearheading of a 15% minimum corporate tax rate might not need their approval, but the approval of 60 Senators may be needed for the other component of the global tax reform, the agreement to link the sales and taxes for the largest companies.     


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Top Stories This Week: Gold Manipulators Go to Court, Silver’s Industrial Side in Focus

Catch up and get informed with this week’s content highlights from Charlotte McLeod, our editorial director.
The post Top Stories This Week: Gold Manipulators Go to Court, Silver’s Industrial Side in Focus appeared first on Investing News Network.

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The gold price held above US$1,800 per ounce this week, finishing the period around that level, which is down from last week’s July high point of around US$1,830. 

Marc Lichtenfeld of the Oxford Club is one market watcher who’s struggling to understand why gold isn’t doing better this year. We had the chance to speak this week, and he pointed to money printing, the impact of COVID-19 and inflation as factors that should be pushing gold to record highs.

So far in 2021 those elements have have failed to do the trick, and Marc said he sees a disconnect between the yellow metal’s traditional fundamentals and what’s happening in the market.

 

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“There just seems to be a disconnect between what are the traditional gold fundamentals and what’s happening out in the world … it’s really difficult to try to figure out what is happening with gold and why gold isn’t at record highs” — Marc Lichtenfeld, the Oxford Club

Of course, some would argue that price manipulation is the reason gold isn’t moving, and this week there was more news on that front. Chat logs were released in a spoofing trial for two former precious metals traders from the Bank of America’s (NYSE:BAC) Merrill Lynch unit, and they show one of the traders bragging about how easy it is to manipulate the price of gold. The trial isn’t over yet, but in its opening arguments that trader’s attorney said he stopped spoofing after he found out it was illegal.

Looking over to silver, I heard this week from Collin Plume of Noble Gold Investments, who thinks industrial demand will help push the white metal above the US$40 per ounce mark in the next 12 to 18 months. Silver has struggled to pass US$30 so far this year.

Solar panels are one of silver’s key uses, but it’s also found in other high-tech applications such as electronics and electric vehicles. Collin isn’t aware of any commodities that can replace silver in its end-use markets, and with demand “through the roof,” he expects to see shortages of silver by next year.

With silver in mind, we asked our Twitter followers this week if they think its industrial or precious side is driving the most demand right now. By the time the poll closed, about 70 percent of respondents said they think the precious angle is more important.

 

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We’ll be asking another question on Twitter next week, so make sure to follow us @INN_Resource or follow me @Charlotte_McL to share your thoughts.

We’re going to finish up with the cannabis space, where there was a major announcement last week.

A group of Democratic senators headed by Senate Majority Leader Chuck Schumer introduced a draft of the Cannabis Administration and Opportunity Act, which among other things would remove cannabis from the Controlled Substances Act. The long-awaited bill will need 60 votes to get through the Senate, and opinion is split on whether that will actually happen.

INN’s Bryan Mc Govern spoke with Dan Ahrens of AdvisorShares Investments, who thinks it has “no chance of passing,” but remains optimistic about prospects for American cannabis companies.

“No one should expect US (cannabis) legalization anytime soon. We should expect reforms; they’re not coming as fast as anyone would like to see, but everybody agrees we’re going to get some form of banking reform in the near future … we’ll see baby steps” — Dan Ahrens, AdvisorShares Investments

Why? In his opinion, these stocks remain undervalued compared to their Canadian counterparts, and are operating well even without federal cannabis approval. Any legalization progress would be a bonus.

Want more YouTube content? Check out our YouTube playlist At Home With INN, which features interviews with experts in the resource space. If there’s someone you’d like to see us interview, please send an email to cmcleod@investingnews.com.

And don’t forget to follow us @INN_Resource for real-time updates! 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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