Connect with us

Commodities

The Bitcoin Rorschach Test

Bitcoin as an idea can be thought of, like a Rorschach test, as the interpretation of the particular context it presents.

Published

on

Bitcoin as an idea can be thought of, like a Rorschach test, as the interpretation of the particular context it presents.

TXID: cdd8014a379a8731fc9e9ba1fef8954ccda9e8300356c6f198144dee11bcdd36

Image source

We would like to think of ourselves as masters of technology. We are the craftsmen, practitioners and creators. This assumption underpins many of our accepted models for understanding history. It’s a comforting way to view the world, with humanity and its heroes as the authors of our destiny. What is a far more uncomfortable truth is that technology equally creates and influences us, and molds the collective behavior that we call culture.

The invention of agriculture made the town the primary social unit, while the mass production of the automobile created cultures of independent holiday makers, commuters and suburbs. Every time Spotify autoplays a new song, when you visit a new restaurant based on its Yelp rating, Tinder’s algorithm displays or does not display you a potential date or a QR code allows health agencies to track and mandate the movements of individuals in a pandemic, technology is influencing culture.

Our choice of technologies - the appliances we use, the cars we drive, the operating systems we choose and the social media platforms which we engage in discourse on shape our lives by what they accentuate and what they hinder, defining the range of actions that are acceptable or prohibited. Technology is not only how human beings sculpt the world in their image, but in framing and defining the range of actions that are possible and encouraged, technology also sculpts who we become.

Producing paper is vastly more efficient than producing parchment, which requires around 200 animal hides to create a single book. Source 1, Source 2

The Qur’an says that good Muslims should seek knowledge, and as a consequence, mathematics, science and engineering flourished in Eastern antiquity. Cultural attitudes led to the invention of paper, which allowed information to be recorded far more efficiently and easily than with papyrus or parchment, which was the popular medium in Europe, where many kings remained illiterate up to the thirteenth century. Our choice of technologies is prescriptive of our character, how others perceive us, and ultimately our destinies.

Yet however potent a technology may be, it ultimately requires a user to be motivated to activate it, to switch it on, to use it, and that user will use it in the manner that they see as most aligned with their beliefs, their will and their intention, and how they see themselves reflected in it. In this sense all technologies are first and foremost tools for individual self-actualization, expression and exploration, a window or framework to understand who we are.

Hermann Rorschach was a Swiss psychologist born in 1884, Zurich, Switzerland. Known to his school friends as “Klex,” due to his enjoyment of klecksography, a child’s game making elaborate pictures from inkblots. As a young adult, he was torn between following his father into the arts or a career in science. He eventually settled on medical school where he majored in psychology.

During his studies, he came across the work of psychiatrist Szyman Hens who had experimented with using inkblots to study the fantasies of his patients. Rorschach saw the opportunity to combine his interest in the arts and the emerging field of psychoanalysis.

After much research and experimentation, he settled on a set of inkblots and a system for scoring the responses to them. He published what has come to be known as the Rorschach test in his 1921 book “Psychodiagnostik.”

Hermann Rorschach

The test itself is administered by presenting the subject with 10 cards in turn and asking them “what might this be?” It’s made clear that there are no right or wrong answers, the subject can pick up the card and view it from any position or orientation they desire, and they’re free to interpret the image however they want. The goal is for them to verbalize what the image suggests to them, with total freedom. Following this the examiner reads the subject’s responses back to them and asks the subject to clarify or elaborate where necessary, not to elicit further information but simply to ensure they have sufficiently accurate information to accurately score the test. The objective is to establish what is being perceived, where it is in the inkblot, and how particular inkblot features contribute to or help determine the response.

The subject’s responses are then used to determine a scoring on several metrics via a complex coding system. The scoring is not based primarily on what the individual says they see in the inkblot. In fact, the contents of the response are only a comparatively small portion of a broader set of data including response times, remarks and comments unrelated to the test, the originality or lack of originality of the responses, and the emotions, attitude, and frame of mind of the subject.

The Rorschach test takes a common stimulus and uses it as a context; the conscious and unconscious reactions of the subject towards that context are data points to better understand their mind.

Earlier we elaborated on how the context provided by a “thing” influences what we create or express, and the way we choose to use it is an act of self-exploration, i.e., it reflects who we are and what we will become. Rorschach similarly understood that by using the context of a fixed set of images and recording the wildly different interpretations created by an individual’s imagination in reaction to each, we could gain insight into a person's mind, and how they were likely to behave in the future.

It is human nature that we can’t help but to project our imaginations onto a thing, and these things, whether they be an inkblot on canvas, an automobile, or a computer program provide context, framing and boundaries for the expression of that imagination. This combination of imagination and framing decides how we act, and over time, what we become - our destiny.

Image source

Since Bitcoin’s invention people have debated what it really is — a peer-to-peer payments system, a form of digital gold, anonymous digital cash, a censorship-resistant means of transmitting value, an immutable ledger of data, the first primitive prototype of a new computing technology called the blockchain, a craze to speculate on, a Ponzi scheme, a tool for extortionists, drug dealers, terrorists and pedophiles? What is Bitcoin?

From Satoshi’s whitepaper, to early discussion on the Bitcointalk forum and the cypherpunks mailing list, to Laszlo Hanyecz’s purchase of a pizza, through the drama of Mt.Gox and Silk Road, and the explosion of other copycats or newcomers looking to be “like bitcoin but with x”, the common perceptions of what bitcoin is and what it means have changed since its inception. Today the popular consensus seems to be that bitcoin is a type of hard money, or digital gold. In five years, with the proliferation of technologies on Layer 2 and beyond like Lightning (that enables a word of utility anchored on the ultimate truth of the Bitcoin blockchain) it's quite possible that this popular consensus will be something altogether different.

Source 1, Source 2, Source 3, Source 4

In truth Bitcoin is all of those things and it is none of them. It’s just code. Ultimately someone has to run that code, to mine the blocks, to send and verify the transactions. Their collective actions decide what Bitcoin is. Anyone could fork the open-source code and decide to raise or lower any value, that this or that is valid or invalid, defaulted on or defaulted off, or even increase the supply or issuance. If a sufficient majority of users agree to mine, verify and transact based on that code, this is Bitcoin, at least by the most objective measures possible.

More importantly though, how users collectively decide to act within the boundaries of what is permissible within this chaotic consensus defines what Bitcoin really is, defining its impact on the world and on our lives. Although the code provides an incorruptible, predictable source of truth, the ramifications of that truth are profoundly different in a world where all bitcoin is held by large banks, governments and corporate treasuries and therefore the legal regulations, political reality, societal norms and cultures of compliance dictate the average person interacts with it in a permissioned fashion, much like the legacy banking system. This would be a much different reality than an alternative where every user uses their own full node as a source of truth, holds the keys to their coins and makes informed decisions on the software they run based on its benefits for privacy and self-sovereignty. The aggregate state of affairs that emerges from these actions and values determines what Bitcoin actually is, not the software, or the network, but what it means for the world around us.

“Bitcoin” the network (capital B) and “bitcoin” the asset or currency (lower-case b) are in fact two separate (though highly-interrelated) things. They can exist without each other. For example, if there was an unprecedented worldwide internet outage the network would halt, transactions and blocks would cease to be broadcast, but the ledger itself would remain unchanged. Likewise the Bitcoin peer-to-peer network can broadcast messages and seek to create a global network of connected computers, without any blocks or transactions needing to take place. There exists a third completely separate thing from Bitcoin the network or bitcoin the currency, Bitcoin the idea.

Bitcoin the idea is like the Rorschach test, a particular interpretation of a thing, based on an individual’s experiences, personalities and biases, dreams and fantasies. Your ability to influence the ledger is limited by your financial means divided by the market cap of bitcoin; your ability to influence the network itself even more negligible, determined by the software implementation you run, the parameters you choose and the infrastructure you deploy — all of which must be largely in lockstep with the majority of the network. But your ability to influence Bitcoin the idea is where you have the greatest agency, to answer the Bitcoin Rorschach test, to decide individually what Bitcoin the idea is, and what you will do with it.

Without the robust software, the hash power, the businesses and the products and services that build out the network, Bitcoin the idea is little more than a kumbaya Ponzi scheme which a top-knotted 30-something influencer would shill you on Instagram. Equally it is true that without the recognition of Bitcoin the idea, bitcoin the currency would have no value: there would be no hash power, no nodes, no ecosystem, and the economic incentives that today secure it against almost any conceivable attack vector would not exist. Although it may seem inconceivable now remember that for several years Bitcoin existed in a form largely identical to what it is today, with almost all the value propositions of the technology and protocol we know today but had no value, or it was traded for loose change. It is not the technology itself that increased its value, it was the collective recognition of its brilliance, the growth of Bitcoin as a meme is what led to there being any price, let alone the prices, ecosystem and the hash rate we have today.

No one can own a culture, they are the collective possession of its participants.

We are here because people see themselves in Bitcoin; they will project their values, their hopes, their aspirations, whatever they want the world to be, onto a technology, onto Bitcoin. A sound money, a way to make more of your chosen fiat currency or buy a Lamborghini, a way to buy drugs, a way to make payments that otherwise are prohibited or impossible, a social club to meet people, a way to sound smart and impress people on the internet, an interesting technology, a way to get a job, a way to provide a nest egg for their children, a ray of hope in a dystopian world. It doesn’t matter, Bitcoin is all of these things and none of them, what matters is how its users use it.

Bitcoin is not a centralized service but a peer-to-peer network and state of affairs controlled by its users despite their disparity of views. Anyone can download it, anyone can fork the software or contribute code, there is no CEO of Bitcoin, it has no official website or spokesperson. Bitcoin has more in common with punk rock music or Rastafarianism, or Oaxacan tradition than a centralized top-down entity like Spotify, Tinder, or something owned by a government agency or a corporation. No one makes the rules in Bitcoin, we all do. Bitcoin is solely the possession of its community of users. Bitcoin is a culture, Bitcoin is a meme.

“Birds of a feather flock together.”

Image source

People stared at the inkblot of Bitcoin and acted on what their imagination showed them. Bitcoin itself is simply the aggregate actions of thousands of these otherwise-unrelated individuals participating in a network because their imagination told them it is of benefit to their own ends to do so.

Bitcoin is living technology, an economically self-sustaining culture, the aggregate sum of all its users, who participate because they see themselves in Bitcoin. Without them, it is simply another repo on GitHub.

This is a guest post by CoinsureNZ. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Read More

Continue Reading

Economics

How Did Friday’s Selling Compare To March 2020 Selling? My Takeaways

News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets on Friday. Was it an overreaction and an opportunity to buy some of your favorite stocks cheaper? Or is the start of a much deeper, panic-driven selloff. Unless…

Published

on

News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets on Friday. Was it an overreaction and an opportunity to buy some of your favorite stocks cheaper? Or is the start of a much deeper, panic-driven selloff. Unless you're a scientist with inside knowledge, I don't think it's possible to know. There are so many questions right now that haven't been adequately answered and may not be answered for several days or weeks. Among those questions would be (1) rate of transmissibility, (2) efficacy of current vaccines against the new variant, (3) the new variant's infection fatality rate (IFR), and so forth. Without this information, it's impossible to try to determine what steps countries around the globe may need to take.

When the delta variant was first studied, it was found to be much more contagious and now the World Health Organization (WHO) estimates that 99% of the world's COVID cases are the delta variant. The worst case obviously would be that this new variant is even more contagious and that vaccines are proven to be ineffective protecting against it. But if global markets continue to panic and selloff as they did on Friday and the new variant poses less risk than first thought, clearly a major global rally could follow.

So what do we do?

Well, rather than search media outlets looking for financial advice, which proved to be absolutely worthless during the height of the 2020 pandemic (remember the Great Depression 2.0 forecasts?), I'd suggest we focus instead on what Wall Street is doing with their money. What sectors and industries are performing poorly on a relative basis (suggesting more exposure to an extended selloff)? Also, which sectors and industries actually performed better during the day on Friday, which would impact their respective AD lines. If you recall, the AD lines were, in my opinion, the best technical indicator throughout 2020 as they helped us identify which areas were being accumulated vs. distributed during the pandemic.

So let's take that approach again as we analyze Friday's action.

It's Deja Vu All Over Again

When I looked at major index and sector performance on Friday, the ranking was nearly identical to the period from February 19, 2020 (market top before panicked selling began) through March 23, 2020 (subsequent low on the S&P 500).

Energy (XLE), financials (XLF), industrials (XLI), and real estate (XLRE) were the bottom 4 sectors during the panicked selloff in 2020 and those 4 were again among the weakest on Friday. Meanwhile, consumer staples (XLP) and health care (XLV) were first and second (though reversed) both during the initial crisis in 2020 and again on Friday.

The order of performance on our major indices were almost identical.

Based on this quick analysis, if we continue to see a COVID-related selloff, I'd most definitely be expecting those bottom groups to continue to lead the selloff. If you have significant exposure in Friday's weakest sectors and industry groups, then I believe your risk is higher as we move into next week.

The Outliers

Not all industry groups conformed with last year's performance ranking. Those that remained relatively strong on Friday (key word here is relative as it wasn't a good day for many groups) and were also relatively strong back in March 2020 included the following industry groups:

  • Gold mining ($DJUSPM): #1 in March 2020 and #2 on Friday, or 1 and 2 (out of 104 industry groups)
  • Mining ($DJUSMG): 3 and 3
  • Mobile telecom ($DJUSWC): 4 and 6
  • Biotechnology ($DJUSBT): 8 and 1
  • Toys ($DJUSTY): 9 and 4

These were the only 5 groups that were in the Top 10 in March 2020 and on Friday.

Then there's the flip side - those industry groups that were weak in both periods:

  • Recreational Services ($DJUSRQ): 103 and 104
  • Oil equipment & services ($DJUSOI): 101 and 96
  • Coal ($DWCCOA): 100 and 98
  • Airlines ($DJUSAR): 99 and 103
  • Aerospace ($DJUSAS): 97 and 97

These were the industries that were in the Bottom 10 in both periods. I'd definitely avoid all of these groups in the very near-term until we get more clarity. It may mean you miss some upside, but steering clear will eliminate the significant risk that exists if this new COVID variant proves to be more problematic than the delta variant.

What About Accumulation/Distribution (AD Lines)?

We saw very weak futures overnight on Thursday and our major indices gapped down significantly. But where did Wall Street see opportunity to accumulate? Well, one way to gauge that is to compare Friday's closing price to its opening price. It makes common sense that a higher close means there were more buyers than sellers throughout the day. The opposite is true if the close was below the open.

I'll be honest. I wasn't expecting the results that we actually saw. For instance, energy (XLE) was clearly the worst performing sector on Friday, but it rallied strongly in the afternoon and its AD line neared a 3-month high:

I have to say that energy behaved quite well during the day on Friday after a rather inauspicious start. The hammer at support, along with that rising AD line provides hope for a group that I said to avoid earlier in this article. We can't ignore that volume because it came on extremely heavy volume. Nearly 45 million shares changed hands, which wasn't the biggest volume day of the year. But we need to keep one thing in mind. The market closed early at 1pm ET on Friday. Had we been open a full day I believe the XLE may have traded its heaviest volume of the year. That, combined with the huge reversal, could signal a major bottom here. We'll have more days ahead that will provide us more clues, but based on my AD analysis, I'd turn bullish the group if I knew we weren't going to wake up to more negative COVID news on Monday morning. But that's the world we live in right now and the uncertainty is almost paralyzing.

There was one industry group on Friday that showed even greater signs of accumulation, gaining roughly 3.5% in the final 90 minutes of trading. The S&P 500 was flat during this same 90-minute period and the NASDAQ actually lost some ground, making this industry group's recovery stand out even more. I'm featuring the group and one of its component stocks to keep an eye on in my FREE EB Digest newsletter on Monday morning. If you're not already a free EB Digest subscriber, you can subscribe HERE by providing us your name and email address. There's no credit card required and you may unsubscribe at any time.

Happy trading!

Tom


Read More

Continue Reading

Commodities

Mexico’s Wealthiest Person Ricardo Salinas: “Buy Bitcoin Now”

Mexico’s wealthiest person, Ricardo Salinas Pliego said that the US looks quite irresponsible and like a third world country because of its mass printing policies but BTC is here to solve the problem, urging his followers to buy Bitcoin now. Let’s…

Published

on

By

Mexico’s wealthiest person, Ricardo Salinas Pliego said that the US looks quite irresponsible and like a third world country because of its mass printing policies but BTC is here to solve the problem, urging his followers to buy Bitcoin now. Let’s take a closer look at today’s Bitcoin news.

Mexico’s wealthiest person Ricardo Salinas Pliego continued showing his support for Bitcoin by urging his investors to allocate money to it and compared BTC to gold giving his preference to BTC. The billionaire businessman Ricardo Salinas Pliego has been a long-time bitcoin advocate and admitted that he started investing in the leading digital asset in 2016 when it stood at only $800. In June 2021, he opined that bitcoin is a financial tool that has an international value and is traded with huge liquidity and that for that reason, each investor should own portions of it. Right after, he labeled all fiat assets as fraud and said that he will hold only BTC for the next 30 years if he had to choose.

The Mexican doubled down on his support for BTC and advised people to enter the BTC ecosystem as soon as possible. He also slammed the USA and the Federal Reserve for printing “fake money.” it is worth noting that the central banking system of the USA printed trillions of dollars to reduce the economic blow that the COVID-19 pandemic caused. The vast amount of cash in circulation with other controversial monetary policies led to increasing inflation rates around the world.

On the other hand, BTC is finite with  21 million BTC ever to exist. As such, most see the asset as a hedge against inflation and a huge investment solution during a monetary crisis. Salinas Pliego is known as the third richest man in Mexico also supports this statemetn and added that Bitcoin is the new digital gold. Both assets have similar use cases but the cryptocurrency is superior because it is easier than having gold in your pockets. Grupo Salinas is the parent company of Banco Azteca as one of the leading in Mexico and earlier this year, Pliego announced his intentions to provide other opportunities to clients of the bank.

However, the Central Bank, the National Banking and Securities Commission as well as the Ministry of Finance, reiterated that digital assets are not considered money according to the current law in Mexico.

Read More

Continue Reading

Government

Jobs (US) and Inflation (EMU) Highlight the Week Ahead

The new covid variant and quick imposition of travel restrictions on several countries in southern Africa have injected a new dynamic into the mix.  It may take the better part of the next couple of weeks for scientists to get a handle on what the new…

Published

on

The new covid variant and quick imposition of travel restrictions on several countries in southern Africa have injected a new dynamic into the mix.  It may take the better part of the next couple of weeks for scientists to get a handle on what the new mutation means and the efficacy of the current vaccination and pill regime.

The initial net impact has been to reduce risk, as seen in the sharp sell-off of stocks.  Emerging market currencies extended their losses.  The JP Morgan Emerging Market Currency Index has fallen in eight of the nine sessions.  Among the major currencies, the currencies used to fund the purchase of other financial assets, namely the yen, Swiss franc, and euro, strengthened in response to the covid news.  The currencies that are seen levered to growth,  like the dollar bloc and Scandis, fell. 

Although it may not always seem that way, there are few sure things.  We occupy a probability world.  What is known and not known about the new variant leads market participants to reduce the odds that the old trajectory would continue unabated.  In the context of the sensitivity of foreign exchange prices to monetary policy, that trajectory was characterized by an elevated risk of a BOE hike next month and for Fed to accelerate the pace of tapering.  The sharp rally in the fed funds and Eurodollar near-term futures contracts reflect the market reassessing the odds.  The implied yield of the December 2021 short-sterling interest rate futures contract fell to its lowest level since September 23.  

The week ahead features the US November jobs report and the eurozone's preliminary estimate of November CP, which are the stuff that moves markets typically.  Yet, the new variant may overshadow the economic data.   

Before the emergence of the new variant, the rising infections in Europe seemed to be having a minimal economic impact.  The flash composite eurozone PMI rose in November, the first increase in four months, and at 55.8 suggest output remains robust even if not as much as in Q3 (average composite PMI was 58.5) and Q2 (average composite PMI was 56.8). Moreover, the eurozone Sentix expectation survey for November rose for the first time in May.  Indeed, it fell more in July and August than it did in September and October.  

That said, economists have been anticipating a sharp slowdown in EMU growth in Q4.  Recall that after contracting in Q4 20 and Q1 21, the eurozone economy expanded by 2.1% in Q2 and 2.2% in Q3 (quarter-over-quarter). The median forecast in Bloomberg's survey sees 0.8% quarterly expansion through the first half of next year.  It is bound to be more volatile than that, and the risks are on the downside in Q4 21 and into Q1 22. 

On the other hand, the US economy is accelerating after the disappointing 2% annualized pace in Q3.  Nearly all of the high-frequency monthly data was stronger than the median (Bloomberg) forecast in October.  Rising consumption is a critical factor.  Consumer durable purchases are important, and next week's news is expected to include the second consecutive increase in auto sales after a collapse from April (18.5 mln vehicles seasonally adjusted annual rate) through September (12.18 mln).   

Two main forces drive US consumption. First, the wealth effect is captured in rising financial assets and house prices.  It is arguably what has let many people retire early since the pandemic struck.  Then there is the income effect.  Government transfer payments are essential even in "normal" times.  While some programs, like the federal supplemental unemployment compensation, have expired, others, such as the enhanced child-earned tax credit, have only recently begun.  Still, wages and salaries are key, which brings us to the November jobs report on December 3.  

From a high level, the US labor market is sizzling.  It filled an average of 582k jobs a month through October.  Economists look around another 500k people to have joined the payrolls in November.  The ADP private-sector jobs estimate has been lower than the national estimate by an average of 23k a month over the past three months and about 51k a month so far this year.  The median forecast in Bloomberg's survey projects that about 525k private sector jobs were filled in November.  Manufacturing employment, which surged by 60k in October, the most since last June, is expected to have slowed to 45k, which is still about 50% higher than this year's average pace. 

Unemployment is expected to fall to 4.4% from 4.6%.   Recall that it was above 6% until May.  The underemployment rate is also falling.  While much of the labor market has evolved as Fed officials, investors, and households had hoped, a problem remains.  The (relatively) low participation rate remains problematic.  Before the tech bubble burst in 2000, it hovered around 67% and was bouncing around 66% when the Great Finance Crisis hit.  It fell to about 62.5%, and 2014-2019 appears capped approximately 63%, though, in late 2019, it reached an eight-year peak of 63.4%.  Covid saw the rate plummet to 60.2%.  It has recovered, but it has been 61.6%-61 since April.7%, first seen in August 2020.   

Outside of regulatory issues and where climate change and monetary policy intersect, this is one of the few issues that seem to separate Powell and Brainard.  Given the trade-offs, theFed Chair seems open-minded about it but is unsure that the previous participation rate can be achieved. Dr. Brainard also seems open-minded but tilts in the other direction.  This appears to be one of the few issues that former Treasury Secretary Summers agrees with Bernanke.  

The eurozone is in a difficult position.  While the preliminary composite PMI ticked up to rise for the first time since July, the news has been overshadowed by the rising pandemic in Europe.  Some new social restrictions have been implemented, spurring large-scale protests in some countries.  It may take a little while for the impact to be seen in the real sector data. However, sentiment indicators may detect it first.  The November German IFO assessment of the overall business climate, reported last week, fell to its lowest level since April.  It had been pulling back since recording the cyclical peak in June.  

At the same time, price pressures are accelerating.   Higher energy prices, a weaker euro, and the base effect point to the risk of a large rise when the preliminary estimate of this month's aggregate CPI is reported on November 30.  The statement that accompanied the preliminary November PMI noted that the selling price in the manufacturing and service sectors accelerated to almost 20-year highs.  Brent crude oil is off slightly this month, but natural gas prices have soared by more than 40% since the end of October.  

The euro was having a poor month, falling more than 3% against the US dollar to levels not seen since July 2020.  It pared some of these losses ahead of the weekend, leaving it off about 2.3%.  And to aggravate the situation, recall that EMU CPI fell by 0.3% in November 2020.  When this drops out of the 12-month comparison, the chances of a shockingly strong number rises. The median forecast in Bloomberg's survey for CPI to rise to 4.3% from 4.1% seems too cautious.   The report will provide fodder for the debate at the December 16 ECB meeting.  

The meeting is expected to confirm that the Pandemic Emergency Purchase Program will end in March as currently planned.  The "modalities" of the Asset Purchase Program will also be announced.  The size,  flexibility, and duration are of prime interest.  The hawks may crow about the high inflation. Still, the ECB's leadership appears to have majority support that the price pressures are temporary and mostly related to the distortions around the pandemic.   While a surge in CPI could embolden the hawks, the virus wave works against looking past the emergency too early.   

Three other events will draw attention in the week ahead.  The first is China's November PMI.  We don't think the details matter so much.  It is manufacturing PMI has fallen without interruptions since March and has been below the 50 boom/bust level in September and October.    The non-manufacturing PMI recovered from the drop below 50 in August (47.5) but slipped in October and is expected to have fallen in November.  The composite has been trending lower this year.  It peaked last November at 557. and stood at 50.8 in October.  Officials are dissatisfied with the growth and the risks to the economy.  Beijing is encouraging lending, including to the property market, and wants local governments to step up their spending.  Word cues by the PBOC have renewed speculation about a cut in reserve requirements (the last reduction was in July). 

Second, on November 30, Treasury Secretary and Federal Reserve Chair Powell testify before the Senate Banking Committee on the CARES Act, the first (of several) fiscal responses to the pandemic.  It was a $2.2 trillion effort approved in March 2020.  The Federal Reserve welcomed the initiative, and Powell has often recognized the importance of fiscal support. To the extent that either official talks about the current economic conditions, investors will take notice.  

Third, OPEC+ meets next week to set policy.  It had been set to boost output by another 400k barrel per day in December, but several countries announced intentions to sell some of their oil reserves, which may change their calculus.  It looks like the consumer nations may release 65-70 mln barrels.  It was led by a 50 mln barrel commitment by the US, which includes accelerating the sale of 18 mln barrels that it had previously planned, which was related not to an emergency but a previous budget deal.  

The remaining 32 mln barrels are not entirely sold, more like lent out and would be returned. It could take several months for the operation to be completed.  Reports indicated that China would provide more oil, but it seemed to cast doubt on a coordinated effort. The UK offered 1.5 mln barrels of oil but conditioned it on the willingness of the private sector to participate.  

The oil that the US is making available is the heavy sour crude that needs more refining and is not desired by US refiners. A gasoline shortage remains.  Reports suggest India and China refiners have been the beneficiaries of the sales of US crude this year.  Paradoxically,  the US wants to deter Chinese companies with military ties while selling it oil used to fuel tanks, ships, and planes.  Lenin's quip about capitalists selling the rope that will be used to hang them comes to mind, despite the Trump tariffs remaining in place.    

OPEC+  may want to send a signal that it will avoid another devastating price war. Investing in crude capacity and carbon, more generally, is not in vogue.   Ironically, the risk is that the reluctance to invest in the old economy may deter the transition to the new economy.  Several OPEC+ members do not have the capacity to boost output and therefore have been falling shy of their 400k barrels a day increases, but the members who have the capacity have not made up for it. January WTI peaked a month ago near $83.85.  Before the weekend, amid the volatility unleashed by the new variant, it tumbled to $67.40, a 13% decline and more than a three-sigma move.  It is slightly above the 200-day moving average, which it has not traded below this year.    


Disclaimer


Read More

Continue Reading

Trending