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BFM Market Watch: King Dollar Deposed For Now

This podcast was first and originally published on https://www.bfm.my/podcast/morning-run/market-watch/bank-of-japan-monetary-policy-revisal-japanese-yen-us-fed-rates-markets-outlook

The CEO of Compete Intelligence, Tony Nash, was interviewed on BFM to discuss the current state of the US markets.

The S&P fell 1.6%, the worst decline in a month, and the tech-heavy Nasdaq snapped a seven-day rally, reversing gains of more than 1%. Nash suggests that this may be due to bad economic data, specifically PPI and retail sales falling, but also notes that consumer is still strong. Nash explains that the US economy is built on services, so people may be trying to confirm their downward bias in things, and when bad news is reported, a sell-off day occurs. Nash also mentions that if PPI falls, that should mean inflation is slowing, which should mean the Fed would ease a little and slow down on rate rises.

He also mentions that markets may be spooked by all the announcements regarding job cuts, such as Microsoft announcing they plan to cut 10,000 jobs and Bank of America telling their executives to pause hiring. Nash suggests that these job cuts are small in terms of the gap that we see in the US workforce, which is still missing millions of jobs in terms of the openings versus the available people.

Nash also mentions the yen tumbled yesterday after the BOJ went against market expectations by keeping its yield curve tolerance ban unchanged. He suggests that the BOJ is managing the yield curve to suppress borrowing costs and wants to keep it below 0.5%. Nash also mentions that Japan’s central bank is getting pressure from other central banks to keep their rates low, this means that if Japan lets their rates rise, then that would have a knock-on effect around the world and cause a repricing of government debt all around the world.

Nash concludes by saying that he expects a weaker yen, but doesn’t think we would necessarily hit those lows.

Transcript

BFM

This is a podcast from BFM 89.9, The Business Station. BFM 89.9. It’s 7:06, Thursday, the 19 January, and you’re listening to the Morning Run with Chong Tjen San and I’m Wong Shou Ning. And earlier on, we did ask our listeners how traffic is like and Roberto said traffic today really smooth and super low compared to just yesterday. He loves Chinese New Year in KL. And so do we. I just love Chinese New York because I like the feasting and I like the ang bao collecting.

BFM

I get the hint.

BFM

Yes, we’re all looking at you, Tjen San. But in 30 minutes, we will be speaking to Angela Hahn of Bloomberg Intelligence on the impact of China’s reopening to Markhouse gaming and hospitality sector. But in the meantime, let’s recap how global markets closed yesterday.

BFM

After a good run, all key US. Markets ended down yesterday. The Dow was down 1.8%, S&P 500 down 1.6%. The Nasdaq was down 1.2%. In terms of Asian markets, the Nikkei was up by 2.5%, Hang Seng up by 0.5%. The Shanghai Composite Index, it was unchanged, the Straits Times Index, it was up by 0.3%, and the FBMKLCI it was down by 0.3%.

CI Futures has S&P500, Nikkei, Nasdaq, Hang Seng, and nearly a thousand other assets across equity indices, currencies, and commodities. Subscription starts at $99/mo with a monthly commitment. Learn more here.

BFM

Why are we always again and again there’s a trend here for sure. But to tell us where international markets are heading, we have on the line with us Tony Nash, CEO of Compete Intelligence. Good morning, Tony. Help us understand what’s happening in US markets. Because the S&P fell 1.6% is the worst decline in a month. Tech heavy Nasdaq snapped a seven-day rally, reversing gains of more than 1%. Is this just really due to bad economic data?

Tony

Yeah, we saw PPI and retail sales fall today. The weird part is consumer is still strong. The US economy is really built on services, so I think people are trying to confirm their downward bias in things. And whenever we see bad news, we see a sell off day. So I’m not necessarily sure I would read that much into it, aside from just there was really nothing else going on. So people saw some bad PPI news and they were negative. So if we see downward PPI, that should mean inflation is slowing, which should mean the Fed would ease a little. Not ease, but would slow down on rate rises a bit. So that should have been positive news for markets. So it’s just kind of a weird read of some of that data.

BFM

Do you think markets are also spooked by all these announcements with regards to job cuts? Because Microsoft says they plan to cut 10,000 jobs. Amazon of course, made announcements last week, and even Bank of America is it telling their executives to pause hiring. Not great for the mood on Wall Street?

Tony

Well, maybe, but I think those job cuts are actually kind of small in terms of the gap that we see. So the US is still missing millions of jobs in terms of the openings versus the available people so I think there’s something like 7 million jobs open. We also had a million people post COVID not come back to work. So we have a gap in the workforce, just a status quo workforce of a million people, but we have something like 7 million open positions. So when Microsoft lays off 10,000 people or Goldman lays off 4000 people, sure, it’s tragic. It’s definitely tragic for those individuals. But in terms of the overall health of the economy, it really doesn’t make that much of a difference.

BFM

And Tony, the yen tumbled yesterday after the BOJ went against market expectations by keeping its yield curve tolerance ban unchanged. What possible reasons would the central bank have for keeping this status quo?

Tony

Yes, so the BOJ is managing the yield curve to suppress borrowing costs and they want to keep it below kind of 0.5%. There have been some hedge funds and some big investors who’ve been betting that they would tighten it. And the BOJ is just bigger. I mean, when they came back and they said, we’re going to hold the line at 0.5, they spent about $100 billion so far this month to defend that and they have plenty of resources to hold that. So the release issue is this is if Japan lets their interest rates rise, then Japanese, say, banks and pension funds and other investors would consider selling debt from other parts in the world and buying Japanese debt. Okay, so if Japan lets their rates rise, then that would have a knock on effect around the world and that would cause a repricing of government debt all around the world. So it’s not just the BOJ wanting to keep this for Japanese domestic reasons. They’re getting pressure from other central banks to keep their rates low.

BFM

Okay, Tony, but what does this then all mean for the yen? I mean, at its worst point, the yen was trading 150 against the US dollar. Today it’s 128. That’s a very wide range in just a few months. So what are your expectations?

Tony

It is yeah, certainly I would look for a weaker yen. I don’t know that we would necessarily hit those lows. But the BOJ has made their stance clear. The BOJ has a new head coming in in a few months. I would say they’re unlikely to dramatically change policy with a new head because they don’t want to make people nervous. So I think they’re going to aggressively defend the status quo. So I don’t necessarily think you see a yen appreciating dramatically from here. I think the bias is really toward the downside.

BFM

Okay, staying on the topic of currencies then, what’s your view on US dollar? We’re just looking at the Bloomberg Dollar Spot Index this morning. It’s already down 1.5% on a year to date basis. The era of King dollar, is it over?

Tony

Well, I think not necessarily. If you’re looking at the DXY, it’s really heavy on the euro. And so we’ve seen Europe do better than many people thought through the winter because we haven’t had a cold winter there and energy prices haven’t bitten as hard as many people thought they would. So I think Europe is doing better and the Euro is doing better than many people thought. And everything in Currencies is relative. China is opening, although it’s gradually. China is opening. And so that’s good for CNY. Again, in a relative basis, I think there is downward pressure on the dollar, but I don’t necessarily think we’re over on that. I don’t think we’re heading straight down to, say, 95. I think we’re going to see some back and forth over the next couple of months as we figure out what the forward trajectory of the dollar is. And a lot of that really has to do with what direction will the Fed take in terms of their rate hikes and their quantitative tightening. And it has to do with treasury activity from the US. Treasury. How will they spend, what will they do, how will they fund the US government?

BFM

Tony, some analysts are saying that without a recovery in the Chinese economy, a global recession is all but assured. But what are your thoughts on this?

Tony

I don’t necessarily think that’s the case. I think China will do okay this year, and I think regardless, Europe will likely dip into recession this year, although fairly moderate. In the US, you see a very strong employment environment. And so employment is one of the key considerations for recession. So I don’t believe the US. Will dip into recession really on the back of employment news more than anything else. And so once we see some of these layoffs with larger companies and we get through this as, say, equity valuations stabilize, I think we’ll start to see a renormalization in the US economy as the Fed kind of takes the foot off the brake of the US economy. Of course, the Fed will continue to raise rates, but they’ll do it at a much slower pace, and that will make people much more comfortable in doing things like investing capital and so on and so forth, that will help the US to grow.

BFM

All right, thank you very much for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his outlook for the world economies and also markets in the coming weeks. I think very much the question everyone has on their mind is Fed rates. What is the terminal rate? Will they basically raise rates too much and then cause the US. Tip into a recession? But I see increasingly our guests, our commentators sounding a little bit less pessimistic, hinting that perhaps we’re going to have a soft landing rather than a hard landing.

BFM

Yeah, I think it’s really on the back of the really still strong employment in the US. I mean, he did mention there’s still 7 million jobs available in the US. And there are one million people post COVID that didn’t come back to work. And I think that really is his key point, that the US may not slip into recession, but it looks like EU will and China, it looks like they are really on track to a better recovery this year. I’ve seen some economists say that GDP growth could be like five to 6% as well.

BFM

I see that consensus figure that range is around there for China’s GDP for 2023. Now, turning our attention to corporate that released results they reported, which is Alcoa excuse me, which is aluminium company. They reported fourth quarter results earlier today, which saw losses narrow to $374,000,000. Loss per share as a result was $2.12. The loss included a 270 million charge related to tax expense. Revenue did decline 20% to $2.66 billion.

BFM

And Alcoa attributed the decline in revenue to lower prices for both Alumina and aluminium. Additionally, Alcoa will see some executive leadership changes effective February 1, including CFO William Oplinger reassignment to chief operations officer, in addition to his executive vice president role.

BFM

Okay, the street doesn’t really like this stock when you look at Bloomberg. Five buys, only seven holes, no sells. Consensus target price for the stock, $52.18. During regular market hours, the stock was already down one dollars. And now I think we need to talk about one of the world’s biggest companies, Apple. They are expanding their smart home lineup, taking on Amazon and Google. Are you surprised by this move?

BFM

Jensen not surprised at all. I think Apple is really the leader in terms of innovation, and we’ve seen it over the years, so no surprises there. So I think they’re launching some new devices. There’s a smart display tablet, there’s a HomePod. There’s a TV box and a MacBook and Mac mini using their cutting edge new processor, which is the M Two chip.

BFM

Are you going to buy any of these gadgets? You don’t even use an Apple phone. You haven’t joined a cult. You’re about the only one on the morning run. You and Philip sees that hanging on.

BFM

The iPad at home, but they’re quite old.

BFM

Okay, but will this make a dent to Apple’s earnings? Perhaps. I think they are trying to diversify their product range, because the iPhone, I think, hasn’t done as well as expected. If you look at Apple or Cost, still a darling on Wall Street. 36 buys, eight holes, two sells. Consensus target price for this to $169.24. At regular market hours, it was down seventy three cents to one hundred and thirty five dollars and twenty one cents. I, for one, will be curious as to what these products will be or how they’ll fare. Up next, of course, we’ll cover the top stories in the newspapers and portal. Stay tuned for that. BFM 89.9 you have been listening to a podcast from BFM 89.9, the business station. For more stories of the same kind, download the BFM app.

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Week Ahead

The Week Ahead – 28 Mar 2022

‼️SPECIAL OFFER FOR THE WEEK AHEAD VIEWERS: $50/MO ON CI FUTURES SUBSCRIPTION. ‼️

We’ve seen so much about oil for rubles, gas for bitcoin, etc this week. Does it represent a fundamental shift for energy markets? And is the dollar dead? The yen fell pretty hard versus the dollar this week. Why is that happening, especially if the dollar is dead?  Bonds spike pretty hard this week, especially the 5-year. What’s going on there and what does it mean?

Key themes from last week:

  1. Oil for rubles (death of the Dollar?)
  2. Rapidly depreciating JPY
  3. Hawkish Fed and the soaring 5-year


Key themes for The Week Ahead:

  1. New stimulus coming to help pay for energy. Inflationary?
  2. How hawkish can the Fed go?
  3. What’s ahead for equity markets?


This is the 12th episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week. 

Listen on Spotify:

https://open.spotify.com/episode/0twcBeGGELUrzdyMS0o37U?si=4dab69b94c3e4ec9


Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Tracy: https://twitter.com/chigrl
Albert: https://twitter.com/amlivemon


Time Stamps

0:00 Start
0:34 CI Futures
1:22 Key themes this week
1:48 Oil for rubles (death of the Dollar?)
3:15 Acceptance of cryptocurrency?
5:34 Petrodollar Petroyuan?
7:32 Rapidly depreciating JPY
10:12 Hawkish Fed and the soaring 5-year
11:58 Housing is done?
13:10 Stimulus for energy
15:53 How hawkish can the Fed go?
17:34 What’s ahead for equity markets?

Transcript

TN: Hi, everyone, and welcome to The Week Ahead. My name is Tony Nash. I’m here with Albert Marko, Sam Rines, and Tracy Shuchart. Before we get started, please, if you can like and subscribe to our YouTube channel, we would really appreciate it.

Also, before we get started, I want to talk a little bit about Complete Intelligence. Complete Intelligence, automates budgeting processes and improves forecasting results for companies globally. CI Futures is our market data and forecast platform. CI Futures forecasts approximately 900 assets across commodities, currencies and equity indices, and a couple of thousand economic variables for the top 50 economies. CI Futures tracks forecast error for accountable performance. Users can see exactly how CI Futures have performed historically with one and three month forward intervals. We’re now offering a special promotion of CI Futures for $50 a month. You can find out more at completeintel.com/promo.

Okay, this week we had a couple of key themes. The first is oil for rubles and somewhat cynically, the death of the dollar. Next is the rapidly depreciating Japanese yen, which is somewhat related to the first. But it’s a big, big story, at least in Asia. We also have the hawkish Fed and the soaring five-year bond. So let’s just jump right into it. Tracy, we’ve seen so much about oil for rubles and Bitcoin and other things over the past week. Can you walk us through it? And is this a fundamental shift in energy markets? Is it desperation on Russia’s behalf? Is the dollar dead? Can you just walk us through those?

TS: All right, so no, the dollar is not dead. First, what people have to realize is that there’s a difference. Oil is still priced in USD. It doesn’t matter the currency that you choose to trade in because you see, in markets, local markets trade gasoline in all currencies. Different partners have traded oil in different currencies. But what it comes down to is it doesn’t matter because oil is still priced in dollars. And even if you trade it in, say, the ruble or the yuan, those are all pegged to the dollar. Right. And so you have to take dollar pricing, transfer it to that currency. And so it really doesn’t matter.

And the currency is used to price oil needs three main factors, liquidity, relative stability, and global acceptability. And right now, USD is the only one that possesses all three characteristics.

TN: Okay, so two different questions here. One is on the acceptance of cryptocurrency. Okay. I think they specifically said Bitcoin. Is that real? Is that happening? And second, if that is happening and maybe, Albert, you can comment on this a little bit, too. Is that simply a way to get the PLA in China to spend their cryptocurrency to fuel their army for cheap? Is that possibly what’s happening there?

TS: It could be. Russia came out and said, we’ll accept Bitcoin from friendly countries. Mostly, they were referring to Hungary and to China. Right. And I don’t think that is a replacement for USD no matter what because not every country except for perhaps China really accepts or El Salvador really accepts Bitcoin or would actually trade in Bitcoin. Right.

TN: In Venezuela, by the way. I think. Right. So on a sovereign basis. Okay. So Sam and Albert, do you guys have anything on there in terms of Bitcoin traded for energy? Do you have any observations there?

AM: No, this is a little bit of… This is even a serious conversation they’re having? With El Salvador going to be like the global hub for Russian oil now because they can use Bitcoin?

TN: That would be really interesting.

AM: But this is just silly talk. Every time there’s some kind of problem geopolitically and they start talking about gold for oil or wine or whatever you want to throw out, they start talking about the US dollar dying and whatnot.

I mean, like Tracy, I don’t want to reiterate what Tracy said, but her three points were correct. On top of that, we’re the only global superpower.

TN: Okay.

AM: That’s it.

SR: Yeah. My two cent is whatever on Bitcoin for a while.

TN: Right.

SR: Cool.

TN: I think that all makes sense now since we’re here because we’re already here because we all hear about the death of the petrodollar and the rise of the petroyuan and all this stuff. So can we go there a little bit? Does this mean that the petrodollar is dead? I know that what you said earlier is all oil is priced in dollars. So that would seem to be at odds with the death of the petrodollar.

AM: Well, Tony, in my perspective, the petrodollar is a relic of the 1970s. Right. Okay. Today it’s the Euro dollar. It’s not the petrodollar that makes the American economy run like God on Earth at the moment. It’s the Euro dollar. Forget about Petro dollar. Right. Because it’s not simply just oil that’s priced in it in dollars. It’s every single piece of commodity globally that’s priced in dollars.

TN: And Albert, just for viewers who may not understand what a Euro dollar is, can you quickly help them understand what a Euro dollar is?

AM: They’re just dollars deposited in overseas banks outside the United States system. That’s all it is.

TN: Okay with that. Very good.

SR: And the global economy runs on them. Full stop.

AM: It’s the blood of the global economy.

TN: So the death of the petrodollar, rise of the petroyuan and all that stuff, we can kind of brush that aside. Is that fair?

TS: Yeah. I mean, even if you look at say, you know, China started their own Yuan contract rights, oil contract and Yuan futures contract. But that still pegged to the price of the Dubai contracts. Right. That are priced in dollars.

TN: Let’s be clear, the CNY and crude are both relative to dollars. Right?

TS: Right.

TN: You have two things that are relative to dollars trying to circumvent dollars to buy that thing. The whole thing is silly.

TS: Exactly.

AM: Yeah, of course. Because Tony, the thing is, if China decides to sell all their dollars and all their trade or whatever, everything they’ve got, they risk hyperinflation. What happens to the Renminbi and then what happens in the world? Contracts trying to get priced right.

TN: Exactly. It’s a good point. Okay. This is a great discussion.

Now, Albert, while we’re on currencies, The Japanese yuan fell pretty hard versus the dollar this week. Do you mind talking through that a little bit and helping us understand what’s going on there?

AM: Yeah, I got a real simple explanation. The Federal Reserve most likely green light in Japan To devalue their yen to be able to show up the manufacturing sector in case China decides to get into a bigger global geopolitical spat with the United States. Simple as that.

TN: Great. Okay. So that’s good. This is really good. And I want people to understand that currencies are very relevant to geopolitics or the other way around. Right. Whenever you see currency movements, there’s typically a geopolitical connection there.

AM: Of course. And on top of that, if it was any other time and they started to devalue the currency like this, the Federal Reserve where the President would start calling the currency manipulators. And there’d be page headlines on the financial times.

TN: Right.

AM: And because that didn’t happen, It’s an automatic signal to me that this is what’s happening at the moment. Right.

What’s also interesting to me, Albert, is we’ve seen last week we saw Japan approach the Saudis and the Emiratis about oil contracts. We saw Japan call. There’s a meeting in Japan next week, I think, with China. So Japan is becoming this kind of foreign policy arm, whether we want to admit it or not, they’re kind of becoming foreign policy arm for the US. Because the US is not well respected right now. Is that fair to say?

AM: It’s more than fair to say, I believe Biden’s conference with South Asian leaders was just canceled on top of everything else.

TS: Sorry. And we saw this week Japan and India just signed, like, a $42 billion trade deal. So it kind of seems like they’re smoothing over the rough edges because the United States kind of came after India a little bit earlier about two weeks ago.

TN: Yeah, that’s a good call, Tracy. I think Japan and India have had a long, positive relationship. It’s especially intensified over the past, say, seven or eight years as China has tried to invest in India and the Japanese have kind of countered them and giving the Indians very favorable terms for investment and for loans. And so this is kind of a second part of that investment that was, I think, announced in, say, 2014 or 2015, something like that. And again, as we talked about it’s, Japan intervening to help the US out and obviously help Japan out at the same time. Thanks for that.

Now, Sam. We saw bonds spike pretty hard this week, especially the five year. I’ve got a Trading View source up there on the five year up on the screen right now. So can you walk us through what’s happening with US bonds right now, especially the five year?

SR: Sure. I mean, it’s pretty straightforward. The Fed is getting very hawkish and the market is adopting it rather quickly. And I don’t know how forcefully to say this. The current assumption coming from city is four straight 50 basis point hikes and then ending the year with just a couple of 25. That is a pretty incredibly fast off zero move time, some quantitative tightening, and you’re somewhere around three and a half percent to 4% worth of tightening in a year. That’s a pretty fast move.

So the two year to five years reflecting that the Fed is moving very quickly, you’re likely having the long end of the curve is lagging a little bit. You saw flattening, not steepening this week. The long end of the curve is telling you that the terminal rate may, in fact, actually be at least somewhat sticky around two and a half and might actually be moving a little bit higher. And that terminal rate is really important because that is how high the Fed can go and then stay there. It is also how fast the Fed can get there and how much above it the Fed is willing to go. So I think there’s a lot of things that happened on the curve this week.

TN: Okay. Albert, what’s in on those? Yes, go ahead, Albert.

AM: Oh, I’ve heard whispers that the long bond is going to 2.8% and maybe even 3%. That’s what the whispers have been telling me about that, which is going to absolutely devastate housing.

TN: But that was my actual idea.

SR: Oh, yeah. Housing is done. I mean, you saw pending home sales were supposed to be up a point and down 4%. That’s the first signal. The next signal will be when lumber goes back to $300.

TN: Okay. It seems to me you’re saying by say Q3 of this year we’re going to see real downside in the housing market. Is that fair to say?

SR: Oh, in Q2, you’re going to see real downside in the housing market. Yeah.

TN: Wow.

SR: Pending sales are, I think, one of the most important indicators of how the housing market is going. Right. It’s a semi forward looking indicator. If you begin to see a whole bunch of these homes in the ground stay as homes that are not being built. Right. So if you begin to see just a bunch of pads out there, it’s going to become a significant problem considering a lot of people have already bought the materials to build it off. And you’re going to begin to have some really interesting spirals that go back into some of the commodity markets that have been on fire on the housing front.

TN: Wow. Okay. That’s a big call. I love this discussion. Okay, good. Okay. So let’s move on to the week ahead. Tracy, we’ve had some stimulus announced to help pay for energy. Can you help us understand? Do you expect we’ve seen California and some other things come out? Are more States going to do this or more countries going to do this, and what does that do to the inflation picture?

TS: Well, absolutely. We saw California, Delaware, Germany, Italy talking about it. Japan already. They’re coming out of the woodwork right now. There’s actually too many to list. It’s just that we’re just now this week just starting to see the US kind of joining this on a state to state basis. The problem is that this is not going to help inflation whatsoever. You’re literally creating more demand and we still do not have the supply online. So all of these policies are going to have the opposite of the intended effect that they are doing. Right. It’s just more stimulus in the market.

TN: Do we think there’s going to be some federal energy stimulus coming?

TS: They’ve talked about different options. I mean, really, the only thing that they could do right now is get rid of the federal excise tax, but that’s only really a few cents. And they kind of don’t want to do that because that goes towards repairing roads, et cetera. That doesn’t fit into their plan that they just passed back in the fall. Right. We had infrastructure plan, so they need to pay for that. That’s already passed. So they probably won’t do that.

The other options that they have that they’re weighing are more SPR release, which is ridiculous at this point because they could release it all and it would still not have a long lasting effect on the market. And that’s our national security. It’s a national security issue. And we’re experiencing all these geopolitical events right now. We have bombs in Saudi Arabia. We’ve got Russia, Ukraine. So I think that’s like a poor move altogether.

TN: So if more States are going to come in, is it suspects like Massachusetts, New York, Illinois, those types of places?

TS: Yes.

TN: Okay. So all inflationary, it’s going in the wrong direction.

TS: It’s going to create demand, which is going to drive oil prices higher because we still don’t have the supply on the market.

TN: Okay. Wow. Thanks for that. Sam. As we look forward, you mentioned a little bit about how hawkish the Fed would be. But what are you looking at say in the bond market for the next week or so? Do we expect more activity there, or do you think we’re kind of stabilizing for now?

SR: We’re going into month end. So I would doubt that we’re going to stabilize in any meaningful way as portfolios either head towards rebalancing or begin to rebalance into quarter end. So I don’t think you’re going to see stabilization. And I think some of the signals might be a little suspect. But I do think back to the housing front. I’m going to be watching how housing stocks react, how the dialogue there really reacts, probably watching lumber very closely, a fairly good indicator of how tight things are or aren’t on the housing front.

And then paying a little bit of attention to what the market is telling us about that terminal rate. If the terminal rate keeps moving higher, to Albert’s point, that’s going to be a big problem for housing, but it’s going to be a big problem for a number of things as we begin to kind of spiral through, what the consequences of that are. It will be for the first time in a very long time.

TN: Okay. So it’s interesting. We have, say, energy commodities rising. We have, say, housing related commodities potentially falling, and we have food commodities rising. Right. It seems like something’s off. Some of it’s shortages based, and some of it is really demand push based. So energy stuff seems to be stimulus based or potentially so some interesting divergence in some of those sectors.

Okay. And then, Albert, what’s ahead for equity markets? We’ve seen equity markets continue to push higher. How much further can they go?

AM: Last week they eliminated, I think, up to about $9 trillion inputs, short squeeze, VIX crush. I mean, they went all out these last two weeks. It’s absolutely stunning. From my calculations, I think they expanded the balance sheet another $150 billion. Forget about this tapering talk. There’s no tapering. They just keep on going. How high can they go? That’s anybody’s guess right now. I think we’re like 6% off all time highs. On no news.

TN: So potentially another 6% higher?

AM: Honestly, I know that there’s hedge funds waiting, salivating at 4650. Just salivating to short it there. So I don’t think they can even get close to that, to be honest with you. So I don’t know, maybe 4590 early in the week before they start coming down.

TN: Okay. Interesting. So you think early next week we’ll see a change in direction?

AM: Yeah, we’re going to have to this has been an epic run, like I said, 90% short squeeze, 10% fixed crush. You don’t see this very often. Okay, Sam, what do you think, Sam? Similar?

SR: On equities, I like going into the rip higher. I’m kind of with Albert, but a little less bearish. I think you chop sideways from here looking for a catalyst in either direction. Bonds ripping higher today, yields ripping higher today. Bond prices plummeting. That I thought was going to be a catalyst for equities to move lower. It wasn’t. That kind of gives me a little bit of pause on being too bearish here, but it’s hard for me to get bullish.

TN: Okay.

TS: What’s interesting? I’ll just throw in like, Bama, weekly flows. We actually saw an outflow from equities for the first time in weeks. It wasn’t a lot 1.9 billion. But that says to me people are getting a little nervous up here. Profit taking, as they say on CNBC.

TN: All right, guys. Hey, thank you very much. Really appreciate the insight. Have a great week ahead.

AM, TS: Thanks.

SR: You too, Tony.

TN: Fabulous. Look. I’m married. I’m a man. I don’t notice anything. I noticed the other guys laughed at that. Uncomfortably. That’s great. Okay. I’m just going to start that over, guys. And we’re going to end it.

Categories
QuickHit

QuickHit: Decentralized Finance and Crypto

JP Baric, of Aurum Capital Ventures, joins Tony Nash for this week’s QuickHit episode where he discussed crypto currencies and how it plays in decentralized finance or de-fi. Also, what is stranded energy and how is it mined? What is the future of crypto and why is its fiat currency value is very volatile? Was the industry affected by Covid? If so, how?

 

Aurum Capital Ventures is a company that’s focused on using stranded energy to mine cryptocurrency and other digital currencies and building a yield generation or building a way to generate yield through the mining process for consumers and for institutional investors.

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***This QuickHit episode was recorded on November 4, 2020.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes:

 

TN: Okay. Very interesting. So I want to go into a couple things about cryptocurrency. But first, I want to ask what is stranded energy?

 

JB: Sure. So stranded energy is energy that is either not accessible to the grid so it can’t connect to the standard power grid or energy that’s been built up in areas where the federal subsidies for wind and solar farms have basically built these infrastructure that wasn’t needed in one area but it was built there because of those subsidies and in return the power prices are actually going negative during the night because there’s over supply and not enough demand. So that’s where we target when we build out mining sites.

 

TN: Very interesting. Okay. Thanks, JP. So let me ask you this. Just in terms of some crypto basics, okay. Is cryptocurrency, is it an asset or is it a currency? And so by that, you know gold is an asset, right? You know you can’t really go to 7/11 and spend gold. Dollar’s a currency. You can go to 7-eleven and spend a dollar.

 

So is cryptocurrency is it an asset? Is it a currency? Is it both? Is it moving from one to another? How do you think of it?

 

JB: Yeah, the more I look and think about Bitcoin is the more I think it’s actually an asset less than a currency. I’ve used bitcoin to buy laptops that you know 12 bitcoins for a laptop and then you realize that’s worth more than a house eventually. So I think the Bitcoin as an asset is really where how I view it. It’s a way to store value digitally that can easily be separated and transferred anywhere in the world and you also, it’s an asset that we know there’s a finite supply of it. We know how much there’s going to be, how many new bitcoins are going to be every day for the next 100 years and there’s not, that’s something you can’t really get without saying many other assets.

 

The reason why I don’t think it’s a currency is because we’ve seen other people have built on the Bitcoin blockchain and built on top of it as a way to build stable coins or other ways to transact, which are just more efficient and don’t have the price fluctuations that you do with using Bitcoin as a medium of exchange.

 

TN: Okay. So one of the things I’m really puzzled about with Bitcoin is, you know, normally with software, it’s the newer versions that are more desirable and more valuable, okay. Bitcoin is kind of the, you know, Windows 3.1 or something like that I mean it’s the OG of cryptocurrencies, right. So why is Bitcoin more desirable and valuable than other coins?

 

JB: So my opinion really comes down to first the miners. The miners are the ones who are allocating the most amount of capital in the space, who are taking the risk to capture this Bitcoin. You have to put that capital up uh millions of dollars when building out the infrastructure before they even see return. So because the miners are centrally focused around Bitcoin, it’s um you know the top currency for miners. I’ve seen that network effect um has really grown Bitcoin to keep its position and its power.

 

The amount of computing power protecting the Bitcoin network is ten times if not a hundred times more than any of the other networks out there. That would always say the first thing. The second thing is the on-ramps. To use a digital currency like bitcoin we need um on-ramps that have been put together over the past 10 years and have been focused solely on building on-ramps for this cryptocurrency.

 

Bitcoin works in the way and it functions as that secure digi secured and digital store of value. Other currencies have tried to do that. But the reason why it’s a store of value goes back to my first point which is the miner spending all that capital and infrastructure to secure the network using that energy on a day-to-day basis and giving Bitcoin that
floor price.

 

TN: Okay. So when you say on-ramps, what do you mean? So if I have a new coin, I need to have a way to be able to uh uh mine it and distribute it. Is that what you’re talking about?

 

JB: I was uh when I was referring to on-ramps, I was actually referring to fiat on-ramp. So basically, how does fiat currency come into the space. So US Dollars, Euros, Japanese Yen, how do they come into the space and then from there how does that get turned into this digital currency?

 

Those are on-ramps. Then also custody solutions, insurance. All right. Okay. All of that being on ramps.

 

TN: Okay. Very good. Okay. So um also in terms of crypto, what I’m really interested also also is when I look at the current environment, we’re in the wake of an election in the US. It’s a little bit uncertain. We’ve got, we’re in the wake of Covid. There’s a lot of uncertainty, you know. Is there kind of an optimal, say, environment for cryptocurrencies? Um, uh you know. Do we see say um uh confidence in traditional currencies waning and people moving to cryptocurrencies?

 

Is it in either or world or you know. Is it both and and what does that environment look like for people to turn their attention to cryptocurrencies?

 

JB: So I think the the as you mentioned the two different types of pandemic. The Covid pandemic and the election has really pushed crypto to the forefront as another asset class, as a safe haven. I don’t think cryptocurrency necessarily follows uh the same, you know, SP500 or other type of cycles out there when it comes to economics and social cycles. Bitcoin to me really follows the having events, which happen every four years. And so that would, that in my mind is what brings the momentum required to push Bitcoin to a new price. And in those having events is when Bitcoin miners receive half of the amount of Bitcoins they were getting every day just simply because it’s past
the four years and the issue and schedule is set.

 

So as I mentioned, we’ll know exactly how many coins are coming out. That in my opinion, is what creates these price rises about every four years, which then drives new interest to Bitcoin which then drives more speculation and which then drives the community growing at massive scale. And then shrinking because the people that are just speculators, just coming in to make a quick buck, they make their quick buck or they lose a lot of money. But the people who then now start to understand the technology and understand how much better of a monetary system it is because it empowers the user.

 

It provides them a steady base that they can build their life on. A steady-based currency that they know is not going to be inflated away and don’t they know it’s going to retain its value over the long period of time.

 

TN: Okay and so when you talk about having events, what happens around those having events in terms of say processing power, in terms of the the computing requirements. Are there cycles to build up more equipment and less as it ages and and what does that look like?

 

JB: So right now, they’re the cycle. There’s definitely there are cycles to build up equipment and the in May, when was that that having event occurred, the the amount of machines came down by about 15% 20%. And those machines were turned off because they were just older generation. The newer machines are coming in line. They’re being deployed. But we see it as in, if you want to get into Bitcoin mining, the next two years after the having event are the best time to get in because as I mentioned, that momentum will start to build up the Bitcoin price will continue to rise. You’ll have a great two years of profitability and you’ll be very very profitable and you’ll be a big arbitrage there. But then as Bitcoin price rises to an extreme height, there’s not enough actual bitcoin miners available for everyone to buy and acquire.

 

We don’t have enough semiconductors and so what happens is the value of those machines will rise rapidly and the people that are just coming into the space that are new are trying to pick them up and grab them and buying these machines for a really top dollar. The problem is, is that bitcoin price will crash. But you still have new machines on order for maybe six or nine months out. Those machines will continue to come online, will continue to run until it squeezes the profitability of all the miners and then you see a crash in difficulty usually in correlation as the bitcoin price is continuing to push down back to a normalized you know area and not in the hundred thousand dollars ranges or really overvalued where we see it uh once it kind of starts that on ramp.

 

TN: Okay. So when you say there’s a hardware replacement after the having event. So my understanding is this, you’re getting half the amount of Bitcoin for doing the same amount of work. You have old equipment. It’s it’s uh utilizing the same energy it did at double the price. So you have to cycle out that old equipment so you can still be profitable in your Bitcoin mining. Is that?

 

JB: That’s exactly right. That’s exactly. We either cycle the equipment or we move to lower cost power about half the cost in order to stay competitive. Those machines aren’t necessarily going to immediately become unprofitable after having. But they will become unprofitable very quickly after the having. And now, because Bitcoin price has risen, those machines you actually can turn back on and make a few pennies depending on what your power rates are.

 

TN: Okay. And so, since it’s so equipment intensive and we have supply chains bottleneck through Covid out of Asia, what has that done to the Bitcoin mining environment? Is it, has it, has Bitcoin risen in price as a result of it? Or are people using less efficient machines and maybe losing money or coming close to losing money on mining?

 

What’s happening as a result of the supply chain issues that we saw out of Asia earlier this year and also is there still kind of pent-up demand for that equipment?

 

JB: Yeah. So right now, the you know, with Covid and the supply chain issues that have occurred, the machines got backed up, the factories had to close, and so those orders that were maybe supposed to deliver in December of this year aren’t going to deliver until January or February. So they have been backed up by two months. Also due to 5G and the new phones coming out, the the amount of chip production capacity that is allocated to Bitcoin miners from the fabrication facilities like TSMC that has gone down as well um and they’re not able to get as many chips as they would like.

 

Right now, if you’re buying miners and you’re doing a project like we’re looking to do one in Oklahoma to buy 50 megawatts worth of miners or 15 000 machines, it’s going to take us about four months to acquire those machines and get them delivered to the United States in multiple batches. So that’s the, you know, the expected timeline to wait for these newer machines. But as they do ship from bitmain and from the manufacturers, we expect that hash rate to continue to grow and as Bitcoin price grows faster, it’s going to create more demand and it’s that vicious cycle.

 

TN: Interesting. Okay. So as you look out at the next year, are there certain things you’re looking for like are there coins that that you’re interested in? Are there you know, where is your attention going and what do you see over the next say six months in the crypto cryptocurrency environment?

 

JB: So over the next six months you know I’m I’m really focused on bitcoin particularly. But I do think decentralized finance. So de-fi has a lot of opportunity. There’s a lot of very cool projects. One of them being a token called lend token. L-E-N-D. And that token has something called a flash loan. And what flash loans are is that a concept that liquidity is no longer an issue for anyone that can prove there’s an arbitrage opportunity on in the market. And so, when these Ethereum contracts are written, um they basically have to balance the price points and if the prices start to become a little bit off, someone can go in and balance that contract and take the reward for balancing that contract. Before, you might have to put up the capital yourself to do these balances so that you can make the profits from balancing this contract and getting that arbitrage there. No longer do you need to do that with protocols like LEND, which are really trying to decentralize the credit problem. Decentralize uh what is credit look like on the blockchain. How do we give credit to companies.

 

How do we ensure that um we can lend to them without necessarily having to verify uh everything and do the, you know, do the verification process we have currently but how do we do that on chain in a contract. So protocols like that are what I’m really focused on. I think decentralized finance is going to blow up. I think it’ll be the next ICO hype as we would say in 2016, 2017. There’ll be good projects and there’ll be projects like we saw with Sushi that, you know, the developer just ran away with the funds because the contracts weren’t audited. That’s another big thing. If you’re investing in a project or investing anything, you want to make sure that it’s backed by you know VC companies in the United States that are these very popular VC companies in China and Europe or that it’s been audited by reputable sources in the community.

 

TN: Great. Okay JP. Thanks so much for your time today. I know you’ve got a lot going on so uh thanks so much for joining us and talking about this. Really appreciate this. Wish you all the best um over the next six months as all those things come to come to pass. I also want to thank our viewers and remind you please subscribe to our YouTube page. Please subscribe to our newsletter. Both are in the foot of the video. Thanks very much.