MacroVoices #407 Jim Bianco: Jay Powell’s “word salad”, FOMC Mood Swings, Interest Rate Outlook, Crypto & More
Dec 21, 2023
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Financial analyst and commentator, Jim Bianco, discusses the FOMC's monetary policy shift, potential interest rate changes, and the future of bond markets. He also explores the conflicting government stance on Bitcoin ETFs and the impact of Federal Reserve policies on market volatility and risk assets.
The approval of Bitcoin ETFs by the SEC could attract institutional capital but may contradict the decentralized nature of cryptocurrencies.
Rising interest rates could create headwinds for the stock market, leading to sideways movement or frustration for investors.
The current yield curve inversion is prolonged due to skepticism around the Fed's inflation outlook and uncertainty about the timing and extent of an uninverted yield curve.
Deep dives
Bitcoin ETF Approval and Its Implications
The SEC is expected to approve Bitcoin ETFs for the spot Bitcoin market, which is anticipated to bring institutional capital into the market. However, there is a concern that this could result in a sell-the-news event as the market may have already priced in this development. Additionally, there is a larger concern that the adoption of regulated ETFs could contradict the decentralized and censorship-resistant nature that attracted many to cryptocurrencies in the first place. The expectation of permissioned and controlled investment products may conflict with the original vision of cryptocurrencies. It is uncertain whether this development will drive further innovation in the crypto space or simply satisfy the desire for price appreciation.
Uncertainty in the Stock Market amid Rising Yields
The stock market outlook is influenced significantly by interest rates, as higher rates can compete with equities for investment capital. If interest rates rise as predicted, it could create headwinds for the stock market, potentially leading to sideways movement or frustration similar to early 2023. The recent dominance of mega-cap companies contributing to broader market gains may not be sustainable if investor preferences shift towards active stock picking and thematic plays. Investors should also consider the attractiveness of alternative assets, such as money market funds offering competitive returns compared to expected equity returns.
Long-term Concerns of Yield Curve Inversion
The current yield curve inversion has lasted longer than usual, primarily due to the market's skepticism around the Fed's inflation outlook and concerns of a potential economic slowdown. Historically, the yield curve uninverts through a bull steepener, triggered by a sharp drop in short-term interest rates led by the Fed's aggressive rate cuts during a period of economic weakness. However, the market remains uncertain about the timing and extent of an uninverted yield curve, which would require a more pronounced slowdown and cement concerns over inflation. A potential future steepening of the yield curve could present headwinds for the stock market.
Competition for Government-Issued Money
Cryptocurrencies, particularly Bitcoin, pose a legitimate competition to government-issued money. The government, to maintain its monopoly in issuing money, may want to ban cryptocurrencies. However, with the SEC authorizing multiple ETFs and major brokerages marketing crypto heavily, it seems unlikely that a government ban on Bitcoin can be successfully implemented after such widespread adoption and acceptance.
Cryptocurrency's Potential for a Better Form of Money
Cryptocurrency has the potential to be a superior form of money to what governments issue. It offers benefits to individuals in countries with corrupt or volatile financial systems. While there are concerns in Washington about cryptocurrency's disruptive potential, banning it under the premise of protecting the current monetary system is not desirable. Moreover, the issue becomes more complex given the bipartisan support for crypto within different political parties.
MacroVoice's Erik Townsend & Patrick Ceresna welcome back Jim Bianco. Erik & Jim will discuss the FOMC’s about face on monetary policy, why it happened, and what comes next. Jim says peak yields are NOT yet behind us... https://bit.ly/3RQyciC
