Economic growth destroys the market

good morning. I bought a Christmas tree this weekend that puts me in a good mood. But the market does not seem to be fulfilled by the Christmas mood. Someone, please send an email with good news: robert.armstrong@ft.com and ethan.wu@ft.com.

The pain stops when growth decreases

The last two weeks have been ugly. The market tried to recover five times, and it failed five times:

The ugliness culminated in the messy trade on Friday, which destroyed the rally attempt on Thursday. The temptation was initially to attribute this recent defeat to a weak job report, since the headline of the report was a big failure. But the real problem, not only on Friday, but since the collapse of the market in the last week of November, is exactly the opposite. The economy is growing very well and inflation rises quickly, so that a tighter policy will soon follow, while at the same time fiscal support subsides. This is bad for risk systems in general and in particular for more speculative risk systems that depend on slopping liquidity.

At the moment the picture really seems that easy.

Under the headline of the job report, as noted in the course of Friday, there were not only upward corrections of the numbers of the previous months, but also very strong results of the household survey, which indicated a higher employment rate, but an increasing employment rate. As Rick Reider from Blackrock emphasized, we are at 98 percent of private employment before Covid.

All of this fits perfectly with the GDP-NOW measure of the Atlanta Fed, which surprisingly approaches growth of 10 percent. And it also fits the statement of the chairman of the US Federal Reserve that at the meeting of the Fed board, the session will accelerate the reduction on its agenda this month in order to make room for interest. "Qe has overgrown his greeting," says Reiser; Stratega's research says that the Fed would not have decided in such a way that there would be an expansion, "might have made sense to stop the purchases of assets as a whole".

This context explains, for example, that small cap shares fell into an official correction last month, and the latest collapse of shares in unprofitable long shots (The Ark Innovation ETF, 17 percent in two weeks), from Bitcoin (also of 17 percent) and Meme shares (Gamestop and AMC fell by 30 percent).

There are very preliminary first signs that Omicron may not cause a serious illness and that existing vaccines and refresher can prove to be effective. If these weak (and very welcome) signals are confirmed, this will only increase the pressure on the shares. The market is in good news in bad news mode.

The last big piece of this puzzle is the interest structure curve that has flattened. It may seem strange that the economy is booming, monetary policy is tightened and the long bonds decrease. But if one assumes that the economy quickly returns to its sluggish state before Covid after the lifting of the extraordinary fiscal and monetary policy support - the economy, which was previously known as "new normality" - also makes sense the interest structure curve.

It is not that the market expects the Fed to make a classic mistake and attract too much what the economy falls into a recession. The market has priced in the Fed interest rate cycle with a maximum of 1.5 percent - which (as Randall Forssyth emphasized in Barron’s this weekend) would mean that real interest rates would very likely be negative at this time. Instead, the market assumes that the underlying fundamental data of the economy are so weak that a change from a hyperac -communicator to a high -capacity policy will be sufficient to bring inflation under control. The market may be misleading, but it is consistent internally.

Finally, the flatness of the interest structure curve is exactly with the widespread perception that the economy is bad about which we wrote about last week. Our friends Ian Harnett and David Bowers pointed out to us by absolute strategy research. They argue that the interest structure curve reflects the extent in which consumers consider the economic future better than the economic presence. Here your diagram of the future expectations of the survey on consumer mood, minus the part of the current conditions, is applied to the 10-year-2-year interest rate curve. It is a fascinating fit:

jan writes:

It seems that US consumers only see the current policy mix as a short-term incentive. The biggest fed/treasury policy mistake is that it has not increased the long-term consumer expectations regarding economic outlets. . . The yield curve does not become steeper until either the perception of the current situation of consumers (which pulls the two -year period down) or the long -term expectations clearly attract (which contributes to supporting the longer end of the curve).

That is logical and depressing.

Boygroup Coin

On Saturday the FT brought a story about crypto, the South Korean boy band BTS and its fan base, known as Army ("Adorable Representative Mc for Youth"). It's crazy. Here is the timeline, as far as we can see it:

• October:

  A anonymous user creates a BTS-based cryptocurrency called Army Coin and it begins with the trade in the Singaporian crypto bit Bitget

  Bitget promotes Army Coin as a way for fans to help BTS idols, to concentrate less on money and "do them instead what they want"

  The record label of BTS, Hybe, says Army Coin had no connection to BTS and threatens to sue Bitget

• November:

  Army Coin jumps between 1,000 and 78,000

  in one day

  Army Coin debuts on another stock exchange called COINTIER and acts by 10 cents (now it is closer to 7 cents)

  Bitget stops service for users in Singapore; the Monetary Authority of Singapore (MAS) had already revoked its approval of Bitget for unclear reasons in July).

• November December:

  Bitget removes the MAS-LOGO from its website after a request from the FT

• someday:

  MAS exposes the local operations of Bitget (sources are not agreed at the time)

There are a few things to consider here.

Firstly, there are many imitators from BTS in which Hybe has followed a zero tolerance policy. Simplified you simply think of Army Coin as a fake BTS-Merch, which is randomly digital. And just as there are official merch, there will also be official BTS-NFTS.

Second, the thing with all these objects-Bootleg-BTS-Merch, Army Coin, the legitimate BTS-NFTS-have in common that they are all the ways to make money out of hype. You buy merch or NFTS or meme tokens for the same reason: either you personally like the thing shown personally or you speculate that others like it and that you can sell you at profit. This is also the foundation of cryptocurrencies such as Omicron Coin, Shiba Inu Coin, and F - Kelon Coin. To what extent does this also apply to Bitcoin or Ethereum? Readers are invited to scream this in the comments.

Thirdly, the whole absurd story illustrates that crypto is not really decentralized in its current form. Crypto exchanges are centralized bottlenecks in which most crypto users access the market. The supervisory authorities in Singapore did not like Bitget doing business, so they simply closed it in the country. Heer Coin was pushed to a more dodgy marketplace where it is traded at a much lower price, just like a offset boy band t-shirt. The whole thing went down, as is the case in the meat. The real vision of crypto as a parallel digital system without central authority is not yet a reality.

Fourthly, Hybe could simply protect the BTS brand behind the army. Hybe could fear that an Army Coin of the proceeds would otherwise have flowed in the BTS or virtual BTS products. In other words, is the demand for hype-based assets a zero amount? How much does the market entry of new cryptocurrencies deprive the demand from existing ones? Important questions for those who bind the value of Bitcoin to its finite offer. ( ethan wu )

a good reading

I will miss Bob Dole. A nice homage here. In a secret meeting, I once asked the former leader of a large country why politics had become so ugly. He said it was because all veterinarians of World War II who knew what was really at stake were gone.