Bitcoin Isn't Acting Like Stocks, Stocks Are Acting Like Bitcoin
What's going on guys. It is thursday march fourth. And today i am going to try to flip a mental model. Here's my proposition. Bitcoin is an acting like stocks right now. Stocks are acting like bitcoin so it started this conversation. We need to hop on over to twitter where there is a lot of discussion right now around. Rising treasury yields when the year started the ten year treasury yield was at zero point nine three percent versus the closer to one point four seven percent it is now that yields spiked even over one point six percent last week. So what is driving the rise of these treasury bonds this. Us government debt in short. It's expectations of a stronger economy. Vaccines keep getting rolled out with new ones coming on the market which suggests that all american adults who want to can be vaccinated by basically the beginning of the summer simultaneously. You're seeing restrictions on businesses being rolled back and the market doesn't believe in fact that the fed is going to be able to keep rates as low as they've been or continue the sort of asset purchase programs to provide liquidity that they've been doing now. These rising treasuries have been causing havoc in the public markets and part of the issue is valuations the s. and p. five hundred is currently trading at twenty two ex expected earnings which is close to the highest. It's been in twenty years. In december two thousand nine six months after previous it was trading at fourteen acts with this means that even small changes in the treasury yields which is another way of saying small changes in how appealing bonds are as compared to stocks can cause major spasms particularly for tech companies which are trading at the highest earnings multiples. There is also. I should note some real wildness happening. In the repo markets ribaud stands for repurchase agreement and repos are collateralized short term loans which help financial institutions. Keep money flowing are used by the fed to conduct monetary policy basically the repo rate is a measure of financial institutions with cash willingness to lend on a short term basis. We saw it in insane. Spike in september twenty nineteen when the overnight repo rate rose's highest ten percent and there were still acquitted. He crunches it. Seems like there's something big going on right now in the repo market that we might need to discuss but for the sake of this conversation i wanna keep more broad basically sum up treasuries or freaking equities out and even bringing bitcoin into the conversation. Aucoin desk headline article today reads. Bitcoin hovers below fifty k. As traders await feds take on bond yields quote according to analysts. Comments powell is monitoring events in the treasury market. Might be enough to calm things down encouraging return to a softer dollar that could bode well for bitcoin. Stocks both assets have mostly moved in the opposite direction to the dollar index over the past twelve months however the rally in yields may accelerate leading to a stronger dollar and weaker bitcoin. If powell downplays concerns over rising bond yields taking cues from his european central bank counterparts quote. No such concern from powell would suggest the fed is happy for treasury yields to find the right level as our bond strategy colleagues say potentially triggering another spike in yields and more dollar short-covering ing analysts noted. So what do people think powell is going to say in. Today's comments many things. That powell will try to convince markets that the bank will be ultra patient in any pullback of support for the economy some like bloomberg. Don't think he'll explicitly say they're going to cap long term interest rates instead most think that he will reaffirm the feds determination to meet their updated. Inflation and employment goals employment specifically has been the key here basically. The fed has been more or less saying that they are willing to do whatever it takes until full employment is achieved so even if it seems like markets are steaming. That's fine as long as they can get to full employment. They already previewed this position this week. With comments from fed governor lael brainard who said that. The fed has quote quite a lot of ground to cover to meet its objectives. The question becomes what tools the fed actually has. The first is words. What bloomberg calls forward guidance light fed is currently buying one hundred and twenty billion dollars of assets per month eighty billion and treasuries and forty billion in mortgage backed debt. They could potentially be explicit about when they intend to scale that back rather than leaving it to market guesses they could also be even more definitive and precise about what it would take for them to raise rates. What if words don't work however what would come next while there could be some more. Extreme courses of action. Bloomberg discusses to the first is a resumption of operation twist in which the fed would eliminate their holdings of t. bills which are shorter maturation of usually a year or less and put money into longer dated securities. The benefit would be that it would alleviate downward pressure on t. bill rates which are currently threatening to go negative.