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16 March 2021
Video commentary for March 15th 2021
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: bitcoin pulls back, Yen weakens, banks outperform, China weak, commodity currencies firm, Wall Street firm on stimulus, bonds stable.
Yields, ETF Buying BOJ Set to Add Flexibility
This article by Yuki Masujima for Bloomberg may be of interest to subscribers. Here is a section:
The basic elements of yield-curve control will probably remain unchanged, with the short-term rate anchored at -0.1% and the BOJ aiming to keep the 10-year JGB yield around 0% -- while allowing fluctuations depending on economic and price developments.
We expect Kuroda to renew the commitment to the 10-year yield range of +/-0.2 ppt around 0%, but -- importantly -- also indicate that temporary moves beyond the range would be acceptable, as long as the effects of monetary easing aren’t disrupted and the yield curve is consistent with economic activity, prices, and financial conditions.
In operational terms, this may mean the BOJ will conduct its JGB purchases with more flexibility -- changing the frequency of the operations and the menu of its purchases, depending on market conditions.
This would help improve the functioning of the Japanese government bond market in terms of price discovery and liquidity -- increasing policy sustainability.
The question investors are likely asking is if the Bank of Japan is willing to loosen its yield curve control bands, do they believe inflation is in fact returning with sufficient vigour to initiate a trend?
One of the primary reasons for the Yen’s strength is because deflation was a surety. The supply might increase but there was no chance of inflation eroding the holding overnight. Meanwhile, the positive current account balance acted as a counterweight to the increasing money supply. If the BoJ is willing to change their perception of inflationary pressures that’s toxic for the Yen.
Billionaire investor Mike Novogratz says bitcoin will be like a report card that measures how the government is handling
This article from Business Insider may be of interest to subscribers. Here is a section:
"Bitcoin will literally be like a report card for how citizens think the government is doing managing their finances," the Galaxy Digital CEO said on CNBC's "Squawk Box" after the cryptocurrency hit a record high above $61,000over the weekend.
Novogratz indicated that bitcoin is an inflationary hedge and a digital store of value, rather than regular money, which is why institutions, money managers, and retail investors are piling into the digital asset. If people in the US believe Fed Chair Jerome Powell and Treasury Secretary Janet Yellen can facilitate full employment for the economy while avoiding inflation, they will stop buying bitcoin, he said.
The billionaire further said there has been a "secular shift" from the mindset that bitcoin isn't an asset class, to it now becoming one. "We're in uncharted territories in how much money we're printing and bitcoin is a report card on that," he said.
Bitcoin is the ultimate risk asset. Any delusion that it would be uncorrelated with other assets evaporated as soon as institutional investors began to participate. In that respect I agree with Mike Novogratz, people buy it as a speculative asset. When money is being printed with abandon it is the asset that has increased most in value.
Why in the World Would You Own Bonds
This article by Ray Dalio may be of interest to subscribers. Here is a section:
…History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash. That makes cash terrible to own and great to borrow. Through their powers central banks can, at least temporarily, put a lid on interest rates and keep short-term interest rates low relative to long-term rates so that it becomes profitable to buy bonds with cash, which central banks abundantly provide which makes real interest rates very negative. For example, during the 1930-45 period the Fed kept the bond yield around 2.5% and the cash yield around 1%, which made it profitable to borrow cash and use it to buy and own bonds. While that can make holding bonds financed with cash profitable at low rates, under such circumstances both the cash rate and the bond rate are bad. Naturally, because cash rates are so low it pays to borrow cash and invest it in investments that are higher-returning. Back in the 1930-45 period, the Fed was able to keep yields there, and the way they did that was also through outlawing gold and the movement of capital elsewhere. So, when I look at it, while I want to be short bonds (because they have the most terrible fundamentals), I do know that central bankers can keep cash more terrible, and I do know that they might have to prevent the movement to other storehold of wealth assets and other countries.
There is a good reason large hedge fund managers have been buying trophy properties around the world. They wish them to be hedges against the potential for a significant devaluation in the purchasing power of their wealth. At the other extreme we have people like Elon Musk who just sold all his property (in California) because he is afraid of being taxed into oblivion. That suggests while some are betting on property as a hedge, the location in a friendly regulatory environment is likely to either make or break the trade.
Eoin's personal portfolio: from March 4th 2021
One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change.
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