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In this episode of Bitcoin Magazine“Fed Watch” podcast, Christian Keroles and I met Dylan LeClair from Bitcoin Magazine‘s Deep Dive once again. LeClair is one of the people most familiar with the niche between market techniques and bitcoin fundamentals. It was great picking your brains out on the Federal Reserve’s current cut and the environment in which it is cutting rates. I’ve included as many of the graphics we’ve covered below, but you can also check out the episode on YouTube to see our screen shares.
LeClair was kind enough to share the link directly to his slides here, or check out below in the “Links” section.
Fed Taper and other central banks
It is our role here at “Fed Watch” to keep you abreast of the state of central bank affairs and to add our own ideas to these events. That’s what we did with the Fed cone in this episode.
Most likely, the Fed will announce a cut later today. This is consistent with several other central banks around the world, but not with the major ones. The European Central Bank (ECB) is not currently declining and has even considered increasing its quantitative easing (QE) base at the end of the Emergency Pandemic Purchase Program (PEPP); the Bank of Japan (BOJ) does not intend to reduce one day; and the People’s Bank of China (PBOC) is fighting a credit collapse by increasing central bank “stimulus”. However, the next level of central banks UK, Canada, Brazil, Russia etc are talking about tapping or already have and talking about raising rates.
Is the Fed about to make a huge misstep in tightening in a slowing economy and what could be an ongoing recession? What does the bond market say?
Inversion of the US Treasury yield curve
Bonds are signaling that “something is wrong” as Fed Chairman Jerome Powell’s announcement of the cut approaches. On the show, I pointed to several bond yield charts. The first is the inversion on the long end of the curve, 20 and 30 year bonds. The curve is supposed to have a gentle upward slope, when there is a reversal it indicates that investors are expecting something out of the ordinary, or “something is wrong”.
There is another small reversal on this chart at the extreme short, between the one month and three month bills.
Then I showed the breakeven reversal, these are for TIPS, or Treasury Inflation Protected Securities. This number eliminates most of the inflation-related arguments about different rates. There is currently a reversal between breakeven points at 5 and 10 years. And this is the most reversed in the history of these products!
I have spoken to the public about it because it is the very volatile and fragile environment that the Fed is about to sink into. Bonds signal that things are about to get complicated. This puts the Fed in a very difficult position. He signaled that it was going to fade, so it sort of had to or people would lose confidence; but the economy is definitely turning south as we speak, so the Fed will appear to be mindlessly sinking into a downturn which will cause people to lose confidence as well.
No matter what Powell announces today about tapering, QE doesn’t really affect fundamentals. We know what’s coming, and it’s a noticeable turning point in the economy, perhaps a return to recession.
Who will be named as the next chairman of the Federal Reserve?
For now, it still seems very likely that Powell will be re-appointed as Fed chairman, according to the Predictit website. But Powell’s decision today on the reduction, and the outcome of that decision, could play a big part in that nomination.
From my perspective, I see Brainard more as the Globalist / Davos choice, but the US has drifted away from that consensus throughout the year. If Powell gets the job again, it will strengthen the American pivot in geopolitical affairs in my opinion, and also block any plans to drag the Fed into a central bank digital currency (CBDC).
Deep dive with Dylan LeClair
We spent quite a bit of time going through some charts LeClair brought us from their last October edition of Deep Dive. The former examine long-term bearer measurements and what they can tell us about which phase of the cycle we are in. It seems most are pointing out that this shallow consolidation on the chart was a massive consolidation on the network stats. .
Here are several charts, but check out the linked slides for larger versions:
Finally, we discussed the facets of bitcoin futures markets. The CME is taking market share through new exchange-traded funds (ETFs). We respond to the effects of this change on the market and take a look at some charts provided by LeClair.
This conversation was well linked to Bitcoin’s perpetual term funding rate. The invention created by bitcoiners for the bitcoin market provides a fascinating new measure, and yet another distinguishing factor between gold and bitcoin.