The Market is Pivoting, Not the Federal Reserve

“Fed Watch” a macro podcast that is true to bitcoin’s rebellious nature. In each episode, we question mainstream and Bitcoin narratives by examining current events in macro from across the globe, with an emphasis on central banks and currencies.Watch This Episode On YouTube Or RumbleListen To The Episode Here:AppleSpotifyGoogleLibsynIn this episode, CK and I cover our reactions to the FTX debacle, the latest consumer price index (CPI) numbers from the U.S. and the new central bank digital currency (CBDC) pilot by the Federal Reserve and banks. We briefly touch on the G20 meeting at Bali, but we run out of time and don’t go into detail. CPI Numbers from the U.S. I have some details about the data this week. October’s headline CPI increase was +0.4%. This is almost half the CPI Nowcast projection by the Cleveland Fed of 0.76% and well below the industry forecast of 0.6%. It shocked the market and stocks rallied strongly. This was a very positive move for the industry. The correlation between bitcoins and altcoins won over bitcoin’s relationship with stocks. This is evidence that bitcoin is not oversold fundamentally. Shelter was the largest component of the monthly CPI increase and accounted almost for half of it. On the show, I spent some time explaining why the shelter component is expected to lag by 12-24 month. CPI would have been 0.2% without the addition of the lagging housing sector. Annualized, it is 2.4%. The YOY variation does not recognize directional changes such as peak CPI. It can be viewed as a 12-month moving cumulative change, similar in concept to a moving average. In the first few periods, a sudden qualitative shift will have minimal impact on the 12-period cumulative moving change. The new trend will only be established once the 12-period average clearly communicates the data. Annualizing the last four months gives you 2.7%, not 7.7%. Don’t forget that half the recent price rises are due the lagging shelter component. ChartsIt is not difficult to say that the current rate for price change is below 2% annually. I will not cover all of them here. The breakout of the pattern can be clearly seen, as well as the ensuing FTX dump. The horizontal zone was previously support and turned into likely resistance. I also added a greenline to denote the price resistance level with the highest volume, $19,000. The chart shows the current rally, top, and possible new higher range. The behavior of the Dollar is expected to be similar to that of the period after the Global Financial Crisis (GFC).Dollar chart showing new range and ghost pattern. This chart was created from the 2015 high. As you can see, the behavior has been very similar to 2015, when the dollar rallied up to the 1.618% Fibonacci extension. After that, it was range bound. I have attached a copy of the pattern with the tops matched up. As the financial system slowly recovers from the severe dollar shortage, I expect the dollar will remain range bound. This recovery can be seen in many currency charts such as the Hong Kong dollar and the Japanese yen. We spent a few minutes discussing this chart. The Fed Funds target range has been reached for the first time this cycle. This is the first time that the 5-year and 10-year Treasury yields have entered it. The 10-year Treasury yields have fallen below the reverse purchase agreement (RRP), rate of 3.8%, and the lower limit Fed Funds rate of 3.75%. This is a significant change and a key component of my analysis of Fed’s monetary policies going forward. The Fed will pivot if rates stop listening to Jerome Powell. Federal Reserve Digital Dollar Pilot. We were surprised to learn that the Federal Reserve is partnering with banks to test a new dollar CBDC. “Fed Watch” has been clear that we don’t expect the Fed approve the use a CBDC. Instead, they will legitimize USD stabilitycoins and bring them into the Federal Reserve system. It is worth reading in its entirety. “The proof-of-concept (PoC), project will test a version the regulated liability network design that operates only in U.S. Dollars. Commercial banks issue simulated digital money, or “tokens”, representing their customers’ deposits. Then, they settle through simulated central banking reserves on a multi-entity distributed ledger. I don’t blame anyone if you don’t understand the word salad. CK and me are bitcoin experts and can barely follow it. The pilot program does not show that the Fed is near a CBDC. We believe that Jerome Powell will not continue down this path with the Fed, but they must act quickly to make their intentions known and bring USD stablecoins to the fold. Otherwise, the next chairman might take globalist leanings. We recommend that you read it in its entirety. Three points are important. First, the U.S. dollar payment scheme is very good and is improving every day. The potential benefits of a Federal Reserve CBDC have yet to be determined. Third, I think that developing a CBDC could pose significant risks. “We cover the G20, but we don’t have the time or resources to fully understand it. Here’s a link to The Guardian’s five takeaways of the G20 meeting. This is Ansel Lindner’s guest post. These opinions are not necessarily those of Bitcoin Magazine or BTC Inc.

 

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