The Wolf Den #634 - BlackRock Shows Their Hand
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In This Issue:
BlackRock Shows Their Hand
Bitcoin Thoughts And Analysis
Legacy Markets
Ethereum Staking Withdrawals Are Coming Soon
VC Flow Is Starting To Return
Jesse Powell Takes Issue With Binance Reserves
The EMAX Lawsuit Is Over
My Recommended Platforms And Tools
BlackRock Shows Their Hand
BlackRock needs no introduction.
The world's largest asset manager released their 2023 Global Outlook, titled “A New Investment Playbook.” They made the case that a “recession is foretold” and a “new playbook is needed.”
BlackRock’s analysis is brutally honest - there is no sugarcoating. Their reputation is staked on a handful of bold claims, which I am going to address below.
The playbook is centered around three themes, each revealing how BlackRock is navigating the current investment landscape.
Theme 1: Pricing The Damage
“Recession is foretold as central banks race to try to tame inflation. It’s the opposite of past recessions: Loose policy is not on the way to help support risk assets, in our view. That’s why the old playbook of simply “buying the dip” doesn’t apply in this regime of sharper trade-offs and greater macro volatility.”
“We expect them to stop hiking and activity to stabilize in 2023.”
How is BlackRock acting on this theory? They are adopting a mindset of “continuous reassessment.” It's no secret that the global economy is hanging by a thread, one that Central Bankers are at risk of accidentally fraying at any moment. Energy crises are real, there's war in Ukraine, COVID still lingers, peoples' savings are depleted, China is a wildcard and companies are cutting corners and laying off employees.
As BlackRock puts it, “rate-sensitive sectors” are the highest on the risk curve.
Housing is the most obvious.
To mitigate risk, BlackRock's strategy is to avoid the old mantra of simply "buying the dip.” Instead, BlackRock is taking a more measured approach and waiting for clearer signals. This leads us to the second theme.
Theme 2: Rethinking Bonds
“Fixed income finally offers “income” after yields surged globally. The case for investment-grade credit has brightened, in our view, and we raise our overweight tactically and strategically.”
“In the old playbook, long-term government bonds would be part of the package as they historically have shielded portfolios from recession. Not this time, we think.”
In other words, BlackRock is long short-term bonds. Their reasoning is that central banks aren't going to unwind rates with any particular speed or furor. BlackRock is expecting rates to stay higher longer, and the private sector will deal with this by buying bonds.
Theme 3: Living With Inflation
“There has been little debate about the damage to growth and jobs. We think the ‘politics of inflation’ narrative is on the cusp of changing. The cycle of outsized rate hikes will stop without inflation being back on track to return fully to 2% targets, in our view.”
“Plus, central banks may be forced to stop tightening to prevent financial cracks from becoming floodgates, as seen in the UK when investors took fright of fiscal stimulus plans. Result? Even with a recession coming, we think we are going to be living with inflation.”
BlackRock’s line of thinking is that the “politics of inflation” are soon to become the “politics of recession.” BlackRock says they are, “overweight inflation-linked bonds and like real assets.” BlackRock believes that inflation will be far stickier than perceived.
They mentioned 3 additional factors or “long-term constraints” that will keep the new regime in place: “aging populations, geopolitical fragmentation, and the transition to a lower-carbon world.”
BlackRock does not have a perfect track record, but they are generally considered the best in the business. To go public about their strategy means that they have serious conviction.
They included further findings on private markets, carbon emissions, and the effects of an aging workforce.
The entire report is a goldmine of information and is entirely free.
I highly encourage all of you to read it HERE.
Bitcoin Thoughts And Analysis
Bitcoin is up roughly 2% and bulls are once again declaring the bear market over.
But nothing has really changed.
Price remains below the key level of $17,592. A break of that would put price back in the range that it traded in between June and November.
Lower time frames show a chance that we could break the line.
HOURLY CHART
I rarely zoom in this far for the newsletter, so consider this a fun exercise and little more.
As you can see, price has basically been trading in three zones in December. Price pushed into the top zone yesterday on increased volume. Now it appears to be consolidating in a bull pennant, which would mean another move up is more likely than down. This would be confirmed with a break of the top descending blue line.
But... pennants often break down and form bull flags, meaning that the blue ascending support can break, make a lower low and form a flag.
Also, the green zone looked like bearish consolidation and ended up breaking to the upside. If price continues to chop sideways, we could see a move down and a "bart" pattern.
We are looking for a break of the top descending line. That should send price above resistance at $17,592.
Legacy Markets
"US equity futures rose Friday before a report on US producer prices that will be one of the final pieces of data to inform a rate decision by the Federal Reserve next week.
Contracts on the S&P 500 added 0.3% after the underlying benchmark notched its first advance this month. A European equity benchmark swung to a gain, paring its weekly loss to 1.2%. Asian equities headed for their sixth weekly gain, the longest such stretch in two years.
Treasury yields were little changed, with the 10-year rate just below 3.5%. The dollar erased a loss.
Investors are taking heart from any signs of softness in prices that may allow policymakers around the world to be less hawkish and more supportive of growth.
At the same time, Fed officials are leery of fanning stock rallies that ease financial conditions too much and thwart their inflation-fighting mission. Strategists have lined up to warn investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy.
“Central banks will rather be on the safe side when it comes to future inflation after having underestimated inflationary pressures last year,” Karsten Junius, chief economist at Bank J. Safra Sarasin Ltd., wrote in a note to clients, adding that a pause in rate hikes is some way off.
Friday’s US producer price index for November will offer a progress report on how effective the Fed’s campaign to quell inflation has been. The PPI in October cooled more than expected. And there are some signs the labor market has tempered, with continuing jobless claims climbing to the highest since early February.
“Traders will be closely watching today’s PPI data, with S&P 500 options markets pricing the largest potential move around any PPI release this year,” said Hugo Bernaldo, senior cross-asset trader at Optiver. “Investors will also be looking for clues in today’s data of how Tuesday’s more important CPI figures will come in.”
Key events this week:
US PPI, wholesale inventories, University of Michigan consumer sentiment, Friday
Stocks
Futures on the S&P 500 rose 0.3% as of 6:10 a.m. New York time
Futures on the Nasdaq 100 rose 0.4%
Futures on the Dow Jones Industrial Average rose 0.2%
The Stoxx Europe 600 rose 0.6%
The MSCI World index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0557
The British pound rose 0.2% to $1.2260
The Japanese yen rose 0.4% to 136.12 per dollar
Cryptocurrencies
Bitcoin rose 0.2% to $17,214.43
Ether rose 0.4% to $1,283.57
Bonds
The yield on 10-year Treasuries was little changed at 3.49%
Germany’s 10-year yield advanced five basis points to 1.87%
Britain’s 10-year yield advanced three basis points to 3.12%
Commodities
West Texas Intermediate crude rose 1% to $72.16 a barrel
Gold futures rose 0.3% to $1,807 an ounce"
Ethereum Staking Withdrawals Are Coming Soon
Ethereum developers have scheduled a tentative target in March for the release of a hard fork on the network, dubbed“Shanghai.” The hard fork, also known as EIP-4895, will allow coins to be unstaked and will also offer improved flexibility and convenience. Developers have agreed not to delay Shanghai, even if their current agenda proves to take longer than expected.
Beyond the Shanghai discussion, there are also plans to release "proto-danksharding," or EIP 4844, in the 3rd quarter, focusing on improving the network capacity.
VC Flow Is Starting To Return
According to Pitchbook, “through the first three quarters of 2022, 41% more capital flowed into crypto than the same period last year.” This amount totaled $20b across 616 deals, ranging from DeFi to Web3 and Layer 1s.
Surprising in the depths of a bear market, right?
A ton of dry powder has been sitting on the sidelines through the bear market, and VCs have a mandate to deploy capital. The fact that they are spending it now means that there is renewed confidence that the bottom is near.
Pitchbook pointed out that, “the ‘Ethereum killer’ has mostly faded over the past year, but we can still expect to see some jostling for some time.” Considering Ethereum’s lead in the Layer 1 space and its durability this winter, it would be a huge surprise to see any other protocol take a huge percentage of market share.
Jesse Powell Takes Issue With Binance Reserves
I recently wrote a full intro on the problem with proof-of-reserves and outlined why the issue isn't black and white. In that intro, I included Jesse Powell’s criticism of Binance’s attempt to prove their reserves.
The drama continues.
Jesse makes some very good points that are hard to ignore.
Proof of reserves are a difficult nut to crack, and we can never take an exchanges word at face value again. It is essential that we get this right.
The EMAX Lawsuit Is Over
EthereumMax was arguably the most egregious crypto "scam” ever promoted by big-name celebrities. The good news for those celebrities? The class action lawsuit alleging fraudulent promotion has been dismissed. Some of the high-profile names caught up in the scandal include Kim Kardashian, Floyd Mayweather, and Paul Pierce.
They're off the hook for now, which could set some precedent on how the legal system approaches these cases in the future,
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.
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