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In This Issue:
The Demographics of Wealth
Legacy Markets
Kraken Still Plans To Launch A Bank
Grayscale Goes To War
Epic Twitter Spaces Today
The Demographics Of Wealth
The cryptocurrency market has encountered a sudden deceleration, leaving Bitcoin's price activity inexplicably stagnant. Such a scenario typically leads to a dearth of news as market participants await either a significant development or a precipitous price swing. As we bide our time, I would like to delve into a subject I have pondered for some time and have found a fitting opportunity to do so amidst this current lull.
Let’s discuss the demographics of wealth. Here are the different generations (by U.S. standards) and their age ranges.
Gen Z: born between 1997 and 2013 - ages 11 - 26
Millennial: born between 1980s or 1990s - ages 27 - 42
Gen X: born between 1965 and 1980 - ages 43 - 58
Baby Boomer: born between 1946 and 1964 - ages 59 - 77
Silent Generation: born between 1928 and 1945 - ages 78 - 95
If one were to assume that affluence accumulates with each successive generation, peaking before retirement and subsequently dwindling, their intuition would be correct. The Federal Reserve has provided compelling statistics on this subject, which I have shared below.
According to Q3 2022 data, the distribution of wealth by generation (in trillions) is as follows: Baby Boomers - $75.81, Gen X - $46.4, Silent and earlier - $17.72, and trailing behind, the Millennials at $14.08. It is worth noting that the emerging Gen Z cohort is not included in this assessment, primarily due to their relatively negligible global wealth, and potentially even negative net worth when considering their debts.
Below is a visual, taken from the Federal Reserve’s site, which includes additional details breaking down wealth distribution.
An initial observation suggests that the significant wealth held by Baby Boomers may trigger a market sell-off, as they liquidate their assets to support their retirement. However, this conclusion is flawed, and several factors suggest that such a scenario is unlikely.
A comprehensive explanation of this matter is intricate, but I will expound upon a few reasons why the market will likely not experience a sell-off due to the retirement of Baby Boomers. Firstly, the data in question is widely disseminated and accessible, leading to its already being priced into the market's current state, should this theory be accurate. The market always anticipates upcoming events, as noted by the esteemed American Economist Robert Shiller, who aptly stated, "The stock market is the best leading indicator of the economy and the best leading indicator of earnings."
“If life-cycle savings patterns alone were to be the dominant force in the markets for savings vehicles, there would tend to be strong correlations in price behavior across alternative asset classes, and strong correlations over time between asset prices and demographics. When the most numerous generation feels they need to save, they would tend to bid up all savings vehicles: stocks, bonds, and real estate. When the most numerous generation feels they need to draw down their savings, their selling would tend to force down the prices of all these vehicles. But when one looks at the long-term data on stocks, bonds, and real estate, one finds that there has in fact been relatively little relation between their real values.”
The second reason why the market is unlikely to experience a sell-off from the retirement of Baby Boomers is that a significant portion of this generation is still accruing wealth and earning dividends, which are reinvested rather than used to fund retirement. As the Baby Boomer demographic continues to age, they will inevitably begin selling off their assets to support their retirement. However, this process will likely occur gradually over an extended period, given the expanding lifespan of this generation.
Thirdly, the evolution of technology and global interest in finance has made wealth transfer easier than at any other point in history. The ease of transferring retirement accounts to children may eliminate the need to sell off assets entirely. It is also worth noting that Millennials are entering their prime investing years, which should counterbalance any sell pressure caused by the previous generation, contributing to sustained growth in the housing market in the long run.
The pivotal inquiry is not what a particular generation will do, but rather what the top 1% and 10% of earners will do with their wealth. Historical data suggests that they are inclined to hold onto their wealth, pass it down through generations, and only liquidate a minute fraction of their assets to support numerous future generations. Considering this factor alone, the notion of a market sell-off triggered by the retirement of Baby Boomers seems unfounded.
Although I am simply an armchair economist, my personal assessment is that there is no read to fear a synchronized sell-off orchestrated by individuals of advanced age. Current investors are not beholden to their predecessors' actions, as demonstrated by historical data. Instead, the primary focus should revolve around the prospect of cryptocurrency acquiring a substantial portion of the world's wealth, as a new generation begins to embrace its potential.
Do you think that digital native Millennials and younger generations are going to buy bonds or Bitcoin?
This shift from an older demographic that does not grasp the concept to a younger one that does is likely to define the next decade's narrative.
Legacy Markets
Global stocks inched higher on Tuesday, with the S&P 500 expected to bounce back after erasing gains on Monday. Investors are looking to see what Federal Reserve Chair Jerome Powell will say at his Congressional testimony later in the day. Some remain cautious after losing money on past inflation peaks, and until there is more clarity on interest rates and recession, traders are reluctant to push the S&P 500 index higher. Wells Fargo Emerging Markets Economist Brendan McKenna said a dollar shortage is crimping access to materials and medicine in developing countries. Meanwhile, quants are leading the way in the stock market, with Wall Street’s best week in a month thanks to commodity trading advisors buying $12bn of equities on Thursday and Friday, per Nomura Holdings.
Key events this week:
US wholesale inventories, consumer credit, Tuesday
Fed Powell’s semiannual Monetary Policy Report to the Senate Banking Committee, Tuesday
Euro area GDP, Wednesday
US MBA mortgage applications, ADP employment change, trade balance, JOLTS job openings, Wednesday
Fed Chair Powell’s semiannual Monetary Policy Report to the House Financial Services Committee, Wednesday
Canada rate decision, Wednesday
EIA crude oil inventories, Wednesday
China CPI, PPI, Thursday
US Challenger job cuts, initial jobless claims, household change in net worth, Thursday
Bank of Japan policy rate decision, Friday
US nonfarm payrolls, unemployment rate, monthly budget statement, Friday
Some of the main moves in markets :
Stocks
S&P 500 futures rose 0.1% as of 6:57 a.m. New York time
Nasdaq 100 futures rose 0.2%
Futures on the Dow Jones Industrial Average were little changed
The Stoxx Europe 600 was little changed
The MSCI World index was little changed
S&P 500 futures rose 0.1%
Nasdaq 100 futures rose 0.2%
The MSCI Asia Pacific Index fell 0.1%
The MSCI Emerging Markets Index fell 0.3%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.0657
The British pound fell 0.3% to $1.1988
The Japanese yen fell 0.1% to 136.07 per dollar
The offshore yuan rose 0.1% to 6.9416 per dollar
Cryptocurrencies
Bitcoin fell 0.3% to $22,336.55
Ether fell 0.2% to $1,562.96
Bonds
The yield on 10-year Treasuries declined three basis points to 3.93%
Germany’s 10-year yield declined eight basis points to 2.67%
Britain’s 10-year yield declined seven basis points to 3.80%
Commodities
West Texas Intermediate crude fell 0.5% to $80.03 a barrel
Gold futures fell 0.4% to $1,847.30 an ounce
Kraken Still Plans To Launch A Bank
Amidst the murky regulatory landscape, Kraken, undaunted by uncertainty, has opted to follow the adage of seeking forgiveness rather than seeking permission. Although Kraken’s banking infrastructure remains shrouded in secrecy, we do know that it is slated for launch in the United States exclusively for existing Kraken clients, with the possibility of expanding globally in the future.
Kraken, the world's third-largest cryptocurrency exchange by volume, is under increased scrutiny from regulatory bodies due to its immense stature. The Securities and Exchange Commission (SEC) is currently investigating Kraken for purportedly offering unregulated securities, while simultaneously encountering issues with Signature bank. Nevertheless, Kraken has decided to take the plunge into this high-risk, high-reward arena, a bold decision by all accounts.
Grayscale Goes To War
Click Here To Access The Livestream
Grayscale, the leading digital currency asset manager, is poised to challenge the SEC's earlier rejection of GBTC, with the company's senior legal strategist, Donald B. Verrilli Jr., leading the argument. Since Grayscale's initial rejection by the SEC in June 2022, the firm has continued to pursue legal action, including a lawsuit against the regulator for unfair treatment. The upcoming hearing represents an opportunity for Grayscale to present its case, which is based on the argument that the SEC has failed to apply consistent treatment to comparable investment vehicles, and is therefore engaging in arbitrary and capricious behavior that contravenes both the Administrative Procedure Act and Securities Exchange Act of 1934. Despite having a robust argument, the outcome remains in the hands of the judges presiding over the case.
Epic Twitter Spaces Today
We are making a move to twitter spaces! If you have been following me, you likely know that I will be doing a few less livestreams on YouTube, with a new focus on Spaces. The reasoning for this is that my most popular content is roundtable discussions, which are more easily facilitated on Twitter. We can bring up incredible guests for hours without minimal friction.
We are launching today at 11 AM EST, with an epic panel and likely more joining - Mark Yusko, Caitlin Long, John Deaton, Greg Foss, Steve McClurg and more.
We will be discussing regulatory overreach and the industry’s response.
You can set an alarm and join today RIGHT HERE.
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.