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Market Lab Report - Failure to Pivot Brings Pivotal Failure

Market Lab Report / Dr. K's Crypto-Corner

by Dr. Chris Kacher

Bringing Billions to Blockchain via Quantum Poodles™


The Election

Markets hate uncertainty but have been rallying due to QE being an inevitability. Betting markets including the TrumpWins cryptocurrency have priced in a victory for Biden. A divided Congress instead of an all-blue Congress will come as a relief to markets, even should Biden emerge as the next President. Nevada remains a pivotal state based on the remaining percentage of uncounted votes though things are looking more likely that Biden will take Nevada.

Should Biden win, he is bad for the economy with higher taxation and bigger government. His $4 trillion tax plan would increase capital gains for the highest earners from 23.8% to 39.6% if passed, the largest real increase in capital gains in history. Trump, on the other hand, is good for the economy with his low tax, smaller government policies. It then follows that a Trump victory would be bullish for markets while a Biden victory would be bearish.

Trump tweeted the other day about how his lead “magically” disappeared, setting the stage for a contested election which would likely spell further volatility ahead for stocks. Trump has said he would take the election results to the Supreme Court should Biden be declared the winner. This would be a tense situation which could push both stocks and bitcoin lower in a hurry since during sharp bearish reactions, everything gets sold. But over the longer run, regardless who is declared the winner, a stimulus package is inevitable so ultimately this is long term bullish for markets, hard assets, and bitcoin. Meanwhile, the Bank of England on Thursday announced a bigger-than-expected boost to its bond-buying program. The bank said it will inject an extra £150 B into the economy taking the total to £875 B as it said the lockdown will lead to a double-dip recession. The vote among the 9 policymakers was unanimous.

Bitcoin

Over in the corporate world, Apple has a massive war chest of $192 B in cash that needs to go somewhere. But that is just a drop in the ocean. Michael Saylor of Microstrategy says there is a $250 trillion ocean of assets looking for the ideal store a value right now, and bitcoin is a better store of value than gold or tech stocks, so “a lot of that monetary energy is going to flow from the asset ocean into the crypto pond.” Further catalyzing the transformation from traditional into digital is the dizzying pace of crypto adoption. You can buy a number of cryptocurrencies on PayPal with dollars and charter banks in the U.S. can now custody cryptoassets.

Gold

While gold has always been a good bet against inflation and falling fiat, a chart shows how bitcoin has outperformed gold. The timeline runs from when bitcoin first started trading in late 2009, which was when its price was still well above where it was priced when it came online in January 2009, to where it stands today.


The publisher Zerohedge also showed a chart of the Exxon vs. Zoom market cap. The gap is narrowing between the two companies. A comment made by a well known crypto analyst was that a bunch of similar charts also show how the industrial age is passing power to the digital age. Gold is the next milestone when store of value will be in digital form for the age that lies ahead.


Indeed with all the tipping points before us, waves of evolutionary transformation are at hand. Failure to pivot brings pivotal failure.

Correlations

Stocks, gold, and bitcoin had been closely correlating this year as quantitative easing ran amuck. With more QE, the higher the prices. All ran inversely to the U.S. dollar. While the next stimulus package is still being debated, more stimulus is inevitable. It's just a question of when, though sooner than later as the gap between the Democrats and Republicans in terms of stimulus dollars continues to narrow. Thus the long term uptrend in stocks and bitcoin should continue onwards and upwards after this relatively brief pause. Bitcoin, on the other hand, has decoupled from stocks over the last month for the first time in 2020 as a consequence of major events mentioned earlier and discussed in prior reports.

QE Historically

Stocks which fund managers must buy to keep up with their bogies will also continue to benefit based on a century worth of history that shows whenever the Fed and other central banks provided massive rivers of liquidity, stocks benefited at the cost of fiat which devalued. This was just as true in 1932 and 2008 at market lows as it is today.

In extreme circumstances such as in Zimbabwe, its stock market was a massive rocket ride against a plunging currency. Hard assets, stocks, precious metals, and bitcoin should continue to benefit from record levels of stimulus. Negative interest rates which have been seen in the EU, Japan, and other regions are the next nail in the currency coffin for the U.S. Expect the Fed to push rates below 0% sometime in the first half of next year. This is based on the long term 10-year Treasury chart dating back to 1980. On a log plot, a straight line can be drawn shown the downtrend in yields since they peaked in the early 1980s remains intact, and are about to go negative.

But don't expect the bubbles to blow apart just yet. They may not have to if technologies growing exponentially get their way. Keep a close eye on price/volume action in the major indices and leading stocks as all major corrections give warning signs ahead of any crash. This was true in 1929, 1987, 2008, and other collapses in market price. Nevertheless, the longer new stimulus is withheld from the markets, the further stocks and gold may fall, and maybe even bitcoin despite its recent decoupling, so always obey your stops.

Jack Dorsey of Twitter and Square has said bitcoin will empower a whole new generation of people who are part of the "have-nots". Michael Saylor of Microstrategy recently said, "There 932 million people in countries with collapsing currencies. Bitcoin is the ark of encrypted energy to escape the flood of a currency collapse." Indeed, bitcoin is having a material impact on the democratization of finance.

Remember that what has been considered safe in the past is no longer. Things change. A growing number of negatively yielding savings account eat away at your principle, not to mention what inflation does to your buying power. And just because you have your capital sitting in real estate or gold does not mean it is 100% safe. Over the last century, 95% of regimes have failed. Even without such failures, currency controls are standard. Michael Saylor tells a story about how many years ago, he had a million dollars sitting in pesos in Argentina. He was able to convert it back into dollars but was not allowed to move it out of the country. Shortly thereafter, the government passed a law which required banks to convert all U.S. dollars into pesos which forced his dollars back into pesos. The government then broke the peso:dollar peg and reassigned the value of the peso at 1/10 of what it was to the dollar. Only then did the government allow dollars to move out of the country, but at a 30% fee. So his million dollars became worth about $70,000.

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