Is It Time to Get Bullish?
Major publications like The Economist say we’re heading towards a deep recession in 2023. Is it a bearish or bullish signal?
Before we move on, it’s important to remember two things: markets are forward-looking, and the risk-on assets perform the best when credit is cheap.
Combining the two factors, some crypto investors want to front-run the injection of liquidity into the economy (lowering interest rates). Ironically, the worse the U.S. and the global economies are doing, the better the chances that the Fed will be forced to pivot, which will be a positive sign for assets like tech stocks and crypto.
The question then is: is the economy in a bad enough shape?
First, let’s look at the very apparent factor: holiday season sales. Despite some gloomy predictions, shoppers spent more this holiday season than last year. That’s not good for inflation, and that’s what the Fed fights: fewer people should be able to afford to spend on stuff.
The most straightforward way to discourage spending is to have people earn less or even force them out of their jobs. High interest rates worked to some extent, but the job market remains strong. Hence, it’s too early to be bullish.
On the flip side, some of the spending this holiday season was fueled by buy now, pay later schemes, which is not a good sign for consumers’ ability to spend in the future. Meanwhile, the real estate market and the banking sector are getting hammered.
Real estate and banking contain players that are “too big to fail,” so if high interest rates continue to crush them, something may start breaking, and the Fed will have to step in. That’s what happened in 2007-09.
On top of that, the global economy started showing signs of contraction. Although Europe and Asia are suffering the most, it’s overall a good sign for demand cooling off and inflation coming down. Hence, the Fed might not need to increase rates aggressively anymore.
The recent speech from Jerome Powell, while hawkish, induced optimism in the stock market. That’s because the markets are forward-looking. Even a slowdown in the interest rate growth is viewed as a sign of an imminent pivot.
To sum it all up, it might soon be a good time to front-run another round of quantitative easing by buying crypto. The state of the job market will likely be a reliable proxy for anticipating the Fed’s pivot. For now, it seems it’s still too early to get bullish.
SIMETRI Portfolio – November Dip
Disclosure: The author of this newsletter holds ETH. Crypto Briefing and members of the research team hold some of the Pick of the Month coins mentioned in the table above. Read our trading policy to see how SIMETRI protects its members against insider trading.