Pro Perspectives 3/9/22
March 9, 2022
The risk environment had a huge bounce today. But don’t get too excited.
Remember this chart (we looked at last month) …
After two years of a liquidity deluge, we’re now seeing the effects of illiquidity on markets. Translation: The swings become exaggerated.
By this time tomorrow, markets will have digested another big CPI number. And as we’ve discussed, with oil prices gapping higher, people will begin to extrapolate out the next CPI print (for March). It will be bigger (likely, much bigger), not smaller.
On the Russia/Ukraine front: Headlines will continue to create confusion/ whipsaw in markets. Overnight there was (again) talk that a potential cease fire was coming, and perhaps a concession on Ukrainian territory.
The safe assumption: This won’t be a two-week war.
Back in 2014, when Russia annexed Crimea, the timeline was nine months, and the scale of global escalation is far greater this time.
With the above in mind (existing inflation + further commodity supply shocks, driven by geopolitical strife), dips in commodities prices (and commodity stocks) are a buy.
What’s not a buy? Bitcoin.
Bitcoin rallied today on an executive order from Biden to “ensure the responsible development of digital assets.” This followed a statement last night, in kind, by the U.S. Treasury.
This got the crypto-enthusiasts excited, as they assumed this meant the government is taking steps toward accepting and legitimizing private cryptocurrency. It’s precisely the opposite. As the executive order says, “sovereign money is at the core of a well-functioning financial system, macroeconomic stabilization policies and economic growth.”
The government wants to regulate away private crypto and strengthen their monopoly on money through a “central bank backed digital currency.” Remember, back in June of last year, Elizabeth Warren held a hearing on this. Warren made it clear that a central bank-backed digital dollar
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