Sep 8, 2023

Risk assets, including crypto, seem headed for a goldilocks moment as new research from Chicago Fed economists suggest the U.S. central bank has raised interest rates high enough to cut inflation to its 2% target without sparking a recession. eToro US Investment Analyst Callie Cox discusses what this means for bitcoin (BTC) and the crypto markets at large.

Video transcript

Risk assets including crypto seem to be kind of going boring. Is kind of is the way I would describe it is going nowhere for a little while. Uh That's uh that's happening as new research from Chicago Fed economists suggests that the central bank has raised rates, interest, particularly fed funds rates enough to take care of that 2% inflation target without having a recession. Well, that's just one that's just one fed's opinion. What about everything else? Joining us now to discuss the e to us investment analyst, Callie Cox. Welcome back, Callie. Hey, happy to be back. Happy Friday. Oh yeah, you said it. Thank you. So I I let let, let's talk here economists here because and also fed fed presidents and, and the like because we kind of hear a lot of mixed messages. On the one hand here, we have a Chicago Fed economist saying uh yeah, this is enough. On the other hand, you hear from others like man, this there might be some room here, but it looks like the market kind of is betting and for the time being that September, no rate hike. First of all, I wanna get is it enough? Who, who do you think is right here? Second of all, will there be a hike? Are you gonna be an outlier here for September? Yeah. Two very good questions. So, let's start with the first one. Who's right. I don't, I don't know if the fed even knows what, what, uh, they're going to do in September. And I say this, uh, with a very serious undertone because, you know, the fed has said over and over again that they're data dependent. And yes, we do get mixed messages from fed speakers. I think that's one of the cons of, you know, having greater transparency from the FED these days. Um, you know, different fed members have different fed opinions. There are research teams at different fed banks, um, and I can say different things and I think the, the underlying, you know, motto that you need to grab from that is, you know, just be careful with what you listen to, um, on, you know, the rates part, you know, if we could see a rate hike in July, uh, excuse me, September, where are we, um, if we see a rate hike in September, you know, i it's plausible we could see it happen. But right now we're telling customers to focus on the fact that rates could stay high for a while because a 25 basis point rate hike if it happens, uh, is just a blip on the radar when you consider that rates have already been hiked 5% and there's already a lot of pressure on the economy. Yeah, I, you know, a couple of things on that point. First of all, I, I, you kind of almost missed the days when the only signals you got were like what briefcase, um, Callen Greenspan was holding. Uh, you're too young to remember that. But I, I remember that it was like different types of briefcases told us what could be happening like it became, it was like kind of a form of kremlinology. Another term you probably are too young to understand. Uh but it was a um and nonetheless that that's kind of like something that happened. And as you pointed out, it is maybe the fact that there is all this transparency particularly under Powell a problem, I mean, like is it, is it actually making things worse for the economy because people can't uh particularly the bond markets can't quite judge what's going to happen even more. So, I mean, it's sort of a is it, is it a, is it too much of a good thing? I actually think it's an effective tool from the Fed's point of view because the Fed can test out different policy stances and different, you know, ideas and see how investors and consumers react to them. Of course, that makes it more confusing for investors because you get more signals and people like to hang on to FED speakers every word these days. So I think it just depends on where you're sitting. And I, I also see some pros for investors too, you know, especially if you like trading volatility. Uh But, you know, it, it does require you to change your, you know, almost change your strategy when it comes to, you know, trying to read the Feds tea leaves. If you're a long-term investor and 99% of what the fed says doesn't really matter to you. And you need to focus on, you know, what you're seeing from the economy and earnings. Speaking of reading the tea leaves, it seems that economists are also divided on if a recession is looming in the US. What are your thoughts there? Yeah. So there's certainly a lot of pressure on the economy right now and we've been one of the more optimistic firms out there, you know, saying that the job market is strong, consumers are spending. It's really hard to be in a recession when consumer spending is 70% of the economy. And those two conditions are in place. Uh, obviously we're seeing the job market weakening. Uh, you know, I'm a little concerned about the pressure valves we're seeing in higher oil prices and a stronger dollar. I mean, both of those can drain the global economy and put a lot more pressure on consumers' wallets. So, you know, I see the, you know, bias towards cyclicals out there. I see the fact that speculative coins are picking up and, you know, we're just warning customers to be cautious here, you know, don't fully step out of risk. Um, but just be, be careful about the risks. You take, look for that quality risks or, you know, companies and protocols that could survive a recession if it happens. I getting back to this whole idea of risk, you know, here we are, we have the, uh, we have the fed funds rate at 5% probably headed north to, you know, further north. Um, what, uh, it doesn't that kind of create a, a hurdle rate for, uh, taking on that extra risk that, uh, some of these, these outliers, these alt coins just can't match, uh, given the cost of borrowing I, I, is, it, it, is there a long term problem uh ahead for alt coins? Uh, and, and by all coins, I don't just mean, uh, you know, kind of like the, the bottom of the barrel. I'm talking about some of the top, top twenties. Is there, is there something to be, um, I don't know, just kind of like, er, maybe that's just a risk too far. Yeah, Lawrence, I think you hit the nail on the head there when rates are high, investors have to be more skeptical about where they put their money because that hurdle rate is higher. I mean, we've seen that since the beginning of 2022 when the FED started raising rates and if rates remain at 5% or even higher than 5% for a bit, that hurdle rate is 5%. And investors are faced with this choice of, you know, putting money into a money market fund, getting 5% or a little bit more and, or, you know, taking the risk at higher rates and stepping into an all coin that's a little more speculative. Um, and that is essentially a projection of the future. Um And we all know the time value of money, you know, when rates are high, the future of a value dollar, uh the value of future dollar decreases. So take that all into consideration, there's less money out there, less appetite to take on risk. And you know, when there's a finite amount of money, a finite amount of funding, it may flow to more quality sources. And that's the base of our opinion here. I mean, look all coins are exciting. Um I understand the, you know, the reasoning and investing behind them and I think, you know, the types of investors who invest in them like to learn more and they like a little bit of action. Uh But at the same time, you know, if you're a long-term investor, you have to realize that all coins are a little behind the eight ball here. Um And they're at a disadvantage because they don't have that utility yet. They don't have, you know, those cash flows that people will, you know, search for in a high rate environment. All right, we got to get Bitcoin into the fold here before we go, you have a few encouraging storylines about Bitcoin, talk to us about what those are. Yeah. So speaking of utility, I mean, I think it's very encouraging for crypto ambassadors that we keep seeing headlines about how Bitcoin is finding its way into the mainstream market. I mean, yesterday we saw the news that JP Morgan was considering um decentralized tokens for, you know, showing different securities. Um Of course, we got the gray scale ruling last week. I mean, all of these are evidence that, you know, institutions are looking into Bitcoin. You know, we're taking it steps further and I'm not a Bitcoin Maxi, like let me be clear here. But when you look at crypto as a whole, you need to understand that there are different levels of risk there. Um And you know, I've been saying for a while, you know, crypto needs to prove its utility. I think it's happening in certain spaces and we're seeing that most prominently with Bitcoin and Ethereum and, you know, specifically Bitcoin over the past few weeks. All right, Kelly, thanks for joining us. It's always a pleasure having you on. I hope you have a good weekend. Yeah. Thank you y'all too. That was it to us investment analyst, Kelly Cox.

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