Bobby Lee started the world's biggest crypto exchange at one point—BTC China—then sold it to move on to new ventures. Hear from him about his next thing, as well as an insider's look at the Chinese crypto markets. Bobby then sits down with CoinDesk. Subscribe to CoinDesk on YouTube: http://www.youtube.com/subscription_center?add_user=coindesk Site: https://www.coindesk.com
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Amidst a slight pullback in the U.S. stock market, Ed Yardeni, president of Yardeni Research, said that the S&P 500 is expected to see a big breakout heading into 2020, predicting an increase to 3,500 points.
The S&P 500 slightly dipped on Friday as the U.S. stock market experienced a swift sell-off. | Chart: Yahoo Finance
Currently, the S&P 500 stands at 2,992 points after a sell-off on Friday and a rally to 3,500 points would indicate a 17% increase.
Why Yardeni sees swift recovery for S&P 500 and the rest of the U.S. stock market
As reported by CCN, the U.S. stock market experienced a slight correction on Friday’s session following the cancellation of a meeting by China with U.S. farmers in Montana.
The Dow Jones plunged by 159 points below the key 27,000 level, leaving the U.S. stock market vulnerable to a further pullback.
The expectations of investors for more progress in the U.S.-China trade talks have increased in recent weeks and strategists believe that the majority of the discussions have already been priced into U.S. equities.
Still, Yardeni stated that the sell-off of the stock market on Friday does not present a threat towards the short to medium term momentum of the S&P 500 because bears seem to be losing a strong hand over the market.
The analyst stated that Friday was a critical opportunity for bears to apply more sell pressure on the S&P 500 and the U.S. stock market to intensify the downward movement.
However, he noted that the sell-off was not as intense as it could have been, suggesting that the S&P 500 and the equities market are likely to recover swiftly in the upcoming weeks.
“That would have been a good opportunity to have a significant sell-off. Instead, it was pretty puny. The market is hanging in there and should do better over the rest of the year,” he said.
Can trade progress remove pressure on markets?
The United States and China are set to resume face-to-face trade negotiations next month. | Image: REUTERS/Aly Song/File Photo
Insider journalists in China, including Global Times chief editor Hu Xijin, said that China is not anxious to reach a deal and that if the U.S. believes China’s “goodwill” gesture as a sign of weakness, a deal is unlikely to come into fruition.
“Both China and the US should cherish the current talks. Many U.S. officials easily misread China’s goodwill, think it shows Beijing’s weakness. China doesn’t like talking tough before the negotiations, but I know China is not as anxious to reach a deal as the U.S. side thought,” Xijin said.
But, with goodwill gestures having been made from both sides since early September, a partial deal between the U.S. and China has become increasingly likely, which would alleviate most of the pressure on Wall Street.
The slight drop in the momentum of the S&P 500 and broader equity markets has been fueled by the struggle of the manufacturing sector, which according to ING chief economist James Knightly has entered into a recession.
As the manufacturing sector rebounds with growing progress in the trade talks, the S&P 500 could aim for record highs once again, as Yardeni noted:
“The economy is doing fine and the fundamentals for stocks moving higher are still intact.”
President Donald Trump also emphasized that the economy has been seeing record high numbers, expressing optimism towards the medium term growth trend of the U.S.
In August, the manufacturing sector demonstrated some signs of recovery following a dismal stretch the second quarter of 2019. The performance of the manufacturing sector could act as a potential variable in the short term trend of the U.S. stock market in the coming weeks heading into the upcoming round of trade talks.
September 22, 2019 1:06 AM
Last week, the Federal Reserve leveraged one of its tools for tinkering with U.S. financial markets — one that it hasn’t used since the Great Recession.
The New York branch of America’s central bank financed some $278 billion worth of repurchasing agreements (repo) from September 17 to 19, 2019. For some market watchers, the move raised an alarm because, as Nobel laureate Paul Krugman put it, the financial turmoil that necessitated this intervention “was at the heart of the 2008 financial crisis.” Still, other economists have posited that the cash injections came in response to a hiccup and that markets are doing just fine.
That “hiccup” was a spike in the overnight money market interest rate in response to a cash crunch. Typically, this rate stays on track with the Federal Reserve’s fed funds rate — an interest rate set by the Federal Reserve to guide the lending rates for bank-to-bank loans. At the beginning of the week, the money market rate decoupled from the funds rate — surging from the target 1.75 to 2 percent rate to 10 percent. By pumping more dollars into the cash-strapped lending market, the Federal Reserve brought the market money rate back in line with its funds rate.
What started as a single act on September 17, 2019, has now snowballed into four straight days of repo agreements to inject more than a quarter of a trillion dollars’ worth of capital into the system. Naturally, Bitcoin Twitter has been in a frenzy about these so-called repo agreements. Here’s how they work, why they were “necessary” (in the Fed’s eyes) and what they might mean for the overall economy.
What Is a Repo Agreement?
Repo agreements are rudimentary bank-to-bank lending agreements that take place every day behind the scenes of the economy. These agreements are one-day, typically overnight, loans that are backed by Treasury bonds or mortgage-backed securities.
These ad hoc loans are taken out only if the bank doesn’t have enough assets on its balance sheet at the end of the day to meet the reserve requirements mandated by the Federal Reserve. To correct this, the bank takes out a repo loan from another bank and puts up bonds and other securities as collateral. Once the borrowing bank has more cash in reserve the next day from payments and other operations, they pay back the repo loan with interest.
It’s important to understand that banks are constantly shuffling loans from one to the other for longer periods of time or for periods as short as a day (as evidenced by repo agreements). This so-called money market is the backbone of the U.S.’s lending ecosystem and, by extension, the economy; if it gets bent or broken, the wider consumer borrowing market is sure to fracture as well.
This is why the Federal Reserve stepped in: to lubricate the system with fresh cash to make sure it didn’t grind to a halt. At the beginning of the week, the lending rate for the repo market rose well above the funds rate set by the Federal Reserve, leaping from the Fed’s target of around 2 percent to a staggering 10 percent in a day. It should be noted: the Fed lowered interest rates this week from 2 to 2.25 percent to 1.75 to 2 percent. This rise pointed to a cash crunch, as banks were less willing to lend their peers money at the Fed’s target rate, so they began charging higher rates.
In response, the New York Federal Reserve stepped in to buy these repo agreements within its target rate to inject the market with emergency capital and bring down the rising interest rate. Banks bid for the Federal Reserve’s money by pawning off securities (mainly Treasury bonds and mortgages) as collateral in return for cash loans. As a result, the Federal Reserve pumped $53.2 billion into the market on September 17 and $75 billion on September 18, 19 and 20 for a whopping $278 billion — more than one-third of the money spent on President Obama’s stimulus package in 2009.
Why Did This Happen and What Does This Mean?
These are the million-dollar crystal-ball questions, and analysts, economists and journalists of various camps have divined their own tea leaves to determine what this means for the broader well-being of the economy.
The reason for the Fed’s repo action is clear: Banks weren’t lending to each other as easily because there wasn’t as much cash to go around. Why banks were cash-strapped, though, is another question entirely.
And the answers have been fairly straightforward, even if they’re unsatisfying to some spectators. The one being thrown around in the wake of these cash infusions is that there was a perfect storm of coincidences: Primary among these are that banks withdrew cash to pay quarterly corporate taxes and that bank balance sheets have been inundated with $78 billion in new bonds that the government sold last week to finance its operations.
Gregori Volokhine of Meeshaert Financial Services simply phrased it this way: “It looks like a lot of cash left the system in recent days and that demand for dollars was greater than the number of dollars in circulation.”
Federal Reserve Chairman Jerome Powell attempted to quell concerns and questions from reporters following the Fed’s first round of repo purchases on September 17, saying, “While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy.”
Still, other market participants and watchers are not convinced. Heidi M. Moore, a business maven who made her career as a finance journalist at the Wall Street Journal and the Guardian, said in a Twitter thread, “If there is not enough cash in the banking system for banks to meet all their liquidity needs, even for one day, we are in real trouble.” As others have pointed out, she said the event is noteworthy because the last time a liquidity crisis of this magnitude shook the lending market was in 2008, eventually leading to the economic earthquake that was the Great Recession.
One Bank of America analyst, quoted pseudonymously in a CNN article as Cabana, likened the monetary tool to quantitative easing (QE) — the Federal Reserve’s ability to buy government securities to add new dollars into circulation. While this isn’t technically QE, which the Fed used to flood markets with cash in the throes of the Great Recession to drive down borrowing costs and stimulate lending, Cabana said it’s basically the same thing, though the Fed would never admit it.
“The Fed won’t admit this, but it looks and smells an awful lot like the monetary authority is financing the fiscal authority,” he told CNN.
It is evident the current remittance industry is prone to disruption. Whether it is due to decentralized ledgers or cryptocurrencies, there is plenty of room for improvement. MoneyGram CEO Alexander Holmes is quite pleased with the improvements Ripple has offered to his company. He now firmly believes blockchain technology will change the remittance market for good.
A Booming Industry Suffers Stagnation
Recent statistics by World Bank confirm nearly $700bn was remitted globally throughout 2018. That in itself tells many different tales. First of all, people continue to send money around the world through traditional payment providers. Secondly, while the fees remain high, they are not necessarily a hurdle for those in dire need of transferring money. Third, India, China, and Mexico are the largest receive markets. Two of those countries genuinely oppose cryptocurrencies and their technology.
As such, it is not entirely abnormal, the remittance industry suffers from a fair degree of stagnation. It is not cheap to send money around the world, even though the industry is still booming regardless. Finding solutions to not only make operations cheaper but also vastly more efficient, needs to be the number one priority. That is why companies such as MoneyGram are looking at innovative services and technology to further solidify their position in this industry.
MoneyGram Leads the way
Transforming existing money transfer companies into an innovative venture is not all that easy. MoneyGram, which is partially owned by private equity and partially a public company, is in a prime position to make changes as they see fit. This is also why the company is banking heavily on Ripple’s blockchain technology. Once the company communicated this shift to distributed ledger-based transfers, the MoneyGram stock price soared by 160%.
There are downsides to the business model operated by this company until earlier this year. Letting users deposit money in one country and having others pick it up abroad works well, yet no funds are moved between these two markets at any time. With Ripple and XRP, those are no longer concerns. Although Ripple can’t provide a pool of global liquidity just yet, they do allow remittance providers to create liquidity all over the world. Blockchain technology, according to Holmes, allows money to be moved instantly and anywhere in the world.
Consumer Benefits Haven’t Materialized yet
On paper, one would expect the shift to xRapid to provide ample benefits to MoneyGram customers, So far, that hasn’t happened, nor will it for quite some time to come. That said, the company remains hopeful cryptocurrencies and digital assets such as XRP gain the same “leverage” as traditional fiat currencies at some pint. If that were to be the case, the disruptive effect these currencies would have on the remittance industry cannot be underestimated.
Unfortunately, it seems unlikely the governments around the world will suddenly openly embrace cryptocurrencies. The opposite outcome seems a lot more plausible under the current circumstances. That doesn’t mean blockchain technology itself won’t make a lasting impact, however, One can have blockchain without cryptocurrencies, but not the other way around. As such, an interesting future leis ahead for the remittance industry as a whole.
“Guns are important to me for the same reason that Bitcoin is important to me… its a matter of self-defense, self-sovereignty, being able to defend myself and not relying on other people.” — Ragnar Lifthrasir
Location: Los Angeles
Date: Sunday, 1st September
Project: Guns N’ Bitcoin
Role: Chief Range Officer
America has the highest number of civilian-owned guns in the world, with around 40% of people owning or living in a house with firearms. The right to own a gun is firmly embedded within the US constitution and to many Americans, removing their ability to do so would be an attack on their civil liberty.
Since 1982 there have been over 110 mass shootings in the U.S alone. With every mass shooting, the media spotlight is drawn towards U.S gun laws and polls show that the majority of Americans are now dissatisfied with them.
However, as mass shootings only account for a small proportion of all gun deaths, is it unfair to remove the right to bear arms from U.S citizens? Should the small number of incidents change the law for the vast majority of responsible gun owners?
It is easy to draw comparisons between guns and Bitcoin as both align with libertarian principles. Where guns give you the owner the ability to protect themselves from individuals and tyrannical gove, Bitcoin allows holders to protect yourself from corrupt financial systems and poor state monetary policies.
For this polarising topic, I am joined by Bitcoiner and gun advocate Ragnar Lifthrasir from Guns N’ Bitcoin. We discuss the culture of guns in America, if there should be a limit to the type of weapon you can buy, Bitcoin and privacy.
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