Tuesday, July 9, 2024

Elections, Powell, rate expectations, crypto

Hi all!

Today’s email looks at:

• What the recent spate of elections say about the times we are living

• What crypto has to do with this

• Why Powell’s testimony today is especially significant

• What this could mean for markets

• What political thought has to do with currency

Yes, I know, it’s a lot. I’ll try to keep tomorrow’s newsletter short.

A big thanks to those of you who left good feedback on the CBDC overview, it made my day! 😊

I hope you find Crypto is Macro Now useful or informative or even maybe just fun for the music links – if so, would you mind sharing it with your friends and colleagues? ❤

IN THIS NEWSLETTER:

• Elections, elections, elections and crypto

• Brace for key Powell testimony

• Rate expectations and markets

• The “gauze” of currency and political thought

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WHAT I’M WATCHING:

Elections, elections, elections and crypto

I’m beginning to wonder if it’s possible to have election fatigue, especially when the news is striking a loud yet dissonant chord of ho-hum, wow and wtf.

The UK result was the most predictable, with the Labour party displacing the 14-year Conservative rule by a landslide. But the surprise is in the market reaction: UK stocks, bonds and the pound went up. The message is that the party originally “for” workers’ rights is now seen as better for the economy than the party ostensibly “for” business and established institutions. This is more a case of politics changing than of markets losing their profit-maximizing focus, but it does unearth a profound shift in established beliefs and expectations.

Iran’s outcome was the most encouraging, but with an undercurrent of concern. The second round produced a victory for Masoud Pezeshkian, a reformist candidate who wants to restore relations with the US with a view to lifting sanctions. His mandate will be restricted by the political structure dominated by hard-line institutions, although there is a chance his voice could be influential in state finances and social policy. Less than half the country bothered to vote, however, which highlights the growing mistrust – this generally ends up manifesting in sharp change when triggered by a coalescing issue.

The about-face in France was the most surprising, on many fronts. One is just how wrong the polls were in suggesting an easy win for Marine Le Pen’s far right party – the National Rally ended up coming third. The winner was the left-leaning New Popular Front coalition, Macron’s Ensemble came in second, and no group won a large enough majority to actually govern. Another surprise is that the markets are taking this in their stride, understandably relieved that France is now unlikely to leave the European Union and or approve a spending splurge. But the country’s politics are still dysfunctional and turnout was high, suggesting a strong and motivating dissatisfaction. This type of stability does not sound stable.

And then there’s the firehose of drama around the US elections, only four months away – this is easily the most depressing on the slate. The world is watching an old man deteriorate despite his protestations that the obvious is not happening, and it’s painful for those of us who have helped our parents through similar – whatever you may think of Biden, he deserves a gentle old age. Meanwhile, even those who can’t stand Trump are forced to acknowledge that he is a shrewd political operator: his relative silence on the issue is loud and effective. And the bottom line is we still don’t know who the Democratic candidate will be.

What does all of the above have to do with crypto?

Two answers, one specific and one general.

On the specific, the Republic party has just published its platform. Unsurprisingly, in the chapter on “Building the Greatest Economy in History” there is a section on how the Administration would “Champion Innovation”. Crypto is in there – what’s especially striking is that the crypto comment comes first, above artificial intelligence and space.

Here’s the text:

“Republicans will end Democrats’ unlawful and unAmerican Crypto crackdown and oppose the creation of a Central Bank Digital Currency. We will defend the right to mine Bitcoin, and ensure every American has the right to self-custody of their Digital Assets, and transact free from Government Surveillance and Control.”

Note how the liberal use of Capital Letters somehow imbues this with Importance. But syntax aside, it is quite something to see a promise to protect mining, self-custody and peer-to-peer transfers from the party that – barring a political shock – looks likely to win the upcoming presidential election. After the current Administration’s hostility to the crypto ecosystem, it’s hard to get our heads around what this kind of support could mean.

On to the bigger picture impact: