Tuesday, June 20, 2023

The strange bull market, crypto thawing, US and China, OCC chill and a big institution steps in

“Underlying most arguments against the free market is a lack of belief in freedom itself.” – Milton Friedman ||

Hi all! There’s a ton of charts today, not sure what got into me. That might make this email too long for your reader, but the only thing you’ll miss at the very bottom is some goats trying to find some balance in their lives.

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WHAT I’M WATCHING

Stocks keep going up. The performance of the US stock market so far this year has been nothing short of head-scratching, and seems to be based not just on tech hype but also on the stronger-than-expected economic performance so far. More on this below.

Signs of hope in crypto markets. Traders are reporting a pick-up in market interest, and this is showing up in some intriguing metrics. More on this below.

Big banks and crypto. Earlier today, Bloomberg reported that Deutsche Bank has applied for a digital assets license. This is a strong signal, in that Deutsche Bank is the largest bank in Germany, the ninth largest in Europe and has been designated as a GSIB (global systemically important bank) by the FSIB. It is extremely unlikely it would go through the cost of doing this unless it had received sufficient expressions of interest from its large clients.  

Bank security tokens. Acting Comptroller of the Currency Michael Hsu is not a fan of blockchains, especially public permissionless ones. On Friday, however, he gave a speech in which he made a case for tokenization on permissioned blockchains, while suggesting that future innovations may position non-blockchain systems as a better solution. His distinct lack of enthusiasm is significant since the organization that he leads, the OCC, effectively decides what banks can do with blockchains.

US and China. The fact that Xi Jinping eventually deigned to meet with US Secretary of State Antony Blinken at the tail end of his visit to China is a good sign that relations between the two countries could improve, or at least not deteriorate further. Then again, confirmation of the meeting was withheld until the very last minute which does not signal a position of US strength – but it would have been more of a slight for Xi to refuse to see him. This matters for the economic outlook, as rising protectionism and growing uncertainty about global trade helps no-one.

MARKETS

Bulls running

The S&P 500 is now up more than 20% from its October low, which technically makes this a bull market. I’ve heard several analysts refer to this as “the most hated rally” because investors are on the whole largely underweight equities (because of the recession that most of us mistakenly expected we’d be in by now), according to the latest Bank of America Fund Manager Survey.