The episode dives into the current financial landscape, focusing on the Federal Reserve’s recent rate cuts, the potential for U.S. Treasury yields to reach 6%, and the economic signals coming from China. Paul Kiker joins me to discuss these developments, highlighting the market’s reaction and the broader implications for investors. We explore the speculative nature of current market conditions, the potential risks of high inflation, and the impact of geopolitical factors on global markets.
Fed Rate Cuts and Market Reaction
The Federal Reserve’s decision to cut rates by a quarter point has sparked a significant reaction in the markets. Despite the cut, the Fed’s forward guidance has been more hawkish, leading to a sell-off in stocks. I liken Wall Street’s reaction to a three-year-old throwing a tantrum, as the markets are not getting the candy they expected. The infamous dot plot shows a shift in expectations for 2025, with rates now projected to be around 3.8%, up from previous estimates.
China’s Economic Signals
China’s economic situation is raising concerns, particularly with its 10-year bond rates plummeting, signaling potential deflation. This could have global implications, as China might export deflationary pressures to the rest of the world. Bond traders, often the smartest in the room, are anticipating trouble, and this could affect global markets significantly.
Speculation and Market Euphoria
The current market environment is characterized by high levels of speculation and euphoria, reminiscent of the late 1990s. There’s a disregard for long-term fundamentals, with investors chasing speculative assets like cryptocurrencies. This behavior is risky, as it can lead to significant losses if the market turns. The rise of meme coins and speculative investments highlights the Fed’s role as a serial bubble blower, keeping liquidity high and encouraging risky behavior.
Key Data
Core CPI inflation has been over 3% for 41 straight months.
China’s 10-year bond rates have dropped significantly, indicating potential deflation.
Japan and China sold a combined $113 billion in U.S. treasuries in the third quarter of 2024.
Predictions
U.S. Treasury yields may climb to 6% as fiscal woes worsen.
China could export deflation to the rest of the world.
The current market euphoria may lead to a significant correction.
Implications
Rising interest rates could pressure commercial real estate and banks.
Speculative investments may lead to significant losses for retail investors.
Global economic shifts could impact inflation and market stability.
Recommendations
Consider diversifying investments and locking in gains from speculative assets.
Ensure brokerage accounts are in type one to avoid rehypothecation risks.
Maintain 12 to 24 months of emergency savings to weather potential downturns.
My concerns are when “experts” validate their point of view with this statement, “There is no peer reviewed evidence” to oppose their opinion. At the very least they should confess that there is also no peer reviewed evidence to back up their view. Furthermore those counselling with nutritional advise for health should at least allude to the health risks of such suggestions.
Many decades ago a professor in my first year medical school held fantastic lectures of the relationship between foods, geographic locations, cultural habits, migration, social-economical status, etc and specific diseases. This data was largely based on empirical data and not peer reviewed evidence.
My first loving wife died tragically very early in life from cancer. When my second, equally beloved wife, was diagnosed with breast cancer in her mid thirties, I consulted the most prominent oncologists, breast surgeons, pathologists and immune therapist located around the world. They had decades of experience. The science is very well understood today. One correlation factor in the disease is that roughly 1/8 (13%) women in dairy consuming countries (USA, EU) will have breast cancer. In largely non dairy consuming countries (China, Vietnam, Indonesia) there is so to say zero disease.
The same hold true with excessive red meat consumption and colorectal cancer and other diseases, not to mention the amount of antibiotics, growth hormones found in most red meat.
There are so many well written books on proper nutrition that can backed up by logical observation and largely published data. The greatest form of misinformation in my humble opinion, is omission.
I think you missed the biggest point in Powell’s speech … imho
“We also decided to reduce our securities holdings.” Jerome Powell
He brazenly admits that the FED has been manipulating the stock market by investing in specific securities with debt that is piled on the backs of working Americans.
Two points on the quantum computing FUD. Firstly, the certificates that secure all our internet traffic are not just lower hanging fruit, they’re dead meat to quantum computing, with Shor’s Algorithm. If you like your https, you can keep your https, to paraphrase Obama.
Secondly, all these people saying Bitcoin hashing (SHA-256) will be broken with quantum computing never mention the algorithm. There’s also the ECDSA (or ECDLP) for signing - discussed later. All the vulnerability is firmly in the “somehow” and “it’s magic” category. AFAICT, the best, known algorithm is Grover’s, which takes the square root of the time. The crypto algorithms are exponential in difficulty, so square root effectively halves the scale. So, SHA-256 becomes SHA-128 in terms of difficulty.
I bumped into a quantum algorithm researcher 5-10 years ago who set me straight on what can be done. Are there unknown/secret algorithms that can do better? Maybe. We still don’t know that P != NP. If P = NP with a constructive proof, then all our in-use encryption instantly fails, and we’ll probably be stuck with one-time pads and physical key exchange forever.
Would you like me to try to find that researcher and see if he’d like to do an interview?
Upon reading, apparently the standard Bitcoin hygiene practices of only using an address once protect the ECDLP, which is otherwise highly vulnerable to Shor’s. The serious vulnerability is that, when you spend, your public key is revealed. This means that in the time between spending and the transaction hitting the chain, the quantum computer can figure out the private key from your public key and try to spend your funds sooner. This is a pain, but it’s not like your funds can simply be stolen.
And yet they’ll select the ones that have ambiguous, unknown, or improperly vetted security risks. NIST is a shady outfit. NSA and GCHQ have also arguably made efforts to sabotage the standards for PQ/QR algos and ciphers. Not that we should expect anything more from there people.
That language is the same as from the September 50 bp cut, and refers to the ongoing reductions of Treasury and Agency MBS securities. I didn’t see much of a change there:
Chris-Suggest not conflating Bitcoin and crypto. Any basic review would confirm these are not even similar. (BTW, I agree “fartcoin” is probably not a good investment…something just doesn’t smell right on that one.) Rather than having a financial adviser how about interviewing a Bitcoin network expert and layout the pros and cons for PP.
It should be indicated on your account somewhere, but you might have to dig a bit.
Type I are also called ‘cash accounts’ and are the safer of the two.
The other is Type II and those are also called ‘margin accounts.’ Can your account buy or sell options and/or futures and/or sell stocks short? If the answer to any/all of these questions is ‘yes’ then you have a type II account.
There’s a little bit of wiggle room on the first question about options…under certain restrictions and with brokerage approval, you can trade options in a Type I account.
The first I heard of it was Dylan Ratigan (?sp) on CNBC back before the Tea Party around 2009 when he shouted out on air that “the FED is buying stocks”. He was yanked off the air and sent for ‘re-education’.
When I called Chris Pappas to request he back the BITCOIN Act … he immediately conflated bitcoin with crypto, see below.
I now have add the removal (by vote) of Pappas to my “take action” to do list. He needs to go!
" Dear Mr. Poumakis,
Thank you for contacting me regarding cryptocurrency regulation. I value you taking the time to reach out to me, as it helps me better represent you and New Hampshire’s priorities in Congress.
Wall Street should receive the same treatment as Main Street. Our district and our nation face many challenges, but I remain resolutely focused on improving the lives and livelihoods of the Granite Staters I’m proud to represent in Washington. Please be assured that I am working hard every day to foster a competitive economy that works for everyone.
Cryptocurrencies are digital currencies that can be used to buy and sell goods. Unlike fiat money, cryptocurrency relies on blockchain technology to validate transactions on a public ledger in lieu of outside actors such as government or banks. Today, there are estimated to be over 4,000 cryptocurrencies in circulation. Please know I will keep your views in mind as Congress considers legislation related to cryptocurrency.
Nothing is more important to me than listening to my constituents and ensuring that every voice in my district is heard. No matter your perspective, your thoughts help me do better as I work to bring Granite State voices to Washington. Each message makes a difference, so I hope you will stay in touch. "
