Stimulus pitch, inflation is back, and cryptos get lively again.
President Joe Biden and Treasury Secretary Janet Yellen took their pitch for the $1.9 trillion stimulus package to American voters over the weekend. Yellen said the U.S. could return to full employment by 2022 if a sufficiently robust series of measures are implemented. Lawmakers are aiming to pass the stimulus measures before expanded unemployment benefits run out on March 14. Adding to Republican objections to the package, prominent economists and former policymakers are registering doubts. Even Democrat Lawrence Summers says doing too much now poses inflationary risks.
Summers is not alone in becoming concerned about inflationary pressures. The pace of U.S. price growth implied by the Treasury market accelerated to the fastest pace since 2014, with the 10-year breakeven rate above 2.2% this morning. Yields on the longest dated U.S. benchmark rose above 2% for the first time in almost a year. The moves are not only in the Treasury market, with comments from European Central Bank President Christine Lagarde about the need to slowly withdraw monetary and fiscal support leading to rising yields across the euro area — with the exception of Italy where the presence of Mario Draghi continues to cheer investors.
Uncover Hidden Value in Corporate Bonds
VanEck has partnered with Moody's Analytics to launch 2 new ETFs with a quant-driven approach to investment grade bonds.
Bitcoin moved back above $40,000 on Saturday before easing its latest rally to trade at $39,300 this morning. The cryptocurrency has seen renewed interest as enthusiasts tout the digital asset as a hedge against inflation, while interest from fund managers continues to rise. The coin dominating retail interest at the moment is Dogecoin, the tongue-in-cheek cryptocurrency featuring a Shiba Inu dog as a mascot, after several Elon Musk tweets about it, and an apparent endorsement on Twitter from Snoop Dogg. The world of digital assets is also being embraced by central banks who are moving to ensure they don't fall behind on developments.
Stimulus hopes, the possibility of inflation somewhere over the horizon and a slowing virus infection rate are all driving stocks to new records. Overnight the MSCI Asia Pacific Index added 0.7% while Japan's Topix index closed 1.8% higher. In Europe, the Stoxx 600 Index had climbed 0.4% by 5:50 a.m. Eastern Time with cyclical stocks leading the advance. S&P 500 futures pointed to another rise at the open, the 10-year Treasury yield was at 1.193% and gold rose slightly.
While investor worries about inflation may be mostly driven by expectations over the success of U.S. fiscal measures, the role of oil prices in the equation should not be understated. This morning Brent crude rose above $60 for the first time in more than a year, while a barrel of West Texas Intermediate for March gained more than 1% to trade at $57.50. As well as bets on an economic recovery, the price of crude has been driven by the success of the moves from OPEC and its allies to rebalance the market. Saudi Arabia continues to take the lead, tightening supplies both this month and next.
What we've been reading
This is what's caught our eye over the weekend.
And finally, here’s what Joe's interested in this morning
Card prices are soaring these days. Two Michael Jordan rookie cards, in mint condition, just sold for $738,000 each. In March last year, the same card was going for less than $50,000. Meanwhile last month, an ultra rare Alpha Black Lotus Magic: The Gathering card sold for $511,000, shattering the old record of $166,000 in 2019. Pretty wild stuff, but I'll get back to all that in a second.
On the latest episode of Odd Lots, Tracy Alloway and I talked to Mike Novogratz, the CEO of Galaxy Digital, the publicly traded crypto conglomerate, which does trading, mining, venture activity and asset management. It's a timely conversation, since in the wake of the GameStop mess, the rules of traditional finance have left a sour taste, and people are wondering if there's something in the crypto or blockchain world that might be more fair or transparent in some way.
One way to think about crypto finance or Decentralized Finance (DeFi) is that it's an attempt to remove the need for trust, the legal system or credit from the financial system. Everything is built into the code, which anyone can theoretically look at. There's no discretion. The rules can't change midway through. You don't have to know anything about your counterparty or anything like that. Bitcoiners talk a lot about the concept of Trustlessness for this reason. In a theoretical crypto-based financial system, you trade away the warmth and coziness of legal financial protections, and in exchange you get a system without edge cases, or seemingly arbitrary changes to the trading rules. The rules are fixed. All settlements are final. There's no "big guy vs. little guy." (This is the ideal state. In the real world, crypto-based systems are still breaking all the time, and there are absolutely "whales" that feast on newcomers left and right.)
When the GameStop thing happened, you had a bunch of people talking about wanting to take their stock — which is just an abstraction of a large bundle of legal rights conferred on equity holders — off the exchange and into their position. And you had the company itself talking about speeding up equity settlement from T+2 to instantaneous, which as others have noted would mean less credit in the system, and more capital since everything would need to be pre-funded. In other words, the impulse of many was to make the system more like crypto. Turn stocks into a things you hold directly (not in the hands of a trusted third party), and eliminate the need for credit and trust from the system. Once a trade happens, it's done. No ambiguity. No waiting for it to clear.
It's frequently remarked, to the point of being a cliche, that trust in established institutions (government, media, etc.) is falling. We're seeing it in finance too. That's where the crypto impulse comes from. People have a desire to actually hold something, without it being in the hands of a trusted third party. Whether that's a Bitcoin that can only be spent with a private key in your possession, a share of stock or a Michael Jordan rookie card. Bearer assets thrive in an environment where trust is low.
Check out the full conversation with Mike Novogratz on iTunes here.
Joe Weisenthal is an editor at Bloomberg.
Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close.