Alrighty then (Jim Carey voice)! Starting with some global news, we’re back in Australia! It’s been a whirlwind journey in Eastern Europe, but with the awesome personal news (we’re having a baby!), we figure there’s no place like home. Now that we’ve settled in and kicked into gear, I’ll no doubt be catching up with everyone to hear about all the things that we missed out on while we were away!
To pick up where we left off in January, we’re still in the camp that liquidity is all that matters.
Source: Global Macro Investor
In English, in the white is the central bank balance sheet of G5 countries (France, Germany, Japan, UK, and US) among other metrics. We use this as a proxy for liquidity. In blue is a chart of the #nasdaq, which is a stock market index of 101 stocks issued by 100 of the largest non-financial companies on the NASDAQ stock exchange.
The reason why this chart is so good is because it clearly shows that there is a very, very close ongoing relationship with liquidity (bank balance sheets) and equity or stock prices, especially risk-on equities such as #apple , #amazon etc. which make up almost the entire market cap of the NASDAQ 100.
So what? Well, if liquidity is the key driver of asset prices, then all we need to do is know what’s happening in global liquidity to determine what will happen in the crypto markets. Right? Easy enough? Well, not really 👎
We can see that liquidity is improving slightly (white line going back up), coinciding with equity prices going up since January 2023. But what about the forward-looking picture?
Our base case is that nothing will break enough to warrant the FED adding liquidity or dropping rates this year. This means liquidity and equity prices will stay flat to down (most notably due to the US debt ceiling and the need to replenish FDIC reserves following the fourth bank going into receivership – but I won’t bore you with that now) over the next 7 months to round out 2023.
This coincides with our thesis from January 2023 that markets would “finish 2023 higher than 2022,” but it certainly isn’t going to be “one of those years” in equities or crypto.
Inflation and Recession
Long story short, commodity inflation has collapsed and has now turned negative year-on-year. As a result, we’re even more confident than we were in January when we said that we “expect inflation to come down to around the FED’s targets in the second half of 2023”. If we had to guess, the forward trajectory would look something like the yellow arrow in the figure below, coming down to 2% at the end of 2023/ in early 2024.
Source: PROJECT 10X on TradingView
On the recession side of things, we’re probably already in a recession (not that it feels like one), and if we’re not, we’ll probably be there shortly. I tend not to listen to the “recession fear-mongers” because I truly think those are the same people that were burnt by the 2000 tech bubble, and then scolded by the 2008 GFC. IMO, the recessionary fears have been over-sensationalized by the media and it’ll be a news story without any collossal ramifications to asset prices because it has already been priced in.