OpEd: A Holiday Warning – And A Happy New Year?

Things are not as they appear!

The year is almost up and no one will be making any big moves going into year end (unless a world killing asteroid hits on Christmas day – or the FED hikes on New Year’s Eve). Don’t let the calm fool you – under the surface – a leviathan is lurking.

In the same way a problem drinker will cheer another bottle of booze – the financial markets love cheap money. Global rate cuts are here. So everyone was happy. Take another knock on that bottle champ.

Look at crypto prices!

Despite the FED’s waffle on rate cuts next year, the crypto complex is still near all time highs.

So why not relax and enjoy the party…

Some things in the world of finance can’t be hidden. Like share prices. Other things can. Like job losses. Central banks are cutting rates at a time when asset prices are at all time highs – despite the inflation monster.

Curious.

Sadly, the overall economic picture isn’t as pretty. Prices are up – but the global economy is flagging.

Cryptos Love Liquidity (And Trump)

Bitcoin prices started 2024 under $45,000 USD. So on a yearly basis – BTC was an amazing place to be. It’s going higher of course, but don’t look for a straight shot up to seven figures.

In fact – 2025 could be a rough year for financial markets – including the crypto complex.

Bitcoin churned for most of 2024 – the big gains came on the heels of McTrumper winning the presidency in the USA. The gains are likely a one-off, as a new policy direction will be hard to implement.

The last President to propose sweeping changes to the bureaucratic state was shot in the head and killed in Dallas – some time ago. Trump was also shot in the head – but managed to stay alive so far.

There is a clear agenda against both Trump and cryptos – just ask the outgoing SEC chair Gary Gensler. The anti-crypto agenda is still in play – but it may move a little slower for a few years. Or maybe not.

If you think whoever ordered the Secret Service to stand down local LEOs in Butler, Penn, is done with Trump, you are extremely naïve.

McTrumper clearly has popular support in the USA. Whether or not this support translates into radical policy shifts remains to be seen.

Assets Are Up Across The Board

If you can buy it with fiat currency its price is high. While not universally true – more on that below – asset prices are as high as they have ever been in many areas.

Housing prices are way up. Shares too. Given the amount of money governments are borrowing – single digit interest rates on government paper are a f%$king miracle.

Cryptos are a market darling. Talk about quick returns for BTC and ETH ETF investors!

The problem is – the economy is in terrible shape. With asset prices like these – we should be in the middle of a global economic boom. We are not.

No, we are really in the middle of a long depression. Maybe a decade has passed since the hard times began. Here is the ever uplifting Chris Hedges with more on what is really happening on Main Street:

No matter where you look – you will see collapse. And some commodities reflect this truth. You see, we no longer live in a market economy. That died in the West some time ago.

We live in a centrally planned global dystopia. But you won’t hear about it on the news.

An Aside On Truth

Eric Arthur Blair (George Orwell) saw it coming. Instead of a Ministry of Truth, we have a media machine that keeps the herd in line.

While not directly financial in nature, this letter from a BBC reporter to Bret Weinstein demonstrates the media environment we live in:

That’s right. The official narrative on COVID19 (at least at the BBC) never changed. Despite all the excess deaths and studies proving otherwise – mRNA (a.k.a. gene therapy) vaccines are still ‘safe and effective’.

Outright lies.

The same thing happens in the world of macroeconomics.

Turns out that when reviewed by the Philly FED – all the Q2 BLS jobs numbers were off. Way off. No jobs were added. Apparently, headlines trade and revisions are swept under the rug.

These examples show what happens when people no longer demand truth and accountability. Just relax – take another knock on that bottle – it’s filled with sweet, sweet lies (and nanoparticles).

We are in a post-truth world. Most of the information you have access to is designed to deceive you. What can’t be spun or lied about is hidden. Know that going forward.

The Oil Soaked Canary

Oil is the lifeblood of the global economy.

If the global economy was working at the rate that asset prices – like shares – suggest – oil prices should be at record highs. They are not. Take a look. At the time of writing WTI is a little under $70 a barrel and Brent is just above that handle.

Oil taker hunting with flying bombs is a thing now. Iran and Yemeni rebels are causing big issues for oil shippers. Under more normal economic circumstances, these ‘shipping issues‘ would cause much higher prices in global oil markets.

Oil prices are lagging other financial assets. There is a very good reason for this. We are in a global depression that can’t be solved by pumping cheap money into the system.

People in developed economies are obsessed with financialization.

When retail financial assets rise in fiat currency terms (now my house/shares are worth MOAR fiat currency) people feel like the economy is working. It’s a neat trick that leverages the desire for MOAR with a low level understanding of how economics actually work.

People – especially the ones who are falling for the financialization hustle – are greedy, stupid sheep to the slaughter. There is no easy way out of this situation. And MOAR of the same will make things worse.

Lower Rates To The Rescue?

As we saw last week – inflation is an issue. Tighter conditions mean choppy markets. Investors are cheap money addicts that can’t deal with markets absent ultra low interest rates (and maybe more QE).

Central banks know inflation is a problem.

Now, markets are starting to understand that lower rates at every central bank meeting in 2025 aren’t a sure thing. Given the rapid falls in asset prices – markets were assuming we were on our way back to an overnight rate of 2% or so in the US – which is about 5 full basis points under the current (real) US inflation rate.

Scary stuff.

Over time crypto assets have delivered amazing returns. But as we saw last week, they can fall sharply on small market surprises. We think a massive market dislocation is coming in 2025. Crypto prices look extremely vulnerable at these levels.

It’s never a bad time to hedge those sweet gains from H2 2024.