Category Archives: Fundamental Analysis

Ich bin wieder am Schreibtisch, hatte eine schöne Skiwoche in Kirchberg/ Kitzbühel und kann diese Woche in die Vollen gehen. Wenn Sie schon mal gehört haben, dass man eigentlich nicht jeden Tag wichtige Anlageentscheidungen treffen muss, sondern nur an ganz wenigen Tagen im Jahr, dann gehen Sie bitte davon aus, dass diese wenigen Tage in dieser Woche auf uns zukommen.

Die Panik, die wir heute früh im Markt sahen, ist nicht gerechtfertigt. Es sind Anleger, die von der Pleite erst am Wochenende erfahren haben und mit der Rettungsaktion, die in der vergangenen Nacht erst gestrickt wurde, nichts anfangen können. Ich rechne damit, dass die Kurse im Laufe dieser Woche deutlich ins Plus drehen.

Daher würde ich ein paar Käufe tätigen. Auf den ersten Blick sehen für mich Morgan Stanley (NYSE:) (885836), Devon Energy (NYSE:) und Coterra Energy (NYSE:) attraktiv aus.

Vermutlich werden die Zinserhöhungen kleiner

Am Donnerstag der vergangenen Woche noch hatte US-Notenbankpräsident Jay Powell von größeren Zinsschritten gesprochen und ein höheres Zielniveau für den US-Leitzins in Aussicht gestellt, als es vom Markt bislang erwartet wurde. Mit der überraschenden Pleite der Silicon Valley Bank (SVB) wird Powell seine Haltung nochmals überdenken müssen. Ich gehe nun davon aus, dass der nächste Zinsschritt keine Erhöhung um 0,5%, sondern lediglich um 0,25% sein wird. Oder vielleicht sogar gar keine Zinserhöhung mehr.

Denn nach der Pleite der SVB muss Powell zur Kenntnis nehmen, dass seine Zinspolitik auch unangenehme Folgen haben kann. Sicherlich ist die SVB eine Sondersituation, dennoch zeigt sie, wie schnell die gesamte US-Wirtschaft ins Ungleichgewicht geraten kann. Denn bei einer ungeordneten SVB-Pleite stand mehr auf dem Spiel als lediglich die 178 Mrd. USD an Einlagen von schwerreichen Start-Up Finanzierern.

Die US-Regierung muss die Einlagen retten

Hätte die US-Regierung die SVB pleite gehen lassen, ohne die Einlagen zu garantieren, dann würden alle Bankkunden der USA mit Einlagen von über 250.000 USD ihr Barvermögen auf andere Banken verteilen oder einfach zur JPMorgan (NYSE:) transferieren. JPMorgan hat die große Finanzkrise 2007 bis 2009 unbeschadet überstanden und steht bis heute mit Jamie Dimon, dem gleichen CEO wie damals, als solideste Bank im System für Stabilität und Vertrauen.

Eine solche Kapitalverschiebung hätte das US-Bankensystem aus den Fugen gehoben, wir hätten diese Woche einen Crash. Die US-Regierung hat aus der Lehman-Pleite gelernt und hat dieses Szenario verhindert. Wieder einmal werden die Einlagen der Reichen, die über Jahre höhere Zinsen vereinnahmt haben, als der Markt gerechtfertigt hätte, gerettet. Moralisch ist das einmal mehr überaus fragwürdig. Doch die Alternative, Bank-Run, Kapitalverschiebung bis hin zu einer heftigen Rezession, ist leider noch schlimmer als die moralisch fragwürdige Rettungsaktion.

Mit dem heutigen Tag sieht die Finanzwelt völlig anders aus: Kundeneinlagen bei mittelgroßen US-Banken sind offensichtlich garantiert. Gleichzeitig gibt es Risiken, derer man sich zuvor nicht bewusst war. Weitere Zinserhöhungen seitens der US-Notenbank schüren dieses Risiko weiter. Das kann nicht in der Absicht von Jay Powell liegen. Daher ist über Nacht die Wahrscheinlichkeit für weitere Zinsanhebungen deutlich gesunken, die Größe der zu erwartenden Zinsschritte ist kleiner und auch das Zielniveau ist deutlich niedriger.

Jay Powell wird schon bald eine Pause einlegen müssen, um die Wirkung seiner Zinsschritte erst einmal abzuwarten. Und das kann 6-9 Monate dauern, bis sich die Auswirkungen im Wirtschaftssystem der USA zeigen.

Und wir Anleger müssen deswegen kaufen

Also: Die Rettung vergangene Nacht war sowas von bullisch, dass wir diese Woche kaufen müssen.

Wir haben in der Sentiment-Analyse gesehen, dass sehr viele Anleger für fallende Kurse positioniert sind. Diese Anleger müssen sich nun eindecken. Darunter sind jedoch viele Profis mit guten Verbindungen zu den Finanzmedien. Sie dürfen davon ausgehen, dass heute und vielleicht in den kommenden Tagen noch viele Berichte zu lesen sein werden, wie fragil unser Finanzsystem ist. Und dann wird Angst geschürt, dass noch andere Banken ähnliche Geschäftspraktiken verfolgt haben könnten wie die SVB. Und dass die Zinskurve ja weiterhin untypisch sein würde und niemand abschätzen könne, wie groß die Buchverluste sind, die in den Bankbilanzen schlummern, usw.

Ich will also nicht ausschließen, dass wir heute, vielleicht sogar ein paar Tage lang, noch kräftig unter Druck bleiben werden.

Doch die Entscheidung ist gefallen: Es wird gerettet! Ich gehe davon aus, dass wir in zwei Monaten, wie in der Sentiment-Analyse gezeigt, deutlich höher stehen werden als heute.

Ich werde den Heibel-Ticker PLUS Express-Kunden im Laufe des Tages entsprechende Updates und Investment Ideen zusenden.

A tumultuous week for US banks saw the shares of the crypto-friendly Signature Bank (NASDAQ:) drop nearly 23% on Friday and more than 37% since Monday. The decline comes after the second large bank catering to digital assets companies—Silvergate (NYSE:)—announced it is closing its doors, and after Californian regulators shut down America’s 18th largest bank, Silicon Valley Bank (NASDAQ:).

Signature Bank Down 22.87% At Friday’s Close

The crypto-friendly Signature Bank saw its shares decline 22.87% in Friday trading and drop to $70. The day’s decline, along with the greater fall of 37.30% since Monday, is reflective both of the current concern for digital asset-friendly banks, and the worries for banks more broadly stemming from recent events.

Only two days earlier, on Wednesday, Silvergate Capital Corporation announced it would be winding down its operations and voluntarily liquidating its Silvergate bank as a result of the widespread issues that originated primarily with the downfall of FTX. The situation for banks in the US was further worsened earlier on Friday when Californian regulators stepped in and closed the Silicon Valley Bank in what is now considered the largest failure of an FDIC-insured institution since the financial crisis of 2008.

The general unease was also demonstrated on Wednesday, March 8th, when reports stating that JP Morgan Chase (NYSE:), one of America’s largest banks, decided to end its relationship with the Winklevoss twins’ Gemini Trust started circulating the web. The news was quickly denied meaning that the banking giant’s cooperation with Gemini and Coinbase (NASDAQ:) which started in 2020 remains intact for the time being.

Crypto’s Growing Banking Crisis

While the drop in the share price of Signature isn’t necessarily indicative of a failure to come, it can be seen as worrying considering the growing scarcity of banks willing to cooperate with cryptocurrency companies. While the bank has been downsizing its exposure to digital assets, it remains an important partner for some major exchanges, especially after Coinbase decided to replace its relationship with Silvergate with one with Signature last week.

Furthermore, the Friday closing of Silicon Valley Bank is already causing some worries that the digital assets industry is bound to take another big hit. The latest published attestation of the Circle revealed that an undisclosed of its $9 billion reserve used to back its stablecoins was held at SVB. The concerns had an impact on Coinbase’s share prices which dropped 8% on Friday due to the exchange’s reliance on , a stablecoin which is a joint venture of Circle and the exchange.

Furthermore, while the Silicon Valley Bank’s primary focus was venture capital firms, its connectedness to the cryptocurrency industry was again highlighted later on Friday afternoon when it was highlighted that BlockFi held $227 million worth of mostly uninsured funds with it. The revelation quickly caused concerns it may further complicate the bankruptcy of the company that went under less than a month after FTX, becoming the first major victim of the contagion.

Disclaimer: Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

In September 2021, Silvergate Bank, specializing in digital currency, was performing well. In fact, the bank reported record-breaking growth in deposits and loans in 2020, thanks in part to increased demand for its services from clients in the cryptocurrency industry.

On Wednesday, March 8, 2023, Silvergate Capital (NYSE:) announced it ended operations and liquidated its Silvergate Bank.

This announcement sent its stock price plummeting, following a months-long downward spiral for Silvergate Bank, which was over-exposed to cryptocurrencies.

One day later, Silicon Valley Bank informed some clients that wire transfers could be delayed.

The bank’s support phone lines became inaccessible.

In addition, numerous customers stated having difficulty logging in to the company’s website to view their account information and make transfers.

Meanwhile, Silicon Valley Bank competitors like JPMorgan (NYSE:) sought to convince some SVB customers to move their funds from SVB to JPMorgan.

This Friday morning, trading in Silicon Valley Bank stock has been halted as a classic run on the bank unfolds.

The entire bank stock index is down big as overnight deposits have been walking out the door… or rolling into higher rate options, squeezing bank profit margins.

One of the prevailing themes is that the Fed has been trapped via its mandate to fight inflation and maintain high employment.

Rate hikes had never accelerated so high in such a short duration. Critics of this monetary policy stated, „The Fed will keep hiking until they break something.”

Things have been breaking in the past two days:

• First Republic Bank (NYSE:) based in San Francisco, saw its shares plummet 16.5% Thursday and 15% Friday to $80 a share, a new 52-week low.
• Phoenix-based Western Alliance (NYSE:) Bancorp stock lost nearly 35% and trades at $49 a share.
• New York-based Signature Bank (NASDAQ:) stock fell more than 21% to $82, a 52-week low.
• Salt Lake City-based Zions Bancorp stock fell more than 13% to a 52-week low of $40 a share.
• Pasadena-based East West Bancorp (NASDAQ:) shares were down more than 12% to $64 a share.
• Minneapolis-based U.S. Bancorp stock lost 7% to close at $42.30 a share.

Going back to basics is essential to understand the interplay between banking, gold and silver. Returning to fundamentals is a crucial refresher and could be critical in risk management.

From Investopedia, How Bank Deposits Work

The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposited. For example, when someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank. By contrast, gold does not have these counterparty risk problems – and it’s a premier asset class worldwide.

Even last year, when gold stayed flat for the year, it outperformed Tesla (NASDAQ:) by 73%, Facebook (NASDAQ:) by 66%, PayPal (NASDAQ:) by 65%, AMD by 58%, NVidia by 53%, Netflix (NASDAQ:) by 52%, Amazon (NASDAQ:) by 51%, Disney by 45%, Google (NASDAQ:) by 40%, Microsoft (NASDAQ:) by 29% and Apple (NASDAQ:) by 29%.

Silver is not a primary monetary metal because it is also an industrial metal.

However, this is a double-edged sword; silver has been under-performing much like oil, in part because the market believes a recession will diminish demand for silver in consumer products.

This narrative is in question because the pivot to NetZero means an increased demand for renewables, including wind, solar, EVs, and batteries. Fortunately, all of these applications are all using a lot of silver.

Moreover, silver’s cost of production puts a floor under its price. The spot price is extremely close to the production price, so silver seems to have limited downside.

Currently, there is an enormous chasm between the price of gold relative to the price of silver. Historically, silver makes significant leaps to close this gap whenever this has occurred.

However, it is essential to remember that silver is volatile. Thus, silver outperforms gold to the upside, just like it has underperformed recently to the downside.

In 2022, the US government spent $6.27 Trillion with total revenues of $4.9 Trillion. This represents a deficit of $1.38 Trillion that had to be borrowed into existence.

But this doesn’t count the recently passed $1.7 Trillion-dollar omnibus spending spree. This also doesn’t count all the so-called emergency Ukraine „aid” spending which are now north of $140 Billion dollars.

Key Takeaways:

• Banks are coming under significant pressures.
• Congress and/or the Fed could be forced to step in, and you may hear these two words: bail outs.
• The Fed may be forced to rev up the money printers again (QE infinity)
• Then interest rates are likely to be reduced to stimulate the economy.
• Gold and silver will shine in this darkness.

***

Jon Forrest Little graduated from the University of New Mexico and attended Georgetown University’s Institute for Comparative Political and Economic Systems. Jon began his career in mining industry and now publishes „The PickAxe” which covers topics surrounding precious metals, energy, history, and

The US inflation report and the European Central Bank’s policy meeting will share the limelight next week amid another round of ratcheting up of rate hike expectations by investors. Other critical data such as Chinese industrial output, Australian employment and New Zealand GDP estimates might thus get overshadowed. Meanwhile in the UK, it’s budget time again, although the event is not expected to generate as much volatility as last time.


CPI report could make the case for 50-bps hike

There’s been no let-up in the ‘higher for longer’ bets for the Fed after a string of hot labour market and price data, pushing expectations for the terminal rate to a new cycle high of 5.65%. Fed Chair Powell gave the thumbs up to the markets’ shifting expectations for higher rates and opened the door to a re-acceleration of the tightening pace as early as the March meeting.

Tuesday’s CPI numbers will therefore be vital as they could determine whether FOMC members vote for a 25- or 50-basis-point increase. In January, the slowdown in the CPI rate was less than expected, sparking fears that high inflation will persist for longer than anticipated. The February forecasts point to a similarly slow process as the month-on-month increases are projected at a somewhat elevated pace of 0.4% for both the headline and core CPIs.

The producer price index will follow on Wednesday, along with retail sales figures for February. After a surprisingly robust rebound in consumption in January, investors will be watching to see if this was a blip or whether consumers continued to spend in the face of rising interest rates.

In other data, the New York and Philadelphia Feds’ manufacturing gauges on Wednesday and Thursday, respectively, will shed some light on how the sector fared in the early days of March. Building permits and housing starts are due on Thursday as well. Wrapping things up on Friday are industrial production numbers and the University of Michigan’s preliminary survey readings on consumer sentiment in March.

The US dollar is likely to receive another leg up on the back of a hotter-than-expected CPI report, though the gains might be muted ahead of the Fed meeting on March 21-22.

ECB to hike again, all eyes on future pace

The ECB is almost certain to deliver its third straight hike of 50 bps on Thursday, raising the deposit rate to 3.0% – the highest since 2008. However, the path forward may get more complicated as there is a growing split between the hawks and the doves within the Governing Council.

The final readings of Eurozone inflation out on Friday are expected to confirm that the core CPI rate that excludes food and energy prices jumped to 7.4% – an astronomical figure in the eyes of ECB hawks.

However, dovish members are worried about the impact that surging borrowing costs might have on weaker members such as Greece and Italy.

As in other countries, there is an intensifying debate about the appropriate speed of rate increases now that most of the major central banks are one year into their tightening cycle. Going too fast risks a hard landing but going too slow could be even more dangerous if it makes way for second-round effects.

The ECB will publish its latest quarterly staff projections after the meeting and it will be interesting to see how quickly inflation is forecast to drop to its 2% target. But the bigger question is whether President Christine Lagarde will signal another 50-bps hike in May as the failure to do so would suggest that doves may be winning the argument.

Such an outcome could be slightly negative for the euro, though not much, as rates could still peak as high as 4.0% by year-end.

Will the Spring Budget rattle the pound?


Over in the UK, it will be somewhat of a quieter week, with the January employment report due Tuesday being the only major release. However, the Spring Budget Statement on Wednesday will likely attract more attention for the pound.

After the turmoil that followed the previous budget in September, investors are feeling a lot calmer under the safer pair of hands of Jeremy Hunt heading into the event. Hunt has not pivoted away from his belief in fiscal discipline since taking on the role to clean up the mess left by Truss and her chancellor, so the likelihood of significant tax cuts is very low.

However, there is speculation that Hunt may announce tax breaks for businesses, specifically to encourage more investment, amid growing political frustration about the UK’s lacklustre growth prospects. Hunt is also under pressure to extend the energy price guarantee beyond April, and while there have been some indications that he is set to maintain this support, there’s also a chance it might be scaled back from the current generous levels.

For the pound, a budget that is pro-growth but with spending kept in check would be broadly positive.

Aussie and on data alert

China signalled that the days of ambitious GDP goals are over when it set itself a ‘modest’ growth target of 5% for 2023. This suggests that growth will mainly be driven by the reopening effect and the government has no plans to unleash new substantial stimulus measures. Data out on Wednesday is expected to show there was a further bounce back in the economy in February.

Industrial production growth is forecast to have picked up to 2.6%, while retail sales probably rebounded by 3.4% after contracting the previous month.

If the February numbers disappoint, the China-sensitive Australian dollar could slip on fears of a faltering recovery. But traders will also be keeping an eye on domestic employment stats due Thursday. Australia’s economy shed 11.5k jobs in January so another weak report for February would dampen expectations about the RBA hiking rates at its next meeting.

Across the Tasman Sea, Q4 GDP figures for New Zealand are released on Thursday. But the data may not necessarily have a sizeable impact on RBNZ rate hike expectations unless there is a very big beat or miss.

Although the RBNZ has not followed some of its peers in toning down its hawkish rhetoric, it has already been one of the most aggressive central banks over the past year and so there is limited scope for its terminal rate to go much higher. Neither is the RBNZ likely to abruptly turn dovish, thus, there’s not a lot to price into money markets in either direction, meaning the New Zealand dollar will mainly stay attuned to the global risk tone.

• Fed Chair Powell reiterates hawkish message
• Data points to tightening US labor market
• BoC becomes the first major central bank to pause
• BoJ takes the central bank torch

US data points to still-tight labor market, focus turns to NFPs

In his second day of congressional testimony, Fed Chair Jerome Powell reiterated his message that interest rates may need to rise more and possibly faster than previously estimated, but he also added that officials have not yet made a call on the size of the March rate hike and that their future decisions will remain data dependent.

It seems that he may have wanted to pour some cold water on speculation that a 50bps hike in two weeks is a done deal, but market pricing and the dollar were not moved much. Investors are still assigning a nearly 70% probability for a double hike, with the remaining 30% pointing to a quarter-point increment.

Perhaps they stuck to their guns as earlier data corroborated their view. The ADP employment report revealed that the private sector gained more jobs than expected in February, while the JOLTS job openings fell less than expected in January, suggesting that the labor market continues to strengthen.

The spotlight now falls on Friday’s nonfarm payrolls, where expectations point to a slowdown to 205k from 517k. That said, a slowdown from an outstanding print seems more than normal, and thus the dollar is unlikely to suffer if this is the case. After all, the unemployment rate is forecast to have held steady at a more than 53-1/2-year low of 3.4%, while average hourly earnings are forecast to have accelerated to 4.7% y/y from 4.4%.

Coming on top of the hotter-than-expected CPI prints for January, accelerating wages could intensify speculation that inflation may not come down as fast as previously thought and thereby allow market participants to increase their Fed hike bets. This is likely to add more fuel to the dollar’s engines.

Loonie the main loser as BoC stands pat
The was the main loser among the majors yesterday, coming under pressure after the BoC decided to keep interest rates unchanged, becoming the first major central bank to hit the pause button in this tightening crusade. Although in its statement, the BoC reiterated it remains prepared to increase rates further if needed, it also said that the latest data remains in line with the Bank’s expectations that CPI inflation will come down to around 3% in the middle of the year.

This was likely interpreted as the Bank’s intention to stay on the sidelines for a while and that’s maybe why the loonie declined even though yesterday’s decision was nearly fully priced in. Nonetheless, the market is still pricing in one more 25bps hike by December, meaning that there is ample room left for further declines should incoming data continue to come in soft.

The next key release from Canada may be the employment report for February, due out the same time as the US jobs report. The unemployment rate is expected to tick up to 5.1%, while the employment change is forecast to reveal that the economy added only 10k jobs. If combined with a strong US jobs report on Friday, this is likely to send dollar/loonie closer to the peak of October 13 at 1.3980.

Will Kuroda pass the torch untouched?
During the Asian session Friday, it will be the BoJ’s turn to decide on monetary policy. This will be the last gathering with Governor Kuroda at the helm, and investors may be eager to find out whether his exit will be accompanied by fireworks, or whether he will hand over the reins quietly.

Latest economic data has been suggesting that there is no need to rush into taking another step towards normalization at this gathering, with several policymakers noting that Japanese inflation seems mostly fueled by surging import costs rather than strong domestic demand. That said, a recent survey on the bond market showed that December’s action has failed to reduce market distortions, which may have allowed some market participants to bet on further action at this meeting.

Therefore, if the Bank decides to wait for a while longer before removing further accommodation, those expecting action at this gathering will be disappointed and the yen could slip.

Chair Powell has sent a clear message: the Fed is back in the driving seat. At a very minimum, the Fed has given itself the option to deliver a 50bp hike from the March meeting. It’s now discounted that way. Friday’s are key though. So is next week’s US report. As that rate hike pendulum still has swing potential back to 25bp, it’s all about the data.

Powell gives the Fed a free option to up the pace to 50bp, if needed…

The market has now re-priced to a 50bp hike from the March meeting. It’s not fully discounted, but it’s discounted enough to give the Federal Reserve the option to deliver 50bp if required. In the end, it will be up to the data releases to come, especially this Friday’s payroll report. The clearest remark made was that the labor market remains very tight, and the ex-housing services sector inflation is too high. These are related, as a material loosening in the labor market is likely required in order to mute services sector inflation.

Expect volatility in the for March to remain elevated though. It could just take the outcome of a sub-150K payroll on Friday to swing the rate hike pendulum back towards a 25bp hike, especially if accompanied by some calming in wage inflation. Typically the Fed can have a heads-up on some data releases ahead of time, and if that’s the case here then the outcome of a subdued payroll is less likely. But clearly, this is a key number and is followed by the February CPI report due on Tuesday of next week.

The back end is continuing to resist the full extent of the Fed’s message for the front end.

Financial conditions have not materially tightened though, partly as longer-dated market rates did not rise in any material fashion. The briefly broke above 4% as a bit of an impact reaction, but then fell back below. Risk assets came under some pressure, putting some interest back into core duration buying. The curve in consequence hit a new cycle extreme for inversion, with the breaking through -100bp. The back end is continuing to resist the full extent of the Fed’s message for the front end.

We’d argue that this degree of inversion is being driven by longer-dated real yields being too low. If the US economy is as dynamic as is being portrayed, then a real yield in the 10yr at 1.6% is too low. A move up to the 2% area would make sense, offset by further falls in the 10yr inflation breakeven (now 2.4%). That combination would not need to push the 10yr above 4.25%, but it could or should certainly be moving in that direction if a 50bp hike is to be really justified on pure macro grounds.

In the background, the Fed will no doubt have noted the remarkable rise in the inflation breakeven, which was at 2% in mid-January and reached 3.4% before Chair Powell spoke. It’s now at 3.25% – a step in the right direction.

2023 forwards show the Fed is reacting to strong US data, but 2024 forwards lag behind

Source: Refinitiv, ING

European rates also show central banks are back in charge

On European curves too, there are signs that central banks are back in control. Ever since Holzmann has put successive 50bp hikes until July on the table, markets are behaving more like the European Central Bank will do what is necessary to get inflation under control. The most obvious evidence of this is the further flattening of the yield curve, pricing both an aggressive central bank but also the depressing medium-term impact on growth and inflation. No doubt the moves in the US and Europe are compounding each other but we note that around 2.70%, Bund yields are already 130bp below the expected terminal deposit rate in this cycle.

Exhibit two is the reversal in inflation swaps so far this week. To be sure, a decline in long-term inflation expectations in the ECB’s consumer survey has helped, but we think this is a reflection of a more general view that here too, central banks are back on their front foot. This means an upside to both front and back-end yields, but a hawkish ECB should also bring further curve inversion. Whether this view survives next week’s ECB meeting is another question. Its communication has sometimes confused markets and a wide range of opinions has been expressed in the run-up to the quiet period starting tomorrow.

We are fond of saying that risk sentiment cannot ride the recovery wave forever, as more aggressive central banks will inevitably take their toll on valuations. There were signs of this message affecting risk assets yesterday but, in a way, a scenario where central banks keep their eyes on the road and only step off the brake when inflation is under control is the better outcome. The even worse alternative is one where inflation expectations continue to rise for a while with an even more drastic intervention down the line.

EUR inflation swaps have stopped rising after hawkish ECB comments

Source: Refinitiv, ING

Today’s events and market view

Speeches by the ECB’s and feature prominently on today’s calendar. Today is also the last day before the pre-meeting ‘quiet period’ kicks off, and so the last chance to manage market policy expectations before next week.

Also on the topic of central bank commentary, will conduct the second of his two-day Congressional testimony. His prepared statement will be the same as yesterday’s but questions and answers might shed more light on the Fed’s thinking.

Bond supply will come from Germany and Portugal (/13Y) in Europe, and from the US ().

Last but not least, two US job market indicators will be released today: , and . The former isn’t rated very highly by our economists but can still move the market in case of significant deviation from the 200K consensus. Job openings are more relevant in our view. The rebound in late December is one of the key indicators that helped rates find a floor at the start of February but the consensus is now for a decline.

***

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

• Fed chief testifies before Congress, investors focused on his tone
• Aussie slides after cautious RBA rate hike, yen ignores softer data
• Stock markets little changed, waiting for Fed signals and US payrolls

Powell appears before Congress

The spotlight today will fall on Fed Chairman Powell, who will testify before the Senate Banking Committee at 15:00 GMT. Investors usually pay more attention to the Q&A session with lawmakers, where the Fed chief will face a grilling on the outlook for inflation and interest rates.

Following a streak of encouraging data releases recently that highlighted the resilience of the US economy, several Fed officials stressed that interest rates could be raised beyond the 5.1% point they projected back in December. Market pricing currently implies rates will peak around 5.4% and the big question is whether Powell will endorse this view.

Considering just how strong the economic data pulse has been lately, with services inflation staying persistently high and the labor market still firing on all cylinders, it seems likely the Fed chief will strike a similarly hawkish tone to his colleagues. Another topic that could spark fireworks in the markets is the balance sheet, as the Fed’s prepared report said the pace of quantitative tightening could be adjusted if needed.

The dollar would likely benefit from any hawkish remarks, especially on the balance sheet, although the currency’s broader trajectory will depend mostly on the upcoming nonfarm payrolls data on Friday and next week’s inflation report.

RBA sinks , Japanese wages slow

Over in Australia, the Reserve Bank raised rates by 25 basis points today as expected but the underlying message was quite cautious, putting the emphasis purely on incoming data to determine how much further rates will rise. The RBA said the full effect of its existing rate increases hasn’t been fully felt in mortgages yet, hinting at the vulnerabilities in the nation’s housing market and essentially preaching caution.

Traders interpreted this shift in language as opening the door for a pause in the tightening cycle, which pushed the Australian dollar lower in the aftermath. A drop in commodity prices likely exacerbated this selloff, after China played down the prospect of enacting powerful stimulus measures and its trade data for February revealed sharp declines in both exports and imports.

In Japan, the latest wage growth data was disappointing, dealing a heavy blow to speculation that the Bank of Japan will raise its yield ceiling on Friday. Wages rose only 0.8% in January, a dramatic slowdown from the 4.1% increase in December. This means real wage growth is now deeply negative, which alongside the latest cooldown in Tokyo inflation metrics, might give the BoJ some pause.

Stocks waiting on Powell

Crossing into the equity realm, Wall Street closed a volatile session virtually unchanged on Monday, with trading being dominated by positioning and hedging flows ahead of Powell’s Congressional address.

While the outcome of today’s session will depend on how markets perceive Powell’s commentary, the ultimate path for stock markets seems to be downhill. Corporate earnings are contracting, equity valuations are still expensive, and investors can now earn 5% returns in risk-free US government bonds instead of taking chances in riskier plays.

In the geopolitical sphere, the US Senate will unveil a bill today that would allow the White House to ‘respond’ to national security threats posed by companies like TikTok. There is a sense that the days of TikTok are numbered in the United States, at least in its current form. This notion has fueled a serious rally in shares of its competitors such as Snapchat, which gained 9.5% yesterday.

Gen Zers, according to a recent survey, are overly optimistic about being wealthy. In fact, according to the survey, they are THE most financially optimistic generation. To wit:

“Nearly three-quarters (72%) of Gen Zers believe they’ll become wealthy one day, making them the most financially optimistic generation.”

But, interestingly, that optimism, as noted by the firm’s executive editor, is “more than just youthful optimism.”

“We are surrounded by extremes of wealth and poverty, and I think younger folks naturally gravitate to the more positive extremes. What’s more, the concept of investing is so much more accessible today, and I know many Gen Zers believe they can harness the power of the market to build wealth.” – Ismat Mangla

Interestingly, Gen Zers are optimistic they can use the stock market to build wealth. Unfortunately, that hasn’t worked out well for the generations before them.

Since 1980, there have been three major bull market cycles. The first started in the mid-80s and culminated in the Dot.com bust at the turn of the century. The early 2000s saw the inflation of the “real estate” bubble heading into the 2008 “financial crisis”. We live in the third “everything bubble” fueled by a decade-long push of monetary and fiscal interventions.

However, 80% of Americans are still not “wealthy after these three major bull markets.”

That is according to some of the most recent surveys and government statistics:

• 49% of adults ages 55 to 66 had no personal retirement savings in 2017, according to the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP).
• The latest Federal Reserve Survey of Consumer Finances found that the median savings in Americans’ retirement accounts were $65,000.
• Less than half of those surveyed saved $100,000. Not enough to support a median retirement income of around $40,000 a year.
• One in six say they have saved nothing. A third currently makes NO contributions.
• 80% of people expected to see their living standards fall in retirement. 10% feared they wouldn’t be able to retire at all.

Will it be different for Gen Zers in the future? Unfortunately, it likely won’t be for the same reasons that using the stock market to build wealth didn’t work for the generations before them.

80% Of Americans Aren’t Wealthy

According to the Magnify survey, Gen Zers defined “being wealthy” by several measures:

Most surveyed define “wealthy” as living comfortably without concern about their finances. As shown below, that goal has eluded all but the top 20% of income earners.

While 72% of Gen Zers believe they will be wealthy, the net worth of the bottom 50% of Americans has remained relatively unchanged since 1990. While the middle 50-90% of Americans have seen an increase in net worth, it has not been enough to keep up with the “standard of living,” which, as discussed previously, continues to push Americans further into debt.

“The current gap between savings, income, and the cost of living is running at the highest annual deficit on record. It currently requires roughly $6,300 a year in additional debt to maintain the current standard of living. Either that or spending gets reduced which is the likely outcome as a recession becomes more visible.” – The One Chart To Ignore

Another survey supports this bit of analysis by showing that roughly 50% of working Americans live “paycheck-to-paycheck,” meaning they have no money left after expenses. While that was common among those making less than $35,000 annually (76%), 31% of those making more than $100,000 experienced the same.

The critical point is that it is hard to count on the stock market to build wealth when you don’t have excess savings with which to invest.

The Stock Market Won’t Make You Wealthy

Generation Z, born between 1992 and 2002, was between 5 and 16 years old during the financial crisis. Such is important because they have never truly experienced a “bear market.” Any advice they might have received from financial advisors suggesting caution, asset allocation, or risk management was repeatedly proven to underperform the market.

“Ha….Boomers just don’t get it.”

However, since they became old enough to open an investment account, they have only seen a “liquidity-driven” bull market that fostered a generation of “Buy The F***ing Dip”-ers.

However, while the lack of savings was one of the key points in “The One Chart To Ignore,” the other key point, and why 80% of Americans didn’t build wealth, is that “markets don’t compound returns.“

„There is a significant difference between the AVERAGE and ACTUAL returns received. As I showed previously, the impact of losses destroys the annualized ‘compounding’ effect of money. (The purple shaded area shows the ‘average’ return of 7% annually. However, the differential between the promised and ‘actual return’ is the return gap.)”

While 26% of Gen Zers think that investing in the stock market, and 19% think in cryptocurrencies, will be their ticket to financial wealth, a lot of financial history suggests this will not be the case.

While Gen Zers are very optimistic they will be wealthy in the future, a mountain of statistical and financial evidence argues to the contrary. Will some Gen Zers attain a high level of wealth? Absolutely. Roughly 10% of them. The remainder will likely follow the exact statistical breakdown of the generations before them.

The reasons for that disappointing outcome remain the same. If investing money worked as the mainstream media suggests, as noted above, then why, after three of the most significant bull markets in history, are 80% of Americans so woefully unprepared for retirement?

The crucial point to understand when investing money is this: the financial market will do one of two things to your financial future.

1. If you treat the financial markets as a tool to adjust your current savings for inflation over time, the markets will KEEP you wealthy.
2. However, if you try and use the markets to MAKE you wealthy, the market will shift your capital to those in the first category.

Experience tends to be a brutal teacher, but it is only through experience that we learn how to build wealth successfully over the long term.

How Money Really Works

It isn’t just about investing money. There are also vital points about the money itself.

1. Your career provides your wealth.

You most likely will make far more money from your business or profession than from your investments. Only very rarely does someone make a large fortune from investments, and it is generally those that have a business investing wealth for others for a fee or participation. (This even includes Warren Buffett.)

Focus on your career or business as the generator of your wealth.

2. Save money. A lot of it.

“Live on less than you make and save the rest.”

Such sounds simple enough but is exceedingly difficult in reality. Given that 80% of Americans have less than $500 in savings tells the real story. However, without savings, we can’t invest to grow our savings into future wealth.

3. The true goal of investing money is to adjust savings for inflation.

As investors, we get swept up into the “casino” called the stock market. However, the true goal of investing is to ensure that our “savings” adjust for purchasing power parity in the future. While $1 million sounds like a lot today, in 30 years, it will be worth far less due to the impact of inflation. Our true goal of investing is NOT to beat some random benchmark index by taking on excess risk. Rather, our true benchmark is the rate of inflation.

4. Don’t assume you can replace your wealth.

The fact that you earned what you have doesn’t mean that you could earn it again if you lost it. Treat what you have as though you could never earn it again. Never take chances with your wealth on the assumption that you could get it back.

5. Don’t use leverage.

When someone goes completely broke, it’s almost always because they used borrowed money. Using margin accounts or mortgages (for other than your home), puts you at risk of being wiped out during a forced liquidation. Suppose you handle all your investments on a cash basis. In that case, it’s virtually impossible to lose everything—no matter what might happen in the world—especially if you follow the other rules given here.

6. Whenever you’re in doubt, it is always better to err on the side of safety.

If you pass up an opportunity to increase your fortune, another one will be along soon enough. But if you lose your life savings just once, you might never get a chance to replace it. Always err on the side of caution. Always ask the question of what CAN go “wrong” rather than focusing on what you “HOPE” will go right.

Investing money in our future is not as simple as much of the media makes it seem. We all want to be able to under-save today for tomorrow’s needs by hoping the markets will make up the difference. Unfortunately, there is no magic trick to building wealth.

The process of saving diligently, investing conservatively, and managing expectations will build wealth over time. It’s boring. But it works.

No matter your age, it’s not too late to start making better choices.