Biden getting right to work
The markets like it as this reduces policy uncertainty in the long run.
With a slew of executive orders to implement science-based policies to get the Covid resurgence under control and to reverse the more divisive of Trump’s policies, Biden is wasting no time to deliver on his election promises.
The markets like it as this reduces policy uncertainty in the long run. All eyes now on how soon the Biden administration can get the Congress to start getting his proposed $1.9 trillion stimulus into the economy.
Keep to the path.
- Commodities : Silver — Supports for Silver are at 21.80–90 and at 24.70–80. Heading the right direction, so keep to the path.
Key risks: Higher US interest rates leading to a stronger USD is the key risk.
2. Equities : Keep long US Tech and China A50 Index Futures. Nasdaq continues its march higher. China A50 held the 18300–350 level in style. Stay the course.
Key risks : Higher US interest rate. Possibility of higher taxes and regulations on tech could pressure the market.
3. Currencies : Keep short USD and long NZD, CNH & TRY. USDCNH seems to be trading a tight range of 6.45–6.50 for now. USDTRY started to grind lower again, so looking for opportunities to reinstate shorts.
WHAT HAPPENED YESTERDAY
- U.S. Initial claims for the week ending January 16 declined by 26,000 to 900,000 (consensus 910,000). Continuing claims for the week ending January 9 decreased by 127,000 to 5.054 million. The level of initial claims is still high and indicative of why calls for more jobless assistance are being made.
- Longer-dated U.S. Treasuries finished on a lower note. The 2-yr yield was flat at 0.13%, and the 10-yr yield increased 2 basis points to 1.12%. USD on the whole remained on its back foot, and the U.S. Dollar Index declined 0.39% to 90.08. EUR gained slightly more than 0.4% against the USD as the ECB left policy unchanged and did not make any comments to curtail USD weakness.
- The Nasdaq Composite (+0.6%) and S&P 500 (+0.03%) closed at new record highs on Thursday, largely due to continued strength in several mega-cap stocks that disproportionately benefited the Nasdaq. The Dow Jones Industrial Average (-0.04%) was relatively unchanged and the Russell 2000 declined 0.9%.
- Apple (AAPL 136.87, +4.84, +3.7%), the most influential mover today with a 3.7% gain, was aided by a price-target increase to $152 from $144 at Morgan Stanley. Amazon (AMZN 3306.99, +43.61, +1.3%) and Facebook (FB 272.87, +5.39, +2.0%), also mega-caps, followed Apple’s lead and extended their weekly gains to between 6–8%.
Notable Snippet: President Joe Biden launched a comprehensive federal plan on Thursday to rein in the raging COVID-19 pandemic. He will sign 10 wide-ranging executive orders Thursday afternoon, ordering federal agencies, private industry, and U.S. residents to act to slow the spread of the disease.
Notable Snippet: The United States will back a global plan to combat COVID-19 and get vaccines to poorer countries as part of a national strategy unveiled by President Joe Biden on Thursday, which includes pushing Congress for more funding for international efforts. Global re-engagement has been among Biden’s priorities since taking office on Wednesday and one his first actions was to rescind former President Donald Trump’s planned withdrawal from the Geneva-based World Health Organization (WHO).
THEMATIC CONTEXT: “What’s more important that Biden’s promise of more cash be it to individuals or the economy, is his constant emphasis on “radical change”. Game theoretically speaking, the narrative forces the action and this is especially true for a new president who will be forced to make an impact, and he sure did paint himself into a corner where people are expecting a lot. We believe his administration will be great for asset prices and finite assets, especially those with growth, will continue to outperform.” — 5th Jan 2021
Notable Snippet: A standoff between new U.S. Senate Majority Leader Chuck Schumer, a Democrat, and the man he replaced, Republican Mitch McConnell, over a core rule of Senate operations has kept the two from reaching a deal on how to manage the 50–50 chamber. Democrats have the majority in the Senate because the new vice president, Democrat Kamala Harris, can vote in case of a tie. But she cannot be expected to be there every day to decide every dispute. So Schumer and McConnell started talking earlier this week about a possible power-sharing deal governing daily operations, similar to a deal struck two decades ago when the Senate also had a 50–50 split.
THEMATIC CONTEXT: “As mentioned, a Democratic President and Republican Senate is what the market favours most in the long run based on historical records, while a Democratic President and Senate this time will pave the way for unprecedented stimulus but possibly higher corporate taxes. Either way, hold on to your hats and cling onto assets, not cash.” — 6th Jan 2021
There are no notable events for the day ahead. Risk will continue to be driven by the virus situation and investors’ acclimatization with the new U.S. administration.
The Bitcoin FUD (Fear, Uncertainty, Doubt)
Bitcoin fell as much as 13% as it was hit with a double whammy that shook the faith of the uninitiated. First, Janet Yellen, President Joe Biden’s nominee for treasury secretary, suggested during her confirmation hearing on Tuesday that lawmakers “curtail” the use of Bitcoin because of its use in illicit activities. And second, a debunked report from BitMEX Research on Wednesday suggested that a critical flaw called “double spend” had occurred in the Bitcoin blockchain. (Double spend is when someone is able to spend the same bitcoin twice. It is a feared and dire scenario for the digital asset, and the blockchain was thought to have solved the issue when Satoshi Nakamoto published the Bitcoin white paper in 2009.)
Sequence Of Events:
- BitMEX Research tweeted that “it appears as if a small double spend of around 0.00062063 BTC ($21) was detected.”
- BitMEX later said it appeared that the double spend was actually an RBF (Replace By Fee. RBF is a way for someone who is experiencing a stuck Bitcoin transaction to get it ‘un-stuck’.) transaction, which is when an unconfirmed bitcoin transaction is replaced with a new transfer paying a higher fee. But BitMEX’s Fork Monitor said that “no (RBF) fee bumps have been detected.”
In essence, no bitcoin was “double spent” because no new coins were added to Bitcoin’s supply. Instead, the same coins from the same wallet were registered in two different blocks during a typical split in Bitcoin’s blockchain.
Due to the distributed and highly competitive nature of Bitcoin mining, mining pools from time to time mine the same block simultaneously and thus cause a split in the blockchain’s history. When this happens, both blocks will have miners add on to them until one history wins out over the other.
This was the case at block 666,833, wherein two blocks were spawned by separate mining pools and a one-block reorganization occurred. The scenario is why Satoshi Nakamoto said in the white paper that a transaction should only be considered final after it has six confirmations (i.e., six new blocks are mined onto the chain that has recorded the transaction).
A double spend typically means a sender tricks a recipient into accepting a transaction that the sender actually sends to itself, as well. This is why it’s considered best practice for merchants to wait for six confirmations before a payment is considered final to avoid an outcome like this one.
In the grand scheme of things, what happened to Bitcoin on the blockchain is pretty pedestrian and something that Satoshi Nakamoto has addressed in the White Paper.
Bitcoin has been surviving and crushing FUDs since day one and none of the allegations of Bitcoin being used in illicit transactions or misunderstandings of the purpose of the protocol are new. Each new bull cycle brings in new hands and the knowledge gap exists as new buyers are not integrated well because it was not the technicalities of Bitcoin that enticed them into the ecosystem but the price (FOMO — Fear Of Missing Out). Any dips due to FUDs as obvious as this is a good opportunity to scale into a Bitcoin position.
Phan Vee Leung
CIO & Founder, TrackRecord