The world votes for the bitcoin

There is a problem in Europe: The ECB should have a bond portfolio in the amount of 2.3 trillion euros by the end of the year. But it is more complicated. The ECB has been saving indebted south-European economies by those bonds-buyouts. It is the biggest creditor of European governments. So the ECB is going to be under a giant political pressure not to raise the interest rates.

Moreover, the south of Europe needs low interest rates for another reason too. Italian banks are having problems with bad loans. While the bad loans had a share only of 3 % in the year 2009 today it is even 13 % (!). Raising of the interest rates might endanger the banks.

On the other hand, keeping the interest rates on the current levels is also wrong. Even though Europe doesn’t have a traditional consumer inflation, the growth of prices has manifested elsewhere. It looks like there is a mortgage bubble in many countries, stocks are incredibly high and digital currencies are growing to all-time highs as well.

While the bitcoin was at 1000 dollars at the beginning of April, it is at 2725 dollars today and it has been almost on 3000 dollars at the beginning of the week. That’s why the chief of Bundesbank warned of the dangers from digital currencies. It is understandable. Everything is heading towards the digital currencies replacing the current currencies one day because the central bankers are failing. So the fish doesn’t want to drain the pond.

Reactions on the bitcoin are coming from the investment banks as well. Morgan Stanley is asking for the bitcoin regulation. I think that the fewer people trust the central banks the higher the bitcoin would go. It is a reaction to the scepticism in society. Gold is doing similarly. It is important that it is growing in the long run. Today it is at 1270 dollars per ounce and it was at 670 dollars ten years ago. The more complicated the world is the more interesting gold is.

The growth of the global economy is false

We can say a good news. OECD has adjusted its expectations concerning the global growth. While in November, it has been expecting that the planet is going to grow by 3.3 % in the year 2017, today it is expecting that it is going to grow by 3.5 % and in the year 2018 even by 3.6 %. If the prognosis gets fulfilled it is going to be the most significant growth since the year 2011. It would be great if OECD was right - but I am cautious.

The world has changed a lot. Patterns which have been working for years are not working anymore. It is extremely difficult to make prognosis today. The yield curve has been working as an effective tool of prediction for years. You could tell a lot about the entire economy from the difference of 2-year and 10-year yield. The bigger was the difference the more were the investors speculating on the recovery of the economy and on the growth of the interest rates of central banks. But today?

For example at the American bonds, this difference has been getting smaller for a couple of months which should hypothetically mean a speculation on a crisis. But that is definitely not expected according to OECD. We all can relativize this and take it down by saying that let’s say the interest rates are significantly influenced by the decisions of central banks and those are behaving unusually so the difference of interest doesn’t have such good predictive ability as it had twenty years ago. But we do have new tools.

For example, bitcoin is right under the all-time high today and moving around 2860 dollars. It was still around 1200 dollars three months ago. Why? Because the investors are preferring alternative investments. Simply said, they think something is stinky in the standard economy. The same goes for gold. That has reached to its seven-month high. When has the gold always been growing in the history? When a crisis was coming up or when the investors were fearing something. So how is OECD going to deal with this?

No matter what side we look at this, investors are suddenly doubting that it is possible to be raising the interest rates quickly. Economic recovery should be automatically connected to the growth of the interest rates… Many are assured of this also because of the development on Spanish banking market. The biggest bank in the country announced that it is going to buy the struggling Banco Popular for symbolic one euro and increase its capital by 7 bn. euros. That is showing nothing more than a weakness of the sector which is still dusty from the last crisis.

All things considered, I still think that the growth of the global economy is false from a big part and it is pulled by artificial demand from the central banks.  Many central banks are already owning a giant share in the industry. For example, the central bank of Japan has ownership of more than 20 % share at many key companies. It is simply rather a growth on the paper then a real one.

Danger of impeachment

Sometimes one has a feeling like the internet is giving them unbelievable opportunities. And sometimes one has a feeling that the internet took democracy from them. We do have unbelievably fast media and never-ending plurality because of the internet. There are so many opinions and news that one can’t distinguish real from fake and important from unimportant. Which is somehow complicating the legibility of world especially in the connection with the fact that not only Russia but the rest of the world is as well ruled by oligarchs who think that they are endlessly smart and unshakable. It is true even in the USA.

A fairly surprising news that has a strong potential to influence the financial markets came from the USA. The American president D. Trump is in a danger of impeachment, meaning the constitutional legal action leading to dismissal from the office for pressing the chief of FBI to not investigate his former security adviser who was accused of cooperation with Russia. On top of that, the pressure on Trump is growing because he told the Russian president significant military secret. However, the Russian president stated to the media today that the American president didn’t tell him anything. By doing that he stood up for the American president but didn’t calm down the situation in any way, on the contrary, he only added the fuel to the fire of speculators that Russia has financed Trump’s campaign and now it’s covering for him.

That started a spiral of hypotheses that are all leading to the democracy being rotten. Logically, that immediately rose worries among speculators that Trump won’t be able to unite the American parliament and enforce what he has been planning before the elections at this disturbing situation. That’s why the stocks are dropping and the dollar is depreciating. Let’s remember how the financial markets were growing in expectations at the beginning of the year that almost omnipotent Trump will fix the world. The excitement and the golden aura have vanished like when you swoosh a magic wand at least in the eyes of the financial speculators. Gold is thanks to that quickly growing. The market is looking for a safe haven just like I have been already mentioning last week. The price has been still under 1220 dollars per ounce on 10th May and now it is at 1248 dollars.

It is a habit of politicians that when the situation gets serious they are trying to divert the attention. That’s why there is a logical chance that Trump could surprisingly send a couple of missiles on North Korea like he did some time ago in Syria. Media would be paying attention to the chance of the nuclear war and not to the impeachment. But today the gold hasn’t even reached its twenty-day average yet. That’s why I think it still has more space for growth.
In the light of all these events, the dollar depreciated against the euro today to the weakest value since D. Trump has been elected into the office. That is a really weak exchange rate. The twenty-day average is stronger by two cents. If Trump won’t do some other misstep and handles the situation this time as well, I think the dollar is going to return to the stronger values. The current exchange rate is not matching the strength of the America. (It would be of course different if the impeachment was really set into the motion which is something I’m not betting on.)

Marketa Sichtarova, Vladimir Pikora

The gold is looking good

The financial markets are once again optimistic. They are STILL (!) living by E. Macron’s victory in the French presidential election. But it was a stress for the multinational corporations. Le Pen could hypothetically cause them significant losses with her fight against globalisation.

Thus, Macron’s victory torpedoed the gold. The price returned where it has been last time in March. The investors are not fearing the political instability anymore but they are rather looking at the interest rates and as it is known the gold is not carrying any interest which should lower its price even more. The current price is 4 dollars under the 100-day average - which is not a bad price for buying. Why?

Unlike others, I am assuming that Macron’s winning doesn’t mean we have all the complications behind us. Korea is going to return like a boomerang. And there is one more thing: There is a new indicator of the risk apart from the gold and that is bitcoin. It has always been growing when somewhere on the planet the governments are getting stricter. One time it was Cyprus, one time India and one time China. Bitcoin reached its new all-time high yesterday.

It reached even to 1750 dollars at one moment. Its exchange rate was 778 dollars a year ago and less than a month 1150 dollars. So the investors seeking the risk are seeing risk even now after Macron’s victory. To buy bitcoin now in this phase of the sinusoid is in my opinion too late but the time doesn’t have to be bad for gold...

Macron is making the speculators happy

The European stock exchanges are growing to the twenty-month high. They are being helped by the recent television duel of candidates for the French presidency.

The duel – at least as many are claiming – “won” E. Macron. The conviction that Macron is going to win the election is reflecting also in the bond market where there is actually the lowest difference of yields of French and German bonds in a plenty of months. That’s why the dollar erased its previous profits.

It is clearly showing that what is going to influence the financial markets in following days is going to be the French election. It’s counting on Macron’s victory. If it comes true it won’t influence the market much. But the bigger commotion would set in if the polls were wrong just like they were about BREXIT and Le Pen would win. Then sharp depreciation of the euro would come (appreciation of the dollar) by several percent, fall of the European stocks and also of the French bonds.

Le Pen is NOT right-wing

If the mood on the financial markets today can be described by one word then it is a word “relief“. Relief bigger than what Šichtařová is experiencing when her plane finally touches the runway. The reason is simple: Emmanuel Macron is getting into the second round of the French presidential election.

What of course happened one time was that Šichtařová in the fear from the fact that there is a two-hour long flight ahead of her, completely intentionally and in control, consummated half of litre of scotch bottom up style, got on the plane, fell asleep, woke up and found out that the plane is on the land so she experienced a flow of relief – just so she would find out right away that unplanned layover happened because of the strong counter-wind and she has to go through all of that again. In other words: we still have the second round ahead of us and until that is going to be behind us all judgments are somewhat premature. Despite that, all the polls are hinting that the final victory of Macron over Le Pen is almost certain. And that should secure the financial markets definitive boost.

Besides, the markets got boost already after this first round: Somewhat peculiar it is especially because the markets are usually not reacting as well to the victory of the left-wing candidate. And – let’s admit it – even though Macron is being labelled as centre-left, he is significantly closer to the left than to the centre. Why is that?

The reason is that the labels got a little bit tangled in the case of French election and labelling Le Pen as right-wing is almost ridiculously unthinkable. Le Pen is significantly anti-immigration and anti-integration but not right-wing. Judge it yourself: Raising salary of government employees by 200 euros, lowering the retirement age to 60 years, raising the pension, administrative regulation and lowering the prices of gas and electricity by 5 percent, lowering excise taxes even by 20 % but raising the progression and percentage of the income tax, taxation of luxurious goods, raising the property tax, progression of business taxation… that is literally a clear ultra-left program.

The joy of the financial markets over Macron can’t be understood as much as the valuing of the candidate but rather as their joy that Le Pen is being faced by somebody who has a high chance of winning against her but at the same time he is not a communist and in any case obviously extreme either. And if the second round ends up like everybody is thinking that it is going to end up, the joy on the financial market is going to be even bigger .

Big disappointment for many diehard fans of D. Trump

When I’m looking at the key stock indexes such as DJ Industrial or S&P 500 I always see the same picture: Since Donald Trump’s election as a new American president in November, the stocks skyrocketed upwards. E.g. DJ Industrial climbed from 18 000 points to 21 000 points. Now we have been observing for several weeks that the stocks are shuffling on their feet like they would want a new impulse or a confirmation that the hopes pinned on D. Trump are going to get fulfilled. Except a big disappointment might come here.

Initially, it seemed that D. Trump will be a different president than many of his predecessors. That he won’t be that engaged in the world, he will have his army for a deterrent rather for an attack because he knows how expensive it is to be a policeman of the world. At the same time, he is going to lower the taxes and raise the investments so the America would grow faster. At the beginning of March, America started doubting that Trump is able to enforce significantly lower taxes and higher investments but it was still thinking that his foreign politics is going to be different. That he is going to be friendly with Russia and won’t be engaging in the world. So the development in Syria was a big disappointment for many diehard fans of D. Trump.

Suddenly, it seems that just like his predecessors he is going to initiate his office by a new war also. At the same time, it seems that the alleged connection of Trump and Putin somewhat “mysteriously” vanished. Maybe there’s not going to be any war but it won’t be far from it. American military vessels are already heading towards North Korea. Maybe they are only going to drop anchor there. And maybe they won’t because South Korea agreed with China that North Korea can’t be continuing with its missile testing. The tension reached such levels that Japan joined the game and tried to calm down both sides which is signalizing that it is logically fearing the nuclear missiles that it could become a target of.

The stocks irrationally overdid it in past months because of Trump. The bubble might burst . Bombarding or shooting Korea would be very bad for the stocks.

V.Pikora & M. Sichtarova