Jun 1, 2022
In this episode of the Fed Watch podcast, we focus on important macro charts. We cover Bitcoin’s chart, currencies like the dollar, the euro, the Hong Kong dollar, and gold, and energy commodities. We don’t have time to get to all the charts I prepared, because the live show has time constraints. I will attempt to get a Part 2 out this week, to cover the rest of my commodity charts, as well as supply chains and shipping costs. You can find the slide deck of charts here.
Other topics covered in today’s episode include Biden and Powell’s meeting yesterday, where I try to flesh out the importance of this Wall Street (Powell) vs Globalists (Biden) showdown; and we get into a couple of things from Davos last week, particularly the Kissinger comments about Ukraine.
Fed Watch is the macro podcast for bitcoiners. Each episode we discuss current events in macro from across the globe, with an emphasis on central banks and currency matters.
First currency up is Bitcoin. I discuss the recent pop in price on Memorial Day in the US, and how it is simultaneous with a growing bullish divergence in the indicators.
However, I also go back in time to roughly one year ago, when there was a very similar situation. In June 2021, there was a bullish divergence in these two indicators and a breakout of a descending wedge. That move was a fake out, cut short by the Grayscale (GBTC) unlock wave in July. The current situation is similar on the chart, but not similar in the fundamentals. I just wanted to point out a previous example where a breakout like this week failed.
I make an effort to dislodge the bitcoin rise = dollar collapse false narrative here. The dollar and bitcoin can rise together due to deflationary pressures pushing people to cash and away from counterparty risk.
Next up is the dollar. On the live stream, I show the following chart and discuss how we could be headed for a new higher range on the dollar. Perhaps, we see another 5-7 years of the DXY in a range of 100-110, kind of like how it jumped into the 90-100 range in 2015.
For many who don’t like the DXY because it is too narrow (Euro 57.6%, Yen 13.6%, and Pound 11.9%), I provide a chart of the trade-weighted dollar that includes 30+ currencies including Yuan and Mexican peso.
In the below chart, we see the same consolidation beginning, but the high that the dollar achieved (excluding the corona crash highs) is a new high. I think this symbolizes a stair step function higher for the trade-weighted dollar as well.
Remember, a strong dollar is the Fed failing and it also provides massive stress to the rest of the world’s economy.
The Euro is nearly the inverse of the DXY. It also shows a recent breakout, but in this case downward. If the dollar rally is to consolidate before heading higher, the Euro is going to consolidate before heading lower. One thing is for sure, the Euro has broken its two decade support trend line, it’s in big trouble of crashing much lower.
The next two charts are of the Hong Kong Dollar versus the US dollar. There is a peg in place that is plainly obvious on the first chart; it is a range between 7.75 and 7.85. Recently, the exchange rate has raced to the top of this pegged range, signaling massive dollar pressure in the Asian economies like China, Hong Kong, Taiwan, Japan and South Korea. The dollar squeeze rapidly set in starting this year.
The second chart of the Hong Kong dollar is a close up of the daily timeframe. The peg was defended successfully this time, by the authorities selling US dollars and buying HK dollars, but the big question is do they have enough reserves to continue defending this peg for the rest of the year, like in 2018?
The HK authorities publish their reserve data, so we can get a clue to the severity of their predicament. At the end of April, prior to the peg experiencing its greatest pressure, their reserves stood at $465.7 billion, $16 billion less than March.
The last currency we look at is part currency and part commodity, gold. It has been hard being a gold bug for the last 11 years. Currently, the gold price is below the 2011 high of $1920, sitting at $1840 at the time of recording. Imagine, holding for 11 years and losing money despite the narrative of money printing. Your choice at that point would be either abandon your faulty inflation dogma or go crazy on conspiracy theories. That sums up the gold community at this point in my opinion.
Moving onto commodities, on this episode I only have a chance to cover two charts. The first is Brent crude (UK crude price in orange) and WTI crude (US crude price in blue). They often are extremely correlated, with a slight premium on European Brent.
I wanted to cover this chart today, because of the headlines about the 6th round of EU sanctions on Russian oil. It is an absolute joke. As you can see on the chart, the orange line actually drops on the day the theatrical sanctions were announced.
My thesis for oil prices is as follows. Global demand is collapsing faster than oil supply. Recent elevated prices starting in March are due to the Russia/Ukraine situation causing market uncertainty, and are very overbought. The price of oil will begin to fall soon, lowering prices and CPI, and coinciding with a growth slowdown. This is not a stagflation scenario, it is a deflationary depression scenario after a temporary spike in prices.
Natural gas futures in Europe (TTF1!) support my conclusion. They have been radically elevated, far above rational market fundamentals apart from sanctions on Russia. They have refused to be affected by successive rounds of sanctions, telling us that these price levels are mainly due to people’s worries, not market fundamentals. Once those worries go away (the end of the Ukraine situation becoming more clear) prices will adjust downward quickly.
That does it for this week. Thanks to the watchers and listeners. If you enjoy this content please SUBSCRIBE, REVIEW on iTunes, and SHARE!