Month: July 2024

Authored by Omid Malekan via Medium.com,

Satoshi Nakamoto had multiple insights, but the most profound may have been the use of circular logic to address an unsolved problem in the decades old field of distributed consensus.

Before Bitcoin, there was no known way to secure a permissionless system where participants were free to come and go. Nakamoto Consensus does it with incentives, the economics of which are circular.

Why is the decentralized Bitcoin network secure? Because the bitcoin currency has value. But why does the currency have value? Because its decentralized network is secure.

The critics who call this a ponzi don’t realize the circularity is a feature, not a bug. It allows for the system’s network effects to go to its users, as opposed to an authority. Bitcoin is a trillion-dollar asset that nobody controls but anyone can own. If it weren’t independent and decentralized it would just be a bad database.

Bitcoin Isn’t Perfect

Bitcoin is awesome, but there’s not much that you can do with it other than owning it. You can’t use it in DeFi — not natively anyway. The Bitcoin protocol is too limited to build DeFi on top of: block times are too slow and unpredictable, and the scripting language can’t do much.

There’s hope that a new generation of L2s or additional covenants can change this, but I remain skeptical.

The soul of Bitcoin is to solve a different problem than collateralized lending or DEX trading.

One solution is to bridge Bitcoin to other L1s, and there’s already $10b worth on Ethereum alone. But this too is imperfect. Secure bridges remain an unsolved problem in crypto and I doubt we’ll find a decentralized approach that is not bottlenecked anytime soon. The other solution is to use Bitcoin custodially, but that’s moving backwards.

Put together, these limitations mean that the most valuable and liquid asset in crypto can’t be used as the economic foundation for a new financial system. It will always be a part of that system — there’s plenty of bridged Bitcoin in Ethereum DeFi — but it can’t be the core of it. The core asset must be fully secure and completely decentralized.

The HQLA of Crypto

In traditional finance, a High Quality Liquid Asset is one that has broadly recognized value and substantial liquidity. The concept was introduced after the 2008 financial crisis to force banks to always hold a certain amount of safe assets that they can sell in a pinch without tanking the market. The most obvious example of HQLAs are US government bonds, which form the backbone of the international dollar system. Nobody questions their value, they can be bought and sold easily, and there’s seemingly endless capital willing to lend against them.

DeFi needs a crypto-native equivalent. Debt and derivatives are safer when built on top of an HQLA. Given the inherent risks of leverage, the one thing market participants shouldn’t have to think about is the quality of the collateral. HQLAs can fluctuate in value the way all assets do, but their reliability and liquidity should never be in question, even in a bear market. A crypto-native HQLA enables decentralized stablecoins, safer credit, and more scalable derivatives.

The most likely candidate for a crypto HQLA is the native coin of an L1 chain — a currency minted and controlled by a protocol that can only be altered via a fork. Native tokens offer the greatest property rights and monetary assurances. Tokens tied to dApps, on the other hand, may have smart contract risk and usually involve some kind of governance risk. Ceteris paribus, the token of a dApp will always be less valuable than the native token of the chain it rides on.

So will any individual L2 token. L2s inherit some of the security of the base layer so they lack full circularity — some of their activity will always accrue value to the L1. Stablecoins and other assets issued by a centralized entity have too much censorship risk. A truly permissionless CBDC might work, but is unlikely. Everything else in crypto is low quality.

That leaves us with ETH and SOL, the native assets of the two most valuable smart contract platforms, each of which has a robust native DeFi ecosystem. Each coin is the HQLA coin of its own chain, but financial systems have a winner-take-most tendency, so one is more likely to become the HQLA of the decentralized financial system. Despite the success and staying power of Solana, the platform, SOL the asset is of only medium quality.

Cryptoeconomics is not a meme

ETH is a lot more liquid than SOL, in part because ETH is more distributed and widely held than SOL. Its initial distribution happened almost a decade ago, and was modest by contemporary standards. Years of Proof of Work dampened concentration. Tokens that have only ever been Proof of Stake tend to have greater concentration because stakers don’t have to sell their income to fund operations the way miners do. Ethereum did not have any VC rounds and the Foundation took a small initial stake (again, by contemporary standards). There was no Labs or Ecosystem Fund. There are still concentrated pockets of ownership, but the overall distribution is broad.

SOL is a younger asset that had staking from launch. It began life more concentrated than ETH due to its VC rounds and gave allocations to the Labs, Foundation, and Ecosystem Fund. The FTX collapse helped diversify ownership, but wider distribution will always be capped by the fact that unlike ETH, SOL is not an appealing economic asset in of itself. People may want to own it for narrative reasons or to speculate, but its fundamentals are weak.

Solana has relatively high inflation, north of 5%. That rate will ratchet down every year until it hits a steady state of 1.5%, but supply will grow by 25% by then. This means that SOL has a high nominal interest rate, and that’s problematic for DeFi integration. Any asset backed by it (like a decentralized stablecoin) or margined with it (like a perp) will have a high cost of capital.

You can see this dynamic in action by contrasting the market rate for ETH in Aave to that of SOL on Kamino.

SOL owners can always stake to protect themselves from dilution — they’d be foolish not to. Inflation is sometimes argued to not be a problem in crypto because it’s just a wealth transfer from non-stakers to stakers. But it is a problem for HQLA consideration. Not only does it increase the cost of capital of DeFi, it also reduces liquidity. DeFi has to compete with staking to attract the native asset. Thus: most of the SOL in existence is currently staked.

Liquid staking tokens can serve as a workaround but are suboptimal. They have their own credit/counterparty risks and are less quality than the native asset, by definition. The problem on Solana is exacerbated by the fact that there’s no clear LST winner, so even the liquidity of its LSTs is fragmented. DeFi always prefers the native asset, but Solana doesn’t have a lot of it.

To be fair, liquid staking tokens are also popular on Ethereum, and Lido’s stETH features prominently in DeFi. But Ethereum has half the staking participation rate of Solana, thanks in part to its lower staking yield, which translates to a lower opportunity cost to doing other things with the native coin. These dynamics mean there will always be proportionally more free-floating ETH than SOL.

The other problem with SOL as an asset is that Solana transaction fees are too low. This might sound counterintuitive, but it’s important to remember that while fees are a cost to users, they are an additional source of revenues for validators. A chain that can pay its validators via fees doesn’t have to rely as much on issuance and can be secured with less inflation. Users on such a chain would also want to hold more of the native asset today to cover potential gas expenses in the future — sometimes referred to as the convenience yield.

High fees on a smart contract platform enable less new supply (because validators are paid with fees) and more current demand (because users need to hold at least some) for its coin — up to a point. High fees improve the moneyness of an L1 token, and moneyness is important for this conversation. The highest quality assets are derived from the best money.

The interplay between issuance and fees determine the real yield of a cryptocoin. Chains that have low inflation and high fees have a positive real yield: stakers earn a solid rate of interest without having their coin debased. ETH is the best asset in crypto in this category — even better than Bitcoin. The current ~3.5% staking rate comes mostly from fees (Bitcoin also has low issuance and high fees, but the fees go to miners, not coin holders). Solana has high issuance and low fees, so it has a borderline negative real yield. Almost all of the return stakers earn comes from debasement.

Note that MEV is also a factor in the nominal vs real calculation, but beyond the scope of this analysis. My guess is that Ethereum will always have higher MEV capture for stakers than Solana, but the situation for both chains is in flux.

Ethereum also has a burn mechanism that makes it deflationary during periods of high activity, increasing its positive real yield. The ability to earn interest in a potentially deflationary asset is special. Such an asset is in some ways the perfect HQLA, even better than US Treasuries, whose yield has to be viewed against the backdrop of increasing money supply. Ethereum’s burn mechanism also returns value to non-stakers, helping keep staking participation down. Solana used to have a burn mechanism but decided to get rid of it.

This is a complicated argument with multiple moving parts, some of which may change over time. But the overarching point that I’m trying to make is that the economic factors that make a cryptocoin appealing as an HQLA are separate from the technical ones that make chains useful. Sometimes they are in conflict.

Solana’s hardware-centric consensus mechanism further hurts SOL’s chances for HQLA consideration, because the cost of running a validator is a vector for centralization, and the more centralized the chain, the less appealing its native coin. As validators scale up their hardware to meet demand, they will also extract more value for themselves, suppressing the real return to stakers.

Tellingly, Solana’s own design and branding has always reflected its optimization for performance over moneyness. Its network requirements are already high and may go higher with greater demand or the introduction of Firedancer. No less an influential figure than its founder has argued that SOL is not money, inflation doesn’t matter, and that cryptoeconomic security is a meme. I have a lot of respect for Toly for taking this stance, it shows his intentions are pure as a builder.

But if cryptoeconomic security is only a meme, then the value of the native coin is not all that important. The circularity of decentralization that I mentioned above, where the value of the token secures the network and the security of the network improves the value of the token, is not as cogent. I’ve written extensively about why I don’t believe in the monolithic design philosophy. One of the consequences of its internal conflict is that the asset of a monolithic PoS chain has weak value capture.

ETH is the high-quality liquid asset of crypto. Thanks to modular scaling, it will be bridgeable to countless rollups with minimum trust assumptions. If this thesis is correct then it may even overtake Bitcoin someday. It’s still early, and memetics and momentum trump fundamentals in crypto valuations.

While America digests the unprecedented social media resignation of Joe Biden from the 2024 race, megadonor John Morgan on Sunday announced that he will not fundraise for the Democrats if Kamala Harris is the nominee – and suggested that Biden’s decision to endorse her 30 minutes after he announced he was pulling out was a “fuck you” to those who pushed him out.

(That of course assumes Biden knows he pulled out of the race and endorsed Harris.)

Joe Biden’s endorsement of Kamala is his fuck you to all who pushed him out.

Be careful what you wish for.@JoeNBC @maggieNYT @jmart @katierogers @maureendowd

— John Morgan (@JohnMorganESQ) July 21, 2024

“If Trump World could pick anybody to run against, I think they pick her,” Morgan told ABC News.

“You have to be enthusiastic or hoping for a political appointment to be asking friends for money. I am neither,” he said in a follow-up post on X.

You have to be enthusiastic or hoping for a political appointment to be asking friends for money. I am neither.

It’s others turn now.

The donors holding the 90 million can release those funds in the morning.

It’s all yours.

You can keep my million. And good luck. https://t.co/LugV4oSz92

— John Morgan (@JohnMorganESQ) July 22, 2024

Morgan suggested that ‘any combination’ of: Joe Manchin, Andy Beshear, Gretchen Whitmer and Josh Shapiro would win, while “@MichelleObama wins in a landslide with any of these picks.”

Any combination of these people win…

– @Sen_JoeManchin
– @AndyBeshearKY
– @gretchenwhitmer
– @JoshShapiroPA @MichelleObama wins in a landslide with any of these picks.

— John Morgan (@JohnMorganESQ) July 21, 2024

Former NYC Mayor Bill de Blasio seconded Whitmer:

The best way to beat Trump? Team up @VP Kamala Harris and @GovWhitmer!
The heroic, selfless decision by @JoeBiden has given us the chance to nominate two leaders who will wipe the smirk off Donald Trump’s face and allow us to come roaring back. A Harris-Whitmer ticket is the…

— Bill de Blasio (@BilldeBlasio) July 22, 2024

Meanwhile, what actually happened with the Biden resignation?

Let’s recap this historic day:

• Joe Biden suddenly *RESIGNS* via @X
• White House staff find out ONE MINUTE later
• Joe Biden “resignation” letter not on official letterhead
• Biden “signature” suspect (underlined?)
• Steve Richetti helped write letter
• Jill Biden… pic.twitter.com/4ySTXj619L

— Kyle Becker (@kylenabecker) July 22, 2024

 

By Stefan Koopman, Senior Macro Strategist of Rabobank

In a move reminiscent of a failing bank, President Biden belatedly terminated his reelection bid over the weekend, succumbing to unrelenting pressure from Democrats who feared he was too frail to defeat Trump. But the campaign had effectively collapsed following the June 27 debate, when it became glaringly apparent to each and everyone that he was no longer fit to be President for four more years. Like a ship taking on water, he continued to sail for a few more weeks, but it was only a matter of time before it sank.

A national address from President Biden will follow this week, but he already endorsed his Vice President Kamala Harris as the new candidate, with the Clintons and California Governor Newsom also boarding the Harris train. However, former President Barack Obama and former House Speaker Nancy Pelosi are still undecided on whether to hop on. The presidential candidate will be officially nominated in a month, with the Democratic National Convention slated to take place August 19 through August 22. In the meantime, other candidates, such as Senator Joe Manchin, may still emerge.

There has been significant confidence in the markets in Trump winning. It is also our base scenario, if only for ‘risk management’ purposes. Biden’s unprecedented decision does introduce a wild card into the campaign, possibly leading to market volatility. There have already been many nationwide Harris vs. Trump polls, and her numbers against Trump were very similar to Biden’s in several recent ones, but new polls that incorporate Biden’s absence could change this. If Harris can quickly rally widespread party support to challenge Trump, especially in some swing states, the momentum could be hers and the race would be wide open. If so, election-related volatility should increase.

Yet if Trump continues to lead in the polls and investors remain viewing his win as inevitable, the “Trump trade”, which implies deregulation, tax cuts, and increased fiscal spending, and should then lead to a steeper yield curve, a firmer USD and a boost for bitcoin, will dominate.

This morning’s market opening does not reflect a strong investor conviction in any particular direction. The dollar remains virtually unchanged against several currencies, including the euro, yuan, and Mexican peso. The 10-year Treasury yield fell by 3 basis points at the opening, now standing at 4.21%. Bitcoin fell right after the announcement but has since returned to levels seen earlier on Sunday. Even though the VIX has been creeping higher in recent days, with investors rotating out of tech, FX and rates markets remain relatively quiet. Yet with 106 days to go until the US election, recent events suggest that if you’re yearning for ‘precedented times’, you’re likely to be disappointed.

This should be good… Vice President Kamala Harris will speak publicly for the first time since President Biden decided not to seek re-election. She is delivering remarks at an event celebrating the National Collegiate Athletic Association (NCAA) championship teams from the 2023-2024 season.

“…unburdened by what has been…?”

Meanwhile, the actual president is nowhere to be seen…

JUST IN: The White House *STILL* has no official plans for President Biden to address the nation.

Joe Biden suddenly dropped out of the 2024 race and hasn’t been seen since. pic.twitter.com/SPredxR24v

— Kyle Becker (@kylenabecker) July 22, 2024

Watch VP Harris speak live here (due to start at 1130ET):

Submitted by Brent Johnson of Macro Alchemist

In the labyrinth of American history, certain events have thrust an indelible blade into the fabric of our nation’s narrative, altering its course with a ferocity often underestimated in popular recountings.

This report delves into the dark corridors of Presidential threats and their profound impacts on American policy and patriotic sentiment. Assassinations and attempts on the lives of Presidents have not only threatened but indeed reshaped the presidency and, by extension, the entire nation.  We explore some historical case studies to better understand the world in which we live today.

The attempted assassination of President Trump on July 13, 2024, will undoubtedly change the course of American history. These events always do.

The true extent of the changes wrought by such moments is often only understood in hindsight, sometimes years or even decades later. However, history provides us with several guideposts from which to draw comparisons and potentially forecast future impacts.

Throughout American history, four presidents have died by assassins’ bullets: Abraham Lincoln, James Garfield, William McKinley, and John F. Kennedy.

Each of these tragic events sent shockwaves through the nation and led to profound shifts in policy and national sentiment. Additionally, there have been attempts on other presidents’ lives, most notably the survival of Ronald Reagan after an assassination attempt in 1981. Other political candidates and leaders have also been targeted, underscoring the recurring threat to those in the highest offices of the land.

The attempt on President Trump’s life, unfortunately, finds several historical parallels. Abraham Lincoln’s assassination in 1865 dramatically altered the course of post-Civil War Reconstruction, leading to policies that set civil rights back several decades. The absence of Lincoln’s leadership during this critical period had far-reaching consequences for the nation’s social and political fabric.

Conversely, the assassination of President Kennedy in 1963 created an environment that allowed his successor, Lyndon Johnson, to expedite civil rights legislation. Johnson’s tenure saw the passage of landmark laws such as the Civil Rights Act of 1964 and the Voting Rights Act of 1965, fundamentally reshaping American society.

President McKinley’s assassination in 1901 resulted in the unexpected rise of Vice President Theodore Roosevelt to the presidency. Roosevelt’s subsequent administration was marked by vigorous anti-trust prosecutions that reshaped the American business landscape. His bold actions, such as the breakup of Standard Oil, surprised many, particularly those who had supported McKinley’s campaign financially.

The attempted assassination of President Trump will not only impact the likely succession within the Republican Party but also reshape the dynamics of the Democratic Party. Historical precedent suggests that such events often lead to a surge in patriotic sentiment. For instance, the aftermath of the 9/11 attacks saw New York City awash in American flags, symbolizing a collective surge in national unity.

Similarly, following the 1981 attempt on President Reagan’s life, the 1984 presidential election saw Reagan win an overwhelming victory, securing 49 out of 50 states. This wave of patriotism and support for the sitting president can profoundly influence the political landscape.

If a comparable wave of patriotism were to secure a victory for President Trump in the upcoming November elections, the implications for America’s place in the world could be significant. Trump’s policies, both domestic and foreign, have often been characterized by a distinct approach to international relations, trade, and defence. A second term could cement these policies further, potentially altering alliances, trade agreements, and geopolitical strategies.

The Democratic Party would also need to respond to such momentum. The party’s strategy, policies, and leadership might undergo significant re-evaluation in response to the shifting political landscape. Just as the national unity post-9/11 influenced policy and national discourse, a wave of patriotism following the attempt on President Trump could lead to substantial changes in party dynamics and electoral strategies.

Regardless of the specific outcomes, one thing is certain: the attempted assassination will create a butterfly effect on American history. The ripples of this event will spread across the political, social, and economic spheres, leading to changes that will be felt for years to come.

While the precise form these effects will take remains uncertain, historical parallels provide a framework for understanding the potential impacts. Each assassination or attempt in American history has left a unique imprint, reshaping the presidency and the nation in profound ways.

Through an examination of historical events coupled with vibrant narrative descriptions, this report aims not just to inform, but also to engage readers deeply, making history both accessible and compelling.

The events of July 13, 2024, will undoubtedly join this lineage, becoming another pivotal moment in the unfolding story of American history.

National Unity in the Wake of Presidential Tragedy

When a president of the United States is assassinated, it sends shockwaves through the nation, representing not just the loss of a leader but a stark interruption of national stability. The immediate reaction to such an event typically manifests as a dramatic increase in national unity. Political affiliations and partisan divisions are often temporarily set aside in favour of a communal sense of solidarity and collective grief.

In the hours and days following a Presidential assassination or attempt, the nation’s response is marked by a convergence of emotions and actions. Media coverage plays a pivotal role in shaping public perception during these critical moments. Continuous broadcasts of the incident’s details, along with rallying messages from political leaders and public figures, are instrumental in fostering a sense of national cohesion. The media’s portrayal of the event and its aftermath helps to galvanize public sentiment, encouraging citizens to unite in support of their country and its government.

This surge in patriotism often translates into a collective endorsement of governmental policies, transcending previous political divides. The assassination casts a temporary spell of unity over the nation’s political landscape, as citizens, in their search for stability and reassurance, tend to rally behind the existing government. This phenomenon can provide the administration with a stronger mandate to act, capitalizing on the heightened sense of national solidarity to advance legislative agendas.

The aftermath of President John F. Kennedy’s assassination in 1963 and the attempt on President Ronald Reagan’s life in March 1981 exemplify this surge in national unity. When Kennedy was assassinated, the nation watched in horror as the events unfolded on live television. The subsequent outpouring of public support for the bereaved Kennedy family and the heightened sense of national unity were palpable. Schools, public offices, and homes across the country displayed the American flag as a sign of solidarity and mourning. This collective response highlighted the country’s ability to come together in the face of tragedy.

Similarly, the attempt on Reagan’s life in 1981 led to a significant swell in public support. Despite the political controversies surrounding his administration prior to the assassination attempt, Reagan’s public approval surged in the aftermath. The public’s newfound support extended to his economic policies, which had previously been met with scepticism. This renewed endorsement allowed the administration to leverage the moment of unity to advance significant legislative changes, demonstrating how public sentiment in the wake of an assassination attempt can directly influence policymaking.

However, this boost in national cohesion can be short-lived. As the immediate shock and grief fade, so too does the intense unity, often leaving behind a complex legacy of both healing and division. The temporary nature of this unity serves as a poignant reminder of the fragility of national solidarity in times of profound crisis. Once the initial period of mourning and solidarity passes, political factions typically re-emerge, and the nation’s pre-existing divisions resurface, sometimes with even greater intensity.

The long-term effects of a temporarily united nation are complex and multifaceted. While the immediate aftermath of a presidential assassination can bring people together, the durability of this unity is often questionable. For instance, after the initial rallying effect, political divisions frequently reappear, sometimes exacerbated by the very policies that were advanced during the period of unity. The unity experienced becomes a temporary patch on a persistently divided nation, much like a family that comes together for a funeral but soon returns to old disputes.

Historically, these periods of intense national sentiment have not substantially changed long-term public opinion or policy direction. They do, however, offer a momentary pause, a breath of collective focus that can sometimes lead to meaningful reflection and conversation about national values and goals. In the case of Kennedy’s assassination, the national grief and subsequent unity helped to galvanize support for civil rights legislation, which had been a key focus of his administration. Similarly, the surge in support for Reagan post-attempt facilitated the advancement of his economic policies.

In conclusion, while the assassination of a president or an attempt on their life can temporarily unite the nation and provide a brief respite from political divisiveness, the lasting effects are often more nuanced. The initial wave of patriotism and solidarity is a powerful, yet fleeting, phenomenon. It underscores the nation’s capacity to come together in times of crisis, but also highlights the underlying and persistent divisions that can resurface once the immediate shock has passed.

The challenge for any administration is to harness that moment of unity in a way that fosters lasting positive change, even as the nation inevitably returns to its normal state of political discourse and disagreement.

Much more in the full report which can be found at the Macro Alchemist

Let’s begin with our note from early May titled “McDonald’s Admits Consumers Are Broke With Planned Reintroduction Of $5 Meal Deal.”

Four weeks after the meal deal began at most McDonald’s locations across the US, an internal memo obtained by Bloomberg reveals that it will be extended due to an overwhelmingly positive response.

About 93% of McDonald’s locations have committed to selling the bundle past the initial four-week window that started June 25, according to a memo seen by Bloomberg News. The timetables will vary across the country, with some locations planning to make it available through August.

Early performance indicates the meal deal “is meeting the objective of driving guests back to our restaurants,” McDonald’s said in a message signed by Tariq Hassan, chief marketing officer, and Myra Doria, national field president. “Driving guest counts ultimately propels our business and is the key to sustained growth,” they added. -Bloomberg

In other words, McDonald’s abrupt shift to debut a meal deal about one month ago directly responded to cash-strapped consumers pressured by elevated inflation and high interest rates. 

McDonald’s move to extend the meal deal through the end of the year shows executives at the burger chain understand the consumer slowdown will persist.

McDonald’s is looking to bolster its “affordability plans through the rest of year,” according to the memo, including the potential to extend the current meal deal for an even longer period. It is also looking at extended hours of operation to capture demand during off-peak hours.-Bloomberg

We’ve detailed for months about the onset of a consumer slowdown:

• Goldman Tells Top Clients To Start “Shorting The Middle-Income Consumer”

• Walmart, Target Unleash Price-Cut Tsunami As Working-Poor Hit Brick-Wall

• Goldman’s Commentary On Consumer Health Is An Ominous One

• “Did Something Change?”: Goldman Trading Desk Warns Hedge Funds Are Suddenly Dumping Consumer Stocks

• Restaurant Stocks Slide As Wall Street Sours On Consumer

Meanwhile, the New York Federal Reserve Bank’s recession probability remains over 50%, signaling higher odds for a hard landing in the next 12 months. 

The latest BofA Fund Managers Survey showed the first interest rate cut could come as soon as mid-September. 

Let’s not forget.

Read more on Bofa Michael Hartnett’s note about coming rate cuts and various types of economic landings (read: here). 

As we head into another week full of unknowns, DB’s Jim Reid notes this morning that one question that we don’t need to ask anymore is whether you think Joe Biden will be the Democratic Party nominee for President in November. On Friday speculation was rife that he would stand down as early as the weekend but bullish remarks by Biden on Saturday morning put some doubts to that speculation. However by Sunday afternoon Biden had unexpectedly withdrawn – through a tweet, and has yet to make any public appearance – and endorsed  Kamala Harris. While it seems difficult to see a path for someone to pip her to the nomination, we are in uncharted territory so you couldn’t completely rule it out. The Democratic convention starts on August 19th so if someone was going to challenge they’d need to be building up momentum well ahead of that. Unless there was a groundswell of support for that candidate it seems a very high hurdle to supplant Harris. The Clintons have endorsed Harris even if Obama hasn’t – he is reportedly saving his nomination for his ‘wife’ – although his practise is not to do so until a nomination has been secured. Overnight, potential rivals Newsom and Buttigieg have also thrown their support behind Harris, although don’t be surprised if they reverse in the last minute. In terms of the polls, the match-up between Trump and Harris has been slightly narrower than with Biden in recent times with Trump 1.9pp ahead at the national level instead of 3pp according to Real Clear Politics poll aggregates. However with the attention now likely to be firmly on Harris this could move notably in either direction over the next few days and weeks. Perhaps for now it slightly reduces the impetus for Trump trades but there’s a long way to go.

Political thriller aside, and as we await to see if Biden will really hold a press conference – and is, in fact, alive and not held hostage by Democratic sponsors – the other main events this week all point to Friday’s US core PCE deflator. En route to this,
the main other highlights are US Q2 GDP on Thursday, the global flash PMIs and the Bank of Canada rate decision on Wednesday.

With the core PCE deflator, DB economists expect a 0.14% MoM reading given the CPI and PPI components that feed into it. There could be some downward revisions to prior months that could edge this month up nearer to 0.2% so one to watch as a whole rather than the June number alone. The base case at DB is that the YoY rate will dip to 2.5% which is below the Fed’s YE ’24 prediction of 2.8% at their June FOMC. However the economists point out that base effects from low H2 prints last year will make further progress much more challenging. Nevertheless the recent run, especially in rents, suggest that the Fed will be having increasing confidence that inflation is moving back closer to 2%. For Q2 US GDP, economists expect a 1.9% growth print, although with durable goods out at the same time there might be a bit more uncertainty than usual.

We also have a big week for earnings that includes Tesla and Alphabet which will become the first of the “Magnificent Seven” to report in the latest round of results;  tomorrow we also get the latest earnings out of LVMH. Strategists at Morgan Stanley said companies in Europe have made a positive start to the second-quarter reporting season, with 29% beating profit expectations, but the tone was less positive on Monday, with Ryanair plunging after the Irish budget carrier cut its outlook for ticket prices in the crucial summer travel period.

Don’t expect to hear from Fed officials as they are on their blackout period ahead of next week’s FOMC.

Below, courtesy of DB, is a day-by-day calendar of events

Monday July 22

• Data: US June Chicago Fed national activity index, France June retail sales, China 1-yr and 5-yr loan prime rates Earnings: SAP, Verizon Communications, Cadence Design Systems, NXP Semiconductors, IQVIA, Nucor, Ryanair

Tuesday July 23

• Data: US July Philadelphia Fed non-manufacturing activity, Richmond Fed manufacturing index, business conditions, June existing home sales, Eurozone July consumer confidence
• Central banks: ECB’s Lane speaks
• Earnings: Alphabet, Tesla, Visa, LVMH, Coca-Cola, Danaher, Texas Instruments, General Electric, Comcast, Lockheed Martin, HCA Healthcare, Freeport-McMoRan, Spotify, General Motors
• Auctions: US 2-yr Notes ($69bn)

Wednesday July 24

• Data: US, UK, Japan, Germany, France and Eurozone July PMIs, US June wholesale inventories, advance goods trade balance, new home sales, Germany August GfK consumer confidence
• Central banks: BoC decision, Fed’s Bowman and Logan speak, ECB’s Guindos and Lane speak
• Earnings: Thermo Fisher Scientific, IBM, ServiceNow, NextEra Energy, AT&T, SK Hynix, Boston Scientific, Fiserv, Iberdrola, Equinor, Chipotle Mexican Grill, Porsche, Ford, Newmont, Kering, Renault, Carrefour
• Auctions: US 2-yr FRN ($30bn), 5-yr Notes ($70bn)

Thursday July 25

• Data: US Q2 GDP, June durable goods orders, July Kansas City Fed manufacturing activity, initial jobless claims, Japan June PPI services, Germany July Ifo survey, France July manufacturing confidence, Q2 total jobseekers, Eurozone June M3 Central banks: ECB’s Nagel speaks
• Earnings: AbbVie, Nestle, Roche, AstraZeneca, Hermes, TotalEnergies, Unilever, Honeywell, RTX, Sanofi, EssilorLuxottica, Enel, Vinci, Stellantis, Dassault Systemes, Valero Energy, Keurig Dr Pepper, Dow, STMicroelectronics, Anglo American
• Auctions: US 7-yr Notes ($44bn)

Friday July 26

• Data: US June PCE, personal income, personal spending, July Kansas City Fed services activity, Japan July Tokyo CPI, France July consumer confidence, Italy July consumer confidence index, manufacturing confidence, economic sentiment
• Central banks: ECB June consumer expectations survey
• Earnings: Keyence, Air Liquide, Bristol-Myers Squibb, Colgate-Palmolive, Mercedes-Benz, Holcim, Eni, BASF, Capgemini, BT

* * *

Finally, looking at just the US, Goldman notes that the key economic data releases this week are the durable goods report and the Q2 GDP advance release on Thursday, and core PCE inflation on Friday. Fed officials are not expected to comment on monetary policy this week, reflecting the blackout period in advance of the FOMC meeting on July 30-31.

Monday, July 22

• No major data releases.

Tuesday, July 23

• 10:00 AM Richmond Fed manufacturing index, July (consensus -7, last -10)
• 10:00 AM Existing home sales, June (GS -4.1%, consensus -3.0%, last -0.7%)

Wednesday, July 24

• 08:30 AM Advance goods trade balance, June (GS -$103.0bn, consensus -$98.0bn, last -$99.4bn)
• 09:45 AM S&P Global US manufacturing PMI, July preliminary (consensus 51.7, last 51.6); S&P Global US services PMI, July preliminary (consensus 54.8, last 55.3)
• 10:00 AM New home sales, June (GS 632k, consensus 640k, last 619k)
• 04:05 PM Fed Governor Bowman and Dallas Fed President Logan (FOMC non-voter) speak: Fed Governor Michelle Bowman (via video) and Dallas Fed President Lorie Logan will give opening remarks at an event aimed at strengthening community partnerships in Dallas. Speech text is expected.

Thursday, July 25

• 08:30 AM GDP, Q2 advance (GS +2.3%, consensus +1.9%, last +1.4%); Personal consumption, Q2 advance (GS +2.3%, consensus +1.8%, last +1.5%); Core PCE inflation, Q2 advance (GS +2.79%, consensus +2.7%, last +3.7%): We estimate that GDP rose 2.3% annualized in the advance reading for Q2, following +1.4% annualized in Q1. Our forecast reflects strength in consumption (+2.3%, qoq ar) and nonresidential fixed investment (+4.3%), as well as a 1.2pp boost from inventory investment, that more than offset a decline in residential investment (-4.8%) and a 1.4pp drag from net exports. We also estimate that the core PCE price index increased 2.79% annualized (or 2.65% year-over-year) in Q2.
• 08:30 AM Durable goods orders, June preliminary (GS +0.2%, consensus +0.5%, last +0.1%); Durable goods orders ex-transportation, June preliminary (GS +0.4%, consensus +0.2%, last -0.1%); Core capital goods orders, June preliminary (GS +0.4%, consensus +0.2%, last -0.6%); Core capital goods shipments, June preliminary (GS +0.4%, consensus +0.2%, last -0.6%): We estimate that durable goods orders increased 0.2% in the preliminary June report (mom sa), partly reflecting seasonally soft commercial aircraft orders. We forecast firmer increases in the core measures, including 0.4% increases in both core capital goods shipments and core capital goods orders, based on solid US and foreign manufacturing activity.
• 08:30 AM Initial jobless claims, week ended July 20 (GS 235k, consensus 238k, last 243k); Continuing jobless claims, week ended July 13 (consensus 1,861k, last 1,867k)
• 11:00 AM Kansas City Fed manufacturing index, July (consensus -5, last -8)

Friday, July 26

• 08:30 AM Personal income, June (GS +0.45%, consensus +0.4%, last +0.5%); Personal spending, June (GS +0.25%, consensus +0.3%, last +0.2%); PCE price index, June (GS +0.10%, consensus flat, last flat); PCE price index (yoy), June (GS +2.49%, consensus +2.4%, last +2.6%); Core PCE price index, June (GS +0.20%, consensus +0.1%, last +0.1%); Core PCE price index (yoy), June (GS +2.60%, consensus +2.5%, last +2.6%): We estimate personal income increased 0.45% and personal spending increased 0.25% in June. We estimate that the core PCE price index rose +0.20%, corresponding to a year-over-year rate of 2.60%. Additionally, we expect that the headline PCE price index increased by 0.10% from the prior month, corresponding to a year-over-year rate of 2.49%. Our forecast is consistent with a 0.14% increase in our trimmed core PCE measure (vs. +0.09% in May and +0.21% in April).
• 10:00 AM University of Michigan consumer sentiment, July final (GS 65.7, consensus 66.4, last 66.0): University of Michigan 5-10-year inflation expectations, July final (GS 2.9%, last 2.9%)

Source: DB, Goldman

Authored by Andrew Korybko via substack,

Biden’s X account shared a letter that he supposedly signed on Sunday announcing that he’s dropping his re-election campaign in favor of endorsing Kamala, which led to everyone from the Soroses to Hillary throwing their support behind her, with the notable exception of Obama. The New York Times (NYT) cited people close to him though who advised “not to read too much into it” since he supposedly wants to “position himself as an impartial elder statesman above intraparty machinations”.

The circumstances surrounding Biden’s decision are super controversial since he’s supposedly isolating after falling ill with COVID for a third time despite his multiple vaccinations and had reportedly felt backstabbed by the Obama-Pelosi duopoly’s plot to turn the media and party elites against him. The NYT described Obama as the “puppet master” of this operation and Pelosi as the “main instigator”, yet that’s all now being memory-holed, as is talk about Biden’s cognitive faculties since he hasn’t (yet?) resigned.

The elite were gaslighting up to the moment that he dropped out that they supposedly didn’t know about his senility till after his disastrous debate last month, which was intended to hide the fact that the country has been ruled by a shadowy liberal-globalist network throughout his entire presidency.

Then Trump miraculously dodged an assassin’s bullet by less than in inch prior to picking JD Vance as his Vice President a few days later. This fast-moving sequence of events was detailed in these three analyses:

* 29 June: “Don’t Let The Elite Get Away With Gaslighting That They Didn’t Know About Biden’s Senility”

* 14 July: “America Was Less Than An Inch Away From Socio-Political Disaster”

* 17 July: “In Defense Of JD Vance As Trump’s VP”

For all intents and purposes, two complementary coups were attempted this month.

The first one against Trump failed while the second against Biden succeeded.

The goal was to replace both parties’ candidates with figureheads chosen by their elites at each’s respective conventions instead of going with the ones who won the primaries.

This would ensure that the “uniparty” remains in power for the next four years regardless of November’s vote, though the elite’s preference is clearly for a Democrat to win.

Kamala’s coronation as the de facto Democrat nominee dispelled illusions about democracy from that party’s side, but it’s unlikely that she was supposed to play this role in the first place since the expectation was that the assassin wasn’t going to miss when he took his shot at Trump.

He was supposed to have been killed, which would have led to an open Republican convention a few days later that would have then made the Democrats’ preplanned one next month appear less abnormal.

Since Trump survived and it was obvious that his lead over Biden had become too big to rig, the decision was made to swap Biden out for Kamala instead of go through with an open Democrat convention to anoint whoever it was that the elite really wanted in his place.

Some elite dissidents might still stir trouble to try to push her out of the way, but her coronation appears to be a fait accompli at this point.

The swiftness with which all of this unfolded points to a preplanned (but partially improvised) plot.

Authored by Daniel Lacalle,

Why is the price of gold rising if the global economy is not in recession and inflation is allegedly under control? This is a question often heard in investment circles, and I will try to answer it.

We must begin by clarifying the question. It is true that inflation is slowly decreasing, but we cannot say that it is under control. Let us remember that the latest CPI data in the United States was 3% annualised and that in the Eurozone it is 2.6%, with eight countries publishing data above 3%, including Spain.

This is why central banks need to give the impression of hawkishness and maintain rates or lower them very cautiously. However, monetary policy is far from being restrictive. Money supply growth is picking up, the ECB maintains its “anti-fragmentation mechanism,” and the Federal Reserve continues to inject money through the liquidity window. We can say, without a doubt, that monetary policy is beyond accommodative.

At the end of this article, the price of gold is above $2,400 an ounce, up 16.5% between January and July 19, 2024. In the same period, gold has performed better than the S&P 500, the Stoxx 600 in Europe, and the MSCI Global. In fact, over the past five years, gold has outperformed not only the European and global stock markets, but also the S&P 500, with only the Nasdaq surpassing the precious metal. This is a period of alleged recovery and strong expansion of the stock markets. On the one hand, the market is discounting the central banks’ continued accommodative and expansionary policies, even possible high debt monetization, given the unsustainable deficits in the United States and developed countries. That is, the market assumes that the Federal Reserve and the ECB will not be able to maintain the reduction of their balance sheets in the face of rising debt and public spending in many economies. As a result, gold protects many investors against the erosion of the currency’s purchasing power, i.e., inflation, without the extreme volatility of Bitcoin. If the market discounts further monetary expansion to cover the accumulated deficits, it is normal for the investor to seek protection with gold, which has centuries of history as an alternative to fiduciary money and offers a low-volatility hedge against currency debasement.

Another important factor is the central bank’s purchase of gold. JP Morgan is credited with the phrase “gold is money and everything else is credit.” All the world’s central banks include treasury bonds from countries that serve as global reserve currencies in their asset base. This allows central banks around the world to try to stabilize their currencies. When we read that a central bank buys or sells dollars or euros, it is not making transactions with physical currency but with government bonds. Hence, as the market price of government bonds has fallen 7% between 2019 and 2024, many of these central banks are facing latent losses from a slump in the value of their assets. What is the best way to strengthen a central bank’s balance sheet, thereby diversifying and reducing exposure to fiat currencies? Purchase gold.

The rising purchases of gold by central banks are an essential factor justifying the recent increase in demand for the precious metal. Central banks, especially in China and India, are trying to reduce their dependence on the dollar or the euro to diversify their reserves. However, this does not mean full de-dollarization. Far from it.

According to the World Gold Council, central banks have accelerated their gold purchases to more than 1,000 tonnes per year in 2022 and 2023. This means that monetary authorities account for almost a quarter of the annual demand for gold during a period when supply and production have not grown significantly. The ratio of output to demand stands at 0.9 in June 2024, according to Morgan Stanley.

Global official gold reserves have increased by 290 net tonnes in the first quarter of 2024, the highest since 2000, according to the World Gold Council, 69% higher than the five-year quarterly average (171 metric tonnes).

The People’s Bank of China and the Central Bank of India are the biggest buyers as they aim to balance their reserves, adding more gold to reduce loss-making exposure to government securities. According to Metals Focus, Refinitiv GFMS, and the World Gold Council, China has been increasing its gold purchases for seventeen months, and since 2022, it has shot up its reserves by 16%, coinciding with the increase in global polarization and the trade wars.

That does not mean full de-dollarization, as the People’s Bank of China has 4.6% of its total reserves in gold. US Treasury bonds are the most important asset, accounting for more than 50% of the Chinese central bank’s assets. However, its goal is to raise gold reserves to at least 14%, according to local media. Thus, it would imply a significant annual purchase of gold for years.

India’s central bank increased its gold reserves by 19 metric tonnes during the first quarter. Other central banks that are diversifying and buying more gold than ever are the National Bank of Kazakhstan, the Monetary Authority of Singapore, the Central Bank of Qatar, the Central Bank of Turkey, and the Central Bank of Oman, according to the sources cited above. During this period, both the Czech National Bank and the National Bank of Poland increased their gold reserves in Europe, reaching the highest level since 2021. In these cases, the aim is to balance the exposure in the asset base with more gold and less eurozone government bonds.

The goal of this central bank trend is to increase the weight of an asset that does not fluctuate with the price of government bonds. It is not about de-dollarization but about balancing the balance sheet from the volatility created by their own misguided expansionary policies. For years, the policy of central banks has been to reduce their gold holdings, and now they must come back to logic and rebalance after suffering years of latent losses on their government bond holdings. In fact, one could say that the world’s central banks anticipate their own widespread erosion of the purchasing power of reserve currencies due to the saturation of fiscal and monetary policies, and for that reason, they need more gold.

After years of thinking that money can be printed without limits and without creating inflation, monetary authorities are trying to return to logic and have more gold on their balance sheets. At the same time, many expected that the trade war between China and the United States and global polarisation would be reversed in the Biden years, and the opposite has happened. It has accelerated. Now, the latent losses in the sovereign bond asset portfolio are leading all these central banks to buy more gold and try to protect themselves from new bursts of inflationary pressures.

In an era of high correlation between assets and perpetual monetary destruction, gold serves as a low volatility, low correlation, and strong long-term return addition to any prudent portfolio.

Just days after Beijing concluded its Third plenum with no major announcements, disappointing markets, early on Monday China unexpectedly cut its key short-term policy rate and the mortgage reference rates, its first such broad move since  August last year. Analysts said the move just days after the conclusion of a high-level meeting that had focused on reviving the national economy represented “reactive easing.”

PBOC said it would cut the seven-day reverse repo rate to 1.7%  from 1.8%, and would also improve the mechanism of open market  operations. That is the first cut to the rate since August 2023.

The PBOC lowered the seven-day reverse repo rate – a widely used liquidity injection tool – by 10 basis points to 1.7% in a move to increase financial support for the real economy. In total, the Chinese central bank sold 58.2 billion yuan (US$8 billion) of seven-day reverse repos. Minutes  later, China cut benchmark lending rates by the same margin at the  monthly fixing: The one-year loan prime rate (LPR) was lowered to 3.35%  from 3.45% previously, while the five-year LPR was reduced to 3.85% from  3.95%. The change to the seven-day reverse repo rate would affect short-term market rates, while the change to the LPR reflects actual lending rates to the real economy.

And while analysts expect more rate cuts, they also urged future fiscal measures and policy support to do the “heavy lifting” to help accomplish this year’s economic growth target amid growing external challenges, the SCMP reported.

“[The] moves mark the first change in rates since February, and also the first major move since announcing a shift in the monetary policy framework in June,” said Lynn Song, chief economist for Greater China at ING.

“We will need to see if the other policy rates, such as the medium-term lending facility, follow [Monday’s] rate cuts in the coming weeks.

“Rate cuts will likely add to the pressure on Chinese banks. These pressures could increase further if the medium-term lending facility is not soon lowered.”

Louise Loo, lead economist at Oxford Economics, said that the moves on Monday were “originally anticipated” to come in by the fourth quarter following a rate-cutting cycle by the US Federal Reserve.

“We continue to expect a further 10 basis points in benchmark rate cuts in quarter four, alongside 25 basis points cuts in the reserve ratio requirement in quarter three and quarter four each to facilitate liquidity support, given the steady ramp-up in stimulus-related government bond issuances,” she said.

And Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, said that more rate cuts are expected after the US Federal Reserve enters a rate cut cycle. “The rate cut [by the PBOC] is one step in the right direction,” he said.

China’s recently concluded third plenum – which failed to spark any excitement about a Chinese rebound – placed an emphasis on boosting economic capabilities to tackle growth, with the full text of the decisions from a key party conclave revealed on Sunday.

Under the section covering “healthy assurance and improvement of the social system” in the 22,000-word resolution document released on Sunday following the conclusion of the third plenum on Thursday, it stated that there is a need to speed up the formation of a new property development model to increase the supply of affordable housing.

The document added that local governments would be given ample space to regulate the property market with a series of policy modifications, such as the reduction and cancellation of housing purchase limits, the cancellation of buying thresholds for ordinary and non-ordinary housing and the reformation of housing financing and the property tax system.

“While [Monday’s] rate cuts offer some reassurance that policymakers are being responsive to the recent loss of economic momentum, the heavy lifting will need to come from fiscal, not monetary, policy,” said Julian Evans-Pritchard, head of China economics at Capital Economics. “Fortunately, the signs on that front are encouraging too.”

And Morgan Stanley said that “these moves post-plenum reaffirms reactive easing”.

“We see additional policy rate cuts in September-December,” said Robin Xing, chief China economist at Morgan Stanley.

“That said, the reactive nature of easing means our 2024 growth and inflation forecasts are facing 10-20 basis points of downside risk.”