As a new week dawns, we present the following on the week that was with thoughts courtesy the Information & Others:

The Briefing

By Martin Peers

May 18, 2022

Greetings!

What is happening to our world? Not only is the stock market in free fall (again), but Jeff Bezos appears to have been infected by a Musk-like bug that causes business executives to lose their inhibitions on social media. Today, for instance, as Amazon stock was dropping 7%, the Amazon founder was tweeting about how he’s been working hard on his “ass.” You could say Bezos is no longer laser-focused on Amazon’s business. But then that’s been evident for a while.

And sure, he’s no longer CEO of Amazon, but he’s still supposed to be executive chair of the company. Bezos could have spent time today tweeting on more sober topics. For instance, if he was monitoring the retail sector, he couldn’t fail to miss Target’s market-shaking quarterly earnings report, which emphasized rising costs and consumer anxiety. Or Bezos might have noticed New York state’s lawsuit against Amazon, alleging that it discriminates against pregnant employees and workers with disabilities. Not a good look for the e-commerce giant.

Not that Bezos can outdo Elon Musk in the tweeting department. The Tesla chief spent some of his Twitter time on Wednesday complaining about S&P Dow Jones Indices’ decision to drop Tesla from its index tracking companies on environmental, social and governance criteria. Among the reasons was Tesla’s handling of government inquiries into deaths and injuries linked to its cars’ autopilot feature. Taking Tesla out of the index won’t help the stock, as it’s likely to turn off some ESG-minded investors.

Tesla was already having nearly as rough a year on the market as Amazon was: While shares of Bezos’ company are down 36% year to date, Tesla stock is down 33%. As rich as Musk and Bezos both are, that amount of stock drop must bite just a bit.

MARKET UPDATE

Crypto markets shed $1 trillion this month. Are there any silver linings?

In the last month, crypto has lost a staggering $1 trillion in market cap and the S&P 500 index has fallen to lows not seen since early 2021. Global markets of all kinds have been battered by runaway inflation, rising interest rates, and geopolitical turmoil — with crypto markets experiencing some special woes due to the meltdown of the so-called “algorithmic stablecoin” TerraUSD. But just how severely have major sectors of the crypto market — like BTC, DeFi, and NFTs — been impacted? And are there any silver linings? Let's dig in.

Bitcoin prices have fallen for seven consecutive weeks, a new record. BTC dropped to nearly $26,000 last Friday (before hovering near $30,000 on Tuesday), a decline of around 60% from November’s all-time high. Putting that figure into historical perspective, it’s close to the 62% decline that BTC experienced in the early pandemic panic of 2020 — but well short of the 80%-plus selloff the cryptocurrency saw during the 2018 bear market.
ETH prices have been hit even harder — they’re down around 37% for the month, compared to around 24% for BTC. Across the broader Ethereum economy, around $90 billion has flowed out of DeFi applications that run on the Ethereum blockchain since the November peak — leaving around $70 billion today. NFTs have also seen major declines, with sales volumes for the week ending Sunday down nearly 65%. The highest profile NFT ecosystem saw an equally dramatic shift in momentum this week: Bored Ape Yacht Club sales slid nearly 64% and sales of BAYC virtual real-estate in the form of Otherdeeds shed more than 90%.
Who is “buying the dip,” and who thinks prices have further to fall? According to a recent CoinShares report, investors took advantage of low prices this week to buy around $300 million in BTC. But some veteran traders recommend taking a longer view. Speaking to CNBC, legendary value investor Bill Miller said that he recently sold some of his BTC to meet debt obligations but remains strongly bullish over the longer term: "I’ve been through at least three declines of over 80%. … I haven’t heard a good argument yet why anybody shouldn’t put at least 1% of their liquid net worth in bitcoin."
What about those silver linings? During the 2018 crypto winter, the conventional wisdom on Wall Street was that BTC was a joke. Now, it's hard to find a major financial institutional that doesn’t offer some kind of crypto product — and that trend shows no signs of slowing. This week, Japanese investment-banking giant Nomura announced a new 100-person unit devoted to Bitcoin, DeFi, and NFTs; new BTC and ETH exchange-traded funds launched in Australia; and Brazil’s largest digital bank began offering BTC trading to customers (and plans to invest 1% of its treasury in the cryptocurrency). Meanwhile, Bitcoin’s global mining power continues to surge toward all-time highs, indicating that miners are optimistic about the future.

Why it matters… There have been five major market resets since the crypto era began with Bitcoin’s launch in 2009. Each time, crypto has emerged stronger. Down cycles provide space for developers to innovate, with the period following the 2018 crash helping foster DeFi, NFTs, Ethereum alternatives, stablecoins and more. While no one can say what will happen in the future — or even whether prices are beginning to recover or are still on their way down — investors who have taken the long view with crypto have historically been rewarded. Looking for some tips? We have you covered:

Learn to manage downturns

A Formula for Shortages
Randall Lutter, City Journal

Falling Markets Will Crush Government Budgets (subs.)
Red Jahncke, Wall Street Journal

Getting Paid in Bitcoin
Mike Riggs, Reason

Fiscal Capture at the ECB
Willem H. Buiter, Project Syndicate

The Investment Darlings of COVID-19 Are Crashing
Michael Hiltzik, Los Angeles Times

Supermarket crash

Shares in America’s big retailers swoon

Rising costs catch up with Walmart and Target

The Federal Reserve is tapping the brakes on U.S. economic growth, which could help bring down inflation and temper the most overheated job market in postwar American history, according to Goldman Sachs Research.

As inflation surges, the U.S. central bank has taken a more hawkish stance this year. That’s part of the reason Goldman Sachs’ Financial Conditions Index has tightened by about 100 basis points since April, which is forecast to be enough to reduce the growth in gross domestic product by about 1 percentage point. Goldman Sachs Research now expects U.S. economic growth of 2.4% this year on an annual basis (versus 2.6% previously) and 1.6% in 2023 (versus 2.2%).

The slowdown in economic growth is likely to lower job openings and eventually increase the unemployment rate a bit.

Even so, economists at Goldman Sachs are optimistic that a sharp increase in unemployment can be avoided: job openings fall more, and the jobless rate less, when openings are high. (Such as right now.)

The sheer momentum in the U.S. job market is forecast to push the unemployment rate down to 3.4% in the coming months, compared with 3.6% in April, according to Goldman Sachs Research. That rate is expected to increase to 3.5% by the end of this year and to 3.7% by the end of 2023.

Learn more about how the Fed’s actions are expected to help close the current jobs-workers gap of about 5.6 million.