For as long as Bitcoin and other crypto currencies have been in existence, a constant drum beat from its evangelists was the belief that it was “digital gold.”
The claim of course was an effort to throw a halo around cryptocurrencies as a “safe haven” and a “store of value” during times of crisis or economic uncertainty.
Per the Coinbase blog (emphasis theirs):
“Gold, and bitcoin, are safe havens from fiat currency devaluation, which historically tends to be incited by surging government debt. Armed with a myriad of technological advantages, accelerating development, and maturing global market, Bitcoin is a store of value to rival gold in the digital age.”
Not only that, but the same article says that Bitcoin is in fact better than gold (emphasis mine):
“Bitcoin development is accelerating and has already proven a myriad of advantages over precious metal…”
Those advantages are essentially listed as portability, scarcity, divisibility, privacy, low transfer fees and “auditability.”
Yesterday’s market rout, with the Dow Jones Industrial Average collapsing 2,352 points to have its worst trading day since “Black Monday” in 1987, should have been the day where Bitcoin could finally live up to its promise.
All it had to do was not drop as much as the broad market and perform similar to gold, Bitcoin would have a landmark day.
Instead, it got decimated, plunging 12% to close at $5,700.
In the past five days alone it has lost more than one-third of its value.
Gold, in case you are wondering, has lost a mere 6% in the last 5 days, and during yesterday’s market rout it only lost 0.74%.
One of those two “rivals” proved to be a safe haven and a store of value during these scary times.
The other proved to be nothing more than a speculative investment, providing absolutely no store of value.
Yesterday alone, the cryptocurrency market lost $62 billion in market cap, according to CoinMarketCap.
In the past month, roughly 50% of the value of the entire cryptocurrency market has been erased.
Store of value?
Safe haven like gold?
Not even close if you ask Andrew Button at Motley Fool.
“While Bitcoin fans were caught off guard by BTC’s dramatic slide, the truth is that it wasn’t surprising at all. Put simply, apart from the scarcity, Bitcoin has nothing in common with gold. Gold is a physical asset you could trade if global financial institutions shut down; Bitcoin can’t be used without access to a computer. Gold is as old as human civilization; Bitcoin is younger than social media. Gold is used in manufacturing and jewelry; Bitcoin hasn’t seen any practical use case outside of black markets. The two assets simply have nothing in common whatsoever.”
While the siren song of “digital gold” is alluring, it’s time we stop pretending that Bitcoin has what it takes to become a real asset class. In times of uncertainty, it failed to perform as promised.
Fed to Keep Rates At Zero, Worried About Market Crash Later This Year
The Federal Reserve will keep rates at near zero percent for the foreseeable future. Also, a few members feel worried about a second wave of the coronavirus crashing the markets later this year. These are according to the minutes of the June 9-10 meeting.
Federal Open Market Committee members voted to keep the benchmark short-term borrowing rate in a range of 0%-0.25%. They also said that, until the economy “had weathered recent events,” they would keep it there. Without providing specifics, the notes also mention that “a number” of members believe there is a high probability of additional “waves of outbreaks” of the coronavirus.
This worry over additional outbreak waves and the economic damage it could bring led the FOMC committee to downgrade their economic outlook from the April meeting. The said meeting had predicted a more benign baseline forecast.
The members also indicated that they will begin providing the markets with stronger guidance about future interest rate moves. However, Fed watchers don’t expect the committee to begin providing this guidance any earlier than the September meeting.
“In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate and provide more clarity regarding purchases of Treasury securities and agency [mortgage-backed securities] as more information about the trajectory of the economy becomes available,” the minutes said.
Milestones and Metrics
The committee also discussed what milestones they will use to determine an appropriate time to start raising interest rates. When they did, the metrics proposed has split the committee.
In 2012 for example, the Fed said it would keep rates at zero until the unemployment rate fell below 6.5%. Alternatively, they also said it would keep zero rates until the inflation goes above 2.5%.
In June’s meeting, a “number” of members said any interest rate increases should be tied to the Fed’s 2% inflation target. Meanwhile, a “couple” favored using the unemployment rate. A “few” members suggested the committee set a specific date.
The FOMC also released its expectations for GDP over the next few years. The median GDP projection for 2020 was a contraction of 6.5%. A 5% increase in 2021 and a 3.5% in 2022 will follow this. However, they acknowledged “that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook.”
Trump on Powell
Meanwhile, there’s a bit of good news for Federal Reserve chairman Jay Powell. It appears he has slowly won over his most vocal critic, President Trump.
During an interview on Fox Business News, Trump said Powell has “stepped up to the plate” and he’s happy with Powell and Treasury Secretary Steve Mnuchin for the work they’ve done to help the economy recover.
“I would say that I was not happy with him at the beginning, and I’m getting more and more happy with him, I think he’s stepped up to the plate. He’s done a good job, he’s had to liquify a little bit, let us liquify, put out the money that you needed, and I would say over the last period of 6 months he’s really stepped up to the plate.
“I can tell you I’m very happy with his performance, and Steve Mnuchin, I think they’ve both done a very good job, they’re working together very closely.”
Investment Banks Share Their Stock Market Hot Picks
It’s clear the stock market remains volatile, but two investment banks are seeing good things about to happen. Goldman Sachs looked at the market volatility situation, while Stanley Morgan made recommendations based on observed consumer behavior during the outbreak. Both firms shared their insights for the next 12 months, including their list of stock market hot picks to watch out for.
Goldman Sachs, Morgan Stanley Upbeat Amid the Current Volatility
Shares Their Stock Market Hot Picks
Investment titans Goldman Sachs and Morgan Stanley, in separate reports, came out with different approaches on how to take advantage of the current market and which stocks can get hot soon.
Related Article: Morgan Stanley Sees a V-Shaped Global Recovery
Goldman Sachs Take on a Sharpe Strategy; Picks 11 Stock Market Hot Picks to Watch Out For
Financial giant Goldman Sachs recently updated its strategy of targeting stocks that have “highest risk-adjusted returns.” This rate, known as the Sharpe ratio gauge, helps investors assess the ROI of a stock compared to its risk. The ratio is the average returned more than the risk-free rate per unit of volatility or total risk. A higher Sharpe ratio often leads to more attractive returns.
Goldman Sachs chief US equity strategist David Kostin believes that while stocks will remain volatile, the upside is still there: “Consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months.”
By May, the company’s basket of high Sharpe ratio stocks outperformed the benchmark index by 441 basis points. It also beat the S&P 500 in 66% of semiannual periods by 271 points beginning 1999.
The Goldman Sachs basket consists of stocks distributed across various industries such as healthcare, media, IT services, aerospace, and defense industries. Kostin believes that in the next 12 months, the basket will generate returns three times the value of comparable S&P 500 stock returns.
As discussed in the article, some of the stocks with the highest Sharpe ratios at present:
- Allstate (ALL)
- Boston Scientific (BSX)
- Cigna (CI)
- Concho Resources (CXO)
- Edwards Lifesciences (EW)
- Hartford Financial Services (HIG)
- Merck (MRK)
- Northrop Grumman (NOC)
- Ulta Beauty (ULTA)
- Universal Health Services (UHS)
- Western Digital (WDC).
Morgan Stanley Sees Rising Stock Prices on 10 Companies That Perform Better Under the “New Normal”
Meanwhile, Morgan Stanley took a look at the pandemic’s effects and identified the industries and companies that stand to benefit the most from the resulting changes in consumer behavior. With the vaccine still at least a few months away, a large section of the public started adjusting to life under the new normal. Staying at home while avoiding physical and social activities became the norm. Meanwhile, other behaviors deemed safer that have sprung up to take their place.
Morgan Stanley analysts concluded that the travel and tourism industries were among the hardest hit by the outbreak. Both suffered heavy losses due to travel restrictions and the closure of all public establishments due to fears of spreading the infection.
The closure of one window led to the opening of another, as opportunities increased for certain industries to serve the demand generated by the new normal. These include online shopping, food delivery, home entertainment, DIY projects, and others.
Morgan Stanley analysts determined four opportunistic themes that arose from the pandemic:
- Rising demand for streaming services due to avoidance of live events. Online events have replaced live performances, where artists stayed home.
- Increase in off-premise food consumption. Despite some restaurants opening their doors, most people still find it risky to dine in. Instead, they opted for delivery or ordering via drive-thru.
- Financial institutions with less risky loans made out to currently underperforming establishments. This includes malls, hotels, resorts, etc.
- Retail store traffic reductions and shifting preferences in apparel. Wholesale businesses have performed well due to the rise in online orders.
Based on these themes, analysts identified ten companies best positioned to perform well. Listed below are these recommended stocks, and grouped according to their theme:
– Rising demand for streaming services:
- Amazon (AMZN)
- Netflix (NFLX)
- Spotify (SPOT)
- Walt Disney (DIS)
– Increase in off-premise food consumption
- McDonald’s (MCD)
- Restaurant Brands International (QSR)
- Yum Brands (YUM)
- Domino’s Pizza (DPZ)
– Financial institutions with low risk
- SVB Financial Group (SIVB)
– Retail store traffic reduction
- Nike (NKE)
Watch this video from Latest News to learn more about the Stock Market Hot Picks:
Corporate CEOs Sour On Economic Recovery, Varney Warns: No More Lockdowns
Corporate executives aren’t expecting a full economic recovery until the end of next year. This is according to the Q2 CEO Economic Outlook Survey conducted by Business Roundtable.
The bearish outlook coming from a generally optimistic group is concerning for those hoping that the economic recovery is slowly underway. The survey indicated that the executives are hesitant to increase capital spending, hiring plans or sales expectations for the rest of the year.
The index’s overall reading contracted to 34.3 in the second quarter. This is the lowest reading since the midst of The Great Recession in 2009.
As a group, expectations were for the country’s gross domestic product to shrink by 3.8% this year, and more than one-third of respondents expect it to take until 2022 for the economy to fully recover.
Joshua Bolten, president and CEO of Business Roundtable, said in a statement, “The outlook of Business Roundtable CEOs reflects the reality of current economic conditions. We appreciate the actions taken by the Administration and Congress so far to help American workers, small businesses and communities, but there is much more to do. We encourage policymakers to work together on additional measures that will help bring a rapid end to this public health crisis and encourage economic recovery efforts as business operations resume.”
No Round Two
If we are hoping for economic recovery anytime soon, we can’t shut down the economy a second time, says Fox Business host Stuart Varney.
“Quite simply, the economy couldn’t take it. Nor could all those people who have been locked in with abusive relationships. And all those people denied life-saving medical tests and elective surgery. We can’t go back to that,” said Varney.
Varney said efforts to minimize or lessen the effect of a second wave of outbreaks should be on a local, not national level.
“The president says no new national lockdown. Instead, put out the fires at the local level,” Varney said. “That’s what the bar and beach closings are all about. Wear masks, keep your distance, wash your hands. That’s the policy. Contain the outbreaks. Limit the spread.”
Numerous states, including California, Florida and Texas are either rolling back reopening plans or implementing new restrictions. These come as the number of coronavirus cases rises. Varney said we just need to live with the virus as part of our lives.
“We can argue all day long about whether it’s a spike in new cases or a surge, or a ‘serious’ increase’. But the fact is, the number of new cases is going up, especially in some of the states that started to reopen,” said Varney.
He added, “There will be some impact on the pace of the economic recovery. You can’t expand rapidly if there are still restrictions on economic activity. The virus will not go away completely any time soon. There are going to be local outbreaks. There will be local shutdowns. That’s the way it is. That’s what we have to live with.”
And he says absolutely no second shut down.
“Once was enough,” he said.
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