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It’s The Taper, Stupid!

It’s The Taper, Stupid!

Submitted by QTR’s Fringe Finance

It is astounding to me how much market commentary I have seen over the last 48…

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This article was originally published by Zero Hedge

It’s The Taper, Stupid!

Submitted by QTR’s Fringe Finance

It is astounding to me how much market commentary I have seen over the last 48 hours placing blame for the market “volatility” (read: 2% off all time highs) on the Omicron variant.

The extent of our recent “volatility”.

While there are definitely still some uncertainties about the new variant, early indications make it look as though it is not going to be meaningfully deadlier than other variants and that, one way or the other, we will be able to deal with Omicron and see our way through it – just as we did with the Delta variant. That is, unless the government implements more of what one trader calls a “criminal” response to Covid and issues more lockdowns and mandates.

While Omicron uncertainty has likely contributed slightly to market volatility, I don’t think it is the driving force behind it. Rather, I believe that current volatility is a result of Jerome Powell’s surprising, and so far unrelenting, hawkish stance that a taper and rate hikes look to be necessary.

In fact, several Fed governors have commented over the last 48 hours about potentially accelerating both rate hikes and tapering. This language, as I noted days ago, is an admission that the Fed has lost control of inflation.

In fact, it looks as though inflation has gotten so bad that the Fed is going to have to try and attempt to “stick the landing” of presenting hurried tapering and rate hike plans to the market. Of course, the Fed won’t really be able to stick the landing on either because politicians on the left and castrated on-air finance personalities will cry foul as soon as the market has a 10% pullback as a result of higher rates (just as they did on the Covid crash).

But for now, the company line is that we are going ahead with rate hikes and looking to accelerate the taper. This – not the Omicron variant – is what is moving markets.

I said just days ago that Powell doesn’t even need to say anything for the market to continue to stay volatile at this point because his standing position on the matter is very hawkish. Yet, instead of saying nothing, he went as far as to reaffirm his hawkish stance on Wednesday of this week. From my piece earlier this week:

If the Fed does look to accelerate the taper and toss around the idea of rate hikes in order to try and rope inflation in, as indicated, I think we can expect further downside in equity markets in December, as I predicted about a week ago. In fact, Powell doesn’t even have to re-acknowledge what he said yesterday, he simply has to say nothing until the Fed’s next official nod to the markets.

As I said during my interview yesterday with Jack Boroudjian, tapers cause markets to crash: it is that simple. Just take a look at what happened in December 2018. This time is not going to be different. If the Fed goes ahead and decides to taper, you can expect risk assets to get smacked.

Small caps and technology have gotten the “worst of it” during this volatility and I continue to believe that that will be the trend.

The Russell 2000 and NASDAQ are just so chock-full of overvalued, cash burning companies that the world would actually be better without – malinvestment that should’ve been corrected years ago – that I believe those indexes will move disproportionately lower.

I also continue to be profoundly negative on ARKK, an actively managed fund whose flagship component and largest weighting is up 90.6% in the last twelve months, yet has still somehow managed to plunge -11.9% over the same time period.

That takes some very special “active management”.

Source: Ycharts

In fact, just yesterday after hours, another Cathie Wood holding, Docusign, took a 25% haircut.

Wood contends that the growth from her companies will eventually make up for this volatility in the very long term, but I think her portfolio of egregiously overvalued names represents the first head on the chopping block if market volatility continues. And, as I noted days ago, if Tesla ever starts to sell off, ARKK holders should look out below.

As I’ve said before, I also think there will be somewhat of a rotation trade back into cash generating blue chip names, consumer staples and the few companies that still pay a dividend and have modest price to earnings ratios – one of which I profiled as my favorite just weeks ago.

Some of my other favorite names that I am looking to buy if they continue to sell off are well-known blue chip staples that have seen their stocks trade sideways or disproportionately lower over the last couple of months, despite growth-style P/E’s for some. I’d argue names like Disney (DIS) and Walmart (WMT) offer GARP (“growth at a reasonable price”) should they keep selling off. I also love Johnson & Johnson (JNJ)(my largest holding in my all-dividend portfolio which I add to almost daily) and Intel (INTC), which I believe will undergo a renaissance and eventually retake its throne as king of chips – if it isn’t bought out first at these levels.

Gold has continued to selloff on the expectation that a taper is actually coming.

Source: Ycharts

The selloff could easily continue for the short- to mid-term, at least until we get to the point that gold needs to be bought as a volatility hedge due to a taper, or the point where the Fed finally caves and stops its plans for tapering or raising rates. It will be interesting to see how inflation may drive the Fed’s decision making going forward.

Heading into the weekend and into the back end of this month, traders would do well to focus their energies more on Fed commentary than on developments with the Omicron variant, barring any massive change with what we know regarding the new strain. Obviously, if Omicron turns out to be a flesh eating variant of the virus that kills people instantly, that is going to have a profound effect on equity markets (Neel Kashkari heard shouting it the background: “Not if I can help it!”).

But for the time being, thank God that doesn’t seem to be the case. Heading into 2022, I still think the markets could be in for a collapse, as I wrote here, as it appears that this is the only man that can move markets in this day and age:

Readers of this free preview of paid content can subscribe to my blog and get 20% off normal pricing using this link: Get 20% off forever

DISCLAIMER: 

I own JNJ, WMT, DIS and INTC. I own ARKK, IWM, SPY puts. I own puts and calls in GLD and own a host of gold-related and precious metals related names. None of this is a solicitation to buy or sell securities. Positions can always change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot. 

Tyler Durden
Fri, 12/03/2021 – 10:25






Author: Tyler Durden

Articles

Dolly Varden has 21 drill holes left to report, as gold, silver and copper prices bounce

2022.01.22
Predominantly a silver explorer, Dolly Varden Silver’s (TSXV:DV, OTC:DOLLF) flagship project is located in the southern part of British Columbia’s…

Dolly Varden has 21 drill holes left to report, as gold, silver and copper prices bounce

2022.01.22

Predominantly a silver explorer, Dolly Varden Silver’s (TSXV:DV, OTC:DOLLF) flagship project is located in the southern part of British Columbia’s Golden Triangle, an area well-known for its base and precious metals deposits.

The property hosts four historically active mines — Dolly Varden, Torbrit, North Star and Wolf — all have parts that remain unexplored to this day. More than 20 million ounces of high-grade silver have been produced from these deposits between 1919 and 1959.

Dolly Varden’s project lies to the west of Hecla Mining’s Kinskuch Project. It also borders Fury Gold Mines’ Homestake Ridge, which it acquired late last year to consolidate what it considers to be an emerging silver-gold district.

The consolidated project, named Kitsault Valley, is now among the largest, high-grade, undeveloped precious metal assets in Western Canada, with a combined mineral resource base of 34.7Moz silver and 166,000 oz gold in the indicated category.

Regional exploration and reconnaissance drilling also led to the identification of a large new porphyry copper-gold system that may be related to others in the Golden Triangle such as KSM, Treaty Creek, Saddle, Red Chris and Snowfield.

In December DV announced encouraging results from last year’s regional exploration and reconnaissance drilling on its 100% owned Dolly Varden project, which is host to two past-producing silver mines (Dolly Varden and Torbrit) and two other historically active mines (North Star and Wolf).

Encompassing 10 holes testing five regional exploration targets, the drill results demonstrated “excellent exploration and resource expansion potential on the property,” DV stated in the Dec. 10, 2021 news release.

Results are pending for the 21 holes drilled near Dolly Varden’s existing resource.

Dolly Varden Project

The Dolly Varden silver project comprises 8,800 hectares (88 sq km) in the Stewart Complex of northwestern BC, which is known to host base and precious metals deposits.

Dolly Varden project map

Mining activity dates back to 1910, when the original Dolly Varden Mine was discovered by Scandinavian prospectors.

In its early days, it was among the richest silver mines in the British Empire. The other deposit in the area to see production later was Torbrit, which, at one time, was the third-largest silver producer in Canada.

Historical records show these two deposits together have produced more than 20 million ounces of high-grade silver between 1919-1959, with assays as high as 2,200 oz (over 72 kg) per tonne.

Production subsequently ceased due to low silver prices, and the assembled property was eventually acquired by DV with a view to re-awakening the historical silver mine.

An updated NI 43-101 resource estimate completed by the company in 2019 revealed 32.9Moz silver in indicated resources and 11.477Moz inferred, for a total of 44Moz Ag, all adjacent to the historical deposits.

Dolly Varden project map

Drilling and underground work that went into the resource estimation confirmed that the mineralization occurs as two styles.

The first is VMS (volcanogenic massive sulfides) similar to that mined at Eskay Creek to the north. Once the highest-grade gold mine in the world, Eskay Creek produced 3.3Moz gold and 160Moz silver at average grades of 45/g/t Au and 2,224 g/t Ag respectively between 1994 and 2008.

The second is cross-cutting epithermal mineralization similar to that being developed at Pretium’s Valley of the Kings deposit (Brucejack Mine).

The southern part of the Golden Triangle is the least explored of all. Only 3% of Dolly Varden’s property has been explored in detail up until now, leaving plenty of potential discovery upside.

According to DV, both the Eskay Creek and Valley of the Kings deposits are located on the same structural trend to the north of the company’s ground. So, it is possible that Dolly Varden represents the southern end of a large silver district that extends northward.

To prove this, the company completed 40 drill holes (11,397m) in 2020, 19 of which were in the Torbrit area. The rest were reconnaissance and exploration drill holes, testing multiple areas on the property.

Highlights included 310 g/t over 6m, a stand-out 304 g/t over 45.82m, and 306 g/t over 5.10m. Higher-grade core within those intercepts featured 648 g/t over 6.06m, 1,595 g/t over 1.06m, and 1,290 g/t over 0.6m.

2021 drill results

Last summer, the company kicked off a surface diamond drill program on the Dolly Varden property. A total of 31 drill holes (10,506m) were completed during the 2021 field season.

This drill program was part of an aggressive two-year campaign to infill and expand the high-grade silver resource at the Torbrit deposit, and to test multiple highly prospective targets throughout the property.

The drill results encompassed 10 holes that tested five regional exploration targets on the property, including the Wolf Vein extension and Western Gold-Copper belt.

Drill hole location map

The highlight was drill hole DV21-273, which tested the southwest projection of the Wolf Vein, 94m down plunge from the current mineral resource at the Wolf deposit.

This hole intersected 1,532 g/t Ag, 0.44 g/t Au, 2.11 % Pb and 1.07% Zn over 1.22m, within a brecciated sulfide-rich quartz vein hosted within a broader pyrite stockwork breccia zone of 17.50m averaging 214 g/t Ag and 0.47% Pb.

The current resource estimate for Wolf is 3.83 million ounces of silver at 296 g/t in the indicated category. The deposit is located approximately 2 km northwest of the Torbrit deposit, which hosts most of Dolly Varden’s resources at 25 million ounces of silver indicated and 10.5 million ounces inferred.

Wolf Vein DV21-273 section, looking northeast

Hole DV21-273 is also significant as it tested the prospective Hazelton volcanic rock that underlies the sedimentary units of the Upper Hazelton for the Wolf Vein extension.

Discovering that the strong potassic alteration associated with silver mineralization within the volcanogenic Torbrit deposit continues beneath the sediment suggests that the mineralizing system continues to the west of the 4.5 km long surface anomaly.

According to DV, this opens up the exploration potential of the entire bottom of the Kitsault Valley north of Wolf towards the property boundary and onto the Homestake Ridge property, which the company recently acquired from Fury Gold Mines.

Dolly Varden and adjacent properties, including Homestake Ridge to the north.

Wolf is the northernmost deposit found at the Dolly Varden project. Modeling of the epithermal vein style deposit indicates a stepped vein system, offset by steep faults. The hanging wall has a strong barium signature and the veins contain barite and quartz. There are underground drifts at Wolf, but no historical production was reported.

Drilling at other silver prospects also returned promising results. At the Syndicate target, a near-surface vein in hole DV21-270 returned 126 g/t Ag and 1.31 g/t Au over 1.10m.

Hole DV21-272 was drilled to test the potassic alteration zone at Silver Horde, located approximately 900m north of Wolf. The structure returned 9.0m averaging 126.7 g/t Ag within the volcanic host.

In other exploration drilling, DV’s technical team is encouraged by long intervals of stockwork quartz with strongly anomalous gold (>100 ppb) over wide intervals (up to 303m) along with silver and copper at the Western Gold Belt area.

Hosted within early Jurassic volcanic rocks, this style of stockwork and alteration is analogous to numerous gold-copper deposits and mines found throughout BC’s Golden Triangle. These include KSM, Treaty Creek, Saddle, Red Chris and Snowfield.

Such a finding could be a game changer for DV, given it was previously positioned as a pure silver-focused explorer sitting on a high-grade, potentially bulk-mineable resource.

The Western Gold Belt is located on the west side of the Kitsault Valley and trends from near the Dolly Varden Mine northward for several kilometers towards Homestake Ridge.

According to DV chief executive Shawn Khunkhun, the strong porphyry-related gold-copper-silver indicators is perhaps the most significant exploration breakthrough on the property in years.

Therefore, the next phase of exploration drilling will prioritize connecting the historical mines and current deposits of the Dolly Varden trend with the deposits at Homestake 5.4 km to the northwest along the Kitsault Valley trend.

Of course, the high-grade silver intercept at Wolf is also significant, as it confirmed Dolly Varden’s resource expansion potential. Assays are pending for the 21 holes completed at the high-grade Torbrit and Kitsol Silver deposits.

The three metals Dolly Varden is exploring for, have all been posting gains of late. Gold and silver both rallied this week, as investors parked money in safe-haven metals on fears of inflation and geopolitical tensions, ahead of a Federal Reserve meeting Jan. 25-26. Gold gained $30, Wednesday, and silver climbed 3%. Copper rose for a third session on Friday, breaking above 10,000 a ton as investors fled a sliding stock market and sought protection against rising inflation, Reuters said.

Gold market update

As Kitco News noted, gold’s move up coincided with the Biden administration’s announcing $200 million in military aid to Ukraine, citing fears of a Russian invasion.

“And this follows on with reports over the weekend that the UK was providing military assistance to Ukraine. It’s just like a perfect mix here for gold prices in the very short term,” DailyFX senior strategist Christopher Vecchio told the precious news outlet.

Higher inflation numbers are adding to risk-off sentiment in the market, which is already pricing in rate hikes and the possibility of central banks making a mistake while tightening.

OANDA senior market analyst Craig Erlam believes that traders are inflation-hedging because they don’t think central banks are doing enough to bring prices down.

The US Federal Reserve, whose job is to keep unemployment in check and inflation (the Federal Funds Rate) in the “Goldilocks” zone of 2%, is telegraphing three interest rate increases of 0.25% each (1% at the high end of the range) this year.

The US Labor Department said that its Producer Price Index (PPI) rose 0.2% from November to December, bringing producer prices to a record-high 9.7%, the biggest calendar-year increase since data was first calculated in 2010.

The same report said US consumer prices increased solidly in December, led by gains in rental accommodation and used cars, culminating in the largest annual inflation rise in 40 years. The Consumer Price Index (CPI) surged 7% in the 12 months through December, which is the biggest year on year increase since 1982.

US inflation rate (CPI)

As we have argued, the Fed (and the Treasury) is between a rock and a hard place, the Fed can’t raise rates enough to combat high inflation because doing so will wreck the economy, and imo, the Treasury will soon struggle to find enough buyers for US government bonds because the real yields are so low, currently in all cases negative.

This practically guarantees the continuation of Fed bond buying (QE) despite the much-ballyhooed taper. As for raising rates, we proved that the Fed can’t do it, at least not at the levels required to beat current inflation, which even if covid-related supply chain issues get solved, leaves another 3-4% to deal with. (higher prices will, imo, stay with us for a long time due to persistent food inflation, wage/ salary increases due to a shortage of workers, a ragged energy transition from fossil fuels to renewables that has led to high natural gas prices, and climate change which has a negative effect on crops)

Then there is the debt problem. We’ve written extensively about the dangers of the mounting US debt load. Gold correlates strongly to rising debt to GDP ratios. The US’s debt to GDP currently sits at 127.3%.

The Congressional Budget Office (CBO) and the Committee for a Responsible Federal Budget (CRFB) — both reliable sources — project a deficit of $1.3T in 2022, and every year until 2031. This severely constrains the Fed’s policy options.

Each interest rate rise means the federal government must spend more on interest, reflected in the annual budget deficit, which keeps getting added to the national debt, which is almost $30 trillion. We are talking about interest costs nearing a trillion dollars per year, when the deficit is accounted for. 

Furthermore, the incentive for buying a US Treasury bill or bond is gone, the buyer’s purchasing power eroded by inflation.

The current Federal Funds Rate is .08%, but CPI inflation is 7%, giving a real (after inflation) Effective Federal Funds Rate (EFFR) of -6.94%. This is the most negative EFFR since 1954. The 10-year yield, which pays better interest, is -5.3% in real terms.

Negative real interest rates, as most gold investors are aware, are a strong buy signal for bullion.

The fact is nobody is going to want to buy US debt at 7% inflation. The Fed will continue to print money, buy bonds and keep interest rates below 1% for as long as it can — probably hoping that inflation will magically melt away — all of which is extremely positive for gold.

Silver market  update

The Silver Institute predicted that global silver demand will rise to 1.029 billion ounces in 2021, up 15% from 2020 and exceeding a billion ounces for the first time since 2015.

In a November report, SI said every area of silver demand was forecast to rise in 2021, including a record amount of industrial demand despite ongoing supply issues.

“The recovery in silver industrial demand from the pandemic will see this segment achieve a new high of 524 million ounces (Moz). In terms of some of the key segments, we estimate that photovoltaic demand will rise by 13% to over 110Moz, a new high and highlighting silver’s key role in the green economy,” states a press release that accompanied the Silver Institute’s Interim Silver Market Review webcast.

Demand for silver used in brazing and solder is expected to improve by 10%, aided by a recovery in housing and construction.

Silver bars and coins will continue to hold investors’ interest, with the Silver Institute predicting that physical investment in 2021 will increase by 32% to 64Moz, pushing the year-on-year total to a six-year high of 263Moz. US bar and coin demand is expected to surpass 100Moz for the first time since 2015, while in India, physical investment in silver is expected to recover from last year’s collapse, and surge three-fold.

A major source of silver investment demand, exchange traded products, are forecast to see total holdings rise by 150Moz. Last January to November, silver ETP holdings increased by 83Moz, bringing the global total to 1.15Boz, within a whisker of 2020’s record-high 1.21Boz.

The supply picture for silver is especially interesting.

According to SI, “In 2021 mined silver production is expected to rise by 6% year-on-year to 829 Moz. This recovery is largely the result of most mines being able to operate at full production rates throughout the year following enforced stoppages in 2020 due to the pandemic.”

“Overall, the silver market is expected to record a physical deficit in 2021, albeit modestly. At 7Moz, this will mark the first deficit since 2015.”

Silver demand is only likely to strengthen, given its use in solder, solar panels, 5G, EVs, and printed and flexible electronics — not to mention steady investment demand in the form of physical silver (bars & coins) and silver-backed ETFs.

Remember, less than 30% of silver production comes from primary silver mines, with over half sourced from lead-zinc operations, and copper mines, meaning that silver’s fortunes are tied to other industrial metals.

The prices of zinc, lead and copper have all done quite well, rising a respective 37%, 16% and 24% from a year ago.

Source: Kitco

Copper market update

Copper is coming off a historic year during which prices broke records on not just one, but two, separate occasions, hitting $4.76/lb in mid-October after peaking in May.

Source: Kitco

During the first half of 2021, copper rallied off the back of a sharp recovery in economic activity across the world, led by top consumer China. Also pushing prices higher was the belief that pandemic-related stimulus, plus the global push for decarbonization, will further lift demand for the industrial metal.

That saw copper prices break the $10,000/t level towards the end of April, the first time that has happened in a decade, and eventually surged to a new high the week after.

Then in the second half, copper received yet another boost amid an energy crisis that affected several major producers and threatened global supply. In October, a surge in metal orders from warehouses in Europe saw LME inventories plunge by as much as 89%, to their lowest in 47 years.

All these events factored into copper’s record-breaking year, though many believe that the red metal is just getting started. Click to read AOTHs in-depth copper market analysis;

In two decades, copper producers must, at the minimum, double the current production of 20Mt to have a chance of coming close to meeting demand. This equates to one new Escondida mine (1Mt annual production) every year for the next 20 years!

While such a feat is difficult to achieve, finding the right investments in projects leading to copper discoveries would help to close the supply gap. According to CRU, the copper industry needs to spend upwards of $100 billion to erase what it estimates to be a 4.7Mt deficit by 2030.

We aren’t the only ones feeling bullish on copper. Goldman Sachs is reportedly forecasting copper will, on average, reach $5.39 in 2022 and $5.44 in 2023. The investment bank said it expects “extreme deficits” coming as soon as mid-decade, due to a lack of new development commitments, combined with accelerating growth in green demand.

“To solve the long-term supply gap copper faces, we would need to see close to 40 new average-sized copper mine projects being approved,” LiveWire quoted Goldman saying. “And as we all know, bringing forward a new mine of any description is getting harder to achieve in a timely fashion.” Indeed in some jurisdictions, getting from discovery to resource definition to commercial production, can take upwards of 20 years.

Conclusion

Snow may have blanketed the Golden Triangle of northwestern British Columbia, putting a temporary halt on all mineral exploration activities, but there is still plenty of news to come out of Dolly Varden’s namesake project. Assays are pending for the 21 holes completed at the high-grade Torbrit and Kitsol Silver deposits.

In the spring, when DV returns to the property with boots on the ground, we expect to see continued investigation of the Dolly Varden project targets, including the Wolf Vein extension and Western Gold-Copper belt.

Also likely to be a priority is the connection between the historical mines/ current deposits of the Dolly Varden trend, and the deposits at Homestake Ridge 5.4 km to the northwest along the Kitsault Valley trend.

Readers stay tuned; this is a company we’ll be watching closely.

Dolly Varden Silver Corp.
TSXV:DV, OTC:DOLLF
Cdn$0.75, 2022.12.21
Shares Outstanding 130.6m
Market cap Cdn$98.1m
DV website

Richard (Rick) Mills
aheadoftheherd.com
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Economics

Fear And Panic As Bitcoin Crashes 50% From All Time High

Fear And Panic As Bitcoin Crashes 50% From All Time High

Just two months after cryptos hit an all time high amid widespread euphoria that…

Fear And Panic As Bitcoin Crashes 50% From All Time High

Just two months after cryptos hit an all time high amid widespread euphoria that the newly launched bitcoin ETF would lead to even more substantial upside, the two largest tokens have lost half of their value, with the broader crypto sector suffering more than $1 trillion in losses amid an accelerating liquidation panic that the Fed’s tightening cycle will lead to another crypto winter. 

Such is the volatility in the sector where, as Bloomberg put it overnight, there has been just one constant recently: “decline after decline after decline.” Of course, for veteran hodlers, Bloomberg hyperbole seems trivial in a world where 80% drawdowns are the norm and the current drop may have a ways to go before it hits a bottom, before a new all time high is hit.

Where Bloomberg is right however, is that superlatives for the latest carnage have been easy to come by: Friday’s decline led to the liquidation of more than $1.1 billion in crypto futures positions and overall more than $1 trillion in market value has been destroyed since the last peak. In other words, “the meltdown is pouring salt on an already-deep wound.”

After the latest furious puke that pushed Bitcoin RSI’s indicator to the most oversold level since the covid crash in March of 2020…

… Bitcoin, which lost more than 12% on Friday, saw its price drop just above $34,000 with Ethereum sliding as low as $2,400, as the two largest digital assets now trade at a 50% discount from their all time highs and are back to levels last seen in late July, early August. Other digital currencies have suffered just as much, if not more, most meme coins mired in similar drawdowns.

While the selling has been relentless for the past two months, it accelerated in the past three weeks, after the latest Fed minutes – published in early January – showed its intention to not only hike rates but to accelerate the unwind of its balance sheet, which has sent all “bubble baskets” plunging, with bitcoin getting hit especially hard amid the carnage.

And while there have been much larger percentage drawdowns for both Bitcoin and the aggregate market, according to Bespoke,  this marks the second-largest ever decline in dollar terms for both.

“It gives an idea of the scale of value destruction that percentage declines can mask,” wrote Bespoke analysts in a note. “Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”

Another fact that Bloomberg gets right, is that over the past year, cryptos have transformed from relatively uncorrelated assets providing diversification during market turbulence, into what is effectively a high beta stock. This is easily seen in the following chart showing the 60d correlation between cryptos and stocks. One can thank institutional adoption for that, because the same institutions that are now facing margin calls on their tech holdings, are also dumping cryptos to provide much needed liquidity.

“Crypto is reacting to the same kind of dynamics that are weighing on risk-assets globally,” said Stephane Ouellette, chief executive and co-founder of institutional crypto-platform FRNT Financial. “Unfortunately for some of the mature projects like BTC, there is so much cross-correlation within the crypto asset class it’s almost a certainty that it falls, at least temporarily in a broader alt-coin valuation contraction.”

Antoni Trenchev,, co-founder of Nexo, cites Bitcoin’s correlation to the tech-heavy Nasdaq 100, which right now is near the highest in a decade. “Bitcoin is being battered by a wave of risk-off sentiment. For further cues, keep an eye on traditional markets,” he said. “Fear and unease among investors is palpable.”

According to  Art Hogan, chief market strategist at National Securities, it’s useful to think of cryptocurrencies as living in the same space as other speculative sectors, including special-purpose acquisition companies and electric-vehicle makers. “When we’re in an environment where all of those riskier assets are selling off, crypto is going to find itself doing the same,” Hogan said. “When the Nasdaq 100 or any of the other more-speculative, rapid-growth, momentum-type asset classes start to gain some traction, so will cryptocurrencies.”

Unfortunately for Bitcoin longs, one place where the token’s correlation is especially high is that to such market naplam as Cathie Wood’s sinking ARK Innovation ETF, a pandemic poster-child of speculative risk-taking. That correlation stands at around 60% year-to-date, versus about 14% for the price of gold, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis. It’s “reminding us to categorize Bitcoin and altcoins as risk assets rather than safe havens,” she said.

Perhaps unaware what “hodling” means, data from Coinglass shows that more than 342,000 traders had their positions closed over the past 24 hours, with liquidations totaling roughly $1.1 billion.

“Digital-currency markets in total have been challenged this month,” said Jonathan Padilla, co-founder of Snickerdoodle Labs, a blockchain company focused on data privacy. “There’s definitely some pain there.”

Though liquidations have spiked, the numbers are rather muted when compared to previous declines, according to Noelle Acheson, head of market insights at Genesis Global Trading. Acheson points out that Bitcoin’s one-week skew, which compares the cost of bearish options to bullish ones, spiked to almost 15% on Wednesday compared to an average of about 6% in the past seven days.

“This flagged a jump in bearish sentiment, in line with overall market jitters given the current macro uncertainty,” she said.

Amid the pain, some of bitcoin’s most faithful are professing patience…

… while others are starting to wonder out loud at what point the battering might end. Famed crypto investor and (former?) billionaire Mike Novogratz mused on Twitter that “this will be a year where people realize being an investor is a difficult job.”

Unfortunately for Novogratz, 2600 did not hold and Eth is now trading below 2,400.

Still, many point out that like on all previous occasions when cryptos crashed, they eventually rebounded to new all time highs. At some point, sellers will become exhausted and the market could see some capitulation soon, said Matt Maley, chief market strategist for Miller Tabak + Co. “When that happens, the institutions will come back in in a meaningful way,” he said. “Once the asset class becomes more washed-out, they’ll have a lot more confidence to come back in and buy them. They know that cryptos are not going away, so they’ll have to move back into them before long.”

But it’s not just central bank tightening fears and liquidation technicals that have depressed cryptos: one can also throw in a relentless news cycle, where just in recent days, regulators from Russia, the U.K., Singapore and Spain all announced interventions that could undermine crypto companies looking to grow in those regions. Meanwhile, the Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as next month and task federal agencies with assessing the risks and opportunities that they pose, Bloomberg reported late on Friday.

Testing the resilience and patience of the faithful, so far the sharp drop below the psychological level of $40,000 has failed to serve as an upward inflection point. Crypto proponents say heavy liquidations often serve to cut out the froth in easy-win asset speculation, helping to solidify new bottoms in the market.

Ultimately, the real support will come from none other than the Fed, which will soon realize that it is hiking into a slowing economy…

… and will be forced to be far more dovish during this week’s FOMC meeting, a reversal which should serve to send risk assets sharply higher.

“Fear and unease among investors is palpable,” Nexo’s Trenchev,said. “If we see a bigger selloff in equities, expect the Fed to verbally intervene to calm nerves and that’s when Bitcoin and other cryptos will bounce.”

In other words, the more the Fed tightens – or the more the Fed scares markets into believing it will tighten – the bigger the market selloff, and the worse the economic slowdown, until eventually Powell will be forced to ease, a key point brought up by  Bank of America CIO Michael Hartnett yesterday.

Incidentally, it also means that the faster markets crash, the faster the Fed panics, and is forced to stabilize stocks because even if the new and improved Powell Put is well below previous levels, the Fed can’t risk a market crash just to appease Biden’s demands for an inflationary slowdown so Democrats aren’t destroyed in the midterms.

And incidentally, this weekend’s ongoing selloff in cryptos means that while stocks are currently mercifully not trading, Monday should be another bloodbath, as Jim Bianco reminds us.

One thing is certain: several more 2% drops in the Nasdaq, and Powell – who two years ago crossed the Fed’s final rubicon and bought corporate bonds to halt a catastrophic collapse – will be making emergency phone calls to put an end to the carnage. As such, a continuation of the meltdown may just be the best thing that the bitcoin faithful can hope for.

Tyler Durden
Sat, 01/22/2022 – 13:04








Author: Tyler Durden

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Economics

Week Ahead – Fed and Earnings in Focus

Investors in need of a lift Earnings season is off to a rocky start and not only are investors not comforted by what they’re seeing, but it’s also…

Investors in need of a lift

Earnings season is off to a rocky start and not only are investors not comforted by what they’re seeing, but it’s also contributing to the unease in the markets. The next week will be huge after an awful start to the year that’s brought inflation and interest rate anxiety, earnings disappointment, and increased geopolitical risk.

The Federal Reserve will have an opportunity to ease the growing concerns in the markets that four rate hikes and balance sheet reduction won’t be enough to get inflation under control. The last week has seen plenty of speculation around the possibility of the first 50 basis point increase in more than 20 years and up to seven hikes next year which isn’t helping to calm the nerves.

The Nasdaq has been hit hard by the combination of higher yields and risk aversion which will make the big tech earnings next week all the more important. Netflix got things off to a disappointing start and paid the price. Can the other big tech names turn things around?

Will the Fed ease investor fears?

Pressure growing on Boris Johnson

SARB expected to raise rates again

US

This is building up to be a huge week on Wall Street after investors have been rattled by a rough start to earnings season and now face a critical FOMC meeting that should pave the way for a March liftoff.  The main event is the Fed policy meeting and press conference, but a close second will be the next round of earnings.  The Fed is worried about inflation and will be delivering a series of interest rate hikes in the first half of the year.  This week’s meeting is all about preparing markets for how they will normalize policy this year with rate hikes and balance sheet reduction. 

With the Nasdaq falling into correction territory, stock traders will look to see if Microsoft, Intel, and Apple earnings can help form a bottom.  Investors are growing cautious over the outlook as margin pressures continue to get hit over surging wage and transportation costs.    

Geopolitics is also becoming a key focal point for investors, with US and Russian talks over Ukraine potentially having a huge impact on energy prices. US policy over North Korea may become more aggressive as the country seems poised to resume nuclear missile tests.  

EU 

Plenty of economic data to come from the euro area next week which will no doubt draw a lot of attention, starting with the flash PMIs on Monday.

With markets once again getting ahead of the curve and pricing in a small rate hike in October, despite President Christine Lagarde pushing back against it, there will be a lot of focus on the releases and what they tell us about inflation.

Italian lawmakers will start voting next week for the country’s next President, with Prime Minister Mario Draghi the favorite.

UK

A relatively quiet week as far as the UK is concerned. From a data standpoint, the week basically starts and finishes on Monday with the flash PMIs. With four rate hikes priced in this year, the focus remains on the inflation outlook and whether more may be needed.

Of course, the political arena is far more in the headlines right now. Boris Johnson is hanging on by a thread as we await the outcome from Sue Gray’s investigation into Downing Street parties during lockdown. Pressure has become almost unbearable on the Prime Minister but he came out fighting during PMQ’s and if Gray returns a favorable report, he could well live to see another day. 

Russia

A quiet week on the economic side, with industrial output on Tuesday and PPI on Wednesday the only notable releases.

As far as Russia is concerned, the focus is on the geopolitics and whether the country is, as the US warns, about to invade Ukraine. The market impact could be very negative in that case and the currency is already coming under some pressure, despite higher oil prices, as the odds increase.

South Africa

Inflation rose faster than expected last month, reaching 5.9%, up from 5.5% in November, which is right at the upper end of the central bank target range of 3-6%. The jump has made a second consecutive 25 basis point hike very likely which will take the repo rate to 4%.

Turkey

A rare moment of refrain from the CBRT this week saw the repo rate remain at 14%. That brought an end to a run of four consecutive rate cuts that saw the repo rate slashed by 5% and inflation soar to 36%.

The move left the lira quite stable for another week after an extraordinarily volatile couple of months. Governor Sahap Kavcioglu’s briefing on the quarterly inflation report on Thursday will be all the more interesting after the decision to hold rates. 

The CBRT said this week that a comprehensive review of the policy framework is being conducted and the lira will be prioritized. Perhaps we’ll learn more about what that means next week and whether more volatility is coming.

China

China Industrial Profits for December, which will be released on Thursday, is a key gauge of the strength of the business sector. The consensus stands at 10%, up from the November gain of 9.0%.

China has responded to recent Covid-19 outbreaks by enacting a zero-tolerance policy. There are more than 20 million people are in lockdown, but the economy has held up.

India

The Indian state of Maharashtra announced that it will reopen schools this week. Although the state had the highest number of Omicron cases in the country, new cases have fallen sharply. This raises hopes that Omicron has peaked and the economy can reopen. India has been devastated by Covid, recording almost 500,000 deaths from the pandemic.

No major data next week but traders continue to look for clues around a possible rate hike in February in response to rising global yields and higher oil prices.

Bank Holiday on Wednesday.

Australia 

Australia releases CPI for Q4 on Tuesday. The consensus stands at 0.8% QoQ, unchanged from the third quarter. Price rises have been driven by an increase in energy, food, and new home construction costs. The energy component may ease in the coming months and wage growth remains weak, which means that inflationary pressures should be contained.

PMIs will be released early in the week which could dictate early trading.

Australia Day bank holiday on Wednesday.

New Zealand

New Zealand will publish CPI for Q4 on Thursday. Higher energy continues to fuel an upswing in inflation, with the headline reading expected to rise above 5.0% YoY. On a quarterly basis, CPI is expected to have climbed 0.8%, after a sharp rise of 2.2% in Q3. Gasoline and food costs are the primary drivers of inflation. 

Japan

After decades of deflation, Japan is seeing a rise in inflationary pressures.  On Tuesday, we’ll get a look at BoJ Core CPI, the central bank’s preferred inflation indicator. This will be followed on Thursday by Tokyo Core CPI for January. The consensus is a 0.2% gain, down from 0.5% prior. 

Inflation has been boosted by rising energy and food costs, which will likely continue to boost inflation. At the same time, the Omicron wave is a downside risk.


Economic Calendar

Monday, Jan. 24

Evergrande next dollar bond interest payments are due

German Chancellor Scholz discusses Covid pandemic strategy

Lawmaker ballot starts for Italy’s presidency

COP27 climate summit

European Union foreign ministers meet in Brussels

European Commission VP Sefcovic and UK Foreign Secretary Truss meet for Brexit talks

Economic Data/Events

Australia CPI

Singapore CPI

Eurozone PMI

Germany PMI

UK PMI

Australia PMI

Japan Bank PMI

Taiwan industrial production, money supply

South Korea retail sales, department store sales

Switzerland sight deposits

Tuesday, Jan. 25

US FOMC begins a two-day meeting

IMF launches the World Economic Outlook update

Economic Data/Events

Germany IFO business climate

Mexico international reserves

New Zealand performance services index

Australia consumer confidence, CPI

Hungary Rate decision

US Conference Board consumer confidence

UK public finances, public sector net borrowing

Japan department store sales

Vietnam industrial production, retail sales, trade, CPI

Turkey real sector confidence

Spain PPI

Wednesday, Jan. 26

Economic Data/Events

FOMC Rate Decision: The Fed may stop bond purchases and set up a March liftoff

US new home sales, wholesale inventories

BOC Rate decisions: May raise rates 25 bps to 0.50%

Poland GDP

China industrial profits

New Zealand trade, credit card spending

Philippines agricultural output

Japan PPI services, leading index

Thailand capacity utilization, manufacturing production index

Singapore industrial production

Poland unemployment

Russia CPI, PPI

Switzerland Credit Suisse survey expectations

Spain mortgages

EIA Crude Oil Inventory Report

Thursday, Jan. 27

Economic Data/Events

US Q4 Advance GDP Annualized Q/Q: 5.8%e v 2.3% prior

US initial jobless claims, durable goods

European Central Bank’s Edward Scicluna speaks at a European Savings and Retail Banking Group event

Norway’s sovereign wealth fund releases key figures for 2021

Turkish central bank releases its quarterly inflation report

Hungary Rate Decision: Expected to raise interest rates by 30 basis points to 2.70%

Hong Kong Trade

Mexico Trade

Switzerland Trade

New Zealand CPI

Spain Unemployment

Singapore Unemployment

South Africa rate decision: Expected to raise rates by 25 basis points to 4.00%

South Africa PPI

China industrial profits

Japan machine tool orders

Australia Westpac leading index, Bloomberg economic survey, import-export price index

Russia gold and foreign reserves

Germany consumer confidence

Friday, Jan. 28

Economic Data/Events

US consumer income, University of Michigan consumer sentiment

German GDP

France GDP

Sweden GDP

Eurozone economic confidence, consumer confidence

Singapore Unemployment

Sweden Unemployment

Norway Unemployment

France PPI

Australia PPI

New Zealand consumer confidence

Japan CPI: Japan (Tokyo)

Thailand forward contracts, foreign reserves

Turkey economic confidence

South Africa monthly budget balance

Italy economic, manufacturing, and consumer confidence

Sovereign Rating Updates

  • Hungary (Fitch) 
  • Ireland (Fitch)
  • Finland (Moody’s)
  • Austria (DBRS)

dollar
gold
inflation
deflation
markets
reserve
policy
money supply
interest rates
fed
central bank
inflationary

Author: Craig Erlam

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