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AUGUST 29, 2023

CRYPTO ETF PROGRESS

The path towards a Bitcoin ETF has been a lengthy and challenging one, nevertheless, key decisions are expected to be made this week by the U.S. Securities and Exchange Commission (SEC) regarding applications from Bitwise, BlackRock, VanEck, WisdomTree, and Invesco, which could lead to potential rejection, approval, or further delays. While analysts anticipate the SEC to possibly delay again, they believe a decision on Grayscale’s lawsuit should come first. The crypto community has long awaited a spot-Bitcoin ETF, believing it would make Bitcoin investing more accessible and bridge the gap between digital assets and traditional financial markets, however, regulators have cited concerns about fraud and manipulation. The outcome of Grayscale’s lawsuit may impact the SEC’s decisions, with the odds of a ruling in Grayscale’s favor estimated at 70%. Moreover, the potential for a Bitcoin ETF has also encouraged companies to explore other crypto investment vehicles, such as Ether-futures or Bitcoin-and-Ether-futures-medley funds, and the SEC is expected to allow Ether-futures funds to trade in October.

MORTGAGE SHOCKWAVES

The U.S. housing market is facing a new challenge as mortgage rates have surged past 7%. This sudden increase, following a previous jump to 6%, is creating a great deal of uncertainty for homebuyers as faced with the fear of missing out on further rate hikes. Many buyers are rushing to secure loans at the current rates. However, the limited inventory is driving home prices higher, defying the usual trend of falling prices during a real estate downturn. Moreover, house hunters are being left scrambling for any available properties, while rising mortgage costs, influenced by Treasury yields and the uncertain moves of the Federal Reserve, are complicating affordability calculations for borrowers. Experts, like real estate professor Ken H. Johnson, are worried that these high rates could have a further cooling effect on the market. Additionally, loan officers are observing a change in their clientele, with even well-qualified borrowers struggling to qualify for loans as home prices continue to rise.

VANISHING CHEAP CARS

The availability of new, affordable cars has decreased, making it increasingly challenging for consumers to find budget-friendly options, as according to Kelley Blue Book data, in July, only one car model, the Mitsubishi Mirage, had an average price below $20,000, compared to a dozen models five years ago. This decline in affordable car options can be attributed to various factors, including consumer preferences for feature-rich vehicles and automakers prioritizing higher-end models. Price inflation and rising production costs have also contributed to the overall increase in vehicle prices. Additionally, higher interest rates have potentially deterred some prospective buyers from entering the car market. Consequently, the average cost of a new vehicle has surged from around $30,000 in 2012 to approximately $48,000 presently.

CRISIS-READY RULES

Aiming to enhance the stability of regional banks during times of crisis, the U.S. banking regulator, Federal Deposit Insurance Corporation (FDIC), is preparing to propose stricter rules requiring banks with assets over $100 billion to be better prepared for potential failures, including facilitating smoother and more controlled dissolution processes. The FDIC may require these banks to issue more long-term debt to offset potential losses and provide reassurance to depositors and investors. Additionally, there may be an overhaul of “living will” rules, requiring banks to outline safer dismantling procedures after failure. This move follows the recent failures of larger banks, prompting regulators to tighten regulations and address vulnerabilities, as highlighted by FDIC Chairman Martin Gruenberg. Nonetheless, the banking industry has expressed concerns about the proposed changes, arguing they may be unjustified and have negative economic consequences.

CAUTIOUS DESPITE GAINS

In the latest earnings reports, Best Buy surpassed sales expectations for the fiscal second quarter, with adjusted earnings per share at $1.22 and revenue reaching $9.58 billion, outpacing the projected $1.06 and $9.52 billion respectively. However, the company’s outlook for the rest of the year remains cautious due to post-pandemic shifts in consumer spending, particularly in electronics and appliances. Best Buy’s CEO, Corie Barry, anticipates a tech demand low point this year, with recovery expected next year driven by industry stabilization and innovation. Additionally, despite exceeding expectations, the retailer experienced a decline in net income and net sales over the past year, influenced by inflation and changing consumer preferences.

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