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DECEMBER 19, 2023

CRYPTOS’ UPWARD TREND

In the past 24 hours, tokens on networks like Solana, Avalanche, and Injective have soared by as much as 20%, with SOL and AVAX rising by 8% and almost 12%, respectively. Alongside this, meme coins like WIF, BONK, and COQ have gained attention on these networks due to their lower transaction fees and faster speeds compared to Ethereum, with Solana transactions costing less than a cent and taking seconds, whereas Ethereum transactions can cost at least $15 and take up to a minute. This has led to a surge in transactional activity on both networks, as well as an increase in active wallets and new users over the past month. Meanwhile, as of 8:00 AM CST Bitcoin came close to $43,000 on the hopes of a potential spot exchange-traded fund (ETF) listing in the U.S., with BlackRock revising its proposal. Moreover, despite market movements suggesting no immediate correction, the average fees on the Bitcoin network hit a yearly high of $37 due to increased activity, with another surge in demand for space in the blockchain and a subsequent rise in Bitcoin demand.

RECORD MARKET INFLUX

Last week, there was an extraordinary influx of money into the world’s largest exchange-traded fund, as stocks surged to near-record highs following indications by the Federal Reserve of impending interest rate cuts. State Street’s $478 billion SPDR S&P 500 ETF witnessed a substantial $20.8 billion inflow on Friday, marking the largest single-day increase since its inception in 1993. The week saw a total of over $24 billion in inflows, setting a new record. The heightened trading activity was attributed to the final trading day before the rebalancings of the S&P 500 and Nasdaq 100, prompting massive fund readjustments. This surge was also influenced by the considerable Santa Claus rally in the market in recent days, thereby boosting trading momentum. Nonethwless, it is worth noting that, conversely, the Nasdaq 100 index encountered a significant outflow, potentially due to investors seeking to capitalize on gains after a robust year for equities.

DRIVING INTO DEBT

Car owners across the U.S. are currently grappling with a challenging financial predicament. The increasing prices of new vehicles and the surge in interest rates on loans have left many individuals with more debt on their cars than they are worth. This situation, often referred to as being “underwater” or having “negative equity,” has resulted in a surge of car repossessions and financial hardship for many. Interest rates for both new and used car loans have significantly risen, with dealerships and lenders in recent years offering longer loan terms and lower down payments, making it difficult for owners to build equity in their vehicles. At the same time, used car values, which were temporarily uplifted during the pandemic, have considerably declined, leaving car owners with assets that are depreciating rapidly. Consequently, individuals encounter challenges when attempting to trade in their vehicles for new ones, as they still owe a portion of the loan balance. This issue proves particularly difficult for those who have over-borrowed and now find it tough to meet their financial obligations. The combination of high monthly payments, substantial negative equity, and a lack of feasible solutions adds to the financial stress faced by many.

UNPREDICTABLE PATH

The recent drop in treasury yields, triggered by the Federal Reserve’s unexpected interest rate cut pivot, has caused a stir among Wall Street strategists. Consequently, this has led to an immediate reevaluation of their 2024 forecasts, as the current yield slump no longer aligns with predictions made in November. Major banks are split in their market projections, with TD Securities taking a bullish approach on bonds, while Bank of America Corp. and Barclays Plc adopt a more skeptical stance. However, despite the differing opinions, the median forecast predicts a drop in the 10-year U.S. Treasury yield to 3.98%, marking a notable shift from the previous 4.20% following the Fed’s pivot. Moreover, discrepancies persist in estimations, including the duration of the Federal Reserve’s ongoing bond holdings offloading process, known as quantitative tightening (QT). Furthermore, given the divergent forecasts and changing Fed policy, the bond market faces a highly uncertain period.

SURGE IN TAX REVENUES

High-income countries, including the U.S., are currently experiencing a historic surge in tax revenues, with major economies like France, Japan, and South Korea collecting record amounts to finance escalating state spending, due in part to declining interest rates making borrowing less appealing. This heightened government intervention reflects a variety of pressing needs, ranging from heightened military priorities to the implementation of industrial policies, brought about by the post-Covid-19 era, escalating national security concerns, shifting demographics, and the urgent fight against climate change. In the U.S. tax receipts at all levels of government have climbed to nearly 28%, marking the highest level since at least 1965, and in countries like France and Germany, taxes have gone up by about 1% of the economy in the last couple of years, reaching their highest levels in over 50 years. The increase in tax revenues means that more of people’s earnings are going to the government, which can slow down overall spending and business growth. Moreover, governments are also taking on more debt, and with higher interest rates, paying it back is becoming more expensive. This shift reflects a move away from the market-oriented approach of the past 40 years, which aimed to reduce government involvement in business and economy. Furthermore, there is a prediction that this trend of higher tax revenues will continue, making governments play a bigger role in the economy.

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