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OCTOBER 24, 2023

UPWARD TREND CONTINUES

Earlier this morning the price of Bitcoin reached a peak of over $35,000, which is the highest it has been since May 2022. This rise in price can be attributed to positive sentiment about a bitcoin exchange-traded fund and short liquidations. Overall, bitcoin has experienced a rally of nearly 110% since the beginning of the year and its lowest point in 2022. This surge in price may be due to investors who had bet against bitcoin rushing to cover their short positions, resulting in what is known as a short squeeze. Additionally, anticipation of a bitcoin exchange-traded fund (ETF) has been growing, following a court ruling in favor of Grayscale Bitcoin Trust’s bid to become an ETF. This has raised hopes that a bitcoin ETF may be approved in the near future. Let’s remember that such an ETF would allow investors to gain exposure to bitcoin’s price movements without actually owning the cryptocurrency, something that could be seen as safer investment options compared to direct crypto investments. Moreover, although the crypto industry has faced challenges and regulatory issues over the past yea, the approval of a U.S.-based bitcoin ETF is eagerly anticipated by the crypto industry, the latest positive developments indicate a potential comeback for the sector.

DEFICIT DILEMMA

The year 2023 has brought unexpected surprises to the U.S. economy, as it demonstrates an impressive show of strength and resilience, however, amidst the positive trends, there looms a growing concern over the doubling of the federal deficit, raising alarming red flags about the country’s fiscal trajectory. Over the fiscal year that ended in September, the government faced an imposing deficit of $2.02 trillion, aside from the repercussions of President Biden’s nullified student loan forgiveness program. This exponential increase in the deficit has set off worries among economists, politicians, and credit rating agencies, resulting in higher yields on U.S. Treasuries. Nonetheless, it is essential to acknowledge that although Republicans blame Biden for excessive spending, revenue-related challenges primarily drive this deficit surge. Moreover, factors such as accounting adjustments, diminished individual tax receipts, inflation, entitlements, the Federal Reserve’s policies, and escalating interest costs on debt all contribute to this fiscal debacle, which carry substantial long-term implications for the U.S. economy.

POTENTIALLY LUCRATIVE

With the investment landscape growing increasingly complex, government bonds known as TIPS (Treasury inflation-protected securities) have emerged as a perplexing yet potentially rewarding option, as although last year’s inflation hike caused negative returns for long-term TIPS holders, current market conditions reveal attractive yields and inflation protection. This type of investment can be confusing for investors, however, avoiding them may not be the best decision, particularly for those approaching retirement. Despite negative returns during a period of high inflation last year, TIPS yields are currently attractive, with a real yield of 2.5% on 10-year TIPS, guaranteeing investors that annualized return. Additionally, TIPS offer better returns than traditional Treasuries if inflation averages above 2.4% over the next decade. While taxes on TIPS can be complex, individual TIPS present opportunities for investors seeking inflation-proof cash for retirement. Many financial advisors, including Allan Roth of Wealth Logic, recommend individual TIPS as a means to secure an inflation-proof retirement fund. By constructing a ladder of individual TIPS, Roth demonstrates the potential for steady cash flow with preserved spending power. This strategy allows retirees to confidently spend down their portfolio while maintaining financial stability.

STRONG EARNINGS

General Motors (GM) reported third-quarter earnings that exceeded expectations, despite ongoing labor strikes by the United Auto Workers union, costing the automaker around $200 million per week in lost vehicle production. The strikes, which began in September, led to a pre-tax earnings loss of approximately $800 million, including $200 million in the third quarter. GM withdrew its earnings guidance for the year due to the strike’s ongoing uncertainty but reported adjusted earnings per share of $2.28 and revenue of $44.13 billion for the third quarter. Meanwhile, Coca-Cola reported strong quarterly earnings and revenue that exceeded analysts’ expectations, driven by consumers accepting higher prices for its products. Consequently, the company raised its full-year outlook, indicating a robust performance in the market.

INTERNATIONAL NEWS

The U.K. economy has experienced a continued decline in employment, marking the longest period of job losses since the COVID-19 pandemic began as in the quarter through August, employment fell by 82,000, following a previous drop of 133,000 in the period from May to July. This prolonged decrease in employment highlights potential signs of abating inflationary pressures. The Office for National Statistics (ONS) recently revised its calculation method for these figures, aiming to provide more accurate estimates, and the revised data suggests that the labor market might be slightly tighter than previously thought, as the new methodology resulted in a smaller decline of 133,000 in employment from May to July, compared to the previously estimated 207,000 drop. However, overall, the labor market still indicates a cooling trend, which could ease the upward pressure on wages and raise concerns about a potential recession. This sentiment is also reflected in a separate report by S&P Global, which indicates that U.K. businesses are currently more pessimistic than at any point this year, leading to hiring freezes and staff reductions. Furthermore, the combination of soaring living costs, higher interest rates, and falling exports has contributed to the economic uncertainty, and although the U.K. government has been focused on boosting employment and implementing stricter rules for claiming benefits to reduce inactivity among the workforce, economists are calling for cautious policymaking to stimulate growth and address the risks associated with the current challenging economic conditions.

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