Bloomberg
“Get Ready for Most Cryptocurrencies to Hit Zero, Goldman Says.”
The tumble in cryptocurrencies that erased nearly $500 billion of market value over the past month could get a lot worse, according to Goldman Sachs Group Inc.’s global head of investment research.
Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they’re replaced by a small set of future competitors, Goldman’s Steve Strongin said in a report dated Feb. 5. While he didn’t posit a timeframe for losses in existing coins, he said recent price swings indicated a bubble and that the tendency for different tokens to move in lockstep wasn’t rational for a “few-winners-take-most” market.
“The high correlation between the different cryptocurrencies worries me,” Strongin said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”
Today’s digital coins lack long-term staying power because of slow transaction times, security challenges and high maintenance costs, according to Strongin. He said the introduction of regulated Bitcoin futures hasn’t addressed those concerns and he dismissed the idea of a first-mover advantage — noting that few of Internet bubble’s high fliers survived after the late 1990s.
Strongin was more upbeat about the blockchain technology that underlies digital currencies, saying it could help improve financial ledgers. But even there he sounded a note of caution, arguing that current technology doesn’t yet offer the speed required for market transactions.
Reuters
“Senate rushes to clinch budget deal to avert government shutdown.”
The Senate was expected to take up the House legislation as Congress raced to get a finished bill for Trump to sign into law before government funding runs out on Thursday.
On Tuesday, Schumer said the emerging Senate deal would increase funding for domestic programs like drug treatment and broadband infrastructure that Democrats want, as well as a military spending increase sought by Republicans.
Lawmakers have largely separated the current funding fight from the debate over immigration after the issue derailed budget talks last month and led to a three-day government shutdown. But Trump on Wednesday threatened to upend budget talks by insisting that any spending package include changes to immigration laws. The White House later said it did not expect specifics on immigration in the budget bill.
Congress has already passed four short-term spending bills since the fiscal year began in October. While markets have become accustomed to the ongoing government shutdown threat, Wall Street was on edge on Wednesday morning over separate political wrangling over the debt ceiling.
Congress must raise the federal debt ceiling or face defaulting on the government’s bills, and several Republican lawmakers said the matter would be part of Senate budget talks. The U.S. Treasury is expected to run out of borrowing options by late March.
The Senate budget deal was likely to extend the debt ceiling until after November’s congressional elections, Politico reported. It could also include another $100 billion in spending for disaster relief after last year’s hurricanes and wildfires, and extended tax provisions, according to Politico.
BBC News
“Germany coalition talks: Merkel’s conservatives and SPD clinch deal.”
Angela Merkel’s conservatives (CDU/CSU) have finally hashed out a coalition deal with the centre-left Social Democrats (SPD) that could break months of political deadlock in Germany. Negotiators have agreed on the division of key ministries – one of the last hurdles towards forming a government. It could end more than four months of wrangling since inconclusive elections in September. But the deal will still need to be approved by SPD members.
SPD leader Martin Schulz thanked the conservatives for making what he said were tough compromises. The SPD looks set to control six ministries, including finance and foreign affairs.
Both Mr Schulz and Mrs Merkel have been under pressure to see off a challenge by the far-right Alternative for Germany (AfD), which became the third biggest party in September’s election.
Other than distributing ministries, there have been big stumbling blocks in the coalition talks over workers’ rights and healthcare. Immigration, Europe, and tax, have also been points of contention. Handing Germany’s centre-left control of finance, foreign and labour policy would have a big impact on the rest of the world, particularly Europe.
A Social Democrat finance ministry – replacing pro-austerity Wolfgang Schäuble – is more likely to go along with French President Macron’s ambitious plans for EU reform, by allowing more German support for struggling eurozone economies. And at home these powerful ministries would help the SPD push for key left-wing policies, such as better rights for employees. All of this could go down well with SPD party members, who will vote on any final coalition deal.
An agreement which looks like a win for the SPD will increase the likelihood that they will vote yes. But if they vote no, then the most likely outcome could be fresh elections.
Bloomberg
“With Yellen Out of the Picture, Get Ready for Trump vs. Powell.”
The long-expected clash between the Federal Reserve and the White House over interest rate policy kept getting postponed over the past year. The stock market climbed, the economy grew, and nothing the Fed did dampened the animal spirits. President Trump got along famously with Fed Chair Janet Yellen. That calm is emphatically over. Investors have come to believe that the Fed, under new leadership, is serious about raising rates to prevent inflationary overheating of the economy—and they’re scrambling to avoid the fallout.
The S&P 500 fell 2 percent on Feb. 2 and 4 percent the next session after the U.S. Bureau of Labor Statistics reported that average hourly earnings for all employees rose 2.9 percent in January compared with the same month last year—the most since 2009. The strong wage growth raised the likelihood that the Fed will be more aggressive in combating inflation.
If this turns out to be more than a shudder, Trump may start looking for someone to blame. And that someone could be Jerome “Jay” Powell, who was sworn in as Fed chairman on Feb. 5. The Fed is an independent institution, but Powell still must answer to Congress, which in turn heeds the president.
The Fed and Trump have different views of how fast the U.S. economy can expand without overheating. The Fed’s latest projection for the longer-run growth rate is just 1.8 percent to 1.9 percent. Trump told reporters at a Cabinet meeting in December, “I see no reason why we don’t go to 4 percent, 5 percent, and even 6 percent.”
Yellen’s interest rate increases never irritated Trump because investors shrugged them off. Money for spending or investment is actually easier to get now than it was when the Fed began hiking at the end of 2015, according to the Bloomberg U.S. Financial Conditions Index.
Powell may need all the backbone he has. “I’m worried about the pressures to politicize the Fed. There’s lots of temptation to do that from both the left and the right,” says Charles Plosser, former president of the Federal Reserve Bank of Philadelphia. “I think it’s going to get stronger.”