How Long Can the Fed Hold Rates? With Noelle Acheson

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0:55How long can the Fed stay on hold? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Noelle Atrasan, editor of Crypto Is Macro Now Substack. Hey, Noelle, it's great to have you back. Maggie, it's so good to be with you again. Thanks for having me. So we heard from the Fed in the minutes from the last meeting, and they are insisting that they plan to hold rates steady, had no intention of cutting rates, and yet doesn't seem like the market believes them. We've had treasury yields barely move. What is your view on this? Should we take them at their word? Hire for longer. Yes, we should, Maggie.

1:33I'm really thinking of putting that in my Twitter handle, Hire for Longer, because the Fed actually really does mean it. Even if the Fed didn't mean it, and it does, it would have to pretend it meant it because it needs, above all, to restore its credibility. It doesn't seem to have a lot of credibility in the moment. The market is telling us this again and again and again. The Fed needs to restore that because it can't do its job if the market doesn't believe it. And there's actually no evidence whatsoever that the Fed is going to comply with the market prediction that we're going to be getting rate cuts probably before June.

2:08Last I looked this morning, I think it was the markets were signaling an 80 % probability the first rate cuts will come, cuts plural even, will come before June or at the June meeting. There's no reason to think that could happen even if, Maggie, even if something does break in the market. Well, I think that is really important. And that was my next question, because it seems like if you think there are no rate cuts, does that mean there's no recession? Because that's what the market's thinking, right? They see the softening data. They see that inflation moving down. This recession everybody's waiting for is coming.

2:41And so the next obvious thing is that the Fed will have to do something or become more accommodative. that's worrying if recession's still coming or something's still going to break and it's going to get messy and there's going to be no Fed rate hike, rate cuts rather. Why would that be? It all comes down to inflation. If we get a recession and inflation is convincingly low, in other words, there's not much of a chance it's going to tick up again, then the Fed will probably start turning the cycle around again and unwinding some of its recent hikes. But only then, and that will take some while to play out.

3:15We're not going to get that in the next six months we're probably very unlikely to get a recession this year after all which you know many of us including myself we're wrong on it's not going to come this year good start perhaps the first quarter of next year maybe but given the strength of the consumer even that's not a given yet second quarter next year it's probably you know getting into its stride third quarter fourth quarter things are probably going to be looking a lot bleaker than they are now but it all comes down to inflation the recession will help bring that down for sure it, will anchor it, but not right away.

3:46I personally expect the first rate cut to come second half of next year. And I expect that they will be careful because the last thing that they can afford is for rate cuts to suddenly have the housing market explode upwards, for instance, because suddenly people can afford mortgages again and they're going to start moving. Or suddenly consumption starts rocketing up. Or even the markets go crazy because liquidity is easing back into the market. Liquidity is still relatively easy in the market. If you look at all of the other indicators of liquidity, the rate hikes have not had that much of an effect yet.

4:19So we're a ways off from them starting to bite. And even if there is a market event, let's say there are more bank failures or let's say there's a wave of sovereign default. So even if the Treasury market seizes up, then the Fed would have to step in. But it wouldn't have to be through rate cuts. We saw back in March, it has many other tools in its box. in its box. Yeah. I see. Welcome, everyone, to the chat. It's nice to see you all. I'm glad a few people are still working before the Thanksgiving holiday. It is a shortened holiday week here, so we should point that out. So we are going to be sort of jamming a lot into this.

4:56We're waiting for NVIDIA after the bell. Ralph's asking about Binance's CEO. We're going to get to some of the crypto news because there is a lot of that as well this week. Just want to finish off or, or just make sure we sort of dot the I on a couple of these macro points. So we have a situation where the Fed's hands might be tied. Do Treasury yields feel like they're fairly priced here, Noel, for that kind of outcome? Are we ahead of ourselves in that big drop we saw in yields from, say, the start of November? I think we're ahead of ourselves, Maggie. We've got some very rough auctions coming up.

5:31The ones this week have gone very well so far. I'm still trying to figure out why, to be honest. But let's face it, their demand is not necessarily going to keep up with the amount of supply that we are coming. And that's not even taking into account the issuance that we're going to be seeing early next year and in the second half of next year. So, yeah, yields are probably going to be staying higher for longer, which would be a good thing, Maggie, because the Fed has often said that, and minutes reflected this also, that the higher rates, the higher yields do part of the tightening work for them.

6:01If the yields start to come down fast, then that does put at least one more rate hike maybe back on the table, which, of course, would send the rates back up again. So it's self-correct. The market is not quite ready yet for the yields to come down, just in terms of tightening, in terms of softening the activity, and in terms of bringing consumption down. So it's too soon for the 10-year, for instance, to head down to 4 % yet. So that's the case. What does that mean for stocks? I mean, they have been on a tear. You know, everyone kind of recalibrated. We saw big moves. Today, there is red on the screen.

6:36They snapped a five-day winning streak. But the losses are pretty moderate, half a percent to a tenth of a percent for the Dow. Is it a matter of just too far, too fast? How are you feeling about U.S. equities here? The rally over the past couple of weeks has been too fast. I mean, it doesn't make a lot of sense for stocks to rally with that kind of enthusiasm. It does feel like a last gasp. Let's face it, if indeed the expectations come true and we get a recession second half of next year, it's not factored into the earnings forecasts yet. And valuations are going to have to come down, whatever happens to interest rates.

7:11So stocks are overvalued here, especially if the issues that we are seeing in some known tech companies continue. Yeah. Are you alluding to the drama around OpenAI and Microsoft? And yeah, we were just talking about that before we came to air. Hard to kind of sort out what's going on there because we're getting stories out. There's been some good reporting on it, but we're really not getting the full story. And it's interesting. there's some betting platforms. Bloomberg had a piece today that there's still some probability that he returns as a CEO of OpenAI. Maybe Microsoft's okay with that. Maybe he's gone and the whole team leaves for Microsoft.

7:47It's kind of crazy. By the way, of course, the backbone to that, as I mentioned, NVIDIA out. And as we're on, no rest for the weary, right? We're going to keep the gas pedal down until we break for this Thanksgiving holiday. We have headlines also out right now there's a briefing of justice department and partners announcing cryptocurrency enforcement actions we did get some news as ralph alluded to on the binance ceo pleading guilty saying he'll step down the sec also suing kraken again what do you make of this of some of these headlines coming out on the on the enforcement front all with the open as that you did too and with the crypto enforcement stuff whiplash all of us in crypto have whiplash this week um only open a stuff for a second one thing to watch because this affects the indices it affects the stock performance is is microsoft's reaction everyone's painting this as a great win for microsoft and it sounds like it was a very clever coup but it does also inject a lot of risk into microsoft's price whether they go through with the acqui higher or not there's just a lot of risk there in the stock market's not valuing that and onto onto the crypto it's totally astonishing this week.

8:58It feels like it's Friday already, Maggie, seriously. It's good news, though, for the industry. And the market is indeed reflecting this. The market was heading down today because we get word that there's a DOJ announcement coming today and everyone's wondering, oh, dear, who could this be? And that's an uncertainty, which is never good. When we find out it's Binance and everyone's like, oh, thank God, it's just Binance. And the market rebounded very, very quickly. The fact that it's a, oh, thank God, it's just Binance reaction says that one, this was expected. We know that this was coming. The DOJ has been investigating Binance for a couple of years now.

9:35That's not a secret. And the SEC suit against Binance back in June, you may remember Maggie, laid out a very compelling case for the DOJ. I don't know if it was the SEC doing the DOJ's work for it. I don't think so. But it was a sign that the two departments definitely were topping and that the DOJ had a pretty tight case. The fact that we now know what this enforcement action from the DOJ looks like, that it's a whopping fine, that is good news. That's one of the shoes that's been overhanging the market that has dropped. Binance can pay that. The surprise here, Maggie, and this is good news for the industry as a whole, is that CZ, Shang-Pen Zhao, the founder and CEO of Binance, is pleading guilty.

10:18in the United States. He's doing so today. That is something that I confess even I didn't expect because he was living in the United Arab Emirates. He could have laid low in that jurisdiction with non-extradition treaties or any of the many other opportunities, alternatives he would have had. But no, he's facing up to this, is pleading guilty, and he's going to do whatever sentence they hand down, provided it's reasonable, I suppose. What this does, Maggie, is it sort of clears the air. This was a big overhang for the market. It's not a good look for the industry. This clears the air. With this, Binance will be able to continue operations.

10:56It will be able to continue to execute its growth strategy. But most of all, it will show the world that it wants to work with regulators. Obviously, this is a new Binance we're talking about, not necessarily the same ethos of the old Binance. But it wants to show that it wants to play with the big boys. It wants to be a serious player. So it is really, really good news that could tempt some more large liquidity players back into this now more serious market. Yeah, it was really interesting about pleading guilty as well. I mean, that was and it does give that resolution. Go ahead. What were you going to say about Kraken?

11:34I was going to say the Kraken suit, it's pretty much a nothing burger. The SEC doesn't really have much of a case there other than interpretation of securities laws, which the courts have not shown a lot of sympathy with. Hey, everyone, we're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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12:57We have that happening on what, and it sounds like what, if I hear what you're saying, it's a little bit sort of rear view mirror, like cleaning up, tying up, allowing everyone to move forward. Of course, the shiny object in the future is that Bitcoin spot ETF approval. We've done shows, Is It Imminent? We keep asking. People keep feeling like it is. It seems like there's movement behind the scenes, but then we don't get anything. What's your sense of the expectations versus the reality of what might happen here? It's imminent. It's pretty obvious it's going to happen. If not by the end of this year, which I personally expect then in January, almost for sure.

13:38And many are speculating that this Binance arrangement, if you like, is part of the bigger picture negotiations going on. I'm skeptical about that, to be honest. I know the SEC and DEJ obviously talk to each other, but I don't know if they're actually going to be helping each other out on this. But the Binance cleaning up its act, paying its fine, paying prices were for the old attitude. that is giving the industry, I would say, a sort of new face to the regulators that can help to make this happen. The SEC has not given any signal so far that it is going to deny this. All of the proposals have been refiled with what obviously have been suggestions from the SEC.

14:22This is the first time that the SEC has engaged in dialogue with ETF proposals. And we also have Croc and several others now filing future spot ETF proposals, which I think we can be pretty sure they wouldn't have bothered to do if they weren't fairly confident that they would be able to go through with the Bitcoin spot ETF proposal. So, yes, we're going to get Bitcoin spot ETFs very soon. Many are speculating that this will, as other listings have done in the past, mark the market top. You may remember when CME futures listed back in October 2021, that was memorable. And when we had Coinbase listing and basically big listings are not good for market sentiment.

15:04This one is slightly different, though, not even slightly different, it's very different because the Bitcoin spot ETF actually implies buying Bitcoin to hold, whereas the others didn't. They are derivatives, including Coinbase, even as a derivative that is linked to the crypto prices. So this one has a slightly different underlying thesis. And in my opinion, short term and long term will be very good for the market. Yeah, interesting. Do you feel like we've seen a big run up though, right? We've seen crypto prices doing really well or among the best performers this year. Do you think that is in anticipation of the announcement?

15:41Is it already priced in or is that just the beginning? Was that just a recovery from the sell off and we can move higher on that kind of announcement? Both, Maggie, to be honest. It is partly the recovery from the overcompensation last year. Last year, crypto was brutally sold off. Too much, you could argue. And so part of it is a recovery from that. Yes, there is a lot of Bitcoin spot ETS speculation in the market already in the price. Is it priced in? Nothing in crypto is ever priced in, seriously, because it's just not an efficient market. And when we say something is priced in in traditional markets, we assume that's because everyone knows about it.

16:21Well, not everyone knows about crypto yet. It is becoming slightly more mainstream in terms of familiarity and understanding, but it's far from being everywhere yet. So there's a lot of run up yet to come. We also have the halving coming sometime April or May. That's also going to add another positive force, another tailwind to the crypto markets because it reduces the selling pressure from the new Bitcoin that come in. And the, is it priced in totally? Again, no. And so one thing that tends to get overlooked is that given the lack of fundamental news, given the lack of earnings or mergers and acquisitions or anything that would drive traditional markets, it is very much based on sentiment, which is, which is driven by media, let's face it.

17:06And when a coin is in the headlines with positive tones, as in prices going up or as in an ETF as listed, then that is the best marketing it could have. And this is unfortunate because that is what creates hype and bubble. That's not good for anyone. But it does tend to be how it works. Just a dwindling supply. I mean, 70 % of Bitcoin hasn't moved in over a year. That implies it's in the hands of those that are not going to be that eager to sell, especially in a run up. You'll have more and more large institutions or large players looking for the dwindling of available supply. That's a really, really good point about sentiment because you do have events that drive things.

17:46So that's fascinating. We certainly, and, you know, for a double-edged sword, for the thing that makes it move, but also the thing that has the potential to create hype, we certainly have seen that. We can sort of, you know, I think all of us generally feel that there's kind of interest again. You're starting to have people ask, which is partly why we launched the Crypto Academy to help people so that we don't replay the mistakes of the last cycles. When you had so many people rush in, but in a really kind of casino type way and got hurt. You know, some of them didn't, depending on what it was.

18:19Some of them made a lot, but some people got burned. And it's like everything. So you can learn from that for the next cycle and be smarter about what you're doing. So hopefully if you are just tuning in and need to get a primer on that, check out the Crypto Academy, certainly, as well as, of course, Noel's Substack, which is amazing. So we've got some questions coming in. I'm keeping my eye out. I said we have NVIDIA. We have a lot of news crossing. We also have some retail. I think retailers have seen – talk to me a little bit about the consumer while I pull up the questions because I think somebody just put in the chat.

18:51But retailers, some of the retailers coming out with some weak news ahead of the, I don't even know if we could say holiday season anymore. It seems like the sales have been going on before Halloween. So I don't even know what that means. But it seems like the consumer is really strong and yet there's kind of mixed picture on the retail side. It all comes down to how the data is measured. We are seeing consumers strong, but what kind of consumers and strong how? We saw retail sales drop this past week. Last week we saw, was it last week or this week? God, time's just blending, isn't it? We saw a lot of negative news from the retailers.

19:24Remember Walmart earnings, the Q3 earnings were, you know, they didn't raise eyebrows. But you did have some consecutive comments which did raise eyebrows. I think it was the CFO who was saying that they saw a very sharp drop in sales in the last two weeks running up to the end of the fiscal quarter, which ended on Halloween. You don't usually get a sharp drop in sales in the run up to Halloween. You have Target warning about the same store sales drop. Second sales drop, same-store sales drop in a row, which is astonishing. First time that has happened since 2009. You had Home Depot talking about same-store sales drops.

20:00First time since 2010. And this week, I've seen sales warnings from a whole bunch of other retailers, Best Buy, Lowe's, just to mention some. The consumer is not very healthy. We're starting also to see unemployment tick up. We saw the actual unemployment rate nudge up to 3.9%. and the continuing jobs claim, jobless claims, they're heading upwards as well. We should get some more information on that. I think it's tomorrow. So yeah, it depends on what you're selling, I guess, too, right? People have been leaning into sort of experiences less about actual things. And we have this big shoplifting, smash and grab problem as well, which has kind of been muddying the waters for some of them, I think.

20:43John asking a very interesting question. We're going to flip back to treasuries for a moment. Are the auctions going better because China may be buying again? I mean, obviously, we don't know. But would it be interesting to see? Yellen was the first to welcome President Xi. I mean, we don't know. Of course, there's no transparency to China. But does that seem like it might be plausible? And how are you feeling about the appetite for treasuries in general? As you said, they're going well. But there was a lot of concern about that. It can be China. It would make sense. And let's face it, bond prices are probably reasonable value roundabout now.

21:17We should also keep an eye on what Argentina is doing now that they've had their election. They've announced plans to dollarize. They're going to want to be accumulating dollar assets. And Japan, I mean, it's a very important factor in the Treasury market. Look at what Japan's doing. Early this morning, the yields were falling sharply, which would make U.S. yields perhaps slightly more attractive. So I'm trying to make sense of this question. Mark, let me know if I get it wrong. In your setup, is it still not spring for gold and will people hide in the US dollar? Then does crypto correlate like it did last time?

21:54That is a great question with so many threads to pull on. Crypto correlating, my answer to that is going to have to be, well, it depends, of course. That's a wishy-washy answer. what I mean is it is not yet uncorrelated, despite what many analysts will tell you, nor is it necessarily correlated. Crypto will never be totally uncorrelated from traditional risk assets such as equities, simply because sentiment does its thing. And when stock market is falling sharply, especially on the tech side, crypto could get hurt as well because many of the investments, there's an overlap in investors. At the same time, you do have crypto marching to a different rhythm at the moment.

22:35And this does also shine another light on gold. And that is, things are kind of scary out there. We've got currency turmoil coming up and the hard asset investment thesis is becoming more obviously attractive to people around the world. It's not so much the United States, but that's just a part of the gold investing market, part of the crypto investing market. So crypto is correlated to a bunch of different narratives and where it moves on any given day relative to them. It's going to entirely depend on what else is going on and how people are feeling. It's a difficult waters to navigate at the moment by looking at correlations, which are always backward looking anyway.

23:15We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

23:26Yeah, that's true. And this has been a very challenging environment because some of the models haven't lined up and it's been very tough. Rick, well, I was going to ask this question, but Rick, I'll hold yours for one second. Let me go back to a little broader. Ralph asking, any thoughts on Polkadot, Algorand, or Solana? Solana's really been in the headlines. They have. What they have been doing so well says a lot of things. One, we do know that the technologies behind these tokens has been progressing even throughout the winter. And now some of the fruits are becoming more apparent. So it's understandable the valuations would start to head up.