Aurelia Butler

Investing.com — These are testing times for the prophets of alternatives to the dollar.After nearly two years of furious money-printing to keep the U.S. economy going through the pandemic, it seems that the U.S. Federal Reserve is becoming more and more open to aggressive measures to defend the value of the world’s reserve currency.That’s bad news for all those who have bet that the pandemic would herald the final debasement of fiat currency. Cryptocurrencies, led by Bitcoin, are more than 40% off their highs of last year, while gold – the more traditional ‘store of value’ asset – is down nearly 10%. And the news – for them at least – is likely to get worse before it gets better.Inflation hedges perform best not when inflation is highest, but at times when the central bank is perceived to be furthest ‘behind the curve’, too slow in stopping a chain of events in which wages and prices chase each other higher.That moment surely passed when Fed Chair Jerome Powell told Congress at the start of December that it was “time to retire” the word “transitory”. The central bank had previously believed that the pandemic-generated distortions in consumer prices would correct themselves in less time than it took for interest rates hikes to have an effect on the economy.Since December at the latest, the Fed has been in catch-up mode, talking tough to persuade the market that it won’t let the dollar lose its value. Powell told the Senate at the confirmation for his second term at the Fed on Tuesday that he won’t let inflation become “entrenched”. That message is more important than the 40-year high that U.S. inflation probably hit in December.The market has only reluctantly started to take such commitments at face value but is starting to make up for lost time now. According to Fed data, market expectations for inflation five years in the future peaked in mid-October at 2.4%. They had already fallen to 2.15% by the end of last week.Bitcoin’s underperformance against gold in this time – after an equally sharp outperformance in the previous 12 months – has led many to conclude that digital currencies are not hedge assets at all, but rather risk assets, which move more in line with equities and other speculative investments.In a note to clients on Monday, Morgan Stanley analyst Sheena Shah pointed out that Bitcoin traded with a positive correlation of 0.34 to the S&P 500 over the last six months (a correlation of 1 would represent perfect overlap), while it tended to move in the opposite direction to gold. The negative correlation here was 0.1. Shah illustrated that Bitcoin in particular looks most closely correlated to global M2 money supply – a relationship that has held consistently over the last eight years. That is a clear red flag for crypto at a time when central banks accounting for well over half of global money supply are tightening monetary policy.This may frustrate anyone who has bought crypto for their portfolio in the hope of diversifying their risk, but the fact is that portfolios in general have become significantly more leveraged over the last two years thanks to free money from central banks. Margin balances tracked by the U.S. Financial Industry Regulatory Authority (FINRA) alone have risen by 63% in the two years since the start of the pandemic to nearly $920 billion. Higher interest rates squeeze raise the cost of holding any assets through leverage, and crypto – without coupons or dividends to generate returns – is particularly vulnerable to such squeezes.The same is of course true for gold. Analysts at JPMorgan reckon it will be back at $1,520 an ounce – some 16% below current levels – by the final quarter of this year, as rising real yields incentivize switches into income-generating bonds.The difference, however, is that gold’s use case is so much better established. World Gold Council data suggest that the two big categories of end buyers – jewelers and central banks – both reverted to being net buyers in the latter part of 2021. Indian jeweler purchases rose to above pre-pandemic levels in November, while China’s gold imports hit their highest level since 2019 in October. Advanced economy central banks were net buyers of gold in November for the first time since 2013.The use case for Bitcoin, as we’ve argued here before, is altogether less convincing. The only functions for which it consistently out-competes fiat currency in ease of use are – even now after a decade of rapid and well-funded innovation – for illicit transactions, such as ransomware attacks and money-laundering. Short-term demand is dictated by momentum or, in other words, speculation.In the medium term, better regulation and a growing ecosystem for related assets such as NFTs may yet broaden the use case for crypto to a degree that puts a firmer floor under its valuation. Generational shifts may also mean that that segment of the population that just doesn’t trust banks and central banks will in time migrate away from Keynes’ ’barbarous relic’ to digital assets.But in the short term, neither asset looks likely to perform particularly well. The best that can be said is that the downside is more clearly limited for gold bugs rather than crypto bros. Gold has better support from fundamentals, momentum, regulatory certainty and, not least, history. While crypto is about to be tested by a particularly sharp tightening cycle for the first time, gold has withstood every such cycle since the dawn of civilization. More

“We have 300,000 job openings today and expect that to climb to a million and more,” he told a news conference. “If we don’t close that gap, we will have real productivity problems.”While improving training and flexibility on combining jobs with family would help, greater immigration would be essential, “for engineers, for craftsmen, for carers. We haves to organise this.” More

LONDON (Reuters) – Only one in 10 World Economic Forum members surveyed expects the global recovery to accelerate over the next three years, a poll of nearly 1,000 business, government and academic leaders found, with only one in six optimistic about the world outlook.Climate change was seen as the number one danger by respondents in the WEF’s annual risks report on Tuesday, while erosion of social cohesion, livelihood crises and mental health deterioration were identified as risks which had increased the most since the start of the COVID-19 pandemic.”Global leaders must come together and adopt a coordinated multi-stakeholder approach to tackle unrelenting global challenges and build resilience ahead of the next crisis,” Saadia Zahidi, WEF managing director, said. Extreme weather was considered the world’s biggest risk in the short term and a failure of climate action in the medium and long term – two to 10 years, the survey showed.Agreement at the U.N. COP26 climate conference in November last year was widely applauded for keeping alive prospects of capping global warming at 1.5 degrees Celsius, but many of the nearly 200 nations had wanted to leave the conference in Glasgow with more. Climate change is already seen contributing to more extreme weather patterns.”Failure to act on climate change could shrink global GDP by one-sixth and the commitments taken at COP26 are still not enough to achieve the 1.5 (degrees Celsius) goal,” Peter Giger, group chief risk officer at Zurich Insurance, which helped to compile the report, said.The WEF’s report also highlights four areas of emerging risk – cybersecurity, a disorderly climate transition, migration pressures and competition in space.The prospect of 70,000 satellite launches in coming decades, in addition to space tourism, raises risks of collisions and increasing debris in space, amid a lack of regulation.”Who governs space?” said Carolina Klint, risk management leader for continental Europe at insurance broker Marsh which also helped produce the report. The report is published each year ahead of the annual WEF meeting in Davos. However, the Geneva-based WEF last month postponed the January event until mid-2022 due to the spread of the Omicron coronavirus variant.The report was produced together with Zurich, Marsh McLennan (NYSE:MMC) and South Korea’s SK Group, the universities of Oxford and Pennsylvania and the National University of Singapore. More

Investing.com — Federal Reserve Chairman Jerome Powell appears in front of the Senate Banking Committee and will promise to stop inflation becoming ‘entrenched’. President Joe Biden is likely to throw his weight behind Democrat-sponsored  legislation to override state-level laws that aim to tighten election procedures. Stocks are set to sustain the momentum from the second half of Monday’s session and the U.S. Short-Term Energy Outlook and weekly inventory data from the oil industry provide a double bill of news for oil markets. Here’s what you need to know in financial markets on Tuesday, 11th January. 1. Powell in the Senate Jerome Powell heads to Capitol Hill for confirmation by the Senate in his position as Federal Reserve chair for a second term. According to prepared remarks released ahead of his hearing at 10 AM ET (1500 GMT), Powell will say he’s determined not to let inflation become “entrenched”.Those comments come a day ahead of data that are expected to show annual consumer price inflation hit its highest in some 40 years in December, thanks to ongoing supply chain problems, labor shortages, and a still-high level of disposable savings thanks to fiscal support mechanisms that have sustained demand through the pandemic.Elsewhere, Atlanta Fed President Raphael Bostic told the Wall Street Journal that he only expects three interest rate hikes this year but that there is a risk of a fourth. Cleveland Fed President Loretta Mester and Kansas City Fed President Esther George are both due to speak at 9 AM ET.2. Biden to take aim at filibusterU.S. President Joe Biden is expected to throw his weight behind measures to curtail the Senate’s ability to thwart legislation by ‘filibuster’ in a speech later.The speech comes a couple of days before the House of Representatives is due to debate new federal legislation aimed at stopping state-level laws that would make it harder for many people to vote. A slew of Republican-controlled states such as Texas have introduced legislation in recent months that they say are aimed at preserving election integrity.The Democrat-sponsored bill coming to the House would make election day a national holiday, allow for a nationwide period of 15 days of early voting and would also require all states to allow mail-in voting.Reforming the rules of filibuster could lead to more decisive government, but threatens to upset the historically delicate constitutional balance between state and federal legislatures. The states have traditionally had the last word in setting their own voting procedures. 3. Stocks set to open higher; JPMorgan (NYSE:JPM) conference to continueU.S. stocks are expected to open higher later, sustaining the momentum they build in the second half of Monday’s trading session.The market had reversed sharply halfway through Monday’s trading on perceptions that the latest wave of Covid-19 may yet substantially slow the economy due to mass absenteeism by workers forced to quarantine. As such, fears of a fourth interest rate hike in the course of the year, flagged by analysts at Goldman Sachs and JPMorgan over the weekend, eased slightly.By 6:20 AM ET, Dow Jones futures were up 78 points, or 0.2%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.5%.Stocks likely to be in focus later include Rivian, after reports that its head of operations Rod Copes left the company at the end of last month.  Market attention will also be on the second day of JPMorgan’s annual investment conference, a day after CEO Jamie Dimon told clients he expects ‘the best growth in years’ for the U.S. economy in 2022.4. Omicron continues to test ChinaThe Omicron variant of Covid-19 continues to pose challenges for China’s zero-tolerance policy. Regional authorities have locked down a second city, Anyang, in the province of Henan, after finding evidence of community spread of the new variant there.In addition, a mass-testing campaign for inhabitants of Tianjin, home to the world’s fourth-busiest port, continues. Restrictions at the port of Ningbo last week led to a sharp drop in the availability of trucks to take goods to and from the port.Hong Kong, meanwhile, closed its airport to arrivals from another 150 destinations.5. Oil higher ahead of API, STEOCrude oil prices moved higher as the market continued to look through issues of a short-term dip in demand due to Omicron and focus on the problems facing major producers later in the year, when demand is expected to recover more vigorously.By 6:30 AM ET, U.S. crude futures were up 1.6% at $79.34 a barrel, while Brent crude was up 1.4% at $81.98 a barrel.At 4:30 PM ET, the American Petroleum Institute will release its weekly estimate of U.S. crude and distillate stocks, while the Energy Information Administration releases its Short-Term Energy Outlook. More