Good news out of China and the Kamala campaign
We had a great meetup for Fidenza Macro subscribers last week during Token 2049 and Grand Prix weekend in Singapore! It was great to see traders and investors connecting with each other and sharing their trading journeys. Thanks everyone for coming out!
The China bazooka
The biggest news that has come out this week was the slew of stimulus measures announced by China. On the monetary side, the PBOC (China’s central bank) lowered the reserve requirement ratio (the ratio that banks need to hold in cash reserves relative to deposits) resulting in the release of about $140b USD in long-term liquidity. They also reduced medium term lending rates to commercial banks, reduced existing mortgage rates, and reduced the minimum down payment ratio for home loans. They announced two facilities that will improve liquidity for securities firms and corporates to buy more stocks or buy back corporate shares.
On the fiscal side, the monetary stimulus was followed by announcements from a surprise Politburo meeting that China will do more to support the falling real estate market. China also issued a 24-point set of guidelines to create better conditions for employment, which includes fiscal, taxation, financial, and social security measures. Included in this were monthly allowances of about 800 CNY per child to households with two or more children, among other handouts. China plans to issue $285B in special sovereign bonds this year, part of which will be used to fund the fiscal stimulus, and the rest to be used to shore up bank balance sheets so they can freely lend again.
It is easy to be cynical about the effectiveness of this stimulus, as previous stimulus announcements have resulted in only temporary rallies in assets. However, this week’s announcement is larger in scale and size than previous announcements, and it almost feels like policymakers in China are panicking, and therefore delivering the “bazooka” the market needs. After years of depressed sentiment and outflows from Chinese assets, there is a lot of dry powder that can sustain this rally in Chinese equities for at least several months.
Another benefit of the stimulus would be to boost global liquidity, helping assets such as global equities and gold continue their rally. According to Michael Howell from Capital Flows, global liquidity has already been rising rapidly.
China ETFs such as FXI and KWEB are up 8.5% and 12% on the open. The charts have gone vertical, and as I wasn’t prepositioned for these moves, it’s hard to chase them up here. Nevertheless, if I can find a tradable pullback or consolidation to put on China longs, I’ll send a message out to paid subscribers.
Kamala might not be so bad for crypto after all
In my previous post, I took the view that the Kamala presidential administration wouldn’t do much to improve crypto regulation and government support for crypto. Fortunately, there has been some encouraging news that makes me feel a bit better about crypto’s prospects under a Kamala administration. First of all, the House Financial Services committee meeting that took place yesterday saw a brutal grilling of SEC chairman Gary Gensler. Noelle Acheson of Crypto is Macro provided some choice quotes from the hearing, where House Representatives criticized Gensler for his unfair enforcement of vague regulations on the crypto industry. Separately, there are also reports that crypto advocates are trying to convince Kamala to distance herself from Gensler and his backer, Elizabeth Warren. This suggests that Gensler is quickly losing political capital and is likely to get replaced if Kamala takes office.
Kamala also pledged support for the blockchain and digital asset industry in a speech she made this week and in an economic plan that she released. It doesn’t quite pack the same punch as Trump promising to make Bitcoin a Treasury reserve asset, but it will definitely be an improvement over the Biden administration!
Update on current positions and trading plan for BTC (for paid subscribers)
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