10 November

“Aware of the difficulties that may arise from privately-issued stablecoins, Rishi Sunak, the Chancellor of the Exchequer, tweeted that the Treasury will ‘publish a consultation to ensure new privately-issued currencies, stablecoins, meet the high standards we expect of other payment methods.’

New technologies such as stablecoins – privately-issued digital currencies – could transform the way people store and exchange their money, making payments cheaper and faster.

Traditionally, equities and bonds move inversely. In an economic slump, central banks would lower interest rates to reanimate the economy. This would push up bond prices, which would partially offset the slump in equities, delivering a performance superior to that of an unbalanced fund.

Since the crisis of 2008, that relationship has broken down. Central banks no longer have interest rates in their recession-fighting toolbox. While negative rates are possible, they are unlikely to reanimate the economy enough to turn around a stock market falling on recession expectations. So, there’s no reason to expect equities to have a pronounced down year, and no reason to expect bonds to rise when they do, as long as central banks maintain their current policies.

Another reason to hold a portion of bonds in portfolios is to have a guaranteed income. That has been taken off the table by record low interest rates. And as for the “safe” aspect of government bond holdings, the sovereign debt/GDP ratio is at all-time highs.

Government bonds used to provide risk-free interest. Now they provide interest-free risk.

Where, then, is the hedge? What should a portfolio hedge for?

The traditional mix hedged against the business cycle: In years of economic growth, equities did well, and in years of contraction, bonds stepped in. Only, the business cycle no longer exists. The signals that interest rates used to send have been overridden by central banks.

What is the biggest investment risk faced by savers of today? It’s currency debasement. Expansionary monetary policy in the past has counted on the resulting economic growth to absorb the new money supply.

In this situation, the ideal hedging vehicles are assets that are immune to monetary policy and economic fluctuations: Assets that don’t depend on earnings for their valuation, and whose supply cannot be manipulated. Gold is one such asset. Bitcoin is another, with an even more inelastic supply.

Investors and advisers need to question old assumptions in the face of a new reality. They need to rethink what hedging means, and what risks their clients really are facing long-term. Not doing so is financially irresponsible.”

See Also: Billionaire Hedge Fund Investor Druckenmiller Says He Owns Bitcoin in CNBC Interview
See Also: Family Offices May Now See Bitcoin as Alternative to Gold: JPMorgan Report

“In a report titled “Central Bank Digital Currency: A Literature Review,” Fed economists Francesca Carapella and Jean Flemming compile research exploring the potential impact of a digital dollar on commercial banking and monetary policy.

From a theoretical standpoint, the introduction of a central bank digital currency (CBDC) raises long-standing questions relating to the provision of public and private money […] and the ability of the central bank to use CBDC as a means for transmitting monetary policy directly to households.”

See Also: Beijing Municipal Government Conference Notes Plans to Pilot CBDC in China’s Capital

Lawmakers in the European Union may push for access to end-to-end encrypted chats in popular apps such as Signal and WhatsApp, according to a draft proposal circulated by the German government—currently president of the EU—over the weekend.

Privacy advocates and defenders of end-to-end encryption decried the news, suggesting that the European Union is using recent terror attacks—including a shooting in Vienna last week that left four dead and 23 injured—as an opportunity to clamp down on individual freedoms.

Anyone who finds an open back door into my house can enter it. The same is true for back doors in software. The proposed EU regulation is an attack on the integrity of digital infrastructure and therefore very dangerous.”

“With CBDCs, the central banks would possess the necessary plumbing to directly deliver a digital currency to individuals’ bank accounts, ready to be spent via debit cards. Such a mechanism could open veritable floodgates of liquidity into the consumer economy and accelerate the rate of inflation.

That one-two punch could bring about far more inflation than central bankers bargain for.

In other words, liquidity will flow directly to Main Street instead of Wall Street, as has been the case with the Fed’s bond purchase, popularly known as quantitative easing (QE).”

“New Jersey has inched closer to implementing a cryptocurrency license similar to the “BitLicense” mandated in neighboring New York.

The proposed law would require the issuance of a license for any entity looking to provide digital asset trading, storage, purchase, sales, exchange, borrowing/lending or issuance services.”