Bitcoin briefly beat its previous all-time-high, only to reverse lower. Short-term holders (less than 3 months) account for only 15% of all bitcoins, which remains below where it has been at most bottoms. So what's going on? (THREAD)
One thing: There’s now a retail vehicle for owning bitcoin, for those investors who don’t want to have to remember their keys. It may not be perfect but it might do for now. /2
In retrospect, some sort of buy-the-rumor, sell-the-news effect was to be expected, although the on-chain dynamics continue to show no signs of a speculative extreme. /3
In addition, while the bitcoin-to-gold ratio is back to its all-time highs, on a detrended basis it looks to be far from overbought. Bitcoin is only one standard deviation above gold on a detrended basis. /4
While price analogs are for entertainment purposes only, it’s interesting that my analog to gold in the 1970s continues to track closely. /END

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More from @TimmerFidelity

26 Oct
With the Fed's taper imminent, rates were on the move again last week, both in nominal and real terms. The TIPS break-even spread continues to test its upper bound of the past five years or so. Are inflation expectations ready to break out? (THREAD) Image
TIPS break-evens have rebounded from the depths of the pandemic. History shows a tendency to mean-revert around 2%, with the top of the range around 2.3% in recent years. But further back, break-evens spent a fair amount of time near 3%. /2 Image
Given that the CPI is north of 5%, a breakout to 3% would not surprise me. /3
Read 6 tweets
22 Oct
Bitcoin made a new all-time high of $66,000 on Wednesday. The chart below shows that both my supply and demand models continue to point to higher prices. (THREAD)
The gains have been pretty stealthy and without the help of momentum chasers. That may be ending now with the SEC approval of a futures-based ETF. /2
Whether such a development will prove to be a sell-the-news event remains to be seen, but I doubt it given the on-chain dynamics mentioned above. /3
Read 5 tweets
22 Oct
Is today's market an echo of the 1940s? The next few charts show the risk-reward tradeoff for the current cycle and for the WWII era. Look at this first one—a snapshot of the past 70 years—and I'll explain. (THREAD)
The chart above sets the stage with the baseline history. Cash at the lower left, stocks at the upper right, 60/40 in the sweet spot, and commodities in the worst place possible: earning only the inflation rate but with a massive vol. /2
Now let’s look at the past 18 months in the chart below. Commodities are up and to the right, along with equities, while bonds are well below the inflation rate. /3
Read 10 tweets
20 Oct
To put the current inflation spike in perspective, let's compare the current cycle to previous economic expansions. This chart shows the CPI index during all expansions since 1870 (as defined by NBER). (THREAD) Image
I'm intrigued by the 1940s analog. Unfortunately, we don’t have a true picture of inflation during the 1942-46 cycle, because of war-time price controls. I have seen some estimates that prices would have been 30% higher were it not for the price controls. /2
The next chart shows what commodity prices are doing now and what they have done during past expansions. It’s interesting that the current surge looks a lot like that other post-pandemic expansion of 1921-23. /3 Image
Read 5 tweets
14 Oct
Would a rotation from growth to value benefit non-US equities? In principle, yes, but the earnings picture for MSCI EAFE (Europe, Australasia and Far East) and EM (and especially China) suggests some caution. (THREAD)
The chart above, and the ones below, use the Datastream “squiggles” series for consensus earnings estimate progression by calendar year. The estimates run from the February before the calendar year to the February after. /2
The top panel above shows the dollar estimates and the bottom panel shows the progression from the start of each squiggle. The yellow bars show the 36-month Z-score of the MSCI USA total return. /3
Read 9 tweets
14 Oct
Will market leadership change back to value since rates are on the move? Long-duration growth stocks are convex to interest rates, and the relative performance of cyclicals/value stocks (especially financials and energy) is positively correlated to rising yields. (THREAD)
So, in theory, if bond yields rise to a new equilibrium (I’m guessing 2% for the 10-year), then value should take over for now. /2
I doubt the latest employment report will dissuade the Fed from starting its taper soon, so that suggests that in 2022 the bond market could be facing the opposite supply/demand dynamic as in 2021. /3
Read 4 tweets

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