Fed’s Third Act Yet to Come
June 06, 2022
Read Time 2 MIN
With volatility continuing to whipsaw the market, CEO Jan van Eck joined the Compound & Friends podcast with Michael Batnick and Downtown Josh Brown to discuss the path forward. The discussion centered around three key points Jan made in his investment outlook:
- The Federal Reserve (Fed) would reduce and eliminate stimulus policies, a dynamic that is playing out in markets today as the so-called “Fed put” is over. (11:33)
- Even after their recent run, the commodities rally remains in its early innings and reflects the beginning of a new commodity super cycle. (26:21)
- While subject to periods of significant volatility, crypto represents a long-term, transformational investment opportunity. (1:06:15)
The End of the “Fed Put” Has One More Act
In addition to extremely low rates, the Fed supported capital markets with asset purchases in the bond market. On June 1, the Fed will start to reduce its $8.5T balance sheet, as it will no longer reinvest proceeds of $30B in maturing Treasury securities and $17.5B in maturing agency mortgage-backed securities per month. Expect more volatility as the market adjusts to this new dynamic.
A New Commodity Super Cycle Begins
Ignore the head fake of surging commodity prices. High inflation is being caused by forces that were in place long before Russia’s invasion of Ukraine. Even if the impact of Russia’s invasion of Ukraine starts to wane, we expect commodity prices to remain at record highs given the fundamental disconnect of the market. The transition in the commodities space is a multi-year trend that is just getting started.
Crypto’s Disruption of the Financial System Is Here to Stay
Despite recent volatility in the crypto space, we believe acceptance of stablecoins will grow dramatically (especially in emerging markets), driven by applications such as NFT-enabled ticketing, gaming and social messaging, and importantly, physical goods and services. The decentralized finance (DeFi) ecosystem is maturing and becoming a potential competitor to legacy financial intermediaries and global investment banks. As tech prices continue to correct, we believe there will be good buying opportunities in tech and crypto.
You can listen to the full podcast here: The Compound & Friends – We Haven’t Seen the Third Act Yet.
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Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency.
Investing in cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.
Investors should conduct extensive research into the legitimacy of each individual cryptocurrency, including its platform, before investing. The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency’s blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.
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- An investment in cryptocurrency is not suitable or desirable for all investors.
- Cryptocurrency has limited operating history or performance.
- Fees and expenses associated with a cryptocurrency investment may be substantial.
There may be risks posed by the lack of regulation for cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should conduct extensive research before investing in cryptocurrencies.
Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.
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