Newsletter – July 2024 Midyear edition

All the information in this letter is NOT to be considered financial advice; it is the author’s personal views and agreed views of others from their overviews of present markets,

Some of the content will be a summary of articles I have read and believe the author got most or all of it bang on, some will be statistics that have been check for validity, but all will be content I believe is of use or interest to margincall.club members.

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Welcome to the July 2024 edition of the margincall.club FinTech Newsletter.

I will provide you with an overview of key financial events and market developments from the past month (June) and what effect those events could have in July and beyond, as always the goal is to help you stay informed and to make your own well-informed decisions.

I will also visit any of the price predictions given in the June 2024 letter to see what played out and what didn’t and why.

Financial Market Highlights:

1. Stock Market:

Although U.S. stocks ended lower Friday, the S&P 500 showing 3 straight weeks of advances as markets closed the first half of 2024 with gains overal.

• The Dow Jones Industrial Average fell 45.20 points Friday, or 0.1%, to close at 39,118.86.

(On December 29, 2023, the Dow Jones Industrial Average (DJIA) closed at 37,689.54. This figure marks the final closing value for the DJIA in 2023, reflecting an increase of 13.7% for the year​)

• The S&P 500 lost 22.39 points, or 0.4%, to finish at 5,460.48.

(The S&P 500 closed at 4,769.83 on December 31, 2023. This represented a significant increase from the previous year’s close of 3,839.50, marking a change of approximately 24.23% over the year).

• The Nasdaq Composite declined 126.08 points, or 0.7%, to end at 17,732.60.

(On December 29, 2023, the Nasdaq Composite closed at 15,011.35. This figure represents the final closing value for the index in 2023, marking an increase of 42.1% over the year)

For the week, the Dow and S&P 500 each slipped 0.1%. The technology-heavy Nasdaq Composite notched a 0.2% weekly gain, rising a fourth straight week.

 All three indexes rose in June, with the S&P 500 finishing the first half of 2024 with a 14.5% gain.

U.S stocks ended higher on Monday to kick off July and the second half of the year, with the Nasdaq Composite notching a new record close.

• The Dow Jones Industrial Average rose 50.66 points or 0.1% to close at 39,169.52, according to Dow Jones Market Data.
• The S&P 500 went up 14.61 points or 0.3% to finish at 5,475.09.
• The Nasdaq Composite increased 146.70 points or 0.8% to end at 17,879.30, a record close. It is the index’s 21st record close this year.

Treasury yields continued to move up unabated to 4.48%, this is higher than the long term average which is 4.25%.

2. Economic Indicators:

Summary of Economic Indicators (Past 6 Months)

GDP Growth

Over the past six months, GDP growth in many major economies has shown mixed results. The U.S. economy, for instance, exhibited moderate growth, with the GDP expanding at an annualized rate of approximately 2.4% in Q1 and 2.0% in Q2 of 2024. This growth was driven by consumer spending and business investments, although it was tempered by rising interest rates and inflation.

Inflation

Inflation has been a critical concern globally, with rates fluctuating but remaining above pre-pandemic levels. In the U.S., the Consumer Price Index (CPI) indicated an inflation rate of around 3.1% in May, down from earlier peaks but still above the Federal Reserve’s 2% target. The Eurozone saw a similar trend, with inflation hovering around 5-6%, largely due to energy prices and supply chain disruptions.

Employment

The labour market has remained relatively strong, with the U.S. unemployment rate staying low at around 3.6%. Job growth has been steady, particularly in service sectors like hospitality and healthcare, although there have been signs of slowing in tech and manufacturing sectors due to economic uncertainty and technological shifts.

Interest Rates

Central banks have continued their monetary tightening policies to combat inflation. The Federal Reserve raised interest rates multiple times, bringing the federal funds rate to a range of 5.25%-5.50%. Similarly, the European Central Bank increased its rates to curb inflation, with a current rate of 4.25%.

Consumer Confidence

Consumer confidence has been volatile but generally positive, reflecting economic uncertainties and the impact of inflation on household budgets. In the U.S., the Consumer Confidence Index averaged around 107 in the past six months, indicating cautious optimism.

Stock Market

Equity markets have experienced significant volatility. Major indices like the S&P 500 and the Dow Jones Industrial Average have seen periods of gains driven by strong corporate earnings and economic data, interspersed with declines due to inflation fears and geopolitical tensions.

Factors Influencing the Next Quarter

Monetary Policy

Central banks’ future actions on interest rates will be pivotal. If inflation persists, further rate hikes could slow down economic growth, affecting consumer spending and business investment. Conversely, signs of easing inflation might lead to a pause in rate hikes, providing some relief to the economy.

Geopolitical Events

Ongoing geopolitical tensions, particularly those involving major economic players like the U.S., China, and Russia, could disrupt global trade and economic stability. Issues such as trade wars, sanctions, and conflicts (e.g., the Russia-Ukraine war) will need close monitoring.

Energy Prices

Energy markets remain a crucial variable. Fluctuations in oil and gas prices, driven by supply constraints or geopolitical disruptions, can significantly impact inflation and economic growth. For instance, continued OPEC production cuts or new sanctions on major oil producers could spike energy costs.

Consumer Spending

Consumer spending, which constitutes a large part of GDP in many economies, will be influenced by inflation trends, interest rates, and wage growth. High inflation can erode purchasing power, while rising interest rates can increase borrowing costs, both potentially dampening consumer expenditure.

Supply Chain Dynamics

The state of global supply chains, still recovering from pandemic-related disruptions, will be critical. Persistent bottlenecks, labor shortages, or new disruptions could affect manufacturing output and prices, influencing economic performance.

Fiscal Policy

Government fiscal policies, including stimulus measures or austerity programs, will also play a role. In response to economic conditions, governments may introduce spending programs or tax cuts to stimulate growth or, conversely, adopt measures to reduce deficits, impacting overall economic activity.

Technological Innovations

Technological advancements, particularly in sectors like AI, renewable energy, and healthcare, can drive productivity and economic growth. Investments in these areas could offset some negative impacts of economic headwinds and provide new growth opportunities.

Conclusion

The economic outlook for the next quarter will depend heavily on how these factors play out. Central bank policies, geopolitical developments, energy prices, consumer behavior, supply chain conditions, fiscal policies, and technological progress will all intersect to shape economic performance. Careful monitoring and adaptive strategies will be essential for navigating the uncertainties ahead.

• Cryptocurrency Update:

Dangers for Bitcoin and Digital Assets in the Coming 6 Months from Regulation and Markets

Regulatory Threats

1. Stricter Regulations and Crackdowns:

U.S. Regulatory Landscape: Putting to one side the recent court losses the Securities and Exchange Commission (SEC) has intensified its scrutiny of digital assets, classifying several cryptocurrencies as securities. This could lead to stringent regulations requiring compliance with securities laws, impacting exchanges, ICOs, and DeFi platforms.

Global Regulatory Coordination: International bodies like the Financial Action Task Force (FATF) are pushing for more stringent anti-money laundering (AML) and counter-terrorism financing (CTF) measures. Countries are increasingly adopting these guidelines, leading to stricter KYC/AML requirements that could hinder the growth of the crypto market unless there is a seed growth in Peer to Peer on street digital asset use that legally circumnavigates the banking and institutional rails, one that allows face to face local digital asset transactions.

2. Central Bank Digital Currencies (CBDCs):

Competition from CBDCs: Many countries are accelerating the development and deployment of CBDCs. These government-backed digital currencies could pose a significant threat to Bitcoin and other decentralized digital assets by offering a state-sanctioned alternative that might be more stable and widely accepted.

3. Taxation Policies:

Enhanced Tax Reporting: Governments worldwide are focusing on enhancing tax compliance for digital asset transactions. The introduction of comprehensive reporting requirements for crypto exchanges and wallet providers could deter some investors due to increased transparency and potential tax liabilities.

4. Banning or Limiting Proof-of-Work (PoW) Mining:

Environmental Concerns: PoW mining, which underpins Bitcoin, is increasingly coming under scrutiny for its environmental impact. Some jurisdictions might impose restrictions or outright bans on PoW mining, as seen in certain regions in China and discussions in the European Union.

Market Threats

1. Market Volatility:

Price Swings: The inherent volatility of Bitcoin and other digital assets poses a continuous threat. Significant price swings can be triggered by various factors, including regulatory announcements, macroeconomic shifts, and technological developments. This volatility can lead to substantial losses for investors and shake confidence in digital assets.

2. Institutional Adoption and Retraction:

Institutional Behavior: While institutional adoption of digital assets has been growing, a sudden retraction could significantly impact the market. Institutions are more sensitive to regulatory changes and market conditions. Negative regulatory developments or a broader market downturn could lead to institutions pulling back their investments, causing a ripple effect in the crypto market.

3. Security Concerns:

Cyber Attacks: The security of digital asset platforms remains a critical issue. High-profile hacks or breaches can erode trust in the ecosystem. Moreover, as the sophistication of cyber threats grows, the risk of significant security incidents increases.

Smart Contract Vulnerabilities: DeFi platforms, which rely heavily on smart contracts, are particularly vulnerable to exploits. Security flaws or vulnerabilities in smart contracts can lead to substantial financial losses and diminish confidence in the DeFi space.

4. Liquidity Risks:

Market Liquidity: In times of high volatility or regulatory crackdowns, liquidity can dry up quickly. This can exacerbate price swings and make it difficult for investors to execute trades without significant slippage. Reduced liquidity can also impact the stability and usability of digital assets in everyday transactions.

5. Technological Risks:

Network Upgrades and Forks: The development and implementation of network upgrades or forks can introduce risks. Disagreements within the community or technical failures during these processes can lead to chain splits or vulnerabilities, affecting the value and functionality of digital assets.

Conclusion

The next six months pose several dangers for Bitcoin and digital assets from both regulatory and market perspectives. Regulatory crackdowns, the rise of CBDCs, enhanced taxation policies, and environmental concerns related to PoW mining present significant regulatory threats. Concurrently, market volatility, institutional behavior, security concerns, liquidity risks, and technological challenges add layers of risk that could impact the stability and growth of the digital asset ecosystem. Stakeholders must stay vigilant and adaptable to navigate these potential dangers effectively.

4. Commodities and Forex:

I don’t provide updates in this letter on commodities like oil, gold, and Fiat currencies as these are assets that are affected by market trends and all the above.

Investment Insights:

1. Market Analysis:

I stand by what I said before as this is a macro view regarding El Salvador, Argentina on the other hand seems to be falling to pressure from the IMF, as I said last month there is news that the new Argentinian President is going back on his word, that’s not good.

The draught law in the EU banning all self-custody wallets seems to have spread to the US, but I do believe that would be challenged in the European and US courts under constitution and EU right’s laws!  

The developments in fiscal digital transfer service in the African sub-continent seem to be gathering momentum.

With growing support by a number of Governments in the African sub-continent, expect any service looking to promote these services will do well till year end.           

2. Investment Strategies & Featured Asset:

Nothing has changed here from last month, my Macro view is you want to have a foot in both traditional and crypto markets and you have to look at data miners and companies like Micro strategy.

The miners can switch to data storage and Micro Strategy will most probably capitalise some Bitcoin to cover costs of purchase if BTC goes >4X as that would be prudent to reduce debt, much the same as a stock buyback.

If you see any ATM company looking to use those machines when idle to mine Bitcoin or a company that is using renewables, solar, water and wind to power miners all would be worth doing Due diligence to see if they are investable.

Plus any deals you hear about between Ai and data storage companies would be worth due diligence time.

The only thing I would add to that is buy some tradeable bullion, gold or silver coins.   

Latest French Election Results and Their Impact on the Political Landscape in Europe

Overview of the French Election Results

In the recent French election, President Emmanuel Macron’s centrist party, La République En Marche (LREM), faced significant challenges from both the far-right and far-left. While Macron managed to secure a second term, his party lost its absolute majority in the National Assembly. The results highlighted a polarized political landscape with Marine Le Pen’s National Rally (RN) and Jean-Luc Mélenchon’s La France Insoumise (LFI) gaining considerable ground.

Impact on the French Political Scene

1. Fragmentation of the Political Landscape:

The loss of an absolute majority means that Macron will have to navigate a fragmented parliament, making governance more challenging. He will need to build coalitions and seek support from other parties, leading to more negotiated and potentially watered-down policies.

• Rise of Populist Forces:

The strong performance of Le Pen and Mélenchon indicates a significant rise in populist sentiment. This could lead to more vocal opposition to Macron’s policies, especially on issues like immigration, European integration, and economic reforms.

• Policy Implications:

Macron’s ability to implement his pro-EU, liberal economic agenda might be constrained. Expect more compromises on domestic policies such as pension reforms, labor laws, and climate initiatives. The influence of both far-right and far-left agendas may steer some policies towards protectionism and social welfare expansion.

Broader Impact on the European Political Landscape

1. Strengthening of Populist Movements:

The success of populist parties in France can embolden similar movements across Europe. Parties like Germany’s Alternative for Germany (AfD), Italy’s Lega, and Spain’s Vox might find renewed energy and legitimacy, potentially gaining more traction in their respective countries.

• Challenges to European Integration:

Macron has been a staunch advocate of deeper European integration. A weakened Macron could face difficulties pushing for EU reforms, especially with populist and eurosceptic sentiments gaining ground. This may slow down the pace of integration and lead to more resistance against EU policies and directives.

• Impacts on EU Policy and Leadership:

France, alongside Germany, has been a key driver of EU policies. With Macron’s weakened domestic position, France’s influence in shaping EU policies may diminish. This could affect critical areas like EU defense cooperation, economic recovery plans, and climate change policies.

• Potential for Policy Gridlock:

A more fragmented European Parliament, influenced by the rise of populist and fringe parties, could lead to policy gridlock. Achieving consensus on important issues like migration, digital regulation, and trade could become increasingly difficult, slowing the legislative process.

• Shift in Political Alliances:

The changing political dynamics in France might lead to shifts in alliances within the EU. Countries with strong populist movements might align more closely, challenging the traditional Franco-German axis. This realignment could affect decision-making processes and the balance of power within the EU.

Conclusion

The recent French election results signal a more fragmented and polarized political environment, both domestically and across Europe. The rise of populist forces poses significant challenges to governance, European integration, and policy-making. As France navigates this new political landscape, its ability to influence and drive the European agenda may be constrained, leading to broader implications for the EU’s future direction and cohesion.

Financial News:

1. Global Financial News:

I said this last month and it remains my view. If you use a home delivery shopping app for your weekly groceries, try going back 2 to 3 years and using the “re-order” button and compare the prices, that is your real inflation.

Events in Ukraine, Gaza and Iran continue to escalate which could see a chain reaction in events, that would move US markets down as stated before.

1. Interest Rate Rises have to start to reduce soon – with more to Come from countries outside the US.

   I still hold that June, maybe now July will see a rate cut, should be small at first. Watch the numbers on this, if it’s below 0.25 they don’t feel in control, if its 0.25 or above they feel in control. (the fed state what data they use, google it to educate yourselves).

As last month

2. Food Prices will rise in 2024 and 2025 more than inflation.

   – Global food prices are expected to stay elevated in 2024 due to factors like drought, excessive rain, the war in Ukraine, and Gaza plus high energy costs impacting global farm production.

   – The politicians have run out of smoke and the mirrors are broken, western countries that have only experienced single figure inflation are now experiencing inflation in the >20%< range on consumer edible’s.

People are seeing those price increases and shrinkflation (the producer’s art of reducing the amount in a packet and still making look the same!)  the only way to reduce those increases is less tax on the costs of transport and in the supply chain, which means reduction in tax income which in turn means more cow bell!

I would add to this that companies will exploit “Shrinkflation” in products, less product same price strategies!

2. Regulatory Updates (Blackrock writes the rule book):

Said this last three months and stand by it now after Bitcoins friend Larry Fink said he wants the ETH ETF, he wants that ETH ETF so he can offer zero fee’s ETF’s as he will offer staking and promote ETH as the tool to tokenise traditional finance! 

News on ETH ETF’s expected this month, Gary is going to have a hard time explaining why he allowed other ETH products in the past and not a spot ETF to a judge.

My View and Opinions on Why BlackRock is now promoting Their ETF’s and looking for more

BlackRock, the world’s largest asset manager, has been increasingly promoting its exchange-traded funds (ETFs) for several strategic and market-driven reasons. Here’s a detailed analysis of the factors influencing this move:

1. Market Trends and Investor Demand

Shift towards Passive Investing:

• The investment landscape has been witnessing a significant shift from active to passive investing. Investors are increasingly favouring ETFs due to their lower fees, transparency, and ease of trading. BlackRock, through its iShares brand, is well-positioned to capitalize on this trend, attracting both retail and institutional investors.

Economic Uncertainty:

• In times of economic uncertainty and volatility, such as post-pandemic recovery and geopolitical tensions, investors seek diversified, low-cost investment vehicles. ETFs provide broad market exposure with lower risk compared to individual stock investments. BlackRock’s promotion of ETFs aligns with this investor sentiment, catering to the need for stable, diversified investments.

2. Technological and Regulatory Factors

Technological Advancements:

• Technological innovations in financial markets, such as algorithmic trading and robo-advisors, have made ETFs more accessible and attractive. BlackRock leverages these technologies to offer sophisticated ETF products that appeal to tech-savvy investors looking for efficient market exposure.

Regulatory Environment:

• The regulatory environment has become more favorable for ETFs. Changes such as the SEC’s approval of non-transparent active ETFs and easing of certain restrictions have expanded the scope for ETF issuers. BlackRock is taking advantage of these regulatory developments to introduce innovative ETF products.

3. Strategic Business Objectives

Growth and Market Share:

• Promoting ETFs is a strategic move for BlackRock to enhance its growth and capture a larger market share in the asset management industry. As ETFs continue to grow in popularity, BlackRock aims to maintain its leadership position by expanding its ETF offerings and improving market penetration.

Revenue Diversification:

• ETFs provide a steady revenue stream through management fees. By promoting ETFs, BlackRock diversifies its revenue sources, reducing reliance on traditional mutual funds and active management products which have seen declining inflows.

Product Innovation:

• BlackRock is innovating its ETF products to cater to evolving investor preferences. This includes thematic ETFs, ESG (Environmental, Social, and Governance) ETFs, and fixed-income ETFs. These specialized products attract investors looking for targeted exposure and socially responsible investing options.

4. Competitive Landscape

Competitive Pressures:

• The asset management industry is highly competitive, with firms like Vanguard and State Street Global Advisors also heavily promoting their ETF products. To stay ahead, BlackRock is increasing its marketing efforts, enhancing product features, and lowering fees to attract and retain investors.

Partnerships and Collaborations:

• BlackRock has formed strategic partnerships with financial advisors, robo-advisors, and financial technology firms to promote its ETFs. These collaborations expand distribution channels and enhance the visibility and adoption of BlackRock’s ETF products among a broader audience.

5. Market Outlook and Performance

Positive Market Sentiment:

• The market outlook for ETFs remains positive, with strong growth projections. As investors continue to shift towards low-cost, diversified investment options, ETFs are expected to capture a significant portion of new investment inflows. BlackRock’s focus on ETFs is in response to this bullish market sentiment.

Performance Track Record:

• BlackRock’s ETFs have a strong performance track record, which the company leverages in its promotions. Highlighting the historical performance and benefits of its ETFs helps attract investors looking for proven investment options.

Conclusion

BlackRock’s increased promotion of ETFs is driven by a combination of market trends, investor demand, technological advancements, regulatory changes, strategic business objectives, competitive pressures, and a positive market outlook. By focusing on ETFs, BlackRock aims to capitalize on the growing preference for passive investing, diversify its revenue streams, maintain its market leadership, and meet the evolving needs of investors. This strategic emphasis on ETFs positions BlackRock to continue thriving in a dynamic and competitive asset management landscape.

Personal thoughts:

I said this last month, I had been trying to place that bet for a long time, expect 1. To play out this month, July, there is an issue with donations, if they replace Biden with an air drop candidate they have to return Biden campaign donations, something I didn’t know, however it is not a big hurdle to overcome.

This is not advice of any kind, just a view I have, if you can find a company to cover this bet let me know as I want to place this play bet, and it is a bet:

1. Joe Biden will announce he will not stand for a second term.
2. Kamila Harris (the now US VP) will be sworn in as the first US woman president.
3. Gavin Newsom will be the democratic party nominee.

Individual odds and the accumulator.

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James,

Margincall.club