Modern Markets Episode 6.0 - The Stimulus Arrives and "The Digital Dollar Proposal"
March 29th, 2020, by FomoHunt
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“I would say between 100,000 and 200,000 cases (deaths)”
White House Infectious Disease Expert - Dr. Tony Fauci
Round the World in Markets - Nations Moving Quickly
North America
Canada is now imposing travel restrictions on those exhibiting COVID-19 symptoms. Starting Monday, any traveler showing possible symptoms will be barred from domestic flights and trains. The Canadian government is holding private airlines and train companies responsible for carrying out these orders.
Banks are buying up bonds and ETFs as buyers of last resort. The liquidity, or market depth, of the bond market, is a foundation of multiple financial instruments. The FED will buy bonds “in the amounts needed to support smooth market functioning” — including buying government-backed debt tied to commercial real estate.
South America
A cruise ship off the coast of Santiago, Chile, is being prevented from docking on fears of infected passengers. 42 people on board the ship are complaining of flu-like symptoms which can also be symptoms of the coronavirus. A number of cruise ships are in similar positions. Getting people on these ships is challenging as coronavirus test kits must be brought on board.
European Union
The British Prime Minister, Boris Johnson, has tested positive for COVID-19. On Monday the Prime Minister issued a “shelter at home” order, severely restricting movement in the UK. All non-essential businesses are closed and police have been authorized to break up gatherings. Johnson is arguably the most visible person in the world to be diagnosed with the disease. His health secretary has also tested positive.
Africa
South Africa is following in the steps of the US in tracking its citizens. Vodacom Group Ltd and MTN Group Ltd, two major telecom carriers, have pledged to make their mobility data available to the government. The data will be used for “high-level aggregated data on how people are moving to help curb the spread of Covid-19.” As we wrote weeks ago, widespread monitoring of the population is a likely outcome of this crisis.
Middle East
Dubai, once a thriving tourist destination, is silent in the wake of the coronavirus. Hotel closures, major losses in airline revenue, and the drop in the price of oil have hit the city especially hard. Hotel occupancy is less than 10% in some areas with no relief in sight. Earlier this month the Crown Prince of Dubai, Sheikh Hamdan bin Mohammed bin Rashid al-Maktoum, announced a $400 billion stimulus package would be made available to help businesses affected by the virus.
Asia
Japan is increasing border security amid the COVID-19 epidemic. Prime Minister Shinzo Abe has announced that Japan is placing all people traveling from South East Asia, Africa, and the Middle East under a 14-day self-quarantine. The continued apprehension around the coronavirus has also postponed the 2020 Olympics, previously scheduled to take place in Tokyo, back one year to the summer of 2021. The postponement of the Olympics is expected to cost the organizers between $2-3 billion.
Hospital Supply Shortages
(Image Courtesy of: https://www.wgbh.org/news/local-news/2020/03/18/boston-hospitals-reuse-masks-as-testing-shortage-contributes-to-supply-shortage)
Hospitals are running dangerously low on Personal Protective Equipment (PPE). The supply of this necessary equipment, face masks, gloves, eyewear, etc. has been in short supply for weeks. The N95 mask, which is technically a respirator, has garnered the most attention of these items. These masks filter out 95% of all particles at least 0.3 microns in size.
For comparison, the average human hair is 75 microns wide. While viruses are much smaller than 0.3 microns, the objective of the N95 mask is to protect against droplets or airborne particles that harbor the COVID-19 virus. Though there is still little research completed as to how the virus is spread, most specialists have agreed that fluid droplets are the most likely vehicle of transmission. As these droplets are normally spread through sneezing and coughing, a 6-foot social distancing policy is necessary to limit transmission, as if thoroughly washing your hands.
A recent article by the medical journal The Lancet revealed that social distancing can eliminate the spread of the virus by 99%. Remember this when someone tries to shake your hand, stay away and wave instead. The most contact anyone should make should be a foot-bump.
(Image courtesy of: https://www.ieagle.com/flyhigh/coronavirus-new-greeting-habits/)
States are already bracing for the onslaught of new patients. Alabama’s Lieutenant Governor Will Ainsworth has been vocal in his pleas for assistance, going as far as sending a memo to the COVID-19 task force requesting help.
“A tsunami of hospital patients is likely to fall upon Alabama in the not too distant future, and it is my opinion that this task force and the state are not taking a realistic view of the numbers or adequately preparing for what awaits us. Every health specialist with whom I have spoken is anxious about surge capacity and has expressed doubts about our preparations.”
From the memo, modeling the current data and assuming an infection rate of 13%, the hospital system will run out of ventilators shortly. Alabama has only 1,344 ventilators, expected to be fully utilized by 4/24 of this year.
Nerds Take up the Call
The shortage of medical supplies has caused a massive outpouring of support from the 3D printing community. Twitter and other social media sites have been designing facemasks that can be fabricated on 3D printers. While these masks are not certified as N95 compliant, there can serve as emergency backups during times of national shortages.
During a health crisis scenario, any facial covering is more effective than nothing. Eventually face mask and PPE production will ramp up to meet the current demand, but there is no definitive timeline for this to take place. In the meantime, there are positive results from testing homemade masks. In a controlled testing environment, homemade masks can filter up to 50% of particles ranging from 0.02 - 1.0 microns in size. This is a far cry from the 98% filtration rate of N95 masks but could be the difference between contracting the virus or not. One source has relayed that these masks are being used in hospitals worn over N95 masks to act as a pre-filter.
Doctors are similarly taking the ventilator shortage into their own hands by improving or modifying existing models to serve more patients. In other cases, hard to find parts are being created on 3D printers.
The Stimulus Arrives, Direct Aid Eventually
(Image Courtesy of: https://www.pexels.com/photo/grey-metal-case-of-hundred-dollar-bills-164652/)
Congress has finally approved the latest version of the largest stimulus package of all time. The $2.2 trillion stimulus plan (it keeps getting larger) is expected to be signed by President Trump on Friday. Despite being delayed and succumbing to a number of rewrites, the government has moved fairly quickly considering the size and scope of this new legislation. The “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act” is soon to become a reality. While media headlines are quick to point out the most popular parts of the bill, large sections of the 880+ page document remain unknown by the general public.
What We Know Already
The most popular takeaway from the bill seems to be the cash relief which will be given to American citizens. Any adult who reported less than $75,000 of reported income in 2019 or 2018 will receive $1,200 and $500 for every dependent. Those who report income over $99,000 will receive nothing. Treasury Secretary Steven Mnuchin is on record stating that direct deposits and physical checks would be sent out within three weeks of the bill being signed. At this point, it does not appear that any special registration needs to take place. The total price tag of direct relief payments - $250 billion.
Unemployment benefits are getting a bump as well. Those without a job should be receiving an additional $600 a week for up to four months. There may also be additional assistance provided on a state level if unemployment is a result of the coronavirus. The unemployment rate has reached record highs as over 3.3 million new claims were opened this week. Expect layoffs to accelerate as more states request residents to “shelter in place.” The US unemployment rate could range from 10%-30% depending on how long the national crisis lasts. During the Great Depression, the unemployment rate reached as high as 25%. The total price tag of unemployment benefits - $250 billion.
Small businesses can apply for loans and “distressed companies” can request financial assistance as well. The total price tag for these - $350 billion and $500 billion respectively. Based on the math, the above-listed relief programs totals $1.350 trillion dollars.
Where is the rest of the money going?
One of the realities of the lawmaking process is inserting unrelated provisions into bills. This is often referred to as “Pork Barrel Politics” and the CARE Act is following in this tradition. For example, the John F. Kennedy Center for the Performing Arts in Washington has $25 million dollars allocated to it under “Operations and Maintenance.” Hours after the arts center received the aid, it cut its musicians hours. Abstinence-only education will receive federal funding for an additional six months. And a change in the tax code could save wealthy investors $170 billion by using real estate losses to minimize their capital gains taxes.
The rest of the stimulus plan seems to be going to big businesses. NPR has created an infographic that gives an excellent breakdown.
But Wait, There’s More
This $2.2 trillion is the latest in a line of tools the government is preparing to utilize. In a press conference on Friday, President Trump reminded the world that there is still $4 trillion more if a “phase 4” stimulus becomes necessary.
“Well, there may be something where we’re going to have to help states because the states have been hurt very badly. And the beautiful thing about our country is: $6.2 trillion, because it is 2.2 plus 4. It’s $6.2 trillion. And we can handle that easily because of who we are, what we are. It’s our — it’s our money. It’s our — we are the ones. It’s our currency. We can handle it, and we can handle — I watched Jerome Powell the other day, and he did a good job. He said, “We’ll do whatever we have to do.” John, we have to do whatever we have to do.”
The Digital Dollar Proposal
One measure that did not make it into the stimulus package was the creation of a digital dollar. It would not technically be a cryptocurrency or a replacement to the US dollar, but instead, be designed as a way to quickly send out emergency stimulus funds to every person in the US. One unique selling point is that anyone with a smartphone or computer would be able to access their digital dollar wallet, offering a banking solution to those without a bank account. In the scrapped version, the digital dollar would have no associated fees to deposit or withdraw and would be accepted by law as legal tender.
A similar proposal popped up in a Senate banking bill, signaling that now may be the time legislators have been waiting for. The Ranking Member of the Senate Banking Committee, Sherrod Brown of Ohio has voiced his support of the new bill, entitled “Banking for All”: “My legislation would allow every American to set up a free bank account so they don’t have to rely on expensive check cashers to access their hard-earned money.”
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LunarCRUSH Data for the week
The Galaxy Score for Bitcoin on LunarCRUSH is beginning to squeeze as the price dropped tremendously over the last few days. If we don’t see a leveling off or uptick, lower prices seem likely. We have seen assets across the board lose an average of 20% since the beginning of February with the Dow Jones losing 26%. Bitcoin has lost 44%, reflecting its risk-on nature.
Bitcoin and Bear Markets
By Digital Lawrence
With the recent movement in global equities markets, now is a perfect time to look back on the history and origin of Bitcoin. Bitcoin was originally conceived during the last financial crisis, and it included the following quote regarding the “2009 Chancellor on the brink of second bailout for banks”.
Bitcoin was forged in the midst of the last Global Crisis. An unprecedented Liquidity Crisis in international markets was the origin story of Bitcoin.
The concept of hard money, (fixed supply or caped supply), goes back thousands of years to the early days of gold. Humans have used scarce assets to trade in exchange for labor or value. Initially, the US Dollar was measured in units of silver. The exact formulation was:
“As a result, the United States dollar was defined as a unit of pure silver weighing 371 4/16th grains (24.057 grams), or 416 grains of standard silver (standard silver being defined as 1,485 parts fine silver to 179 parts alloy).”
This would approximately make a dollar worth $11.24 at today's prices, but as you know the dollar is only worth 1 dollar today. Ah, the cost of inflation. So what of Bitcoin again?
From the Bitcoin wikipedia article: “Bitcoin was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto and started in 2009 when its source code was released as open-source software. Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.”
Another way to look at Bitcoin is digital gold with a fixed supply of 21 million Bitcoins, globally. That’s it. No inflation, no bailouts, no quantitative easing, only a predictable mathematical model of monetary policy. Tying Monetary policy to predetermined data and times makes for a predictable outcome.
People can rest assured that there will be no more “printing of bitcoins”, as the Federal Reserve prints dollars. Keynesian and Austrian Economics are the two models that separate Dollars and Bitcoins.
While owners of Bitcoin can’t be guaranteed that the value of their Bitcoins won’t increase over time, they can be guaranteed that the supply will not be inflated. This means, no new bitcoins after the 22 million cap is reached. If we’ve learned anything in economics class about supply/demand curves, if demand for Bitcoin continues to increase worldwide, with a. Limited supply, we can expect the value to increase over time.
With the US dollar, we are experiencing extreme demands from other markets to purchase US dollars, but the supply is not fixed. We can only hope that loose monetary policies don’t increase the supply of the US dollar to a point where it completely outstrips demand, and costs of goods go up (hyperinflation).
This moment of fast and loose fiscal policies by the FED / Treasury, gives bitcoin its first “moment in the sun”, during a financial crisis. So far, bitcoin has done ok, but time will only tell as the Federal Reserves increase the money supply, and the upcoming halvening cuts bitcoin mining (releasing of bitcoins) makes it more scarce.
I believe in the future, as the world’s economy becomes digital, a combination of both Austrian and Keynesian economics will survive and play their own role in the markets. In the meantime, I’m bullish on Bitcoin on a macro scale.
- Kaltoro @kaltoro
This newsletter, analysis, research, and commentary provided by Modern Markets, lead analyst Kaltoro, with contributions from TytanInc and Digital Lawrence. The publication incorporates data from numerous sources including, but not limited to, CoinMarketCap, Bloomberg, CNBC, Lunar Crush, and the team at FomoHunt.