Category Archives: Silver

(Bloomberg) — When FBI agents knocked on the door of his Brooklyn, New York, home in August 2018, trader John Edmonds told them he didn’t know anything about gold and silver price manipulation at JPMorgan Chase & Co. That was a lie, he admitted Thursday.Most Read from BloombergEdmonds, who worked at JPMorgan for about a decade, eventually pleaded guilty to conspiracy and commodities fraud and agreed to cooperate with prosecutors. He’s now a key government witness against his former boss, Michael Nowak, the longtime head of the precious-metals trading desk; gold trader Gregg Smith; and hedge fund salesman Jeffrey Ruffo.During two days of testimony at a criminal trial in Chicago, Edmonds described how the three senior executives routinely used “spoof” trades — huge orders that are quickly canceled before they can be executed — to push precious metals up or down from 2008 to 2016 to make trades for the bank and its clients more profitable. Edmonds said he learned how to spoof at JPMorgan.But Nowak’s defense lawyer David Meister, over several hours of cross examination Thursday, sought to undermine the credibility of Edmonds, who testified earlier that he’d committed no crimes since leaving JPMorgan in 2017.Meister questioned Edmonds about his FBI interview in 2018, and played a recording of the encounter made by the agents.“I don’t know what was going on in the market at that time,” Edmonds can be heard saying on the recording played for the jury. “Not spoofing, no manipulation. Like, that’s not what we do.”In federal court on Thursday, the former trader said he didn’t know lying to an FBI agent was a crime and regretted doing so. “I owned up to what I did, it’s what happened and the penalties are the penalties,” Edmonds said.Read More: JPMorgan Gold Desk ‘Spoofing’ Cheated Market, Ex-Trader SaysMeister also brought up comments by Edmonds under oath during a deposition he gave in a lawsuit against JPMorgan, after he’d left the bank. At the time, the former trader told federal authorities he didn’t know why one of his colleagues was fired in 2013. But on Thursday, Edmonds admitted that Nowak had told him in a meeting shortly after the firing that the former colleague had lost his job for spoofing.“You lied to the deposition, you lied to the FBI,” Meister said. “That’s two crimes committed after you left JPMorgan.”Edmonds, who has been on the witness stand since Tuesday, was hired at a salary of about $80,000 in 2008, and was earning about $300,000 annually by 2017, when he left the bank and took a severance buyout of about $157,000.On Friday, During cross-examination by Smith’s attorney, Jonathan Cogan, Edmonds admitted he also lied on his 2017 severance agreement with JPMorgan, which included a requirement that he disclose any violations of the bank’s code of conduct that he was aware of.Edmonds testified that while he signed the document saying there were no violations that he was aware of, “that was a lie.” He added that he has been telling the truth since he agreed to plead guilty and cooperate with prosecutors.Also under scrutiny was Edmonds’s trading record. Between 2009 and 2013 he averaged an annual loss of $39,000, according to data shown to the court, though he began to generate profit towards the end of that period.“Early on in my career, I lost money,” Edmonds said. “That was a learning curve,” and “over time I started to make more money, I started to get better,” he said.The annual profit of JPMorgan’s precious metals desk varied, but it never dipped below $100 million between 2007 and 2018, according to data presented by Meister. In its best year, it made more than double that.The case is US v. Smith et al, 19-cr-00669, US District Court, Northern District of Illinois (Chicago)(Updates with Friday testimony about severance package, agreement.)Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. Continue reading →

‘The worst bear market in my lifetime’: Here’s why Jim Rogers thinks stocks will decline for a long time — but he also suggests 2 shockproof assets for protectionWith the S&P 500 down about 21% year-to-date, the situation for stocks is pretty grim — but according to legendary investor Jim Rogers, it’s just the start.“This has to be the worst bear market in my lifetime, which means it will go down a lot and it will last a long time,” the 79-year-old told ET Now last month.Spiking price levels present another concern. Rogers says that “most central bankers don’t know what they are doing” and “inflation will get worse.”He’s correct in that prediction, as we just learned that U.S. consumer prices increased 9.1% in June from a year ago — the fastest pace since November 1981.Rogers knows a thing or two about making money in turbulent times. He co-founded the Quantum Fund with George Soros in 1973 — right in the middle of a devastating bear market. From then till 1980, the portfolio returned 4,200%, while the S&P 500 rose 47%.If you are looking for a safe haven, Rogers says “there is no such thing as safe” in the world of investments. Still, the multimillionaire points to two assets that could help you withstand the upcoming onslaught – they also happen to be great hedges against rampant inflation.Don’t missSilverPrecious metals are a go-to choice for investors in dark times, and Rogers is a long-time advocate.“Silver is probably less dangerous than other things. Gold is probably less dangerous,” he says.Gold and silver can’t be printed out of thin air like fiat money, so they can help investors preserve wealth in inflationary periods. At the same time, their prices tend to stay resilient in times of crisis.But that doesn’t mean they are crash-proof.“I’m not buying them now, because in a big collapse, everything goes down. But I probably will buy more silver when it goes down some more.”Silver is widely used in the production of solar panels and is a critical component in many vehicles’ electrical control units. Rising industrial demand, in addition to its usefulness as a hedge, makes silver in particular a compelling asset for investors.You can buy silver coins and bars directly at your local bullion shop. You can also invest in silver ETFs like the iShares Silver Trust (SLV).Meanwhile, silver miners such as Wheaton Precious Metals (WPM), Pan American Silver (PAAS) and Coeur Mining (CDE) are also solidly positioned for a silver price boom.AgricultureYou don’t need an MBA to see the appeal of agriculture in a bear market: No matter how big the next crash is, no one is crossing “food” out of their budget.Rogers sees agriculture as a potential refuge in the upcoming collapse.“Silver and agriculture are probably the least dangerous things in the next two or three years,” he says.For a convenient way to get broad exposure to the agriculture sector, check out the Invesco DB Agriculture Fund (DBA). It tracks an index made up of futures contracts on some of the most widely traded agricultural commodities — including corn, soybeans and sugar.You can also use ETFs to tap into individual agricultural commodities. The Teucrium Wheat Fund (WEAT) and the Teucrium Corn Fund (CORN) have gained 12% and 13%, respectively, in 2022.Rogers also likes the idea of investing in farmland itself.“Unless we’re going to stop wearing clothes and eating food, agriculture is going to get better. If you really, really love it, go out there and get yourself a farm and you’ll get very, very, very rich,” he told financial advisory firm Wealthion late last year.Some real estate investment trusts specialize in owning farmland, such as Gladstone Land (LAND) and Farmland Partners (FPI).Meanwhile, new investing services allow you to invest in farmland by taking a stake in a farm of your choice. You’ll earn cash income from the leasing fees and crop sales — and any long-term appreciation on top of that.What to read nextSign up for our MoneyWise newsletter to receive a steady flow of actionable ideas from Wall Street’s top firms.US is only a few days away from an ‘absolute explosion’ on inflation — here are 3 shockproof sectors to help protect your portfolio‘There’s always a bull market somewhere’: Jim Cramer’s famous words suggest you can make money no matter what. Here are 2 powerful tailwinds to take advantage of todayThis article provides information only and should not be construed as advice. It is provided without warranty of any kind. Continue reading →

The booming recovery demonstrated we need more warehouses full of everything from laptops to garden gnomes, writes Christopher Smart.

Angela Weiss/AFP via Getty Images

About the author: Christopher Smart is chief global strategist and head of the Barings Investment Institute.

It’s like those nightmares where the bad guy stalks ever closer with a big club and you can’t scream or run. Here comes Fed Chair Jerome Powell brandishing the bluntest of instruments to deliver price stability, and all we can do is sit paralyzed and wonder how much it’s going to hurt. The only uncertainty about the next 12 months is whether the economy will be bad or very bad.

With an economic system that seems so brutal and unpredictable, is there any wonder at the rising political discontent? But there are, in fact, policies and practices that can help moderate wild inflationary swings and support the Fed’s efforts to restore stable prices more gently. Such measures may be of little assistance this time, given how the collapse in stocks already seems to be pricing in the worst, but they will limit the collateral damage from future cycles. Labor flexibility: Nimble companies are at the heart of America’s economic success, but managers are often too quick to shed workers in a downturn before scrambling to hire them back when demand returns. Selling low and buying high is the worst kind of economic stewardship, beyond the damage to operational efficiency and culture. It also clearly aggravates current inflation pressures as firms scoop up every last flight attendant, dockworker, and waiter.  In contrast, European companies kept employees attached to their jobs, paying a reduced salary with government support. American managers cringe at continental employment practices they see as heavy-handed and wasteful, but the European approach clearly worked in this crisis. Unemployment peaked much lower than in the U.S. after the onset of the pandemic and has now fallen to historical lows despite labor participation at its highest ever. Inflation also looked far more manageable, at least until the Russian invasion disrupted global commodity markets. Labor supply: With all the talk of post-pandemic retirements, America would also benefit from having more—and more flexible—workers.  Women are just now recovering their places in the workforce, having suffered disproportionately from lockdown layoffs and family care commitments. But the current 56.8% female participation rate lags countries like Canada, the United Kingdom, and Norway. It’s a complex issue, but adjustable schedules and more affordable child care would expand the supply of workers and dampen large, cyclical wage swings. Net migration, which has fallen substantially since 2016, would help, too. Not only do immigrants increase the labor supply, they are usually much more mobile and willing to move where the jobs need filling, all of which helps cool desperate bidding up of labor costs when firms get desperate.  Fiscal targeting: 2020’s shocking jobless spike also triggered huge stimulus flows to households, whether they needed them or not. Most did, but the extraordinary $2.5 trillion in excess balances sitting in U.S. bank accounts fueled a spending boom and consumer inflation unseen since the 1980s. With inflation still raging, the government is left with blunt instruments like gas tax holidays and tariff cuts that barely ease the pain while actually working against the Fed’s efforts to cool demand. Properly calibrating stimulus is hard even without a crisis, but the government needs better mechanisms for disbursing aid. This includes modernized Internal Revenue Service systems, improved means to reach those who don’t file tax returns, and faster payments plumbing. If distributed ledger technologies and digital dollars make it easier and cheaper to transfer money, disbursements can be better calibrated and reduced as recovery takes root.  Fatter inventories: Long gone are the days when business schools celebrated the virtues of “just in time” deliveries, which kept operations lean and profits high. The pandemic itself delivered a wake-up call to the risks of running out of personal protective equipment, but the booming recovery demonstrated we need more warehouses full of everything from laptops to garden gnomes. Obviously, firms can’t hold everything in stock, but they can develop more reliable supply lines to avoid the frenzied price increases for scarce items. This doesn’t mean moving all factories back to America, but it does include lining up more than one supplier and depending on more than one port of entry.  Competition policy: It’s too easy to blame corporate greed for high prices, as the Biden administration has, denouncing meat packers and oil drillers. Still, inflation has been aggravated in areas where there is less competition to keep prices low. Scholars have documented how the rise of corporate concentration in airlines, mobile telecommunications, and healthcare have driven prices higher relative to European equivalents.  Fixing this requires complex changes in law and policy to strike the right balance between consolidation that creates efficiencies and competition that keeps prices low. Even the slightest improvement on the margin, though, makes the Fed’s inflation battle that much easier.   Any adjustment that brings more flexibility to goods and services markets can help stabilize prices through cyclical swings. Any measure that alleviates the Fed’s burden also reduces the collateral damage of the adjustment in bankruptcies and joblessness. None of these reforms is automatic or easy, but without trying, we are merely bracing for the bad guy with the club. Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com. Continue reading →

Following inflation data showing worse-than-expected price increases in June, bond markets are now flashing signs of deeper investor concerns about recession.On Wednesday, the U.S. 10-year note yield slipped as much as 0.21% lower than the yield on the 2-year, the largest negative spread between the two securities since 2000.A yield curve inversion, in which short-dated bonds yield more than longer-dated ones, shows a reversal in typical risk attitudes, as investors usually expect more compensation in exchange for holding onto a security for longer.This same yield curve inversion happened in 2019, prior to the pandemic, and flashed again in April of this year. The 2-year/10-year spread has inverted before each of the last six U.S. recessions.The spread between the yield on the U.S. 10-year Treasury fell deeply below the yield. on the U.S. 2-year Treasury this month. Source: U.S. Treasury, Federal Reserve Bank of St. LouisBecause the U.S. 2-year yield generally tracks short-term rates, the recent rip higher in yields illustrates market pricing on more aggressive-than-expected interest rate increases from the Federal Reserve.The 2-year/10-year spread is the most closely watched among investors as these are among the most traded durations along the Treasury curve, but other tenors along the yield curve have also inverted: the 3-year and the 5-year Treasuries both have yields higher than the 7-year.After the curve briefly inverted in April 2022, the curve then re-steepened as the Fed began its process of raising interest rates, which had the impact of lifting longer-term rates.Now, however, that picture has reversed.Inflation data out this week showed a 9.1% year-over-year increase in consumer prices last month, which cast more uncertainty over the Fed’s ability to avoid recession without abruptly slamming the brakes on economic activity.“I don’t see an off-ramp to a soft landing anymore,” wrote SGH Macro Advisors Chief U.S. Economist Tim Duy on Wednesday. Duy described June’s Consumer Prince Index (CPI) as a “disastrous” report for the Fed, adding the central bank may have to get more aggressive on raising borrowing costs to depress demand — even if it risks job loss.“The deepening yield curve inversion is screaming recession, and the Fed has made clear it prioritizes restoring price stability over all else,” Duy added.Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System testifies before the House Committee on Financial Services June 23, 2022 in Washington, DC. (Photo by Win McNamee/Getty Images)The central bank had originally said it was debating between a 0.50% and a 0.75% move at the conclusion of its next meeting. But the hot inflation prints led to market repricing that risk, and as of Thursday afternoon placed a 44% probability on a 1.00% move on July 27.Fed trying to ‘rapidly catch up’Another read on inflation Thursday morning from the Producer Price Index (PPI) painted a similar picture as consumer data out Wednesday, with producer prices increasing by 11.3% year-over-year in June.Fed Governor Christopher Waller on Thursday said data so far had supported the case for a 0.75% move, but added that he could change his call depending on data from retail sales — which are due Friday morning — and housing.“If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down,” Waller said.Although Waller said markets appeared to show Fed “credibility” on addressing the economic challenge, the deepening yield curve inversion illustrates the tough task ahead as the Fed attempts to raise rates without squeezing companies to the point of layoffs.Christopher Waller testifies before the Senate Banking, Housing and Urban Affairs Committee during a hearing on their nomination to be member-designate on the Federal Reserve Board of Governors on February 13, 2020 in Washington, DC. (Photo by Sarah Silbiger/Getty Images)“The business cycle risks rise when the Fed is moving rapidly to catch up,” MKM Chief Economist Michael Darda told Yahoo Finance on Thursday.Darda added that recession risks could be “dramatically amplified” if yields on T-Bills, the shortest-dated U.S. Treasuries, start to show signs of inversion as well.“It’s a bit of a dicey situation,” Darda said.Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.Click here for the latest economic news and economic indicators to help you in your investing decisionsRead the latest financial and business news from Yahoo FinanceDownload the Yahoo Finance app for Apple or AndroidFollow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube Continue reading →

JPMorgan (JPM) Chief Executive Jamie Dimon doubled down on his earlier warning about the possibility of an economic downturn in comments on Thursday.The leader of the nation’s largest bank cautioned risks to the U.S. economy appear “nearer than they were before” in a call with reporters following the bank’s most recent quarterly report.“I’m simply saying, there’s a range of potential outcomes from a soft landing to a hard landing, driven by how much interest rates go up, the effectiveness of quantitative tightening, and defective, volatile markets,” Dimon said in a separate call with Wall Street analysts Thursday.The bank reported a wider-than-expected drop in profit of 28% during the second quarter to $8.6 billion, or $2.76 per share share. Analysts surveyed by Bloomberg anticipated the figure to come in at $8.9 billion. Meanwhile, trading revenue rose 15% to $7.8 billion, slightly below the 17% increase analysts expected.Dimon’s comments come as the Federal Reserve moves forward with its most aggressive monetary policy in decades and war in Ukraine continues to disrupt global markets.JP Morgan Chase CEO Jamie Dimon is seen on the video screen as U.S. President Joe Biden arrives for a hybrid virtual meeting with business leaders and CEOs about the debt limit at the White House in Washington, U.S., October 6, 2021. REUTERS/Kevin LamarqueThe remarks also come as JPMorgan readies its own balance sheet for a potential recession.Last quarter, the bank temporarily suspended share buybacks and set aside an additional $428 million in credit reserves to cover potential loan losses, pointing to “modest deterioration in the economic outlook.”The source of that deterioration comes from “two conflicting factors,” Dimon said in the company’s earnings release. While the U.S. economy continues to grow and the labor market and consumer spending hold up despite a backdrop of macroeconomic headwinds, geopolitical tensions caused by war in Ukraine, deteriorating consumer confidence, and “never-before-seen quantitative tightening” are expected to have negative consequences down the line.JPMorgan reported earnings one day after June inflation data showed consumer prices climbed at the fastest pace of the current inflation cycle, stoking fresh worries U.S. central bank officials may take even more aggressive action as economic growth shows signs of moderating.U.S. Federal Reserve Board Chair Jerome Powell testifies before a House Financial Services Committee hearing in Washington, U.S., June 23, 2022. REUTERS/Mary F. CalvertThe JPMorgan chief was among the first of Wall Street heavyweights to hint at a possible recession, sending a shockwave through financial markets last month when he predicted an economic “hurricane” was underway.Despite warnings, however, Dimon fell short of formally calling for a recession.“You can put any percentage you want on it — I’ve never changed my view,” he told reporters. “I’m not guessing what it is, I’ve always spoken about possibilities and probabilities, not about a single-point forecast.”Dimon and JPMorgan CFO Jeremy Barnum also emphasized the health of U.S. consumers, pointing to still solid savings accounts and higher discretionary spending on dining and experiences.Speaking to analysts, Dimon said consumers are in “great shape” if we enter a recession and hold far less leverage, particularly compared to the 2008 financial crisis and in 2020 when the coronavirus pandemic upended the economy.Morgan Stanley (MS) CEO James Gorman, in a slight contrast, appeared more relaxed in a call following the firm’s results Thursday morning, indicating a “deep and dramatic recession” is unlikely for the U.S and noting the threat of an economic contraction is a greater concern for Europe.Morgan Stanley revealed results that missed analyst expectations, dragged down primarily by a slump in investment banking revenue due to volatile market conditions.—Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnycClick here for the latest stock market news and in-depth analysis, including events that move stocksRead the latest financial and business news from Yahoo FinanceDownload the Yahoo Finance app for Apple or AndroidFollow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube Continue reading →

(Kitco News) The gold market tumbled $40 Thursday and briefly fell below the $1,700 an ounce level as markets began to price in an oversized 100-basis-point rate hike from the Federal Reserve at the July meeting.
Rate hike expectations were quickly re-priced after the latest U.S. inflation numbers shocked the markets, with the annual CPI number coming in at 9.1% and the yearly PPI rising 11.3% in June.
Before inflation data, markets were looking for a nearly 100% chance of a 75-basis-point hike at the Fed’s July 27 meeting, according to the CME FedWatch Tool. However, within 24 hours after the numbers were released, the expectations shifted to an 80.9% chance of a 100-basis-point hike. This would take the fed funds rate to a range of 2.50%-2.75%.
“Only yesterday morning, the market had just finally priced in a full 75bp rate hike in July for the first time. In a few hours, an above-consensus U.S. CPI reading and a surprise 100bp rate hike by the Bank of Canada changed the whole picture again. After these two events, markets have moved to seriously consider a 1.0% rate increase by the Fed in two weeks,” said Francesco Pesole, FX strategist at ING.
The Bank of Canada surprised the markets with a 100-basis-point hike on Wednesday, warning that inflation will remain elevated for the next three months. 
“The Bank of Canada made the leap into triple-digit hikes shortly after the U.S. CPI release, acknowledging in the process that it had underestimated inflation since Spring last year,” said Craig Erlam, senior market analyst at OANDA.
Gold faces many obstacles, but recession fears could help
The precious metal plunged below $1,700 an ounce Thursday, hitting 11-month lows and approaching pre-pandemic levels.
“A major capitulation event may be unfolding in gold,” said Daniel Ghali, senior commodity strategist at TD Securities. “Gold bugs are falling like dominoes. With prices challenging pre-pandemic levels, risks of a significant capitulation event in precious metals are growing.”
At the time of writing, August Comex gold futures were trading at $1.712.00, down 1.35% on the day.
“The yellow metal is feeling the heat from the inflation data and aggressive tightening in response. We could see its popularity improve once we see the peak in the inflation data, which we may now have in the U.S., but its tendency for upside surprises will leave investors cautious,” said Erlam.
BREAKING: #Gold extends losses to trade sharply down and at 11-mo. low as USDX, bond yields sharply up today and crude oil solidly down, at 3-mo. low. August gold down $37.50 at $1,698.00. #kitconews pic.twitter.com/LoJ42QVa93— Kitco NEWS (@KitcoNewsNOW) July 14, 2022
Downward price pressures have been rising in gold as the U.S. dollar index continues to trade at 20-year highs, yields advance, and oil sells off, according to analysts.
“Volatility around EUR/USD parity (which was hit yesterday) should continue to be elevated and to impact other USD crosses. We think that the current re-pricing higher in Fed rate expectations can – along with other factors – keep the dollar supported at this stage, and the risk of a more decisive break below 1.000 in EUR/USD can strengthen the greenback across the board,” Pesole added.
A break below $1,700 is still very likely, with the next support level at $1,680 an ounce, added Erlam. “[But] once the peak is in place and we see signs of inflation pressures retreating, we could see gold back in favor as the economy drifts into recession.”
Ghali noted that a drop below pre-pandemic levels, which is between $1,650 and $1,700 an ounce, could trigger even a bigger selloff in the precious metal.
“Pressure is building towards a capitulation if prices trade below their pandemic-era entry levels. In a liquidation vacuum, these massive positions are most vulnerable, which suggests the yellow metal remains prone to further downside still,” he said. Continue reading →

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(Kitco News) – The paper gold market has struggled to find consistent bullish momentum as prices dropped nearly 7% between April and June. However, the physical market saw solid growth, according to the latest report from the Royal Mint.
Thursday, the British mint said that sales of its gold bullion coins increased by 8% quarter-over-quarter. At the same time, silver bullion sales increased 47% compared to the sales in the first three months of 2022.
The mint added that it continues to see strong international sales, with specific demand growing among American consumers.
“Internationally, growth has also been seen in all three metals, with a 52% increase in the amount of gold ounces being sold, a 58% increase in silver ounces sold, and a 67% increase in platinum,” the Royal Mint said in a statement.
“We are famous in the U.K. for making coins and bars from precious metals and have developed a strong international base of investors. It’s encouraging to see such strong international sales, particularly from the U.S. and we look forward to expanding globally, providing a range of products to appeal to investors,” added Andrew Dickey, director of precious metals at The Royal Mint.
The latest report from the British mint appears to be bucking the trend of slowing sales among significant mints. The U.S. Mint sold 315,000 ounces of gold during the second quarter, down 26% from the first quarter.

The U.S. Mint saw a demand drop sharply in June as it sold 52,000 ounces, according to the mint’s revised data.
Meanwhile, the Perth Mint sold 244,737 ounces of gold in the second quarter, down 6% from 261,357 ounces sold in the first quarter.
Some analysts have said that the drop in bullion demand reflects nuances in the marketplace as higher premiums are pricing consumers out of the market. Premiums are high because of a supply and demand imbalance as bullion investors are holding on to the physical metal.
At the same time, analysts have said that the sharp drop in gold prices is expected to lead to an increase in physical demand. Thursday, gold prices dropped below $1,700 an ounce, hitting a nearly one-year low. Continue reading →

First-time unemployment claims continued to creep up last week, rising to their highest level since November. Initial jobless claims rose by 9,000 to 244,000 in the week ended July 9, coming in well above economists’ expectations of 235,000 claims, according to FactSet.

The four-week moving average was 235,750, an increase of 3,250 to the previous week’s average. The average has been gradually inching up since April, as the Federal Reserve moves to tighten monetary policy in a bid to curb inflation. “While we think the risk is for further increases in claims as economic growth slows, we don’t anticipate a sharp rise in new claims any time soon,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. Continuing claims, or the number of people already receiving unemployment benefits, were 1.331 million for the week ended July 2, a decrease of 41,000 from the previous week. This figure was below consensus estimates for 1.355 million, suggesting that while the labor market may be loosening up, it remains fairly strong. And indeed, the unemployment rate held steady at 3.6% in May for the fourth straight month, according to the Labor Department. The economy added 372,000 jobs in June. The ongoing strength of the labor market likely will encourage the Fed to keep aggressively hiking rates, especially given that inflation has soared the most in four decades. The consumer price index rose at a 9.1% annual pace in June, prompting 83% of Wall Street traders to speculate that the Fed could raise interest rates by as much as 100 basis points, or 1%, at the central bank’s July 27 meeting, according to the CME FedWatch Tool. Write to Sabrina Escobar at sabrina.escobar@barrons.com Continue reading →

Cryptocurrencies have suffered a brutal comedown this year, losing $2 trillion in value since the height of a massive rally in 2021.
While there are parallels between today’s meltdown and crashes past, a lot has changed since the last major bear market in crypto.
The crypto market has been flooded with debt thanks to the emergence of centralized lending schemes and so-called “decentralized finance.”
The collapse of the algorithmic stablecoin terraUSD and the contagion effect from the liquidation of hedge fund Three Arrows Capital, highlighted how interconnected projects and companies were in this cycle.

There’s something about the latest crypto crash that makes it different from previous downturns.
Artur Widak | Nurphoto | Getty Images

The two words on every crypto investor’s lips right now are undoubtedly “crypto winter.”
Cryptocurrencies have suffered a brutal comedown this year, losing $2 trillion in value since the height of a massive rally in 2021.

Bitcoin, the world’s biggest digital coin, is off 70% from a November all-time high of nearly $69,000.
That’s resulted in many experts warning of a prolonged bear market known as “crypto winter.” The last such event occurred between 2017 and 2018.
But there’s something about the latest crash that makes it different from previous downturns in crypto — the latest cycle has been marked by a series of events that have caused contagion across the industry because of their interconnected nature and business strategies.

From 2018 to 2022

Back in 2018, bitcoin and other tokens slumped sharply after a steep climb in 2017.
The market then was awash with so-called initial coin offerings, where people poured money into crypto ventures that had popped up left, right and center — but the vast majority of those projects ended up failing.

“The 2017 crash was largely due to the burst of a hype bubble,” Clara Medalie, research director at crypto data firm Kaiko, told CNBC.
But the current crash began earlier this year as a result of macroeconomic factors including rampant inflation that has caused the U.S. Federal Reserve and other central banks to hike interest rates. These factors weren’t present in the last cycle.
Bitcoin and the cryptocurrency market more broadly has been trading in a closely correlated fashion to other risk assets, in particular stocks. Bitcoin posted its worst quarter in more than a decade in the second quarter of the year. In the same period, the tech-heavy Nasdaq fell more than 22%.
That sharp reversal of the market caught many in the industry from hedge funds to lenders off guard.

As markets started selling off, it became clear that many large entities were not prepared for the rapid reversal

Clara Medalie
Research Director, Kaiko

Another difference is there weren’t big Wall Street players using “highly leveraged positions” back in 2017 and 2018, according to Carol Alexander, professor of finance at Sussex University.
For sure, there are parallels between today’s meltdown and crashes past — the most significant being seismic losses suffered by novice traders who got lured into crypto by promises of lofty returns.
But a lot has changed since the last major bear market.
So how did we get here?

Stablecoin destabilized

TerraUSD, or UST, was an algorithmic stablecoin, a type of cryptocurrency that was supposed to be pegged one-to-one with the U.S. dollar. It worked via a complex mechanism governed by an algorithm. But UST lost its dollar peg which led to the collapse of its sister token luna too.
This sent shockwaves through the crypto industry but also had knock-on effects to companies exposed to UST, in particular hedge fund Three Arrows Capital or 3AC (more on them later).

“The collapse of the Terra blockchain and UST stablecoin was widely unexpected following a period of immense growth,” Medalie said.

The nature of leverage

Crypto investors built up huge amounts of leverage thanks to the emergence of centralized lending schemes and so-called “decentralized finance,” or DeFi, an umbrella term for financial products developed on the blockchain.
But the nature of leverage has been different in this cycle versus the last. In 2017, leverage was largely provided to retail investors via derivatives on cryptocurrency exchanges, according to Martin Green, CEO of quant trading firm Cambrian Asset Management.
When the crypto markets declined in 2018, those positions opened by retail investors were automatically liquidated on exchanges as they couldn’t meet margin calls, which exacerbated the selling.
“In contrast, the leverage that caused the forced selling in Q2 2022 had been provided to crypto funds and lending institutions by retail depositors of crypto who were investing for yield,” said Green. “2020 onwards saw a huge build out of yield-based DeFi and crypto ‘shadow banks.'”
“There was a lot of unsecured or undercollateralized lending as credit risks and counterparty risks were not assessed with vigilance. When market prices declined in Q2 of this year, funds, lenders and others became forced sellers because of margins calls.”

Read more about tech and crypto from CNBC Pro

A margin call is a situation in which an investor has to commit more funds to avoid losses on a trade made with borrowed cash.
The inability to meet margin calls has led to further contagion.

High yields, high risk

At the heart of the recent turmoil in crypto assets is the exposure of numerous crypto firms to risky bets that were vulnerable to “attack,” including terra, Sussex University’s Alexander said.
It’s worth looking at how some of this contagion has played out via some high-profile examples.
Celsius, a company that offered users yields of more than 18% for depositing their crypto with the firm, paused withdrawals for customers last month. Celsius acted sort of like a bank. It would take the deposited crypto and lend it out to other players at a high yield. Those other players would use it for trading. And the profit Celsius made from the yield would be used to pay back investors who deposited crypto.
But when the downturn hit, this business model was put to the test. Celsius continues to face liquidity issues and has had to pause withdrawals to effectively stop the crypto version of a bank run.
“Players seeking high yields exchanged fiat for crypto used the lending platforms as custodians, and then those platforms used the funds they raised to make highly risky investments – how else could they pay such high interest rates?,” said Alexander.

Contagion via 3AC

One problem that has become apparent lately is how much crypto companies relied on loans to one another.
Three Arrows Capital, or 3AC, is a Singapore crypto-focused hedge fund that has been one of the biggest victims of the market downturn. 3AC had exposure to luna and suffered losses after the collapse of UST (as mentioned above). The Financial Times reported last month that 3AC failed to meet a margin call from crypto lender BlockFi and had its positions liquidated.
Then the hedge fund defaulted on a more than $660 million loan from Voyager Digital.
As a result, 3AC plunged into liquidation and filed for bankruptcy under Chapter 15 of the U.S. Bankruptcy Code.

Three Arrows Capital is known for its highly-leveraged and bullish bets on crypto which came undone during the market crash, highlighting how such business models came under the pump.
Contagion continued further.
When Voyager Digital filed for bankruptcy, the firm disclosed that, not only did it owe crypto billionaire Sam Bankman-Fried’s Alameda Research $75 million — Alameda also owed Voyager $377 million.
To further complicate matters, Alameda owns a 9% stake in Voyager.
“Overall, June and Q2 as a whole were very difficult for crypto markets, where we saw the meltdown of some of the largest companies in large part due to extremely poor risk management and contagion from the collapse of 3AC, the largest crypto hedge fund,” Kaiko’s Medalie said.
“It is now apparent that nearly every large centralized lender failed to properly manage risk, which subjected them to a contagion-style event with the collapse of a single entity. 3AC had taken out loans from nearly every lender that they were unable to repay following the wider market collapse, causing a liquidity crisis amid high redemptions from clients.”

Is the shakeout over?

It’s not clear when the market turbulence will finally settle. However, analysts expect there to be some more pain ahead as crypto firms struggle to pay down their debts and process client withdrawals.
The next dominoes to fall could be crypto exchanges and miners, according to James Butterfill, head of research at CoinShares.
“We feel that this pain will spill over to the crowded exchange industry,” said Butterfill. “Given it is such a crowded market, and that exchanges rely to some extent on economies of scale the current environment is likely to highlight further casualties.”
Even established players like Coinbase have been impacted by declining markets. Last month, Coinbase laid off 18% of its employees to cut down on costs. The U.S. crypto exchange has seen trading volumes collapse lately in tandem with falling digital currency prices.
Meanwhile, crypto miners that rely on specialized computing equipment to settle transactions on the blockchain could also be in trouble, Butterfill said.
“We have also seen examples of potential stress where miners have allegedly not paid their electricity bills, potentially alluding to cash flow issues,” he said in a research note last week.
“This is likely why we are seeing some miners sell their holdings.”
The role played by miners comes at a heavy price — not just for the gear itself, but for a continuous flow of electricity needed to keep their machines running around the clock.

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(Bloomberg) — Federal Reserve officials may debate a historic one percentage-point rate hike later this month after another searing inflation report piled pressure on the central bank to act.Most Read from Bloomberg“Everything is in play,” Atlanta Fed President Raphael Bostic told reporters in St. Petersburg, Florida, on Wednesday after US consumer prices rose a faster-than-forecast 9.1% in the year through June. Asked if that included raising rates by a full percentage point, he replied, “it would mean everything.Investors bet that the Fed is more likely than not to raise interest rates by 100 basis points when it meets July 26-27, which would be the largest increase since the Fed started directly using overnight interest rates to conduct monetary policy in the early 1990s. Americans are furious over high prices, and critics blame the Fed for its initial slow response.Cleveland Fed President Loretta Mester, speaking Wednesday evening in an interview on Bloomberg Television, declined to say if she favored going bigger at the July meeting, noting there were important data releases between now and then. But she said there was “no reason” for raising rates by less than the 75 basis points that policy makers delivered last month.“What I take from the report, and it was uniformly bad — there was no good news in that report at all — is that inflation remains at an unacceptably high level,” she said. “We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner.”San Francisco Fed chief Mary Daly, speaking in a separate interview with the New York Times late Wednesday, said that “My most likely posture is 0.75, because of the data I’ve seen,” adding that she had expected the CPI number to be high: “I saw that data and thought: This isn’t good news. Wasn’t expecting good news.”The Fed has turned aggressively against inflation, after being blamed for its initially slow response, roiling financial markets and increasing the risk that its actions could tip the US economy into recession. Both Bostic and Mester pushed back against the idea of a trade-off between inflation and employment, arguing that they had to deliver price stability, even if that hurts the labor market.What Bloomberg Economics Says…“The Fed is right to worry about the unmooring of inflation expectations — and this report raises the chance of an even larger rate hike than 75 basis points down the line.”– Anna Wong and Andrew Husby, economistsFor the full note, click hereGiven the acceleration in monthly inflation, economists at Nomura Securities International now expect a full percentage-point increase in the Fed’s benchmark rate at the upcoming policy meeting.“Incoming data suggests the Fed’s inflation problem has worsened, and we expect policy makers to react by scaling up the pace of rate hikes to reinforce their credibility,” Nomura’s Aichi Amemiya, Robert Dent and Jacob Meyer, said in a note.Fed Chair Jerome Powell told reporters last month after the central bank raised rates by 75 basis points, to a range of 1.5% to 1.75%, that either a 50 or 75 basis-point increase was likely in July. A majority of his colleagues since then have either echoed his line or endorsed the bigger move.Fed Governor Christopher Waller is scheduled to speak on Thursday, while Bostic and his St. Louis colleague James Bullard both have events on Friday. After that officials enter their pre-meeting blackout period.Global TighteningCentral banks globally are confronting unprecedented inflation, prompting historic rate hikes from Hungary to Pakistan. The Bank of Canada on Wednesday increased rates by a surprise full percentage point amid fears that decades-high price pressures are becoming entrenched.Brett Ryan, senior US economist at Deutsche Bank AG, said it made sense to price in some risk of a larger Fed move, but saw it as unlikely without explicit communication from the central bank.“The hawks had to have agreed to the guidance of 50 to 75, with the understanding that if we got an upside print, 75 would be the number,” he said. “They have time to communicate if they want to put that message out there.”The US central bank has pivoted to aggressive policy tightening to confront the highest inflation in 40 years. They raised rates by 75 basis points last month — the largest increase since 1994 — despite previously signaling that they were on track for a smaller half-point move.“You have to put 100 on the table for July,” said Andrew Hollenhorst, Citigroup chief US economist. “Everybody should be quite cautious about calling peak inflation — a few months ago the peak was supposed to be 8.3%.”Fed officials have said they want to push policy into restrictive territory, to a range of 3.25 to 3.5% by the end of this year, according to the median projection from the quarterly economic projections released in June. Futures markets Wednesday showed investors pricing in an even higher 3.5% to 3.75% range by year end.The Fed’s abrupt change to a 75 basis-point increase last month came on the back of a preliminary survey showing consumer expectations for future inflation were rising.Subsequent updates to the data, which came after the Fed’s meeting, erased most of that uptick, but preliminary July figures, expected Friday, may provide policy makers with more ammunition to super-size this month’s hike.Inflation expectations are particularly concerning to Powell and his colleagues, who are trying to avoid a 1970s-style price spiral.“After what happened in June, I do not rule anything out,’ said Stephen Stanley, chief economist at Amherst Pierpont Securities. “I had been thinking that the Fed would decelerate to a 50-basis-point-per-meeting pace beginning in September, but if the next two monthly inflation numbers look like May’s and June’s, all bets are off.”(Updates with Daly comment in sixth paragraph.)Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. 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