Markets Down - Risks Up

 

moon  of alabama

Five days ago the Bank of Japan finally increased its interest rate from 0 to 0.25 percent. The famous carry trade, borrowing in Yen for near zero interest to invest in well paying U.S. dollar 'assets', started to unravel.

Worse than expected U.S. economic data, the Fed's unwillingness to lower interest rates and an escalating crisis in the Middle East, added to the insecurity.

All global markets are dropping or expected to drop. The most insincere 'assets' though are dropping the fastest:

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Source: Coinmarketcap

Top token Bitcoin traded 11% lower at $52,680 as of 8:39 a.m. in London, adding to a 13.1% drop last week that was the worst since the period when the FTX exchange imploded. Ether shed over a fifth of its value before paring some of the slide to change hands at $2,342. Most major coins nursed losses.

The declines come as a global stock selloff intensifies, reflecting concerns about the economic outlook and questions over whether heavy investment into artificial intelligence will live up to the hype surrounding the technology. Geopolitical tension is rising in the Middle East, adding to investor skittishness.
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Digital assets are a victim in part of the unwinding yen carry trade, as speculators adjust to higher interest rates in Japan, according to Hayden Hughes, head of crypto investments at family office Evergreen Growth.

“Those investors are also fighting a drastic increase in hedging costs based on the volatility in the US dollar-Japanese yen trading pair,” Hughes said.

Another hype that finally receives much deserved scrutiny are the glorified but unreliable machine learning algorithms currently marketed as 'Artificial Intelligence'. No profitable use-case has been made for billions of bad investments in these.

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Source: Sherwood

Pre-market NVIDIA shares are down 10%.

Another banking crisis is coming up in the U.S. where the value of commercial real estate has drastically decreased:

Banks are the largest lenders to commercial real estate (CRE) and have grown the business in the past decade. These loans are coming due amid decade-high interest rates and a drop in demand for office space stemming from hybrid work—upending a traditionally lower-risk business for banks. Financial institutions have yet to fully come to terms with their losses; the reckoning is coming.

Geopolitical risk has increased too. The 'West' is losing its proxy war in Ukraine. There is no chance for it to unsettle a Russia which is steadily gaining strength.

The conflict in the Middle East is threatening to develop into an escalating spiral of retaliation strikes and counter-strikes designed in part to pull the U.S. in:

Israel has been bracing for potential retaliation on multiple fronts since two incidents last week: Israel was blamed by Hamas and Iran for the killing of Ismail Haniyeh, Hamas’s top political leader, while an Israeli airstrike killed a Hezbollah senior commander and five other people in Lebanon. Israel has declined to comment on Haniyeh’s death.
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Israeli Prime Minister Benjamin Netanyahu held a meeting of his security cabinet on Sunday to discuss preparations for any counterstrike.

More retaliatory resistance strikes would follow those Israeli counter-strikes and on and on.

The market slump, as well as the geopolitical issues, have great potentials to explode.

Posted by b on August 5, 2024 at 10:35 UTC | Permalink

https://www.moonofalabama.org/2024/08/markets-down-risks-up.html