Daily Market Update - June 5, 2020

$BTC 24 Hour High $9,887.61 $BTC 24 Hour Low $9,525.25 $BTC +1.4%


US Markets post gains on the back of May Job numbers. Markets however face serious long term questions.

Traders are right when they say the stock market evaluates the future, not the past. Backward-looking economic data about what happened last week or last month is irrelevant to the value of stocks unless it hints at future actions, such as an unexpected change in Federal Reserve policy. But it’s hard to imagine what future stocks are evaluating right now. 2025? 2030?  If so, that’s a time horizon so distant it’s almost meaningless.

Here are some of the grim developments economists foresee during the next 12 to 24 months:

Massive small business failures. “Very small businesses with just a few em­ployees are expected to fail en masse,” Moody’s Analytics says in a June 2 forecast. “Of the 8 million busi­ness establishments operating prior to the crisis in the U.S., it would not be surprising if close to a million do not make it. New busi­nesses will eventually form, and the economy will recover, but that process will take years, not months.” Many of those small firms don’t have the connection with banks needed to take advantage of federal aid. Commercial bankruptcy filings in May soared by 48% year over year, a preview of the carnage coming.


Trillions in lost output. The Congressional Budget Office estimates the coronavirus recession will cost the U.S. economy $15.7 trillion in real economic output by 2030, adjusted for inflation, for a 5.3% drop in total output. That’s 7 months’ worth of economic activity that simply won’t happen, which will suppress employment and incomes well into the decade.


A long and slow jobs recovery. IHS Markit thinks employment won’t recover to pre-virus levels until 2024, even with the surprise addition of 2.5 million new jobs in May. Those May job gains reflect some furloughed workers returning in hammered industries such as travel and retail. But statistical anomalies in the government survey may have left some jobless workers uncounted. And employment can’t recover fully until there’s a coronavirus vaccine, which is probably a year away at the earliest. Congress, meanwhile, may decline to pass further stimulus measures, which many economists think are still needed. One month of upbeat job numbers could turn out to be a mirage.


Debt crises. Governments everywhere are racking up debt to bail out companies and workers and keep the global recession from getting worse. At some point, serious doubts will rise about some countries’ ability to make interest payments. It’ll happen first in developing countries and then perhaps in Italy. Rising interest rates would be one ugly manifestation, pushing up borrowing costs for everybody.


Bank stress. Many businesses that fail or restructure will default on debt owed to banks and other lenders. Banks aren’t fragile and over leveraged as they were before the financial crash in 2008, but an unforeseen shock of the magnitude we’re seeing now could bring down at least a few lenders.


CBDCs Could Kill Commercial Banking

Digital currencies could supersede bank accounts as low-interest rates make them increasingly obsolete.

That’s the view of Massimo Buonomo, the UN’s global blockchain expert, who added that digital currencies, particularly central bank digital currencies (CBDCs), could soon “eliminate the need for a bank account” altogether.

Speaking on an online panel discussing the future post-coronavirus global economic order on Thursday, Buonomo said banks and credit cards have long enjoyed a duopoly on digital payments, but the advent of digital currencies means users could sidestep them entirely.

Low-interest rates, enforced by central banks to encourage more borrowing, may expedite the process, he said, as they incentivize account holders to hunt for returns elsewhere. The Bank of England, for example, is actively reviewing taking interest rates into negative territory, meaning savers would pay the banks to hold money in their bank accounts. U.S. President Donald Trump recently pushed for negative rates, calling them a “gift.”

According to Buonomo, interest rates were the one remaining killer app for bank accounts. But they are in danger of becoming obsolete in the face of digital currencies, which can process electronic payments just as easily.

“Those who are going to suffer the most [from digital currencies] are the credit card processing companies and the banks because, in the current interest rate environment, your [only] advantage of having a bank account is that it enables digital payments,” he said.


Buonomo has been the UN’s resident expert on fintech and, latterly, blockchain and cryptocurrencies, for nearly 10 years. During his tenure, the international organization has begun a series of crypto-related initiatives, such as sending aid to Syria via Ethereum and enabling crypto donations for UNICEF.

On Thursday’s panel, Buonomo said banks remain vulnerable to hacks and, along with credit card companies, they add friction by charging transaction fees.

In contrast, digital currencies, “allow you to hold digital money, it lets you pay the bills, use the mobile phone without credit cards, with no fees to credit card processing companies and no fees to banks for money transfers,” he said.

Of course, there remain questions on what type of digital currency could replace the ubiquitous bank account. In a March interview with City AM, Buonomo argued bitcoin and ether, two public cryptocurrencies that enjoy widespread adoption, had a fighting chance in becoming alternatives to fiat currencies.

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