In this episode of WhatBitcoinDid, Lyn Alden joins Peter McCormack to discuss what’s happening to Japan and China’s economies, whether we are entering a recession, and how will investments, including Bitcoin, perform over the next year.
Read our notes below to learn more.
Japan yield curve control; US bonds
Japan's central bank, the Bank of Japan recently made a move called "yield curve control" which involves controlling the long-term bond markets in order to manage the country's debt and interest rates.
This policy is typically used by highly indebted countries and is considered a more extreme measure than just controlling short-term interest rates.
In the past, other countries such as the United States have used yield curve control, particularly during times of war or high inflation.
The policy involves the central bank setting a target yield for bonds and buying any bonds that go above that target in order to keep them at the desired level.
This helps to maintain credibility and prevent private market players from being left holding bonds that are worth less than they thought.
Japan, with its high levels of debt, has implemented yield curve control in order to keep its interest rates and debt manageable.
Investment landscape; China’s economy
The best-performing asset in the year has been cash, as it has lost value slowly in an inflation environment.
Other good performing assets have included dividend-paying value stocks and reasonably priced houses with low fixed-rate mortgages.
However, most other assets including bonds, stocks, gold, Bitcoin, growth stocks, and Chinese equities have had a difficult year.
It has been a year of damage control, with the exception of specific sectors such as energy stocks.
There is a possibility that China could perform well in the future due to its cheap equity prices and successful handling of COVID-19.
However, there are risks associated with Chinese equities, including the possibility of invasion and a heavily indebted real estate market.
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Supply chain, covid & deglobalization
There has been disinflation in shipping prices due to reduced demand and tighter monetary conditions.
However, she believes that there is a false sense of security and that the longer-term trend is towards more structurally problematic environments for supply chains as the world becomes less trustworthy and more multi-polar.
This will lead to a need for more resiliency in supply chains, which will come at a cost and potentially result in more inflation.
The rapid changes in consumer behavior due to COVID-19 such as a shift from flying to buying electronics and remodeling homes, put pressure on supply chains and resulted in disinflation in certain goods.
Overall, she believes that the extreme changes in supply chains and shipping costs due to COVID-19 will eventually normalize, but the longer-term trends toward more structural problems and a need for resiliency will remain.
Inflation & energy investment
The possibility of inflation in the upcoming decade, stating that it may peak in the next few years before potentially rising again in 2024 or 2025 due to a lack of new energy supply.
Low investment in new energy supplies and policies such as windfall taxes may contribute to the potential inflationary spike.
Russian invasion of Ukraine has had an impact on inflation.
The current disinflationary environment as central banks and fiscal authorities are trying to regain control.
Recessionary pressures; rising rates
There is a possibility of a recession in 2023 because of reasons such as the inverted yield curve and the impact of rising interest rates on debt refinancing.
COVID-19 pandemic leading to remote work impacted commercial real estate vacancy rates.
The economy has been resilient so far but it is currently in a stagnant environment and it remains to be seen if it will descend into a recession.
Recessionary signals & impacts
Purchasing manager's index, the freight index, the unemployment rate, and GDP estimates are some of the indicators Lyn is using to predict the possibility of a recession.
Global impact of a recession can affect the value of the US dollar and provide relief for other countries.
The impact of a recession may be different this time because it has affected higher-wage workers more and may not be reflected in unemployment claims data as quickly.
Bitcoin & macro outlook
Lyn believes $BTC will be higher than it is now, but not at all-time highs.
Lyn is excited to see the work of the companies she plans to invest in.
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