TheBRRR’s Thoughts

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Fed Chair J-Powell eased nervous markets on Wednesday by assuring the world that it was very unlikely the Fed would raise interest rates before first cutting them.

He then revealed that the Fed balance sheet would remain higher for longer, announcing that they would reduce it by no more than $25B/month (down from $60B/month) starting in June.

Markets rose.

The dollar fell.

Then we go the jobs report this morning.

Unemployment came in higher than expected. New jobs added came in lower for April. They revised February and March’s data significantly, painting the employment market as weaker than previously reported.

Stocks and risk assets have taken the totality of the data this week as a reason to surge, evident by the Nasdaq’s 4% bounce from its Wednesday low.

Bitcoin started the week under immense pressure falling through a key psychological level of $60k and all the way down to $57k before Powell spoke, but has since recovered back above $61k this morning.

Most altcoins moved lower with bitcoin on the heels of an ugly month of April, but many have recovered faster than bitcoin on the bounce back higher this week.

BRRR portfolio crypto assets SOL and WIF have outperformed BTC on most timeframes and we continue to expect much higher prices across tech and crypto in the coming months.

Dovish Fed & Weak Jobs Data Send Stocks & Risk

WHAT HAPPENED:

1. Federal Reserve and Treasury Actions:

   • Goldman Sachs highlights the Federal Reserve's continued dovish stance despite acknowledging persistent inflation issues. Fed Chair Jerome Powell emphasized upcoming disinflationary trends and the central bank's commitment to supporting the economy.

   • The Federal Open Market Committee (FOMC) plans to slow the pace of balance sheet reduction starting June, reducing the monthly cap on Treasury runoff from $60 billion to $25 billion.

   • Treasury Secretary Yellen announced minimal changes in Treasury General Account levels and a strategy to manage future financing needs through T-Bill issuance rather than long-term bonds, easing market absorption pressures.

2. Market Reactions and Global Trading Trends:

   • U.S. traders have taken the Fed's dovish pivot more seriously compared to their international counterparts, resulting in a more pronounced dovish repricing of Fed rate expectations during U.S. trading hours. This diverges from the hawkish sentiment seen in non-U.S. hours which has contributed to a rise in yields.

3. Jobs Report and Economic Indicators:

   • April's jobs report was significantly weaker than expected, with only 175,000 jobs added—marking the largest miss since December 2021. This was accompanied by a rise in the unemployment rate from 3.8% to 3.9%.

   • Government hiring slowed sharply, and the report's silver lining was job gains in health care, social assistance, and transportation and warehousing sectors.

   • Average hourly earnings growth also decelerated, suggesting easing wage pressures.

WHY IT MATTERS:

• Economic Outlook and Policy Implications:

  • The Fed's dovish policies, despite high core PCE levels, indicate a strategic focus on nurturing economic growth and stabilizing financial markets, particularly emphasizing liquidity and managing inflation expectations.

  • Slowing job growth and wage increases could ease concerns about an overheating economy, potentially influencing future policy adjustments to prioritize economic stability over aggressive inflation targeting.

• Market Dynamics and Investment Trends:

  • Investors might see an opportunity in risk assets as the Treasury's approach to financing eases long-term bond market pressures, and the Fed’s policies continue to support market liquidity.

  • The distinction in rate expectations and market reactions between U.S. and international traders underscores the geopolitical nuances influencing financial markets, potentially guiding investment strategies focused on time zone-specific trading patterns.

• Government and Fiscal Strategy:

  • Minimal changes in Treasury strategies and the cautious approach to fiscal management reflect a delicate balancing act in government policy to support economic recovery without triggering market instability or inflation spikes. This could shape longer-term economic conditions and government budget priorities.
    
    Zerohedge, CNBC

Coinbase Beats Earnings, Stock Fizzles After Huge Run

WHAT HAPPENED:

• Coinbase Earnings Report:

  • Coinbase reported a significant earnings beat for Q1, with earnings per share at $4.40, up from a loss last year and 3x higher than consensus estimates. This growth was driven by a strong rebound in Bitcoin and overall crypto market interest.

  • The stock is up 29% YTD and 90% from the the YTD low set in February.

  • Revenue for the quarter reached $1.64 billion, a 111% increase year-over-year, surpassing analyst expectations of a 76% increase to $1.36 billion.

  • Transaction revenue particularly surged, with consumer transactions nearly doubling from the previous quarter and institutional transactions showing a substantial rise.

  • Subscription and services revenue also exceeded forecasts, largely fueled by blockchain rewards and increased custodial fees due to new U.S. spot bitcoin ETFs.

  • The launch of Coinbase's Ethereum Layer-2 scaling solution, Base, has significantly impacted the company's performance in the first quarter of 2024. Base contributed $56m to quarterly revenue.

• Analyst Reactions and Stock Performance:

  • Analyst opinions were mixed post-earnings. While some analysts upgraded their price targets citing the company's adaptability in varying market conditions, others expressed concerns over regulatory challenges and the dependency on volatile crypto market conditions.

  • Despite a positive earnings report, Coinbase stock saw a slight decline in early trading, reflecting the ongoing sensitivity to broader market and regulatory dynamics.

WHY IT MATTERS:

• Market Dynamics:

  • Coinbase’s performance highlights the continued maturation and integration of cryptocurrency services into mainstream financial markets, underscored by significant transaction and custodial revenue growth.

• Investor Sentiment and Regulatory Landscape:

  • Regulatory challenges, particularly with the SEC over staking services, pose a significant risk to Coinbase and similar platforms, potentially impacting future operational and revenue strategies.

• Crypto Market Influence:

  • The performance of Coinbase is tightly linked to the crypto market's dynamics, as evidenced by its revenue correlation with crypto price movements. This dependency suggests that while the company can capitalize on market upswings, it also faces heightened risks during downturns.

IBD

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll