What’s on the Menu 🍴

The markets (and economy) have everyone on edge lately…

And we think this week can offer some insight into what’s going to happen over the next 6-12 months.

So buckle up, here’s what we’re serving up for you today:

• What's Behind Bitcoin's Steep Decline? 📉

• High Interest Rates: The Good & The Bad 🔺🔻

• What To Watch This Week 👀

• 4 Surprising Facts About High-Yield Savings Accounts 💰

Today’s newsletter is a 5 minute read.

What's Behind Bitcoin's Steep Decline? 📉

Bitcoin's been making headlines, and not for its usual moonshot.

After almost two months of consolidation around $30k, it took a 15% nosedive last week.

Now, while we might be tempted to just shrug it off as another crypto hiccup, this little tumble might be spilling some beans about investor’s appetite right now.

Here are some contributing factors to the price plunge:

• Rising long term bond yields

• Stock markets correcting

• Headlines about China’s real estate implosion

• And the knee-jerk reaction to “news” of SpaceX selling their bitcoin

The Good News: Buyers showed up to stop the selling over the weekend at the major support level at $25,000.

The Big Question: Will investors keep buying dips in Bitcoin AND the S&P 500 as they’ve been doing so far this year?

At the moment, both stocks and bitcoin sold off together.

In other words, they’ve been fairly correlated.

Bitcoin’s leading the way: Bitcoin reached its major support level of $25,000 before the S&P 500 has reached its major support level of $4,200.

So far this year, BTC has been making breakouts to the upside, and crashes to the downside ahead of stocks.

So, if we see more folks "buying the dip" in Bitcoin, it might just be the tea leaves telling us there's still appetite for those roller-coaster assets like crypto and stocks.

But here's the kicker: We really need to gauge investors’ appetites with these higher interest rates…

Since high interest rates typically make risk assets less attractive.

Line in the sand: We’ll be paying close attention to market open today to see if bitcoin (and stocks) are going to hold this key $25k support, or if we’re shifting back into an extended bear market.

After all, we’re less than a year away before the next bitcoin block reward halving, which is typically a huge catalyst for higher crypto prices.

Now, more on those pesky interest rates…

High Interest Rates: The Good & The Bad 🔺🔻

We’ve been talking about the tug of war between good and bad economic data all year.

After an uncertain start to 2023, we now have more clarity after 2nd quarter earnings.

We know companies are boasting better than expected earnings, and seeing better profit margins quarter-over-quarter.

The big question: How long can consumers keep spending money?

Here’s something we’ve discussed on the We Talk Money podcast that many might be ignoring:

Higher interest rates could be a form of stimulus for savers.

This leads us to the theme of the past few years: Bifurcation.

We’ve had our fair share of winners and losers since 2020.

Higher Interest rates are adding to that “bifurcation”:

• Higher rates are terrible for variable debt holders (think credit cards and home equity lines of credit), or people looking to buy a new home.

• But higher rates have been quite the financial boost for people with money saved up and healthier balance sheets.

This means potentially thousands of dollars on someone’s savings in a year!

And we know from bank earnings that consumer balance sheets are still generally better off than pre-pandemic.

Bank Of America (BAC): They showed us in their Q2 earnings that checking deposits and interest bearing deposits (non-checking), are still above pre-pandemic levels even after a drawdown in savings.

We also heard from JP Morgan (the biggest bank in the U.S.), who mentioned that what’s happening with the consumer is more of a normalization versus a deterioration.

So, even though we’ve seen a drawdown in savings, it appears that interest bearing deposits are still holding strong compared to 2019.

This leads us to high interest rates being a form of “stimulus” for savers.

Money has been POURING into money market funds since the pandemic… especially as rates have risen.

So, here’s the formula:

1. Excess cash that the consumer has accumulated from fiscal policy (moved into interest bearing accounts)

   +

2. Interest rates paying more than the inflation rate

   +

3. Real wages (after accounting for inflation) rising

   =

   Great for savers!

Our take: It’s essential we watch this. Particularly the flow for money market funds going forward - and how that flow affects stock market prices!

We can agree the saying “it pays to save” is true in a post zero-interest rate world.

The looming question: Will savers benefiting from higher interest rates be able to offset the pain it causes debt-holders.

What To Watch This Week 👀 

All eyes will be on Nvidia’s Q2 earnings report this week. Expectations are through the roof given the AI hype cycle and NVDA’s 191% year-to-date stock returns.

Based on continued reports of high end GPU shortages, we doubt it’s time to bet against Nvidia despite growth expectations up in the stratosphere.

On the macro side, nothing will be more closely watched than comments coming out of the annual central banker symposium in Jackson Hole on Thursday & Friday.

We expect Jerome Powell will make the case for interest rates staying high for awhile longer, but there’s also a decent chance he could open the door for rate cuts in 2024.

Beyond those items, we’re keeping an eye on the following this week:

• Existing home sale data in the US (Tuesday)

• Durable Goods orders (Thursday)

• Earnings reports in the retail and software sectors

• Crypto price action

• Long term bond yields

• Stock prices in rate-sensitive sectors such as homebuilders & regional banks

We’ll bring you all the critical insights this week here at the Daily Dough!

4 Surprising Facts About High-Yield Savings Accounts 📺 

High-yield savings accounts are the best place to park your cash.

Here are a few traps to avoid AND strategies to help you make more money on your savings!

Delicious Bites 😋

• Inflation is basically GONE less shelter

• Sketchy trusts might get wealthy people in trouble

• A summary of the bull case for CROX stock

• Did OpenSea just kill their own platform?

• Social selling is changing EVERTHING

Food For Thought 🧠

"The stock market is a device for transferring money from the impatient to the patient.”
- Warren Buffett

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.