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In this episode, “Bitcoin Bottom Line” hosts Steven McClurg and CJ Wilson sat down to discuss bonds and crypto.
Wilson began by asking McClurg what changes he had seen in the bond market. McClurg said when it comes to bond yields, the Federal Reserve is tightening and making borrowing more expensive. Larger institutional investors should hold some portion of their assets in fixed income securities for safety reasons; therefore, large institutions will drive down the yield of debt-issuing companies that are expected to fail. Sears and Toys “R” Us have survived longer than they should have, while Nordstrom is struggling to keep its doors open and can’t get credit to buy inventory. As the Fed begins to tighten, it increases the size of its balance sheet by continuing to expand the upper buying growth. McClurg thinks the market is finally starting to price in the cut but failed to price in the interest rate hike.
This year, the Fed mentioned three types of interest rate heights, which means it will raise rates in the short term. McClurg predicted that with a 10-year period going to 188, which was previously down about 1%, this will cause corporate refinance rates to limit not paying debt service; which means they cannot afford the interest payments on their new debt, forcing them to continually refinance. McClurg explained that the US government’s Treasury Department sells and buys the bonds. It issues debt to pay for government spending, but no one else buys it, so the Fed has to step in and buy it to keep rates low. If the Fed stops buying it means there is an open market for Treasuries and for debt and market pressure is pushing yields higher causing debt on spending programs is even higher.
Wilson asked McClurg to explain the triangular trade between spending, lending, and servicing debt. With respect to banks and borrowings, there is a federal funds window. This window is the rate at which the Fed will lend overnight to the bank. The bank gets cheap money which it is supposed to lend to its customers for things like cars and mortgages. This led to a rise in housing prices.
The bank’s price is allocated according to its overnight lending window which is put in place by the Fed. McClurg thinks low mortgage prices will go up three and three-quarters, up to 4%, which can be devastating for people. As interest rates fall, insurance companies charge new customers higher premiums to make up for the lack of returns they get. As interest rates fall, premiums rise.
Wilson asked when bitcoin will be allowed in pension plans or charitable funds. McClurg talked about the risks individuals take by investing in bitcoin and other areas. McClurg has a long-term investment mindset that not everyone has. Willson said the value of looking five to ten years ahead while investing. Wilson discussed with McClurg if Barry Bonds is a hall of famer.
Wilson said America leads many countries in bonds and discusses the deterioration of silver around the world. McClurg said many countries are intermingling with American manufacturing. Every country is obligated to follow the dollar, whether it depreciates or not.
The biggest opportunity for China is to have a strong currency that stays strong. There are different mindsets about Bitcoin, depending on location. The independence that comes with Bitcoin defies authoritarian governments, which is why we need it. McClurg thinks people are generally more optimistic when markets go up. Wilson said the best thing to do is to assess all the different things in your portfolio and ask if something should move 10% to 20% below you, will it affect you? such that you had to make a move before it happened. ? People have to decide if they’re going to buy in or get out of something. McClurg and Wilson ended the episode by saying the bond market has spoken, patience is key, and if you’re in space, you gotta build.