Fed, Yield Curve, Honey Pot

Fed & Yield Curve

The Fed raised rates yesterday to 5.25% for what will likely be its last rate hike. It’s hard to see what would push the Fed to increase rates even further from here. The next CPI report will be out on May 10th followed by June 13th. The slow monthly periodicity is not helping, but that’s what the Fed uses.

Meanwhile, First Republic failed and was sold to JPMorgan. PacWest’s failure is imminent as are many other banks. Even Schwab is likely to see intense negative pressure in the coming weeks. There’s no reason to hold cash in a bank when money market funds pay 4.5% – 5%.

This interest rate expense is an enormous budget item for the US government, especially ahead of the debt ceiling debate. If rates don’t come down, annual interest expense will soon be over $1Trillion, or more than the $800B defense budget. If you exclude social security, which operates within a separate channel, interest will soon be the largest US government expense.

The Fed does not want to cut rates for credibility reasons, but the bond market has already moved on. What I mean by “moved on” is that almost all of the rates on the yield curve peaked months ago and are now slightly trending down. The Fed can keep raising rates, but the rest of the curve is heading in its own direction. Discount rates depend more on the rest of the yield curve and less on the Fed funds rate.

The Anti-Terrorism Bitcoin Honeypot

To protect their financial supporters, the terrorist organization Hamas has announced they no longer accept Bitcoin. All transactions on Bitcoin are visible via the public blockchain. Anyone can anonymously start a Bitcoin wallet, but the transactions are public.

Recipient wallets are often shared publicly. In the Bitcoin ransom hacks, hackers provided their Bitcoin address in order to receive payment, outing themselves and anyone who has ever transacted with that address. When the Hamas organization publicly states, “Send your bitcoin to our wallet at 3FZ… to support us”, they are also identifying themselves and leaving permanent trails of breadcrumbs to their partners.

Over the next few years, it will become increasingly transparent who those partners are based on historical blockchain data. This has happened before in a disturbing story covered in detail by Wired. Arrests have been made years later, powered by incriminating financial evidence left on publicly available blockchain data. Bitcoin could become the world’s largest criminal honey pot – something that lures in criminals only to incriminate them later on.