Bitcoin is not digital gold, says Investor Radovan Vávra – Nach Welt

What is the main cause of the fall of the US S&P 500 index?

What we are now seeing in the US market is actually a living example of a page one investing textbook. The Fed is raising rates, and this is raising the price of lending to banks and virtually all those in the economy. And as interest rates go up, so do mortgage payments and credit card repayments. These two factors then push down the disposable incomes of American households. And if the consumer has less money, he will spend less money and companies will sell less goods. This, of course, is reflected in the profits of companies and their market valuation.

But why are the shares of technology companies falling in particular?

Because we use a discounted cash flow model to evaluate them, which in this case returns the worst results. That’s pure math. The key metric is the discount factor that reduces the present value of future payments. And because the discount factor corresponds to the interest rate in the economy, when interest rates go up, the present value of future payments decreases. In other words, the more markets expect interest rates to rise, the lower the future valuations of technology companies are pushing.

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But the Fed is expected to raise rates in March at the earliest and perhaps only by half a percentage point. So why is such a huge correction coming now?

The problem is that markets are always looking ahead. The Fed has not raised rates yet, but the bond market has long expected that. And he expects them to rise three to four times this year. In addition, when the economy is overheated, the Fed can raise rates indefinitely, and that is why everyone is completely nervous now. If the Fed copies the bad policy of the Czech National Bank, it will cause a recession in the United States. The bond market suggests that this is a real possibility.

So what further development do you expect?

Development cannot be expected. We have to wait for the development to happen. The whole market has been waiting for the development I have described. Everyone is afraid of the recession, because if it comes, it will be long and painful and it will be a terrible mistake for the Fed. If the central bank jumps through this hellish round, the markets will calm down and return to growth. But we won’t be able to confirm that until around the summer. All the financial results that the big American companies will announce this week will not move with that.

Do you dare to guess what the Fed will announce at the end of its meeting on Wednesday?

I suppose the governors see the situation in exactly the same way, and they could already indicate the direction the Fed will take. If they stay with the hawkish rhetoric of recent times, then it will be for Armageddon markets. But I don’t think it will happen. I believe that central bankers are aware of what is at stake, and the rhetoric will be more neutral to dovish. A bis von combined with the good results of the American giants could help the markets. However, 2022 will be the year of the financial monkey and everyone must prepare to fly it up and down.

Is the current decline in US stocks related to the fall in the value of cryptocurrencies?

Definitely. Bitcoin unmasked this, showing that it was not digital gold, but that it was behaving like a technology stock. That’s why he got so badly trained, and until the foundation changes, he’ll keep going.

The value of cryptocurrencies decreases.  Bitcoin has hit the lowest price since last August

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