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Fed's Safety Net: A Game Changer for Market Doomsayers?

EDITOR'S NOTES

Alex Krüger is spinning a tale that’s a bit too cozy with the Fed’s supposed safety net, the so-called ‘Fed put’. He claims the Fed will swoop in to prevent a market crash, pointing to their quick fix during last year’s banking hiccups as proof. But let’s get real: banking band-aids and emergency liquidity pumps are not a sustainable strategy for economic stability. Krüger’s urging us to ignore the ‘noise’ of potential crashes, AI bubbles, and inverted yield curves, focusing instead on a rosy picture painted by falling interest rates and a supposed soft landing. But here’s the kicker: global conflicts or inflation spikes could still throw his optimistic predictions off course. And his crypto cheerleading? Suggesting central banks might stock Bitcoin next to their gold reserves is a leap too far. Betting on the Fed’s magic wand and mainstream crypto adoption as safety nets sounds more like a high-stakes gamble than a sound strategy.

 

(Kitco News) - Those calling for a recession and a market collapse are wrong because the Federal Reserve wants to intervene before that happens, according to Alex Krüger, Economist and Partner at Asgard Markets.

The 'Fed put' is back, Krüger told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. The term ‘Fed put,’ a play on the option term ‘put,’ is the market belief that the Fed would step in and implement policies to limit the stock market's decline beyond a certain level.

"The 'Fed put' was removed from the market in early 2022 when they made it clear that their focus is now on inflation, sending stocks crashing," Krüger said. "Things changed in December when the Fed stated that the risks are balanced to both the upside and downside, and they are focused on jobs just as much as they are on interest rates."

That means that the Fed will intervene if things start to collapse. This was already seen in 2023 during the failures of regional banks, including Silicon Valley Bank, Signature Bank, and First Republic Bank.

In response to the banking crisis, the Fed quickly introduced the Bank Term Funding Program (BTFP) in March 2023, an emergency lending program that allows banks to take on loans of up to one year to boost liquidity.

During last year's banking crisis, there was one surprising asset winner. For insights, watch the video above. The same asset can again benefit if the Fed intervenes to prop up the economy.

Because of the 'Fed put,' the most likely outcome is a soft landing, Krüger pointed out, advising to ignore the noise and focus on the bigger picture when trading.

"A very large percentage of market participants are focused on how expensive things are, how AI is a bubble, how the yield curve inversion has to lead to a major recession and a major crash. My response is that it's noise. And the bigger picture is that we should be focusing on interest rates going down, inflation going down, and liquidity going up," he said.

For insights on how much more upside there is in the stock market, watch the video above. 

However, there are several scenarios that could derail this outlook. "First of all, black swans … armed conflict in the Korean peninsula or China-Taiwan, or conflict escalating between Russia and Ukraine," Krüger said.

Another scenario that could derail the soft landing outlook is an acceleration in inflation. "The outlook should change because the Fed's outlook will change if it happens," he noted.

Take on crypto: Bitcoin, Ethereum, Solana, Worldcoin

In the crypto space, Krüger pays close attention to Bitcoin, Ethereum, and Solana. To get his top crypto picks for 2024, watch the video above. 

The new spot Bitcoin ETFs are attracting new types of investors, pushing prices towards new all-time highs.

BlackRock's spot bitcoin exchange-traded fund IBIT alone saw $1.357 billion in trading volume Tuesday, breaking Monday's record of $1.3 billion, according to Bloomberg Intelligence ETF analyst Eric Balchunas.

Krüger views the introduction of spot Bitcoin ETFs as a way towards mainstream adoption that will eventually include central banks holding Bitcoin alongside gold as a reserve asset.

"At the moment, Bitcoin is an extremely volatile asset that doesn't belong in the reserves of a central bank, but eventually, that volatility will disappear," he said. "We will see new market participants in the Bitcoin options market. Eventually, central banks will adopt Bitcoin as a reserve asset."

To get insights on how that would impact Bitcoin prices and which central banks will likely push the needle the most, watch the video above. 

The next big driver for crypto investors is a potential approval of a spot Ethereum ETF. On timing and chances of that happening this year, watch the video above. 

To get Krüger updated price forecasts for Bitcoin, Ethereum, Solana, Worldcoin, and his other top crypto picks, watch the video above. 

 

This article originally appeared on Kitco News

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