Billionaire Ray Dalio says the US government’s big fiscal push could cause the economy to overheat and the dollar to fall

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Ray Dalio.

Ray Dalio, founder of the hedge fund Bridgewater Associates, spoke about inflationary risks, dollar devaluation, and investing in China on Tuesday at The Wall Street Journal’s “Future of Everything Festival.”

The US government’s massive stimulus spending raises the risk of inflation and could debase the dollar due to large amounts of money put into the system, Dalio said.

President Joe Biden’s $1.9 trillion stimulus package, along with his $2 trillion American Jobs Plan risk forming a bubble, with money overflowing in the economy, Dalio said. He suggested such risks should be carefully balanced, and “productivity” is essential to prevent the economy from overheating.

The hedge-fund manager believes stock markets are in a bubble that isn’t being driven by debt.

“There’s two types of bubbles,” Dalio said. “There’s the debt bubble when the debt time comes back, and you can’t pay for it, and then you have the bubble bursting. And the other kind of bubble is the one where there’s just so much money and they don’t tighten it as much, and you lose the value of money. I think we’re more in the second type of bubble.”

Dalio has been a long-time admirer and advocate of China. He has previously said the country isn’t perfect, but should be “open-mindedly assessed based on evidence.”

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Ethnic Uighur demonstrators take part in a protest against China, in Istanbul, Turkey October 1, 2020.

He rejected the idea that China’s repression of largely Muslim minorities in the province of Xinjiang should influence investor decisions.

“I don’t really understand, and I don’t study the human-rights issues. I follow what the laws are on those particular things,” he said, and added that the US too has human-rights concerns. “Would I not invest in the United States because of those?”

The billionaire also touched upon Robinhood and its popularity among retailer investors. Having previously expressed concern about the GameStop saga being a product of wealth inequality, he suggested the trading app is a progressive step for the investing world.

“It’s information. It allows you to play the game. And there’s nothing like doing it in amounts you can afford,” Dalio said. “It’s a real plus, but it has some drawbacks, too.”

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US futures soar and global stocks climb as investors cheer huge Apple and Facebook earnings

Apple CEO Tim Cook
Apple CEO Tim Cook.

US stock futures climbed sharply on Thursday in the wake of blowout earnings from Apple and Facebook, and after the Federal Reserve promised to keep up its support for the economy.

Nasdaq 100 futures jumped 1%, boosted by the big-tech earnings. S&P 500 futures rose 0.67% while Dow Jones futures climbed 0.43% as investors also mulled a major speech by President Joe Biden on his taxing and spending plans.

Booming iPhone sales helped Apple’s profit more than double and revenue soar in its latest fiscal quarter, year on year. The company’s shares rose 2.82% in pre-market trading after it announced a $90 billion share buyback program.

Facebook’s revenue also jumped, helped by soaring advertising prices. Its shares rallied 7.04% in pre-market.

The Federal Reserve’s latest interest rate decision added to the good mood in the market. The Federal Open Market Committee held interest rates near zero and pledged to keep buying bonds at a pace of $120 billion a month.

And Fed Chair Jerome Powell signaled that the central bank would keep up its support for the economy, despite the outlook brightening, saying: “We’re a long way from our goals.”

The dollar index fell after the decision and press conference, standing at 90.65 on Thursday, down more than 2.7% in April.

In the bond market, the yield on the key US 10-year Treasury note fell on Wednesday, but picked up again on Thursday morning to stand at 1.647%. Yields move inversely to prices.

“The Fed maintained their very dovish policy stance overnight despite acknowledging the robust US economic recovery at the start of this year,” Lee Hardman, currency analyst at Japanese bank MUFG, said.

“The lack of any hawkish policy shift last night from the Fed has encouraged an extension of the bearish US dollar trend that has been in place this month.” Low US interest rates tend to make dollar-denominated investments less attractive, which weighs on the currency.

Asian and European stocks climbed on Thursday, supported by the Fed and a raft of strong earnings. China’s CSI 300 rose 0.88%, while Japanese markets were closed for a public holiday.

Europe’s Stoxx 600 was up 0.49% in early trading, boosted by strong earnings from consumer goods company Unilever and oil major Shell.

Oil prices – which boosted Shell’s results – rose for the third day on Thursday. The improving outlook in many of the world’s biggest economies supported the market, despite the raging pandemic in India.

Brent crude oil climbed 0.58% to $67.16 a barrel, while WTI crude climbed 0.58% to $64.23 a barrel.

Investors were also weighing President Joe Biden’s Wednesday night speech to Congress, in which he laid out his plan to boost spending and raise taxes to support the US economy.

Biden proposed higher taxes on companies and the rich to pay for a big expansion of the social safety net. He said: “It’s time for corporate America and the wealthiest 1 per cent of Americans to pay their fair share. Just pay their fair share.”

Stocks initially fell when Biden’s plan to raise taxes on investments were first reported last week, but have since recovered strongly.

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Coinbase’s $100 billion valuation should be about 80% lower, New Constructs CEO says

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Coinbase is the largest cryptocurrency exchange in the US.

  • New Constructs CEO David Trainer said his calculations point to a valuation of $18.9 billion for Coinbase, well below the estimated $100 billion.
  • Coinbase is set for a direct listing on the Nasdaq on April 14.
  • Coinbase faces the risk of competitors driving down their fees in the young cryptocurrency market.
  • See more stories on Insider’s business page.

The potential $100 billion valuation of Coinbase Global ahead of the cryptocurrency exchange’s trading debut is “ridiculously high,” said New Constructs CEO David Trainer, with an outline from the veteran stock analyst including his view that the company’s profitability faces the risk of being slashed.

Coinbase is set for a direct listing on the Nasdaq exchange on April 14. This week, the San Francisco-based company estimated a more than 800% jump in first-quarter revenue to $1.8 billion from a year earlier but noted that it is “very difficult to accurately forecast” revenue going forward because of market volatility.

“Even though Coinbase’s revenue surged over the past 12 months, the company has little-to-no chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion,” said Trainer in a research note from New Constructs released Friday.

Coinbase is currently the largest cryptocurrency exchange in the US by revenue, and its platform offers access to Bitcoin, Ethereum, and Litecoin, among other digital currencies.

Coinbase is a standout among companies with recent IPOs because it makes a profit, said Trainer, with core earnings rising to $317 million from about $17 million in 2020 year-over-year.

But overall, Trainer said his “calculations suggest Coinbase’s valuation should be closer to $18.9 billion — an 81% decrease from the $100 billion expected valuation.”

Among Coinbase’s risks is competition as the cryptocurrency market matures, and that could lead to transaction margins at the company to fall “precipitously.”

He pointed to sharp competition in late 2019 between brokerages over stock-trading fees and said such a “race-to-the-bottom phenomenon” is likely to emerge among cryptocurrency exchanges.

“Competitors such as Gemini, Bitstamp, Kraken, Binance, and others will likely offer lower or zero trading fees as a strategy to take market share,” he said. Also, if traditional brokerages begin offering customers the ability to trade cryptocurrencies, that would “most certainly cut down on the unnaturally wide spreads in the immature cryptocurrency market.”

He said, for example, if Coinbase’s revenue share of trading volume fell to 0.01%, which is equal to traditional stock exchanges, its estimated transaction revenue in the first quarter of 2021 would have been just $35 million, instead of the estimated $1.5 billion.

“The crypto markets are very young and we expect many more companies to compete for the profits Coinbase enjoys today,” Trainer said.

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Stock futures extend gains and yields rise after March jobs report outstrips expectations

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  • S&P 500, Dow and Nasdaq-100 futures each rose Friday after data showed the US economy added 916,000 jobs in March.
  • Long-dated Treasury yields also rose after the report beat expectations of 660,000 jobs.
  • The stock market will reopen and trading will resume on Monday.
  • See more stories on Insider’s business page.

Stock futures extended gains and Treasury yields rose Friday after a larger-than-expected addition of 916,000 US jobs in March underscored expectations the world’s largest economy continues to recover from the COVID-19 crisis.

The moves in futures and government bonds took place during the Good Friday holiday. Full equity trading will resume on Monday and the bond market will close early on Friday, at 2 p.m.

Dow Jones Industrial Average futures were up by 180 points and popped up as much as 218 points, or 0.7%, after the Labor Department released its monthly jobs report. Dow futures had been up by 0.2% just before the data arrived. S&P 500 futures rose 0.5% and Nasdaq-100 futures tacked on 0.4% after pre-data gains of 0.3% each.

Economists surveyed by Bloomberg had expected, on average, nonfarm payrolls to climb by 660,000. The latest report also included upward revisions in January and February for a combined addition of 156,000 jobs.

“The equity market party is in the early stages as the US will likely add between 500,000 and a million jobs over the next few months,” wrote Edward Moya, a senior market analyst at Oanda, in a Friday note. “US stocks will remain attractive, but that could change quickly if Treasury yields start to surge again.”

Friday’s gains in stock futures suggested that Wall Street could see more record highs on Monday. The S&P 500 on Thursday powered through the 4,000 mark for the first time after President Joe Biden late Wednesday outlined an eight-year infrastructure plan to invest in upgrading and modernizing transportation systems, roads, bridges and broadband, among other items.

In the bond market, the benchmark 10-year Treasury yield rose to 1.70% as prices fell. The yield was at 1.68% before the March data. The 30-year Treasury yield also rose, to 2.357% from 2.328%. Bond yields have been climbing this year as investors price in expectations for further economic growth and higher inflation to accompany the expansion.

The US Dollar Index also gained ground, up at 93.04 from 92.86 before the payrolls report.

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Oil tumbles 8% as uneven vaccine rollout threatens demand prospects

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Workers extracting oil from oil wells in the Permian Basin in Midland, Texas.

  • Brent and West Texas Intermediate oil futures each fell by 8% during Thursday’s session.
  • Rising COVID-19 cases in Europe are hurting demand prospects for oil.
  • A rise in the US dollar was also putting pressure on the commodity.
  • See more stories on Insider’s business page.

Oil prices were sharply knocked down Thursday, hurt in part by a dimmer outlook from Europe as the region battles rising COVID-19 cases counts and a sluggish rollout of vaccinations to curb the spread of the disease.

Brent oil, the international benchmark, extended its run of losses into a fifth session and West Texas Intermediate crude was in its sixth consecutive session in the red.

“Europe is struggling with COVID. Their pickup in crude demand is likely to lag the Americas and it’s probably going to really threaten a lot of hopes that we were going to see a big pickup this summer,” Ed Moya, senior market analyst at Oanda, told Insider on Thursday.

Brent oil fell 8% to $62.52 barrel and WTI fell by 8.3% to $59.25 per barrel.

Several European countries were recording a rise in coronavirus infections, prompting France on Thursday to declare new lockdown measures in Paris while Italy this week imposed movement restrictions.

Oil prices found no relief Thursday from the European Medicines Agency’s ruling that AstraZeneca‘s coronavirus vaccine developed with Oxford University is safe to use. The review came after several European countries suspended the vaccine’s use following reports of blood clots in some people who had been injected with the formula.

Meanwhile, oil was under pressure in the wake of the Federal Reserve’s policy meeting on Wednesday during which it upgraded its growth projections for the US economy.

“You have a stronger dollar which has emerged from the surge in Treasury yields, which is also weighing on commodities as well,” said Moya. The US Dollar Index rose 0.5% to 91.87.

The 10-year Treasury note yield note yield surged past 1.7% on Thursday, marking a fresh 14-month high and the 30-year yield rose to 2.5% for the first time since August 2019. Higher yields tend to make the greenback more attractive to holders of other currencies.

While the outlook for European oil demand looks weakened by the COVID crisis, there are still expectations for stronger oil demand from the US with vaccinations on the rise, said Moya.

“It’s going to be a very busy summer travel season and I think jet fuel demand will also bounce back. We haven’t seen airlines really increase their flights…but once we start to see that, that’s going to be very positive for the demand forecast.”

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US growth prospects may overtake investor risk appetite as the biggest factor driving the dollar, says HSBC

US dollar bill
  • The US dollar surged after Friday’s jobs report that outstripped expectations.
  • The dollar’s jump indicates a “US exceptionalism” theme is growing in influence, says HSBC. 
  • HSBC said its work points to the potential of a floor under dollar selling is being formed. 
  • Visit the Business section of Insider for more stories.

The US dollar immediately jumped after Friday’s blowout US jobs report for February. HSBC says that the move suggests prospects for US economic growth — or a theme of “US exceptionalism” — rather than risk appetite, are beginning to gain influence over the direction of the greenback.  

Risk appetite, or RORO, — the investment bank’s shorthand for “risk on-risk off” — was the dominant influence over the dollar throughout 2020, leaving the safe-haven greenback down relative to other currencies. But the battle during 2021 has turned “finely balanced” following hints that the US exceptionalism theme that stokes dollar buying and strength appeared to be growing in sway. 

“One of the key aspects of the dollar is normally ‘the trend is your friend’. And, of course, if that trend is ebbing or that momentum is not what it used to be, it’s causing a little bit of head-scratching and maybe an identity crisis for the dollar as to what matters,” Daragh Maher, head of FX strategy at HSBC, told Insider, outlining the bank’s new method of tracking what’s driving the dollar.

“So what we tried to do is say, ‘Let’s be dispassionate and just see how the dollar is actually behaving. What is the FX market telling us?” he said. The new DRIVERS (Dollar Response In Various Economic Release Surprises) signal includes measuring the dollar’s price action for 60 seconds against seven other currencies after an upside data surprise then comparing that with a level recorded a minute before a data release.

“What you’re trying to catch is people’s reflex rather than their more measured assessment,” Maher said before the Labor Department on Friday released its monthly employment report.

Jobs climb, dollar leaps

The report showed the US economy added 379,000 jobs in February, trouncing expectations of 200,000 new jobs. 

“The USD rallied initially after stronger US employment data, suggesting the theme of US exceptionalism is becoming more influential,” HSBC said in a statement to Insider on Friday. 

The rally underscored RORO’s stalled momentum this year in guiding the dollar’s direction. RORO is built on the theme of global reflation and is characterized by broad selling and weakness in the dollar after strong US economic data.

“What’s going on is people are thinking, ‘Hey, the US economy is doing much better, which means the global economy must be doing much better. So I’m going to start buying some riskier assets, which means I don’t need to hold a safe haven like the dollar,'” Maher said.

RORO’s influence last year in weakening the dollar had risen so much that its hold on the greenback tightened to levels not seen since 2013, HSBC said in a March 1 research note. 

Separate from HSBC’s analysis, the widely watched US Dollar Index ended 2020 by sliding 13% from mid-March 2020. That month, the index hit a three-year high on surging demand for dollars as the pandemic accelerated. So far in 2021, the index has gained more than 2%.

But the dollar’s leap after Friday’s jobs reports highlighted that traders were reacting to greater optimism about US growth partly as the US government moves toward unleashing a $1.9 trillion fiscal stimulus package to combat the economic pain inflicted by the pandemic.

Growth prospects, in turn, can fuel speculation about the Federal Reserve’s next move on monetary policy. That perhaps “brings forward that taper conversation again. It brings forward people’s expectations of when US rates might go up,” said Maher. An interest rate hike by the Fed and tapering, or reducing, of the central bank’s bond purchases, could boost the dollar’s value and appeal.

To aid the economy through the coronavirus crisis, the Fed has kept its benchmark interest rate range at 0%-0.25% and has been buying $120 billion in bonds and mortgage-backed securities each month.

Maher said HSBC is not forecasting outright dollar strength this year. “What we’re suggesting is that this shift in relative influence will put a floor under dollar selling.”

The US exceptionalism theme took a brief hold over the dollar early in 2021 after some Fed officials indicated upside data surprises could lead to bond tapering this year. However, other Fed officials, including Fed Chairman Jerome Powell, pushed back against the taper talk.

“Over the next six months or so, we would expect to see some additional modest dollar weakens,” Maher said. “But as the US economy continues to recover — potentially boosted by additional fiscal stimulus – the narrative of Fed tapering and US exceptionalism is likely to become more influential towards the tail-end of this year.”

The DRIVERS signal tracks the dollar’s performance against the euro, the Japanese yen, the British pound, the Australian dollar, the Canadian dollar, the Swiss franc and the Mexican peso. HSBC tracks 30 data constituents of its US Economic Activity Surprise Index for DRIVERs.

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US stocks set to hit new highs while oil soars as US jobless claims beat expectations and economies show signs of recovery

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Oil prices have jumped, with investors expecting a strong rebound in demand as economies recover.

US stocks were on track to rise to all-time highs Friday at the end of a stellar week in which the S&P 500 had already risen about 4% and was heading for its strongest weekly gain in three months.

Signs the US and other economies are recovering from the latest round of coronavirus restrictions have also boosted oil prices to one-year highs, as the demand outlook brightens.

After the index climbed more than 1% on Thursday, S&P 500 futures inched 0.28% higher on Friday. Dow Jones Industrial Average futures rose 0.29%, while Nasdaq futures climbed 0.22%.

China’s CSI 300 rose 0.17% overnight, finishing the week in the green, as the strong economic recovery outweighed worries over rising short-term credit costs. Japan’s Nikkei 225 jumped 1.54% on upbeat earnings and stimulus hopes.

Read more: Investors are flocking to trade Dogecoin and other hot digital tokens on Voyager, a platform with no Robinhood-style restrictions. Its CEO says Bitcoin will hit $100,000 this year – and shares 3 other cryptocurrencies to watch.

The Europe-wide Stoxx 600 index rose 0.42% in early trading, while the UK’s FTSE 100 climbed 0.11%.

Investors have been pulled in different directions in recent weeks. Hopes that vaccines and stimulus will power a strong recovery in 2021 have clashed with short-term economic pain and a day-trading frenzy that shook markets at the end of January.

But better-than-expected economic data from the US has sparked new optimism that the recovery will be a powerful one.

Figures released Thursday showed that new US unemployment claims fell last week for the third week in a row – to 779,000 – and factory orders rose more than expected in December.

The Bank of England on Thursday cut its short-term growth forecasts because of January’s lockdown. But it said the country’s speedy coronavirus vaccine rollout “should help the UK economy recover rapidly later this year.”

Adding to the general mood of optimism, Democrats in Congress are powering ahead with plans to pass a $1.9 trillion stimulus package without Republican approval.

Investors’ attention Friday will be on the official monthly US employment report, due at 8:30 a.m. ET. Economists at Daiwa expect a modest 50,000 increase in payrolls, following a 140,000 decline in December. Yet they said in a note that recent data suggested the figure could be better than expected.

Oil prices have soared this week as the economic outlook has brightened, with investors betting demand will rise. Brent crude was up 1.12% on Friday morning to $59.66 a barrel, its highest level since last February. Brent has gained more than 7% this week, its largest weekly increase in a month. West Texas Intermediate crude was 1.42% higher at $57.03 a barrel.

Read more: A top-ranked manager at a firm that handles $50 billion in wealth told us 4 ways investors could smartly play day-trading favorites like GameStop without risking it all

“With inflation sentiment rising in the US, partially due to higher government borrowing, adding a tailwind to the economic recovery, the conditions still remain supportive for oil markets,” said Jeffrey Halley, a senior market analyst at the currency firm Oanda.

The dollar index slipped back from its highest level since December. It was last down 0.16% to 91.39.

A strong pound, after the Bank of England suggested negative interest rates were not likely anytime soon, added to greenback weakness. The pound was up 0.21% to $1.37 on Friday after jumping Thursday.

US bond yields were little changed. The yield on the 10-year Treasury note was roughly flat at 1.139% but continued to trade near its highest level since March, reflecting stronger growth and inflation expectations. Yields move inversely to bond prices.

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