As a rule of thumb, regulation is good for established players. It helps the strong get stronger and the big get bigger, by making it harder to break into a space.

Take data privacy rules around e-commerce and social media, for example. On the one hand, the big players in e-commerce and social media don’t like these rules. They are burdensome, expensive, and add to the cost of doing business.

On the other hand, the giants think these rules are great, because new competitors can’t afford to abide by them. When you have to spend tens of millions of dollars per year, or even hundreds of millions per year, on lawyers, data protection, and server compliance, your scale-based business is protected by a regulatory moat made out of headaches and expenses. Nobody can afford to follow you.

There is a comparable thing happening in cryptocurrency. The cryptocurrency space is not “the Wild West” anymore. Regulatory bodies are increasingly enforcing their authority in the space, punishing lawbreakers and threatening violators with rules and jail time.

This is the digital equivalent of state and federal marshals riding into California gold-rush towns. If you are running a crypto-related business outside the boundaries of compliance — or if you lack the necessary licenses — you are at significant risk of being called out and shut down.

This is good news for Bitcoin, though, because Bitcoin is far and away the dominant cryptocurrency, in a class all its own. Bitcoin is not too big to fail, but rather too big to stop. No government has the reach, or even the unified political will, to shut Bitcoin down.

This wasn’t always the case. For quite a while, Bitcoin was fragile enough to be vulnerable to regulatory action. But the monetary authorities of the world did not act quickly enough to stop it.

You may remember how government bodies in the United States and Europe reacted to Libra, the cryptocurrency project launched by Facebook. The regulators’ attitude was essentially, “Kill it with fire.”

Opposition to Libra was so vocal and visceral it bordered on hysterics. That is because, by the time Libra arrived, regulators had realized the potential implications of Facebook offering a form of global money, accessible to billions of people, in competition with sovereign fiat currency.

If government regulators had recognized the potential of Bitcoin earlier on, they would have had a reaction much like the Libra reaction. They would have gone out of their way to strangle Bitcoin, shutting down exchanges and imposing crackdowns before the Bitcoin network proliferated worldwide.

And now, as Bitcoin builds on its embedded global advantages, it enjoys the advantages of being a one-off incumbent.

No competitor cryptocurrency will follow the path of Bitcoin, in part, because Bitcoin already has a 10-year head start — it takes time to build insurmountable network effects — and in part because government authorities won’t let the Bitcoin phenomenon happen again.

This explains why Bitcoin shrugged at a press release from the U.S. Department of Justice (DOJ) on Oct. 8 announcing a new “Cryptocurrency Enforcement Framework.” U.S. Attorney General William P. Barr said the following in the second paragraph of the release:

“Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society. Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies. I am grateful to the Cyber-Digital Task Force for producing this detailed report, which provides a cohesive, first-of-its kind framework for those seeking to understand federal enforcement priorities in this growing space.”

The release then cited FBI Director Christopher Wray, who added:

“At the FBI, we see first-hand the dangers posed when criminals bend the important technological promise of cryptocurrency to illicit ends. As this Enforcement Framework describes, we see criminals using cryptocurrency to try to prevent us from ‘following the money’ across a wide range of investigations, as well as to trade in illicit goods like criminal tools on the dark web. For example, the cyber criminals behind ransomware attacks often use cryptocurrency to try to hide their true identities when acquiring malware and infrastructure, and receiving ransom payments. The men and women of the FBI are constantly innovating to keep pace with the evolution of criminals’ use of cryptocurrency.”

The Cryptocurrency Enforcement Framework is a hefty 83 pages. You can access it here via DOJ website.

In their zeal to highlight the illegal uses of cryptocurrency, the DOJ and FBI seem to conveniently forget that good old cash — the stuff we all hold in our purses and wallets, or used to anyway — has long been hard to trace and used for secretive transactions.

Nonetheless, the enforcement efforts moving forward are likely to be real and substantial, and many weaker cryptos will be splattered like bugs on a windshield.

We literally saw this coming years ago. In 2018, as we laid out the foundations of a bullish Bitcoin case to Decoder subscribers, we simultaneously warned that the so-called “privacy” coins, and other crypto assets designed to skirt government laws, were an invitation to get busted.

Bitcoin, though, will do just fine — as we first explained years ago — because the Bitcoin use case does not depend on self-styled libertarians protesting against “the man” or criminal transactions in the low four figures.

Instead, the future of Bitcoin — as a sovereign store of value, an inflation hedge, and a global reserve asset on par with gold — is well above board and out in the open, in full compliance with all legal norms.

To put it another way, Bitcoin will not go head-to-head with the existing financial system. It will transform it from the inside out.

The adoption of Bitcoin as a corporate treasury asset — as we recently wrote about with Square — is a clear example of this.

At first, U.S. corporations are likely to hold a single-digit portfolio percentage of Bitcoin, as a fiat currency inflation hedge, while continuing to hold the vast majority of their reserves in fiat-denominated assets. But over time, as the performance of Bitcoin gets better — and the performance of fiat gets worse — the average percentage allocated to Bitcoin will grow larger.

Another milestone we anticipate — and this could happen a year from now, or it could happen tomorrow — is the announcement from a small country’s central bank that, in addition to gold and fiat reserves, Bitcoin has been added to the sovereign reserve mix.

This is the pathway to Bitcoin’s full maturity as a global reserve asset, and it has nothing to do with illegal activity at all. If anything, government enforcement actions to clean up the cryptocurrency space will help speed up Bitcoin’s path to dominance, in the same way top-down law enforcement efforts in California gold-rush towns made them more desirable places to live. 

In terms of cryptocurrency investments other than Bitcoin, the key thing to remember is that, if your preferred crypto asset is dodgy or sketchy, or appears to be skirting compliance rules in any way, there are real and rising risks to consider.

The crypto space is being forced to grow up. This is sad, in a way, but also necessary to achieve world-changing scale. Trillion-dollar industries don’t scoff at rules; they help shape and create the rules.

Taking the government head-on is like picking a fight with a 1,000-pound gorilla. It doesn’t make much sense, and never really did.

It is possible, though, to grow strong and powerful in the shadows, sheltered by obscurity for a number of years — and then to challenge the authorities indirectly, in a way they can’t stop. That is what Bitcoin did.

It’s also important to remember that the specific authorities being challenged by Bitcoin — the ones whose power is under threat — are not the Department of Justice or the FBI, but rather the U.S. Treasury and the Federal Reserve — the stewards of the world reserve currency. Bitcoin is an opt-out mechanism for out-of-control debt creation and fiat currency dilution, and a form of peaceful protest against mismanagement of sovereign assets. Those functions can comply with DOJ and FBI guidelines just fine.

And with Bitcoin on a path to institutional adoption at scale, muscular expressions of regulatory enforcement action — like the DOJ’s “cryptocurrency enforcement framework” — will only help it now, by removing questionable competitors and cleaning up the “Wild West” crypto space. 

If you haven’t bought Bitcoin for the first time yet, the odds are good that you will. The question is whether you will do it sooner — and be glad that you did — or do it later and wish you had acted much earlier.

Bitcoin is not just an investment opportunity, like a stock that investors can own or choose not to own. It is the future of money, and the ultimate store of value, in a world where the fiat-based system is breaking down and going away.

In 1971, President Richard Nixon shut the gold window, delinking the U.S. dollar and gold. As a result of that action, U.S. treasury bonds became the de facto replacement for gold.

U.S. Treasury bonds are dying now, thanks to a negative real yield outlook as far as the eye can see. The fiat-based monetary regime that Nixon initiated in 1971 is dying, too.

The flipside of this reality is Bitcoin, which is nicknamed “digital gold,” but in many ways does the job of gold even better than gold itself. Bitcoin is easier to buy, easier to store, and easier to transport than gold. It is more divisible, more secure, and more scarce than gold.

All of this means that, while gold has a bright future — as bond yields turn negative and fiat currencies get debased at hyperspeed — the future for Bitcoin looks even brighter.

This is why Michael Saylor, the founder-CEO of MicroStrategy said the following earlier this year:

“I considered investing our treasury in fiat, bonds, stocks, swaps, index funds, options, real estate, commodities, precious metals, art, & intangibles before settling on Bitcoin. It seems like the ideal long-duration asset.”

The lion’s share of Bitcoin supply is in the hands of investors who hold it, rather than flip it or trade it. According to crypto analyst Yassine Elmandjra, 63% of circulating Bitcoin supply has not moved over the past year.

The willingness to hold onto Bitcoin, and not sell it, is directly tied to Bitcoin’s use case as a store of value and a long-term inflation hedge. Entities that purchase Bitcoin for the sake of hedging exposure to fiat currency assets will have no reason to sell if the price of Bitcoin doubles, or quadruples, or quintuples.

If anything, a stratospheric rise in the Bitcoin price — if coupled with fiat currency erosion — would inspire inflation hedgers to buy even more, as their fiat-denominated bonds see inflation-adjusted losses.

In light of all that, an Oct. 8 announcement was big news: Square, a publicly traded payments processor, purchased $50 million worth of Bitcoin.

Square revealed the purchase of 4,709 Bitcoin with the following statement on Twitter:

“Square believes cryptocurrency is an instrument of economic empowerment and provides a way to participate in a global monetary system, which aligns with the company’s purpose.”

It was big news when MicroStrategy, a company worth $1.6 billion, announced on Aug. 11 a switch to Bitcoin as its main corporate treasury asset.

But the announcement from Square — a company worth $83 billion as of this writing — could be a Bitcoin game-changer on a whole new level, for multiple reasons.

• The corporate treasury announcement from MicroStrategy could possibly be dismissed by other corporate financial officers (CFOs) as a one-time quirk. A follow-on message from another publicly traded company, this one roughly 52 times bigger, is impossible to ignore.

• Square is a Silicon Valley heavyweight. Square’s co-founder and CEO, Jack Dorsey — who is simultaneously a co-founder and CEO of Twitter — is one of the most visible tech leaders in the world. This greatly increases the odds that other Silicon Valley companies will follow Square’s lead in considering Bitcoin as a corporate treasury asset for a small percentage of holdings.

• Social validation is a key driver of institutional behavior. A breakthrough level of social proof, via Square, could accelerate Bitcoin’s uptake as a corporate treasury asset, with early adopters in Silicon Valley leading the way.

• Shortly after announcing the $50 million Bitcoin purchase, Square released a white paper explaining how they did it. (You can access the white paper here.) As a top-tier payments processing company, Square is not just pointing other CFOs in the right direction; it is showing them how to walk the path.

As a general rule of thumb, CFOs are risk-averse. The main job of the CFO is not to invest for capital appreciation, and certainly not to speculate. Instead, the CFO makes sure the company has cash on hand for day-to-day operations, while safeguarding against liquidity issues and financial risks.

As a general rule of thumb, CFOs are risk-averse. The main job of the CFO is not to invest for capital appreciation, and certainly not to speculate. Instead, the CFO makes sure the company has cash on hand for day-to-day operations, while safeguarding against liquidity issues and financial risks.

In this sense, the risk-averse nature of CFOs is a positive for Bitcoin. That is due to the rising risk profile of U.S. dollars and U.S. Treasury bonds, which comprise the vast majority of corporate treasury assets.

The logic here is simple: If a company has 100% of its reserve assets in dollars and dollar-denominated bonds, that company is exposed to inflation risk — via loss of purchasing power — as the value of dollar-denominated assets gets eroded by currency creation.

If the company has, say, 1 to 5% percent of its assets in a dollar alternative — like Bitcoin — then inflation risks are reduced. If the dollar loses a substantial amount of value over multiple years, Bitcoin is likely to see its value increase by many multiples of what the dollar lost.

This means Bitcoin functions as a low-cost insurance policy when held in conjunction with a large pool of dollar-denominated assets. Better still, Bitcoin can work as a form of inflation insurance that can generate a substantial positive return on investment.

As more corporate CFOs realize this, they will come to understand that owning zero Bitcoin is a riskier proposition than owning at least a modest percentage. The CFO whose treasury holdings are 100% dollar-denominated is taking a bigger risk than, say, the CFO whose holdings are 97% dollar-denominated assets and 3% Bitcoin. 

Wealthy investors holding large amounts of cash are coming to the same realization.

In a time of accelerating fiat currency debasement, with the Nixon-era system passing into twilight after 50 years, cash and bonds bear substantial inflation risks. A modest Bitcoin allocation is not just a compelling investment opportunity, but a direct means of hedging that risk.

Then, too, there are a fixed number of Bitcoins in the world (though each individual Bitcoin is divisible into 100 million units). The supply of new Bitcoins is mathematically guaranteed to decrease over time, and will eventually hit zero.

From there it is just a matter of supply and demand. A limited amount of supply, coupled with rising global demand — from corporate treasury departments and large institutions, along with individual savers everywhere — mean Bitcoin is headed toward a multi-trillion market cap.

Events like the Square announcement are how it happens. Bitcoin’s journey to becoming a broadly accepted global reserve asset, on par with gold, is no longer theoretical. We are watching it happen before our very eyes.

On Aug. 10, TradeSmith Daily explained two terms every investor should know: Financial Repression and Fiscal Dominance.

To briefly summarize them, financial repression is when a central bank deliberately keeps interest rates low — ideally below the rate of inflation — to inflate away the value of debt. This is a means of coping when a nation’s debt load becomes too large.

Fiscal dominance, which often goes hand in hand with financial repression, is the term that describes what happens when government spending dominates the landscape, and central bank monetary policy is forced to accommodate that spending.

In normal times, central bank monetary policy can focus on stable inflation rates, full employment rates, or other measures that keep the economy running smoothly.

In times of fiscal dominance, the government is spending so aggressively that central bank decision making is dominated by a pressing requirement to manage the flood of new debt (or new currency creation, which amounts to the same thing).

The 2020s will be a decade of fiscal dominance because the U.S. economy is too weak, and too debt-burdened, to stand on its own. If the government fails to keep spending, the economy is at risk of imploding under the weight of all the debt that has already been piled on top of it.

At the same time, millions of unemployed workers who have not had income for months are reaching the end of their savings, and a great many small businesses are maxing out their emergency budgets.

For a sovereign country, fiscal dominance is typically a forced state rather than a voluntary state. Meaning, if a government is forced to spend wildly, with debt levels already high, it is probably doing so to keep the game going and has no other choice.

The U.S. stock market knows this stuff. A complex adaptive system can’t literally “know” something, per se, but the stock market is responding to government spending, or the lack thereof, more than any other variable now.

From a stock market perspective, more government spending (active fiscal policy) is good, because it keeps the game going. A halt in government spending (shutting off the taps) is bad, because it means the U.S. economy could implode, and market liquidity could dry up.

The stock market remains bullish, with the major U.S. indexes pushing to multi-month highs this week, because it expects the spending to come — if not before the election, then not too long after.

In the past few weeks, we’ve seen exactly how government spending, or the lack thereof, is driving the economic narrative. This also applies to the stock market, as we can more or less observe in real time.

• When it looked like another big round of fiscal stimulus was coming, as negotiated between House Speaker Nancy Pelosi and U.S. Treasury Secretary Steven Mnuchin, the market was happy about that.

• When President Donald Trump tweeted his intention to outright cancel the talks prior to the election — a bizarre move — the market instantly tanked (as noted earlier this week).

• But then the president seemed to quickly change his mind, tweeting about airline bailouts and the Payroll Protection Program (PPP) funding later that evening, and the market decided he was blustering or bluffing.

On Thursday, the market surged higher, confident the taps were still open — and the president confirmed the market’s instincts.

“Within a day of tweeting that he was calling off bipartisan talks for a coronavirus stimulus deal,” Axios reported on Thursday, “President Trump phoned House Minority Leader Kevin McCarthy and indicated he was worried by the stock market reaction and wanted a ‘big deal’ with Speaker Nancy Pelosi…”

So now the market is hopeful for near-term stimulus — and even if nothing is done immediately, the market seems increasingly confident that heavy government spending will occur in 2021, under a unified Democrat consensus via “Biden Sweep” (the scenario where Democrats control the White House, the Senate, and the House of Representatives).

The idea that regime change in Washington could be bullish for stocks is confusing to some investors, who are used to thinking of Democrats as pro-labor and thus anti-stock market. The New York Times caught the flavor with a recent article headline: “Wait, Wall Street is Pro-Biden Now?”

We would say no, actually, Wall Street is just pro-government spending, because spending means lots of new liquidity, some of which will inevitably slosh into markets.

If a flood of new currency is pumped into the economy via new congressional spending, and better yet “helicopter dropped” directly into consumer wallets, the stock market boom can continue.

Monetary policy alone can’t always rev up economic activity. This is because, to get things moving, either the banks have to lend, or consumers have to spend — and ideally both should occur.

Without seeing credit creation via new lending, and money moving through the system via consumer purchases and profitable business transactions, monetary liquidity just pools in bank vaults, like stagnant water reservoirs left untouched.

The central bank, meanwhile, cannot force the banks to lend or hunkered-down consumers to spend. They can only encourage the process with cheap money, ample financing, and low interest rates. A lender of last resort has no power if nobody wants to borrow or spend.

Congress, however, is different. When the government chooses to borrow directly, and spend directly or hand out cash, that changes the game.

If an unemployed American with a threadbare bank account gets an extra $2,400 per month in spendable funds, for example, those funds will be used to buy necessities and pay rent. The funds will then flow to landlords and businesses and start moving through the system.

The same holds for small businesses that take government funds. If it is Congress that borrows, and cash is handed out, chances are good the cash will be spent, which then creates monetary velocity as the cash moves through the system. This is why everyone (or almost everyone) wants government spending these days: Interest rates at zero can only do so much.

And for workers and businesses who don’t really need the funds that Congress sends their way, that extra liquidity is likely to wind up in financial assets. That is the part the stock market likes.

When government spending and currency creation get out of control, and the currency winds up in the hands of citizens and businesses that will spend it, rather than banks that won’t lend it, share prices tend to go up.

This has long been true across different countries and historical periods. For example, in the Weimar Germany hyperinflation years, stock speculation was rampant, at least prior to the final stage.

In the window of time where a currency’s value is falling rapidly, but hasn’t yet reached a point of oblivion, nominal equity prices can rise dramatically. For this reason, fiscal dominance can be a market-bullish phenomenon.

This is also a function of attractive businesses holding a store of value, even as the underlying currency sees a steady loss of value.

Say that, over the course of a few disastrous years, the value of the dollar falls 50%. Would that mean, say, the value of Amazon (AMZN) shares (which are priced in dollars) should also decline 50%? The clear answer is no, because that would not make sense.

If Amazon retains attractiveness as a world-class store of value, and the relative worth of the U.S. dollar is cut in half, it would make more sense for Amazon’s shares — which are still priced in dollars — to double as compensation for the currency erosion.

If that sounds weird, try to imagine a 50% fall in the dollar as functioning like a reverse stock split. If it suddenly takes twice as many dollars to buy shares as it did before, then, all things being equal, dollar-denominated share prices should double to make up for it.

It is never quite that simple, but the basic idea holds. Part of the reason that share prices rise when a currency melts down is because, to the degree that underlying companies remain attractive as stores of value, their share prices, which are valued in depreciating currency, should adjust upward.

What this also implies is that, if the stock market goes up in the presence of rampant money printing and heavy government spending, that doesn’t have to reflect a bullish economic outlook.

It might, in fact, reflect a terrible economic outlook, with upward stock price movement an inverse reflection of downward currency movement. It certainly wasn’t a bullish economic outlook that drove the roaring markets of the Weimar Germany period.

If the government sends large sums of currency to households in 2021, and does so without igniting strong economic growth, that could also create “stagflation” — a 1970s-style situation where prices are rising at a fast clip due to shortages and supply-chain gaps, but the economy is still struggling.

But even in that 1970s scenario, there are areas of the market that will do extremely well, and companies that could see their share prices soar.

A key theme here is that, in times of fiscal dominance, Wall Street becomes politically agnostic. The policies still matter and can have very different impacts on different areas of the market.

But in the big-picture sense, in a fiscal dominance era, the markets care much more about government spending — and spending policy consensus versus spending policy gridlock — than they do about which political party controls the levers of power.

The era of fiscal dominance we are now in — which could easily last the whole decade — will reflect government spending activity in the untold trillions, not just in the United States but around the world.

Wall Street just wants the taps to stay open — because oceans of currency sloshed directly into bank accounts will slosh into markets, too — and Wall Street’s biggest fear is seeing those taps shut off.

The stock market has benefited handsomely from the performance of technology juggernauts.

For 2020 year to date, Amazon, Apple, Facebook, and Google have helped the NYSE FANG+ index generate a better than 122% return from the March 18 lows through the Oct. 7 close.

But valuation multiples don’t grow to the sky, and 2021 may not be as kind to the tech juggernauts. Regulatory risk and political risk are rising threats, and could cut into revenues and profits for the Big Four. And in the halls of the U.S. Congress, there are calls for breaking them up.

On Tuesday, Oct. 6, the House Antitrust Subcommittee released a 449-page report titled “Investigation of Competition into Digital Markets.” You can access the report here.

The report concludes an exhaustive 16-month investigation into the anticompetitive practices of Amazon, Apple, Facebook, and Google. The findings are incredibly harsh.

“These firms have too much power,” the report concludes, “and that power must be reined in and subject to appropriate oversight and enforcement. Our economy and democracy are at stake.”

The report further sees “a clear and compelling need for Congress to take action,” and accuses Amazon, Apple, Facebook, and Google of running “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”

The report accuses the Big Four of engaging in “killer acquisitions,” a means of preserving power and stifling innovation by purchasing any competitor that smells like a threat.

To remedy the situation, the report recognizes a roster of actions, including a separation of business lines and a series of mandatory breakups.

The proposals are reminiscent of the 1911 legislation that forced the breakup of John D. Rockefeller’s Standard Oil into dozens of smaller companies, or the breakup of AT&T into the seven “Baby bells” in the early 1980s.

If even a modest portion of the report’s recommendations are followed, it could mean the biggest antitrust push since the government went after Microsoft in the 1990s. The report could also bring about a new era of merger scrutiny, and open the door for additional antitrust actions.

In addition to stifling competition through buyouts, the report focuses on the role of the Big Four as “platform companies,” in the sense that each serves as a platform that smaller businesses make use of.

The report recommendations include restricting a company’s ability to both run a platform and compete in the markets served by that platform. This is a bit like saying that, if you run the biggest bar in town, you can’t own a brewery too, because your beer would have an unfair advantage.

Much of the report’s 449 pages are devoted to an exhaustive rundown of monopolistic behaviors on the part of Amazon, Apple, Facebook, and Google. Of the four, they seem to come down on Amazon the hardest, in part due to Amazon’s competitive relationship with the third-party sellers in its marketplace.

Whether or not the tech juggernauts actually get saddled with new rules — or even subjected to breakup, in the manner of Standard Oil or pre-1980s AT&T — probably depends on the state of political control in Washington.

If Democrats achieve a “Biden Sweep,” for example, with unified control across the White House, Senate, and House of Representatives, the odds rise significantly of seeing follow-through actions with teeth.

Whether or not they get broken up, the proposed remedies for the tech juggernauts’ monopoly power are a threat to their outsized revenues and profits.

The logic here is straightforward: Each of these companies is pursuing a rational path to profit maximization, taking legal advantage of its competitive position as aggressively as possible. Congress wants to shift a chunk of current behaviors and practices from the legal column into the non-legal column, which would hurt both the top and bottom lines.

If antitrust enforcement results in greater levels of innovation, competition, and consumer choice — as arguably occurred with Standard Oil and AT&T — then consumers and investors alike could benefit from reining in the juggernauts.

But in the medium term, the share prices of the Big Four tech companies look vulnerable to rising political and regulatory risk. This is in part because their inflated valuation multiples have an “only game in town” aspect: If Congress succeeds, then almost by definition they won’t be the only game in town anymore, or will otherwise be less able to exploit their dominant platform advantages.

That could mean a downward re-rating in terms of valuation multiples, which could lead to substantial share price declines even if revenue and profit outlooks remain the same.

Given this reality, rising political and regulatory risk makes it all the more important to respect the message of the trend, and to not be complacent if the bull trend in any of these names starts to break down in earnest.

On Tuesday, Oct. 6, President Donald Trump did something mystifying. He tanked the stock market — and created a sense of panic among millions of unemployed Americans and struggling small-business owners — with a single tweet.

Here is how Brian Kilmeade, the Fox News co-host of Fox and Friends, described it:

“For the president to come out with a tweet like that, with the markets still open, just crashed the market and cost people a lot of money.”

For markets, it is rare to have a cause-and-effect result this dramatic. You can see it in the chart below, which shows the S&P 500 index in five-minute increments. (Each bar is a five-minute increment.)

It wasn’t just the stock market that took a hit, with the S&P 500 falling more than 2% between the tweet and the Oct. 6 close. It was all manner of markets, from copper to crude oil to gold, with price convulsions rippling out to stock markets all over the world.

So, what happened exactly? President Trump, via Twitter, said he had canceled all stimulus talks prior to the election. Here is the section that hammered the markets:

“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”

It was then revealed that Trump had ordered U.S. Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows to cease and desist negotiating the terms of a new stimulus bill, which had been narrowed to a range between $1.6 trillion and $2.2 trillion.

Making matters worse, Federal Reserve Chairman Jerome Powell had issued a dire warning earlier the same day.

Failing to step up with more fiscal stimulus could “lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell had said in a speech to the National Association for Business Economics.

“By contrast, the risks of overdoing it seem, for now, to be smaller,” Powell added. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”

The United States, as a country, is basically in full agreement — or as close to full agreement as it gets — that the U.S. economy needs more help.

Last week’s jobs report indicated a slowing recovery, at a time when millions of Americans and millions of small businesses are struggling. At the same time, the eviction threat is rising, food insecurity is at levels not seen since the 1930s, and the unemployment situation is still worse than its worst levels of the 2008 financial crisis.

Ordinary Americans agree, top CEOs agree, and the Chairman of the Federal Reserve agrees: The U.S. economy is not in a normal situation. If anything, the country is still fighting to escape the jaws of a severe recession, or even a depression. There remains a significant risk that, if a critical mass of small businesses are allowed to fail, the economy could be hobbled for years.

The action from President Trump was further mystifying because, on Saturday, Oct. 3, he had tweeted the following from Walter Reed:

“OUR GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE. Thank you!”

Tuesday’s directive to cancel the talks was a total reversal of Saturday’s sentiment.

Political observers were mystified by Trump’s decision to cancel the stimulus talks.

Helping the U.S. economy and the stock market with trillions of dollars in support would seem to be a slam-dunk for an incumbent president less than a month from Election Day.

For decades, Wall Street analysts have assumed that presidential election years are more bullish than other calendar years, with statistical evidence to back the claim. This is likely because, in an election year, the incumbent president is likely to press for helpful policy actions from the Federal Reserve and Congress to shore up the economy and boost re-election efforts.

The stronger the economy, the better it is for the incumbent. The weaker the economy, the better it is for the challenger. This is fairly open-and-shut logic.

Given that reality, nobody could figure out why President Trump wanted to not only cancel the talks, but take public responsibility for doing so. For those who need help — and for investors who suddenly saw their screens turn red — the statement “I have instructed my representatives to stop negotiating” is point-blank ownership of a potential disaster.

On Saturday, the President injected markets with optimism through his pro-stimulus sentiment. Then, on Tuesday, he took that hope away in brutally surprising fashion, with the reversal all the more damaging because it was so unexpected.

Then, Tuesday night — perhaps after an emergency consultation with frantic advisers — the president seemed to change his mind for a third time, tweeting the following:

“If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy?”

In another Tuesday night salvo, Trump also seemed to support a new airline bailout and a new round of PPP (paycheck protection program) small-business support, leaving his position entirely unclear.

As a result of these flip-flops, the stock market and the U.S. recovery have been placed on uncertain ground. At the same time, Trump’s decision to cancel stimulus talks caused vulnerable Republican senators to panic at the prospect of being blamed for the pulling of fiscal help.

Sen. Susan Collins (R-Maine), one of the most vulnerable Republicans in the Senate, said the following in a statement:

“Waiting until after the election to reach an agreement on the next Covid-19 relief package is a huge mistake. I have already been in touch with the Secretary of the Treasury, one of the chief negotiators, and with several of my Senate colleagues.”

It isn’t clear whether the stimulus relief talks will restart, or whether Democrats will respond to the president’s revised offers.

Meanwhile, even as President Trump has freshly ignited “gridlock” fears — the risk of the U.S. government shutting off the fiscal taps — his actions have also made the “Biden Sweep” election scenario an even greater probability, which means investors are starting to anticipate a larger spending round from a Democrat-controlled White House, Senate, and House of Representatives.

There is still a meaningful amount of short-term danger, though, because millions of small-business owners are close to an economic breaking point, if not already there. If they are forced to wait another few months for some form of renewed fiscal relief, it may be too late.

Last week saw so many head-spinning developments, it felt like the space-time continuum might implode as the speed and density of the political news cycle collapsed into a black hole.

So it’s understandable a major crypto-world development got lost in the shuffle.

The U.S. government came down like a ton of bricks on BitMEX, the world’s second-largest cryptocurrency derivatives exchange.

The charges, both civil and criminal, were as serious as it gets. The three BitMEX founders, along with the exchange’s first employee and head of business development, could be facing lengthy prison sentences.

While we don’t want to sound callous, it looks like BitMEX had it coming.

The complaints registered by the Department of Justice (DOJ) and Commodity Futures Trading Commission (CFTC) date back five years, to 2015. Prosecutors cited brazen behavior and explosive comments on the part of the most visible BitMEX founder, Arthur Hayes. With respect to angering U.S. regulators, the anti-regulatory attitudes and actions of BitMEX had the feel of waving a red flag in front of a bull.

Worse still, BitMEX had to know it was playing a dangerous game in offering unregistered trading access to thousands of American customers with a total absence of regulatory licenses and anti-money laundering procedures (AML). Other exchanges — like the world’s No. 1 crypto derivatives exchange, Binance — had taken clear steps to either restrict access for U.S. customers or provide a regulatory-compliant U.S. trading arm, precisely to avoid what is happening to BitMEX now.

From our perspective, the most notable thing about the BitMEX story is the way Bitcoin responded to the news. That is to say, Bitcoin did not react much at all in terms of price change, showing the degree to which Bitcoin is becoming a mature asset that trades independently of explosive developments in the crypto space.

BitMEX, as mentioned, is the second-largest crypto derivatives exchange in existence, and now it may be toast. If the BitMEX story had broken two years ago, Bitcoin likely would have fallen by a double-digit percentage, perhaps losing 20% or more of its value in a single trading session.

And yet, on Oct. 1, Bitcoin lost less than 3% on the BitMEX news, comparable to a run-of-the-mill volatile trading day for the S&P 500. Bitcoin, in fact, responded more to the explosive political news of the past week (which impacted the entire stock market) than to BitMEX specifically.

That was notable, too, because, when the BitMEX charges were announced, roughly 23,200 BTC — worth about $242 million at the time — were withdrawn from the exchange in the space of an hour. For Bitcoin to take that kind of disruption in stride is a positive sign.

So, what exactly happened with BitMEX?

BitMEX was one of the earliest crypto derivatives exchanges, founded in 2014. The firm pioneered breakthrough products like a perpetual Bitcoin futures contract — essentially a synthetic futures contract that never expires — and offered its customers as much as 100X leverage with an automatic risk cut-off.

BitMEX was also brazen in flouting government rules. Hayes bragged in 2015 that Seychelles regulatory officials could be bribed with “coconuts,” which did not reflect well on BitMEX being incorporated in the Seychelles.

BitMEX was also partial to high-profile publicity stunts, like renting three Lamborghini supercars and parking them outside a high-profile crypto conference in 2018.

Worse still, BitMEX seemed content to have thousands of U.S.-based customers without applying for U.S. regulatory licenses or submitting to Know Your Customer rules. The U.S. government sees BitMEX as a money-laundering hub, in part, because the exchange allegedly never filed a single report of suspicious activity in relation to its U.S. customers, and for years made no attempt to vet customers at all.

In its civil portion of the complaint, the CFTC alleged that Bitmex had taken more than $11 billion in deposits and earned more than $1 billion worth of fees, even as they “failed to implement the most basic compliance procedures.”

The DOJ criminal charges relate to alleged violations of the Bank Secrecy Act, and alleged conspiring toward future violations of the Act. Each count, if proven in a court of law, could be worth five years in prison.

One of the BitMEX founders was arrested in Massachusetts. The other founders are still at large. If the DOJ can track them down, it will probably seek to extradite them back to the United States. This is serious stuff.

The BitMEX crackdown is not an existential threat to the crypto space. As with the Securities and Exchange Commission (SEC) crackdown on Initial Coin Offerings (ICOs) in 2018, the government’s actions are a high-profile display of force, and a very public way of saying: “If you ignore the rules, you will regret it.”

It is hard to know what the BitMEX founders were thinking. Other top exchanges, like Binance, bent over backwards to either avoid U.S. customers or offer compliant access. BitMEX, meanwhile, seemed fine with playing regulatory Russian roulette.

We believe Bitcoin will be strengthened by this episode, on the grounds of “that which doesn’t kill you makes you stronger.” The resilience of Bitcoin even as a major crypto exchange is up-ended speaks to the robust nature of rising BTC demand.

The BitMEX enforcement action could, however, have a chilling effect on the red hot “DeFi” crypto craze. DeFi stands for Decentralized Finance, and represents the porting of high-yield lending products from Wall Street into the crypto space.

We have cast a wary eye on DeFi in general, for two reasons: First, because the technology is far from proven — as one person put it, the technological state of DeFi right now is like “trying to fly to the moon in a cardboard box” — and second, because overly aggressive DeFi products are just waiting to get smashed by a regulatory crackdown, just as fast-and-loose ICOs were hit in 2018 (and BitMEX is being hit now).

The U.S. government cannot stop the rise of crypto. On the positive side, it doesn’t seem to want to.

The government does, however, want to aggressively enforce the rules  around regulatory compliance and the hawking of complex financial products. That is not bad news for Bitcoin, and in the long run, it isn’t bad news for Decentralized Finance (DeFi), either.

But it does mean that, as crypto transactions scale and the world of crypto becomes more visible, Wild West attitudes — like the attitude embraced by the BitMEX founders — will have to go away.

When news of the president’s COVID-19 diagnosis hit, in the wee hours of Friday morning, overnight markets reacted with shock and fear.

By the end of the day on Friday, though, the Dow Jones Industrial Average and S&P 500 had mostly recovered, with small caps (via the Russell 2000 index) even turning positive on the day. In Monday’s premarket session, meanwhile, the major indexes were green, if only slightly.

This might seem strange, given the level of uncertainty the country is still faced with. For example, the state of the president’s health remains unclear.

While the Trump administration has said the president could be released from Walter Reed National Military Medical Center as soon as Oct. 5 (today), outside experts have noted that, first, the treatment regimen undertaken by the president suggests a severe case of COVID-19, not a mild one; and second, that premature hospital release is generally not advisable for any COVID-19 patient at risk of sudden relapse. (The virus is known for appearing to go into remission, then roaring back without warning.)

Still, markets have two reasons to push higher in the presence of such uncertainty.

The first reason is improved odds of a new stimulus package prior to the election. The second reason is increased odds of a “Biden Sweep,” in which Democrats take control of both the White House and Senate.

It is not so much that the market is rooting for a Biden Sweep outcome, but rather that a sweep by either party indicates more stimulus and spending (and avoidance of the dreaded “gridlock” scenario).

The likelihood of a near-term stimulus package has risen because of the president himself. On Saturday, Oct. 3, the president tweeted out the following:

OUR GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE. Thank you!

A concerted push from the White House to achieve a stimulus deal tilts the pre-election outcome in favor of agreement, rather than deadlock. It means Republican legislators could be pressured (by the White House directly) to meet Democrats halfway, or possibly even more than halfway, on the modified $2.2 trillion stimulus bill that was ratified by the House of Representatives on Thursday, Oct. 1.

Markets would breathe a sigh of relief at another multi-trillion stimulus package going through, especially in light of Friday’s ugly jobs report (which suggests the economic recovery could be slipping).

At the same time, the odds are increasing of a “Biden Sweep,” in which Democrats retake both the White House and the U.S. Senate.

This would create enough unity among legislators to get substantial spending on the books in 2021, well beyond additional COVID-19 stimulus. Markets would be very happy about this

We can see what betting markets think of the “Biden Sweep” scenario via contract pricing from PredictIt, a site that allows wagers on various aspects of the 2020 election.

The PredictIt chart below shows contract odds for the question: “Will Democrats win the White House, Senate, and House in 2020?”

On Sept. 28, the PredictIt odds of a Biden Sweep were 49%. By Oct. 2, they had risen to 62%, before retreating to 57%.

The change in favor of a Biden Sweep is also due to individual U.S. Senate races, and not just the outlook for the presidential election itself. For example, the shift in expectations for the Iowa Senate race is striking, as the chart shows below.

For much of the year, the incumbent, Iowa Sen. Joni Ernst, was easily favored to beat her unknown Democratic candidate, Theresa Greenfield. But then, after a poor debate performance from Ernst, the positions were reversed. Now Greenfield, the blue line on the chart versus Ernst in red, is a notable favorite to win.

We can also see odds of a Biden Sweep increasingly priced into various industries and sectors, as determined by the market itself.

Green energy stocks, for example, are outperforming heavily, with the Invesco solar ETF (TAN) surging to new heights, as seen in the chart below. This suggests an expectation that trillions of dollars in “Green New Deal” stimulus is coming — an outcome that requires Democratic control.

Meanwhile financial stocks, as evidenced by XLF, the bellwether financial stocks ETF, are still stuck in the mud below their 200-day moving average.

At the same time, fossil-fuel-related energy stocks, as evidenced by XLE, the bellwether energy ETF, are also in a serious slump. Both XLF and XLE would likely be doing better (perhaps much better) if Republicans were expected to maintain control.

The president and the first lady of the United States have tested positive for COVID-19. This is earth-shaking news on multiple fronts. The U.S. now faces a national security crisis.

According to the Centers for Disease Control and Prevention (CDC), eight out of 10 COVID-related fatalities in the U.S. were in patients 65 years or older. President Trump is 74 years old, clinically obese, and is a self-described insomniac, sleeping only four hours per night. These factors put the president in the highest risk zone for COVID-19 complications. 

When Boris Johnson, the prime minister of Britain, tested positive for COVID-19, he was hospitalized within two weeks, and then spent time in an intensive care unit. While Johnson ultimately came through fine, there was a window of time where recovery was far from certain.

If the president of the United States is hospitalized within mere weeks of the 2020 election — a real and serious possibility now — there is no roadmap for what happens next.

The 2020 election cannot be postponed. The timing is constitutionally mandated, and the United States has not missed an election in its 200-plus year history — not even during the American Civil War.

The Supreme Court nomination timeline, and Congress itself, could also be plunged into logistical chaos.

The U.S. Senate is filled with senators at extreme risk for COVID-19 complications. Mitch McConnell, the senate majority leader, is 78 years old. Republican Sen. Jim Inhofe is 85 years old. Republican Sen. Richard Shelby is 86. Republican Sen. Chuck Grassley is 87.

In addition to their advanced age, all of these senators (and many others) may have been in close contact with the president and his staff in recent days, and with Amy Coney Barrett, the GOP Supreme Court nominee who has also been in contact with Trump and his staff.

Barrett completed a meet-and-greet Senate tour just days ago. It isn’t clear yet, but McConnell and others might need to self-quarantine. Barrett herself might need to self-quarantine.

What does this mean for Senate timelines? We don’t know. What would self-quarantine requirements or, worse yet, an announcement of further infections, mean for the Senate’s ability to function? We don’t know.

In related news, Ronna McDaniel, the Chairwoman of the Republican National Committee, has also tested positive for COVID-19, according to reporter Maggie Haberman of The New York Times. “She was last with POTUS last Friday,” Haberman tweeted, “and has been in Michigan since then.”

Did McDaniel transmit COVID-19 to the president? Or was it vice versa, or was the source someone else entirely — like Hope Hicks, one of the president’s most trusted aides, who has also tested positive, and who traveled extensively with the president this week? Again, we just don’t know.

Vice President Mike Pence is almost certainly seeing his routine adjusted dramatically now, as a precautionary security measure, should he need to become acting president. Some are even arguing that Rep. Nancy Pelosi, the majority leader in the House of Representatives, should now self-isolate as a precaution, given that she is third in line if a situation arises where both the president and vice president are incapacitated.

In terms of overall seriousness, we agree with the following analysis from journalist Carl Bernstein, of Woodward and Bernstein fame:

When President Trump tweeted the news, in the wee hours of the morning, that he and the first lady tested positive for COVID-19, global markets immediately reacted with shock. The Dow Jones Industrial Average and S&P 500 fell 1.4%. Crude oil futures fell 3.6%. The Cboe Volatility Index (VIX) rose more than 5%. And last but not least, gold, the U.S. dollar, and U.S. treasury bonds all strengthened modestly.

When those four instruments — the VIX, gold, the U.S. dollar, and U.S. Treasury bonds — all rise at the same time, in relation to the same event, you can be assured the event is very, very serious.

This intensified concentration of political and geopolitical risk, at an incredibly sensitive time, is completely unprecedented for the United States.

In addition to continuity of government issues, with barely a month to go before the most consequential and chaos-prone presidential election in decades, U.S. security officials and the U.S. military need to worry about the heightened possibility of covert action from a hostile state (think Russia, China, or Iran) aimed at leveraging an extreme vulnerability window.

At the end of the day, all of this could turn out fine (and we certainly hope it does). But the stakes are higher than ever now, and crisis conditions have arrived.

As if 2020 didn’t have enough going on, there is a fourth age of human civilization rushing toward us.

The prior three ages were the Stone Age, the Agrarian Age, and the Industrial Age.

• In the Stone Age, humans discovered language, fire, and the use of sophisticated stone tools. This enabled group cooperation and the birth of art and culture.

• In the Agrarian Age, humans learned to grow crops and develop permanent settlements. This led to the rise of towns, cities, city-states, and eventually to nation-states.

• In the Industrial Age, the world’s first steam engine was developed to accelerate the extraction of coal from English mines. The coal provided energy to build more machines, which led to factories and modern manufacturing.

The fourth age, now rushing to meet us, is the Information Age. In this age, the shaping of physical material is being upgraded to the shaping of bits and bytes.

More and more society is being shaped by, and powered by, operations that directly shape information, or directly transmit information. We see it everywhere, from an endless selection of streaming movies on Netflix or Disney+ to “over the air” updates for electric vehicle software. 

The Information Age did not start in 2020. One could argue it was born in 1969, with the arrival of ARPANET (Advanced Research Projects Agency Network, the ancestor of the modern internet). It then passed through a series of milestones, like the arrival of web browsers, the birth of e-commerce, and the creation of coast-to-coast fiber-optic cable networks.

The Industrial Age didn’t come overnight. Instead it built up steam (no pun intended) over a period of decades, changing society in small ways at the margins, until the collective impact of the changes had transformed almost everything. The Information Age has a similar profile, in that multiple decades of groundwork were necessary to really get things moving.

And so, in 2020, it is not that the Information Age is starting, but more that we are starting to feel the acceleration. What began as a slow-moving train, trundling into the future at a pace so slow one could jog alongside it, is becoming a bullet train, moving at hundreds of miles per hour.

That, in turn, means technology developments will start to feel strange — or rather, even more strange than they already did, for those who remember life before smartphones and the internet.

To give a slightly creepy example, Amazon now has a drone-powered camera that can hover up from a base and fly around your house.

The drone is called the “Ring Always Home Cam.” It is offered by Ring, a company owned by Amazon, and is billed as a “next-level autonomously flying indoor security camera.” You can see a 30-second YouTube video of the drone in action here.

It is one thing to talk about drones and their potential impact on society in a far-off type of way. It is another thing to have a kind of robot sentry that buzzes around your house, sending video to a centralized database (or directly to your smartphone).

Another wild development is a discovery from Microsoft: data centers work better on the ocean floor.

Microsoft researchers have discovered that underwater data centers are not only realistic, they are likely to be more reliable and cheaper to run.

The idea is to take hundreds of data servers, or possibly even thousands, and hook them up to server-cooling infrastructure in a water-tight pod resting on the ocean floor.

The surrounding ocean water lowers the cost of running the servers by enabling an efficient heat exchange, using marine energy technology that has already been designed for submarines.

And in terms of reliability, Microsoft”s research department argues that the underwater configuration, which the company has been experimenting with for years now, could be eight times more reliable than servers configured on land.

What this suggests is that, within a decade or so, indoor flying drones of all types — commercial and residential — will be piping endless streams of audio-video data to vast cloud networks, buried in server pods on the ocean floor, running up and down the coasts.

It is too early to say how indoor drones and underwater cloud storage will impact society by way of culture changes, employment changes (jobs created and jobs lost), and the overturning of old ways of doing things.

And yet, we can note these examples are two among many. For example, as more food for thought, what will happen when robot dogs patrol city parks? This is already happening in Singapore, as you can observe via YouTube here. How will policing laws be rewritten to permit the use of robotic force?

As the Information Age accelerates, the pace of change will only become more disorienting, particularly for those who remember the world that came before. It is going to be a while before life feels normal or comfortable again.

Financial conditions are tighter right now than they’ve been in years.

That might sound surprising. After all, the Federal Reserve, and the U.S. government, have taken unprecedented measures in 2020.

The Federal Reserve has expanded its balance sheet by trillions, made a promise to support the corporate bond market, and said interest rates will stay near zero until 2023.

The U.S. government, meanwhile, has spent trillions of dollars on fiscal relief.

And yet, financial conditions are still tight. We can see this by looking at the National Financial Conditions Index (NFCI), a benchmark created by the Chicago Federal Reserve.

To determine whether financial conditions are tight or loose, one has to consider more than just interest rates. There are factors like the total volume of loans being originated, whether borrower requirements are strict or relaxed, how much credit is flowing through the shadow banking system (lenders outside the traditional banking sector), and so on.

The NFCI combines multiple inputs, like the ones described above, to come up with a numeric score. If the NFCI score is above zero, financial conditions are tighter than average. If the score is below zero, financial conditions are looser than average. 

We can see how this works in the NFCI chart below, dating back to 2008.

In the chart, the giant spike in 2008 represents a near-fatal tightening of financial conditions.

That spike came immediately after the collapse of Lehman Brothers, a highly leveraged Wall Street investment bank, at a point when the global banking system teetered on the brink of failure.

At that point, the banks were afraid to lend to anyone, or even transfer funds back and forth, because nobody could tell who was solvent and who was not.

After the 2008 crisis, the NFCI fell below zero, noted by a black line on the chart. This was a result of easy-money policy and the eventual implementation of Quantitative Easing (QE) by the Federal Reserve.

As the chart shows, the U.S. economy has seen an extended run of easy-money conditions that has lasted more than a decade, first kicking off in late 2009.

In 2020, though, the NFCI saw another significant spike as the chart also shows. That was the 2020 COVID-19 crash, coupled with lockdown-related stress on the banking system.

The Federal Reserve and the U.S. government acted immediately after the 2020 crash, responding much more quickly, and with far more monetary and fiscal firepower, than they did in 2008. That response caused the spike to reverse, and financial conditions to immediately loosen.  

Here is the thing, though. As of September 2020, financial conditions are still tighter now than they’ve been for the past several years.

The bright green line on the chart shows a rough ceiling that has held, most of the time, since 2017 on. Today the NFCI is still above that line, showing that looser conditions existed for most of the past three years. 

This is a concern because the U.S. economy is still incredibly vulnerable right now.

U.S. home sales are at a 14-year high — a genuine bright spot for the economy — but U.S. retail store closings hit a record in the first half of 2020, and bankruptcies and liquidations are on pace for a new annual record.

At the same time, mortgage standards have tightened dramatically, reducing access to credit or cutting it off completely for most Americans. Banks are still willing to lend, to some degree, but only to the top tier of borrowers as judged by credit risk.

“Despite another interest rate drop, demand for refinancing and purchasing mortgages fell last week,” CNBC reported today (Sept. 30). This is likely because the pool of qualified buyers is shrinking. Housing demand is strong, but fewer Americans are qualifying for loans.

This is one of the reasons the Federal Reserve feels maxed out in terms of monetary policy impacts. Financial conditions, already tighter than the past few years, could tighten further as more businesses close, more loans go into default, and more Americans see their credit scores drop.

One possible source of market optimism this week was news that House Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows feel “hopeful” about the prospects for a new fiscal package.

House Democrats released a modified plan this week with a $2.2 trillion price tag, and House Speaker Pelosi and Treasury Secretary Steven Mnuchin have resumed negotiations.

If the new fiscal package gets through, markets could take that as a significant positive. If not, though, a persistent tightness of financial conditions could mean more pain ahead.