Reflecting on a Turbulent March and Notable Events
The Fed and Interest Hikes:
This year's March madness took on a new meaning as investors grappled with market fluctuations and fresh uncertainties stemming from a regional banking crisis. The collapse of SVB, Silvergate, and seizure of Signature Bank by the FDIC made this one of the most uncertain economic months of the past few years. The March FOMC meeting showcased a prudent yet resolute Fed, implementing a 25 basis point rate hike while maintaining dovish forward guidance that hinted at the approaching end of the rate hike cycle.
More than a year into the tightening process, the Fed has increased rates by 4.75%, entering a restrictive phase, and financial conditions have noticeably tightened. Over the past year, the housing, manufacturing, and market sectors have all undergone corrections. Additional tightening in lending standards due to banking system stress appears poised to further hinder economic growth and inflation while mitigating the likelihood of additional rate hikes.
Although the probability of a U.S. recession has risen given these factors, the risk profile for markets is becoming more balanced. Moving forward, monetary policy should pose less of a challenge for stocks. Economic indicators are trending positively, and the deceleration in inflation, wages, and activity should become increasingly evident in the upcoming months. Furthermore, should the outlook deteriorate, the Fed could relax monetary policy, potentially offering significant support to financial markets.
In Other News
the cryptocurrency market has experienced notable developments. The anticipated Arbitrum airdrop made headlines (at the time of writing it sits at $1.38 while Bitcoin briefly surpassed $29,000 before retracing its gains (currently at $28,404).
CFTC Files Lawsuit Against Binance and Executives for Multiple Violations, SBF, and Trump in legal trouble
Changpeng Zhao
The Commodity Futures Trading Commission (CFTC) has recently initiated a civil enforcement action against Changpeng Zhao, the CEO of Binance, and three Binance-affiliated entities for multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations. Samuel Lim, Binance's former chief compliance officer, is also charged with aiding and abetting these violations.
The lawsuit, filed in the U.S. District Court for the Northern District of Illinois, alleges that Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited collectively operate the Binance digital asset trading platform, alongside several other corporate entities, as part of a deliberately complex common enterprise with Zhao in control as the owner and CEO. The defendants are accused of willfully ignoring the relevant provisions of the CEA while pursuing a strategic approach to regulatory arbitrage for their commercial advantage.
As the litigation against the defendants progresses, the CFTC is seeking disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction to prevent any further violations of the CEA and CFTC regulations. This legal action emphasizes the increasing scrutiny of digital asset trading platforms and the importance of compliance with regulatory requirements.
Sam Bankman-Fried
CBS News reports that Sam Bankman-Fried, who was arrested in the Bahamas last December and later extradited to the United States, now faces a total of 13 charges, including conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act. The indictment states that in early 2021, Chinese authorities froze certain Alameda crypto-trading accounts, containing roughly $1 billion in cryptocurrency, on two of China's largest exchanges. SBF has claimed not-guilty.
According to the indictment, Bankman-Fried knew that the accounts were frozen as part of an investigation into an Alameda trading counterparty. After several unsuccessful attempts to unfreeze the accounts through legal and lobbying efforts, the 31-year-old allegedly agreed to direct a multimillion-dollar bribe to resolve the issue. Court documents reveal that Bankman-Fried and others aimed to regain access to the assets to fund further Alameda trading activity and secure business for themselves and the company.
The indictment states that the bribe payment, worth approximately $40 million in cryptocurrency at the time, was transferred from Alameda's main trading account to a private wallet in November 2021. The frozen accounts were subsequently unfrozen around the same period.
Donald Trump
In a historic development, a Manhattan grand jury has indicted former President Donald Trump on over 30 counts related to business fraud, marking the first time a current or former U.S. president has faced criminal charges. Trump is scheduled to appear in court on Tuesday.
Though the charges have been filed under seal and their details are not yet public, Manhattan District Attorney Alvin Bragg's office has been investigating Trump's alleged involvement in a hush money payment scheme and cover-up related to adult film star Stormy Daniels, dating back to the 2016 presidential election. A source told CNN that a witness provided around 30 minutes of testimony before the grand jury voted to indict Trump.
The indictment's announcement will undoubtedly send shockwaves throughout the country, pushing the American political system into uncharted territory as it grapples with the consequences of an ex-leader facing criminal charges while also running for president.
Trump responded to the indictment by calling it "Political Persecution and Election Interference at the highest level in history" and predicting that it would backfire on President Joe Biden. He also expressed surprise at the grand jury's decision, having initially anticipated an indictment but later believing that it would be delayed.
Manhattan D.A.'s Office has contacted Trump's attorney to coordinate his surrender for arraignment on the sealed indictment. Further guidance will be provided when the arraignment date is confirmed.
Bright Side
The investment landscape continues to present opportunities however. Bonds can furnish portfolios with appealing income and some capital appreciation when the Fed ultimately reduces rates. While prioritizing quality is crucial, history demonstrates that equity markets generally perform well in the 12 months following the conclusion of a tightening cycle, as illustrated in the accompanying chart. Meanwhile, silver has been performing well, with insufficient supplies and its tendency to outperform gold during periods of high inflation acting as key drivers bolstering its outlook.
El Salvador's President Proposes Bill to Eliminate Taxes on Tech Innovations
Last thursday, the President of El Salvador Nayib Bukele announced he'd be submitting a groundbreaking bill to Congress aimed at fostering technology innovation within the country. He officially submitted that bill today and the proposed legislation seeks to eliminate all taxes, including income, property, capital gains, and import tariffs, on various technology innovations such as software programming, coding, app development, and artificial intelligence. Furthermore, the bill encompasses the manufacturing of computing and communications hardware.
This bold move by the Salvadoran government is designed to stimulate growth within the technology sector and attract both local and international talent and investment. By creating a tax-free environment for tech innovation, El Salvador aims to become a regional hub for cutting-edge technological development and establish itself as a major player in the global tech industry.
If the bill is passed by Congress, it could result in a significant boost to the country's economy, generating new employment opportunities and promoting the development of a skilled workforce in the field of technology. Moreover, this initiative has the potential to enhance El Salvador's global competitiveness and encourage collaboration between local and international companies, fostering a thriving ecosystem for technological advancements.
As the world increasingly embraces digital transformation, the proposed tax incentives in El Salvador represent a forward-thinking approach to nurturing a burgeoning tech industry. It remains to be seen whether this legislation will be approved and successfully implemented, but if it does come to fruition, it could set a precedent for other countries seeking to foster innovation and economic growth within their technology sectors.
In the End
While clear skies may not be on the horizon just yet, the potential for calmer waters after a stormy March could lend support to balanced portfolios throughout the remainder of the year. Stay up-to-date with the latest market updates and gain valuable insights by following Acquire.Fi. Don't forget to join us on Twitter Spaces every Monday, Wednesday, and Friday at 5PM EST (9PM GMT) as we navigate the ever-changing investment landscape together and uncover new opportunities to help grow your investments.