GM. This is Milk Road, the newsletter that knows explaining why macro is so bearish while Bitcoin seems to be starting a new bull market is more of a struggle than a struggle bus going uphill in a snowstorm.
Here’s what we’ve got for you today:
- ✍️ Macro remains risk off.
- 🎙️ The Milk Road Show: Bitcoin's Bull Market Is Only 8.5% Complete - The $400K Scenario Explained.
- 🍪 China goes onchain.
Today’s edition is brought to you by The Flyover, because keeping up with the world shouldn’t take you all morning. Get the biggest stories delivered free every morning.
Prices as of 2:00 p.m. ET. Powered by CoinGecko.
MACRO REMAINS RISK OFF
The scoreboard: Our Milk Road Macro Index ticked up from -1.05 to -0.93. That’s progress, sort of. The index is still firmly in CASH at 0% exposure, so think of it as moving from the back of the waiting room to the middle of the waiting room.
There’s a catch, though.
All of that +0.12 improvement came from one place: the bond market calming down. Stocks didn’t rally more broadly, and the real economy didn’t get any stronger. Bonds just took a deep breath once markets decided an October Fed pause is basically a lock.
Which, like, thank God lol.
Bonds calmed down (a little)
Something I’ve been writing about in the last couple of Macro Monday newsletters is a disturbance in the financial force.
There’s been an awkward gap between how nervous the bond market is (the MOVE index) and how relaxed the stock market is (the VIX). The question has been: would that gap close because stocks got scared, or because bonds chilled out?
Now we know: bonds chilled out. YAY!
The MOVE fell from 107.29 to 98.47 while the VIX sat still at 14.84.
Don’t pop the champagne yet. Markets priced in a skip, not a stop, and the Fed has been very clear that December hikes are still on the table.
As you know, on the table is the scariest place for hikes to be.
That caps how calm the bond market can get. It also means the +0.52 improvement in financial conditions (basically, how easy it is to borrow money) is fragile by design.
One hawkish Fed comment could undo it. A stiff breeze of a hawk's wing. A gentle dash of hawkish sauce. A distant screech of hawky talky.
Anyway, you get it. It’s a delicate situation.
Two pillars, two tales
All of this means that the Milk Road Macro Index’s two pillars couldn’t disagree more right now:
- The economy is crushing it. Jobless claims are holding at 197,000, near 57-year lows, and consumer spending is up 6.2% year over year. People have jobs, and they’re spending. Rejoicing, etc.
- The market is… not. Market momentum sits at -0.68, growth impulses fell to -0.44, and breadth (how many stocks are actually joining the rally) slipped to -0.81. Both are heading the wrong way. Actually, breadth is historically bad to the point that a lot of analysts are worried the market is cooked just from that data point alone.
In plain English: The rally is running on just two letters: AI.
The oil crisis that won’t conclude
Then there’s the Strait of Hormuz closure.
Like an idiot, I pointed out to our PRO community that oil seemed to finally be moving through the Strait again. Then, almost immediately this weekend, multiple tankers were attacked, and it seems like chaos is breaking out again.
As long as that oil chokepoint stays shut, it keeps feeding the worst macro cocktail there is. They call it stagflation. Weak demand plus rising prices.
That leaves the Fed stuck. Ease up to help growth, and you pour fuel on inflation. Stay tough on inflation, and you squeeze a growth picture that’s already soft. There’s no clean exit, and that’s why market momentum can’t make a lasting comeback even with the economy looking strong.
Seems like Warsh has a classic boondoggle on his hands. I don’t know what a boondoggle actually is, but I feel like this is probably a classic one.
WHO HAS TIME TO READ ALL THIS NEWS?! 🗞️
War in Iran. $6 diesel. Space Weapons. Canada + the EU. And now AI is gonna kill us sooner than we thought.
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INFLATION DATA DROPS TOMORROW
The September CPI report drops Tuesday. It could impact both the economy and the market at once IF:
- Core CPI at +0.2% for the month: Inflation stays on track, and the Fed gets its cleanest window to confirm the pause. That’s the best shot at the bond market calming down even more and holding onto the financial conditions gain.
- Core CPI at +0.3% or higher: Inflation starts drifting toward neutral on the economy side while bond yields jump back up on the market side. Both pillars start eroding together, and that’s the scenario to fear.
Wen risk-on?
To climb back to CAUTION, the Milk Road Macro Index needs to get above -0.50. That means market momentum has to flip, and that still takes one of two things. Either a clear end to the Fed’s rate-hiking cycle, or the (f%*#ing) Strait of Hormuz reopening. Frfr this time.
Tuesday’s CPI is the only thing on the near-term calendar that can move either needle.
Otherwise, I think we gotta wait until after midterms to get some life back into the markets and continue the bull market.
But, John, what about Bitcoin?
So glad you asked.
Meanwhile in crypto…
While the macro model and equities markets are hiding under their desks, Bitcoin and crypto are low-key vibing.
They’ve been holding up well despite a Fed that won’t commit, an oil chokepoint that won’t open, and a stock rally running on fumes. It’s starting to look a lot like the early innings of a new bull market.
When macro looks this messy, crypto is usually one of the first things people sell. This time it’s mostly shrugging it off. If crypto can show this kind of strength in a backdrop like this, imagine what happens when the Fed finally signals it’s done, or when the tankers start moving through Hormuz again.
The macro says wait. Crypto doesn’t seem to be waiting for anyone.
Personally, I view this as the last gasp of FUD before a breakout confirms the start of a new bull market.
Once it’s clear to everyone that crypto is back in a bull market, Bitcoin might already be over $100K.
So now is the time to stay safe, stay educated, and stay bullish.
If you want to see how I and the other Milk Road PRO analysts are positioning for this, you can join Milk Road PRO today for just a buck and see all of our portfolios, updates, and trades in real time.
CALLING ALL CRYPTO NERDS 🥛
If you wake up and check Bitcoin before the weather, spend too much time on Crypto Twitter, and can actually write, we might have a job for you.
Milk Road is looking for a crypto-focused writer/content creator to join the team.
BITE-SIZED COOKIES FOR THE ROAD 🍪
The GMGN Global Championship starts October 16: 10 days of live onchain trading, free to enter. The champion takes home a custom Aston Martin.*
China goes onchain: The CPC Central Committee and State Council published a plan on Oct 9 for a national blockchain network to build out digital infrastructure.
Pearl is up 7x since late August: It’s a Bitcoin-style L1 that swaps SHA-256 hashing for matrix multiplication, the core math behind AI.
Perps on everything: With the SEC and CFTC now backing perps and DeFi, Bitwise’s Ryan Rasmussen says the goal is every asset in the world trading onchain.
*this is sponsored content.
