What Is Backwardation?

Backwardation of commodities hit the steepest level in nearly 15 years this week, driven by a worldwide shortage of raw materials. Massive stimulus, low-interest rates, and the light at the end of the pandemic tunnel have driven this surge in demand, which is coinciding with the first commodity uptrend in a decade. Metals, agriculture, and the energy markets have all been moved by this historic impulse, which ironically predicts lower commodity prices in the coming months.

Understanding backwardation requires learning three key terms. First, the spot price denotes the current commodity price. Theoretically, anyone can walk into a commodity store and walk out with that commodity at the spot price, which changes over time due to the market forces of supply and demand.  Second, the futures contract denotes an agreement to buy or sell the commodity at a specified delivery date in the future, with contract maturity as short as a month or up to 10 years in the future.

Third, the futures curve illustrates the relationship between the spot price and futures prices. A futures curve is in backwardation when the slope is declining, predicting the commodity price will be lower ‘n-months’ into the future. Conversely, a futures curve is in contango when the slope is rising, predicting the commodity price will be higher ‘n-months’ into the future. This information is so actionable it can be used to gauge market sentiment, in addition to pricing.

What is Backwardation?

Simply stated, a commodity futures contract and spot market enter backwardation when shorter-term pricing is higher than longer-term pricing. As in 2021, this phenomenon can reflect intense short-term scarcity that forces suppliers of these commodities to raise prices at a rapid rate. This is significant because futures with longer maturities have to include inventory carrying and storage costs in addition to fundamentals and market-driven demand estimates.

Backwardation can be short-term (bottlenecks that will soon be eased) or long-term (supply and demand imbalances that persist for months or years). In the current phenomenon, futures traders expect that short-term scarcity will ease as production and supply ramp-up, putting a dampening effect on longer-dated contracts. However, backwardation can also end with futures ramping up to higher prices to match spot prices, generating a nearly perfect storm for rising inflation.

Decade-long cycles drive commodity prices and backwardation may set off warning signs that demand has overtaken supply on a semi-permanent basis, set to generate significant inflationary pressure. However, the curve’s downslope indicates that expectations remain within boundaries, at least in the short-term, reacting to balanced conditions. As a result, those tasked with rate analysis have to watch the futures curve, looking for signs of stress that can translate into higher prices.

Traders seek to profit from backwardation by selling short at the spot price and buying back at the futures contract price. In theory, the practice will eventually restore normal conditions, inducing the spot price to fall until it is lower than or equal to longer-dated securities. Expiration can help or hurt this process, as illustrated during the 24 hour period ahead of April 2020 expiration, when the expiring WTI crude oil contract fell below minus $40 due to a massive short-term exodus.

Contango vs. Backwardation

Contango, also known as forwardation, is the opposite of backwardation.  This market condition occurs when each successively longer-dated futures contract costs more than the next shorter-dated futures contract, generating an upward slope.  For example, when a futures contract rotates on a monthly bases, the price of the July contract will be higher than the price of the June contract, which will be higher than the May contract, and so on. Futures contracts can shift rapidly between contango and backwardation, or get stuck in one state that persists for years.

It is assumed that spot prices will rise to meet futures prices when contango is in effect. As a result, market players will sell short higher-priced futures contracts and attempt to buy back the exposure through spot prices, pocketing the difference. This technique has a self-perpetrating effect, i.e. generating even greater demand that drives the spot price higher until it matches or exceeds futures prices, ending the contango. The expiration date affects this process, capable of generating high volatility when market forces are in conflict.

Interpreting Backwardation and Contango

Traders engaged in backwardation and contango strategies can get trapped when the spot/futures relationship doesn’t follow expectations. As noted above, both imbalances can result from short-term influences or long-term paradigm shifts. In 2021, we’re coming out of a pandemic that disrupted supply chains and forced factories to shut down but we don’t know if supply can ramp up quickly enough to keep futures prices lower than spot prices. We also don’t know if we’re facing a short-term bottleneck or multiyear phenomenon.

Commodity traders keep close watch on other markets for clues about the persistence of backwardation and contango. The bond market is especially useful in this endeavor because it reflects the investment community’s consensus about interest rates along the yield curve. At the moment, this group of ‘traders’ is more bullish about interest rates than the futures crowd, who have chosen  by consensus to keep longer-term pricing at lower levels than spot pricing.

Finally, backwardation is considered to be a leading indicator, predicting that spot prices will be lower in the future. This prognosis works well if suppliers can boost production quickly and bring supply/demand back into balance, but bullish and bearish signals fail when macro events overtake short-term conditions.  Once again, cross-market verification is an absolute necessity to increase futures curve signal reliability and to reduce whipsaws.

Summary

Backwardation indicates the futures curve is falling, with spot markets and short-term futures contracts priced higher than longer-dated contracts. Conversely, contango indicates the futures curve is rising, with progressively higher prices between spot markets and longer-dated futures contracts.  Both market conditions are normal but can sometimes signal significant long-term shifts in market behavior.

Stock Buybacks: Why Would a Company Reinvest in Themselves?

U.S. corporate buybacks are on the rise in 2021 lifting investor spirits after last year’s pandemic dampened activity. While most investors are eager to see how much buybacks may support their investments, some are confused over what they are and how they work, and whether they are actually good or bad for a company’s stock price.

Corporations often buy back large blocks of their stocks typically when share prices are low, but some may choose for other reasons to buy their company’s stock even when analysts believe company shares are overvalued. Whether they buy their shares at cheap or expensive levels, a stock buyback is not always beneficial for individual investors.

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Historic Background

Stock repurchases weren’t always legal per se. After the stock market crash of 1929 and the Great Depression, the U.S. government passed the Securities Act of 1933 and the Securities Exchange Act of 1934 to try to prevent it from happening again.

The 1934 legislation didn’t bar stock buybacks, per se, but it barred companies from doing anything to manipulate their stock prices. Companies knew that if they did a stock buyback, it could open them up to accusations from the Securities and Exchange Commission (SEC) of trying to manipulate their stock price, so most just didn’t.

Tax cuts during the Trump administration made stock repurchases very popular as corporations spent billions on their own stock to reward shareholders and investors. However, corporate executives and insiders have also been accused of taking advantage of the stock buyback boom to sell shares they own to the companies they work for, profiting handsomely. Companies are spending millions or billions of dollars to reward shareholders and prop up their stock prices with buybacks, even if that means laying off workers to do it.

Recently, the Biden Administration announced it was planning on reforming current tax laws. If corporations begin to fear that some of the tax advantages of a stock buyback may be reduced or eliminated then this may encourage companies to become more active in 2021 before the tax changes become law.

What is a Stock Buyback?

A stock buyback, also known as a share repurchase, takes place when a corporation buys its own outstanding shares in order to reduce the number of shares available on the open market.

In a stock buyback, a company repurchases its own shares from the broader marketplace, usually through the open market. That leaves the remaining shareholders with a bigger chunk of the company and increases the earnings they reap per share, on top of the regular dividend payments that companies make to shareholders out of their profits.

Why Companies Perform Buybacks

Corporations buy back shares for a number of reasons such as to increase the value of remaining shares available by reducing the supply of outstanding shares or to prevent other shareholders from taking a controlling stake, sometimes called a hostile takeover.

Another reason for a buyback is for compensation purposes. Companies often award their corporate employees with stock and stock options. This benefits the existing shareholders and board members who are usually paid in stock options.

Pros of Stock Buybacks for Investors

  1. Boost in share prices
  2. Rising dividends
  3. Better earnings per share
  4. Less excess cash
  5. Positive psychology

“With the market being as expensive as it seems, share repurchases could drive the market that much higher,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

“It adds to the Street’s belief that there’s an underlying bid, we’re not in this alone, and someone else is going to support the stock and that’s the company,” he said. “It turns out to be a good thing for share prices. But they run the risk of overvaluing stocks, and it speaks to the broader question about why companies are doing it.”

Cons of Stock Buybacks for Investors

  1. Poor predictions
  2. Sinking dividends
  3. Poor use of capital
  4. Management self-interest
  5. Cover for stock handouts

Larry Fink, CEO of BlackRock, one of the largest investment companies in the world, in 2014 warned U.S. companies to slow down on buybacks and dividends.

“We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns,” he wrote in a letter.

Recent Activity Indicates Companies Leaning to the Pro Side

The rapidly improving economy and stocks at record highs may be fueling a flurry of stock buyback activity in 2021.

Banks have improved their capital positions and should be allowed to continue to buy back their own shares, Treasury Secretary Janet Yellen said in March.

Regulators restricted share repurchases in 2020 for the biggest institutions in the country as a precautionary measure after COVID-19 reached pandemic status. After those banks passed a pandemic-focused stress test in December, the Federal Reserve said it would allow buybacks to resume, though with some restrictions.

Yellen, speaking in March before the Senate Committee on Banking, Housing and Urban Affairs, said she agreed with allowing the share buybacks.

“I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks,” Yellen said. “But financial institutions look healthier now, and I believe they should have some of the liberty provided by the rules to make returns to shareholders.”

They are expected to do just that as the buyback restrictions eased during the first quarter of 2021.

While Yellen see no problem with financial institutions resuming buyback activity, Warren Buffett’s capital-deployment machine pulled back on several fronts at the start of the year as the billionaire took a more cautious stance on stocks.

Berkshire Hathaway Inc slowed its buyback pace, according to a regulatory filing Saturday. Buffett has struggled in recent years to keep up with Berkshire’s ever-gushing cash flow. That’s led him to repurchase significant amounts of Berkshire stock, pulling a lever for capital deployment that he had previously avoided in favor of big acquisitions or stock purchases. He set a record in the third quarter of last year, snapping up $9 billion of stocks, but slowed that pace during the first quarter with repurchases of $6.6 billion.

Berkshire repurchased more stock in January and February than the company did in March when the stock climbed 5.8% according to the filing. Buffett’s long been disciplined on the price of buybacks, noting in 2018 when the company loosened its repurchase policy that he and his longtime business partner and Berkshire Vice Chairman Charlie Munger can repurchase shares when they’re below Berkshire’s intrinsic value.

Despite buybacks that fell short of Buffett’s quarterly record, the billionaire investor has continued to go after Berkshire’s own stock since the end of March, with at least $1.25 billion of repurchases through April 22, according to the filing. And given that Berkshire has no set amount allocated for buyback plans, sizable repurchases are still a nice bit of capital deployment, according to CFRA Research analyst Cathy Seifert.

“The fact that Berkshire allocated over $6 billion to buybacks this quarter is going to be positively received by investors” Seifert said.

What Bloomberg Intelligence Says

“The $6.6 billion 1Q buyback was an expected drop from 4Q, but still significant. Nearly all segments showed accelerated revenue and earnings.”

Share Buyback Plans are Booming

Corporate buyback announcements ‘exploded’ as trading in April wrapped up and that helped push stocks higher, said Vanda Research.

A jump in buybacks should help soften the blow in the U.S. equity market in the event of a drawdown.

“As net equity supply shrinks every dollar invested in the U.S. market will have a larger marginal impact,” said Vanda.

How Does the Fed Measure Inflation?

U.S. Federal Reserve policymakers are expected to stick with its current super-loose monetary policy at its next Federal Open Market Committee (FOMC) meeting on April 27-28, even as the economy strengthens and increasing COVID-19 vaccinations make a return to a more normal life in the United States likely in 2021.

This prediction was easy to make because that is what Federal Reserve Chairman Jerome Powell and his policymakers have told us several times since their last policy meeting in mid-March. In fact, the Fed also added the U.S. economy is going to temporarily see “a little higher” inflation this year as the recovery strengthens and supply constraints push up prices in some sectors. Nonetheless, the Fed is committed to limiting any overshoot.

“We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period,” Powell said.

Those modifiers – “substantially” exceeding 2% inflation or above that level for a “prolonged” period – help to more sharply define the upper bounds of the Fed’s comfort zone as prices rise.

“I would emphasize, though, that we are fully committed to both legs of out dual mandate – maximum employment and stable prices,” Powell said.

Inflation is Rising

Consumer prices shot higher in March, given a boost by a strong economic recovery and year-over-year comparisons. The consumer price index (CPI) rose 0.6% from the previous month but 2.6% from the same period a year ago. The year-over-year gain is the highest since August 2018 and was well above the 1.7% recorded in February. Core CPI, which excludes volatile food and energy costs, increased 0.3% monthly and 1.6% year-over-year.

Later in April, the government will release another report on inflation. It’s called the Personal Consumption Expenditures (PCE) price index and is often referred to as the Federal Reserve’s preferred price index. This report is also expected to rise, but it begs the questions, which inflation report offers a more accurate depiction of price growth and why does the Fed prefer to use the PCE figures?

What’s the Difference between the CPI and the PCE?

The FOMC, which sets the Federal Reserve’s monetary policy, judge’s inflation by the Personal Consumption Expenditure (PCE) price index. While the Consumer Price Index (CPI) looks at what people are buying, PCE looks at what businesses are selling.

The PCE tends to capture a broader picture of spending and contemplates substitution among goods when something gets more expensive – so if the price of bananas goes up, it takes into account that some people will start buying apples instead. PCE doesn’t just measure people’s out-of-pocket costs for health care, it also contemplates what Medicare is paying.

Inflation versus Core Inflation

Another term that gets mentioned a lot is “core inflation”. Both the CPI and PCE are calculated taking overall inflation minus food and energy into account. The government and the Federal Reserve prefer a measurement of inflation that takes out food and energy prices because they are quite volatile, and they can swing based on factors such as oil supply and severe weather. Economists and Fed policymakers prefer to take them out of the inflation equation to get a better sense of what’s going on in the economy.

Example:  March 2021 Consumer Price Index (CPI) Numbers

Earlier this month, March CPI was up 0.6 percent for the month – more than the 0.4 percent increase in February. But Core-CPI was up 0.3 percent. Over the past year, the Consumer Price Index was up 2.6 percent, but the core index increased by 1.6 percent.

Conclusion

Depending on which segment of the economy you’re looking at, you can tell different stories about what’s happening with inflation. But that’s where the Fed comes in. Inflation should not be a concern that keeps you up at night, that’s sort of the goal, from the Fed’s standpoint.

Below, say 2%, consumers generally don’t have to worry about it. Some prices will rise, some prices will fall: on balance, your wages keep going up with your overall cost of living, and you don’t have to think about it. That’s the Fed’s objective:  maintain control of inflation so people don’t have to worry about it in their daily lives. In order to do this, it focuses on the Personal Consumption Expenditure (PCE) price index.

The economy has started to get warmer and at times, we will see inflationary spikes as sectors reopen and consumers spend their stimulus money. Volatile food and energy prices will jump when compared to last year’s levels, but then conditions are expected to flatten out. At least that’s what the Fed is expecting. So at this time, expect higher inflation, but don’t worry about it spiraling out of control.

For a look at all of today’s economic events, check out our economic calendar.

Proliferation Of Acronyms In The Investment World

For example, home mortgages get packaged and sold as CMOs (collateralized mortgage obligations). Yet CMOs are only one type of CDO (collateralized debt obligation).

Often described as financial abbreviations, the list is long and never-ending. It includes ARMs, CDs, ETFs, MMKTs, REITs, TSAs (no, not that TSA), UITs, etc.

Even individual stocks have their own trading symbols, such as BA (Boeing), AAPL (Apple), T (AT&T), TSLA (Tesla).

BANKING AND CORPORATE ACRONYMS

The banking world has its own terms of description. They include AIR, APR, EFT (not to be confused with ETF), FDIC.

Others terms of note include CAGR, CAPEX, COB, EPS, LLC, MTD, NAV, NDA, P&L, P/E, ROA, ROI, ROIC, RONA, ROS, SIV, and TSR.

Also, there are cute descriptive terms to describe various products. Some of these are general (strips and spreads); others are more specific (TGREs, pronounced ‘tigers’; and SPDRs, pronounced ‘spiders’).

And if all that isn’t enough, let’s go to the corporate world where officers in senior management are identified by their position. A CFO is Chief Financial Officer, a COO is Chief Operating Officer, and a CAO is Chief Accounting Officer.

More designations include CFA, CFM, CIA (Certified Internal Auditor), CMA, CPA, and CSO.

The corporate world’s tendency to assign three-letter designations to its officers also includes a CMO. This person’s full title is Chief Marketing Officer and has nothing to do with the CMO (collateralized mortgage obligation) referred to earlier in this article.

ACRONYMS FOR BROKERS

Apart from the tendency to describe and define using acronyms and financial abbreviations, there are brokers who in the investment world who identify themselves with various activities. Among these are stock brokers, bond brokers, commodity brokers, and foreign exchange brokers.

Yet the tendency persists. Foreign exchange is abbreviated as FOREX, or simply FX. And some FOREX brokers are known as ECN brokers, or, ECN Forex brokers.

The acronym ECN stands for Electronic Communication Network.

“ECN or Electronic Communication Network is a technology bridge built with the purpose to links retail Forex market participants or traders to liquidity providers. So eventually ECN is a non dealing desk bridge with straight-through processing execution that enables execution in a direct connection between the parties.”

There are also NDD Forex brokers and STP Forex brokers.

GOVERNMENT ACRONYMS AND MORE

No where is the proliferation of acronyms more prevalent than in government. Their use borders on excessive and the list is mind boggling. Here are some government agencies – NSA, NSC, CIA, NTSB, FDA, DEA, OMB, FAA, UST, IRS, HEW, OSHA, TSA, GAO, BATF, FBI, SBA, SEC and EPA.

The sports world is full of them: NBA, NFL, NHL, NCAA, PGA, NASCAR, NHRA.

Acronyms are all around us. Texting and social media reinforce their use for reasons of speed and expediency.

I suppose if there is an argument against their use, it is that we may have dampened our capacity for linguistics and conversation. I wonder how many of us know what a specific acronym stands for when we read something in which one or more of them are referenced; or when we hear them mentioned in a news report.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

For a look at all of today’s economic events, check out our economic calendar.

Explainer: What is a Global Minimum Tax and How Could it Affect Companies, Countries?

By Leigh Thomas and David Lawder

Yellen said on Monday that she is working with G20 countries to agree on a global minimum, which she said could help end a “30-year race to the bottom on corporate tax rates.”

WHY A GLOBAL MINIMUM TAX?

Major economies are aiming to discourage multinational companies from shifting profits – and tax revenues – to low-tax countries regardless of where their sales are made. Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.

With a broadly agreed global minimum tax, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing them to compete on innovation, infrastructure and other attributes.

The Trump administration took a first stab at capturing revenues lost to tax havens with a U.S. corporate offshore minimum tax in 2017. The “Global Intangible Low-Taxed Income,” or GILTI, tax rate was only 10.5% – half the domestic corporate tax rate.

WHERE ARE INTERNATIONAL TAX TALKS?

The Paris-based Organization for Economic Cooperation and Development has been coordinating tax negotiations among 140 countries for years on two major efforts: setting rules for taxing cross-border digital services and curbing tax base erosion, with a global corporate minimum tax part of the latter.

The OECD and G20 countries aim to reach consensus on both fronts by mid-year, but the talks on a global corporate minimum are technically simpler and politically less contentious.

The minimum tax is expected to make up the bulk of the $50 billion-$80 billion in extra corporate tax that the OECD estimates companies will end up paying globally if deals on both efforts are enacted.

HOW WOULD A GLOBAL MINIMUM TAX WORK?

If countries agree on a global minimum, governments could still set whatever local corporate tax rate they want. But if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.

The Biden administration has said it wants to deny exemptions for taxes paid to countries that don’t agree to a minimum rate.

The OECD said last month that governments broadly agreed already on the basic design of the minimum tax although the rate remains to be agreed. International tax experts say that is the thorniest issue.

Other items still to be negotiated include whether industries like investment funds and real estate investment trusts should be covered, when to apply the new rate and ensuring it is compatible with the 2017 U.S. tax reforms aimed at deterring tax-base erosion. (Graphic: Statutory corporate tax rates in OECD countries, https://graphics.reuters.com/OECD-TAX/oakpeldjxvr/chart.png)

WHAT ABOUT THAT MINIMUM RATE?

The Biden administration wants to raise the U.S. corporate tax rate to 28%, so it has proposed a global minimum of 21% – double the rate on the current GILTI tax. It also wants the minimum to apply to U.S. companies no matter where the taxable income is earned.

That proposal is far above the 12.5% minimum tax that had previously been discussed in OECD talks – a level that happens to match Ireland’s corporate tax rate.

The Irish economy has boomed in recent years from the influx of billions of dollars in investment from foreign multinationals, so Dublin, which has resisted European Union attempts to harmonize its tax rules for more than a decade, is unlikely to accept a higher minimum rate without a fight.

(Reporting by Leigh Thomas in Paris and David Lawder in Washington; Editing by Dan Burns and Leslie Adler)

Federal Reserve Inflation Fighting Tools

In the past, inflationary pressures were feared by financial market participants and this time is no different as some economists are worried that the Fed’s commitment to low rates will foster inflation. However, Powell countered these fears by saying he’s “very mindful” of the lessons from runaway inflation in the 1960s and ‘70s, but believes this situation is different.

“We’re very mindful and I think it’s a constructive thing for people to point out potential risks. I always want to hear that,” he said. “But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.”

Powell further added that the Fed considers 2% inflation a healthy level for the economy while also giving the central bank breathing room for policy. Should inflation get out of control, Fed officials believe they have the tools to control it.

This article will explore some of the tools the Fed has at its disposal to combat rapidly rising inflation should it pose a threat to the economy.

Contents

Why Does the Federal Reserve Aim for Inflation of 2 Percent over the Longer Run?

According to Federal Reserve documents, the Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures (PCE), is most consistent with the Federal Reserve’s mandate for maximum employment and price stability.

When households and businesses can reasonably expect inflation to remain low and stable, they are able to make sound decisions regarding saving, borrowing, and investment, which contributes to a well-functioning economy.

For many years, inflation in the United States has run below the Federal Reserve’s 2 percent goal. It is understandable that higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes.

At the same time, inflation that is too low can weaken the economy. When inflation runs well below its desired level, households and businesses will come to expect this over time, pushing expectations for inflation in the future below the Federal Reserve’s longer-run inflation goal. This can pull actual inflation even lower, resulting in a cycle of ever-lower inflation and inflation expectations.

If inflation expectations fall, interest rates would decline too. In turn, there would be less room to cut interest rates to boost employment during an economic downturn. Evidence from around the world suggests that once this problem sets in, it can be very difficult to overcome. To address this challenge, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation modestly above 2 percent for some time. By seeking inflation that averages 2 percent over time. The FOMC will help to ensure longer-run inflation expectations remain well-anchored at 2 percent.

Furthermore, the Fed has repeatedly said it will keep short-term rates anchored near zero and continue its monthly bond-buying program until it sees not only a low unemployment rate but also a jobs recovery that is “inclusive” across income, gender, and racial lines.

Powell believes the Fed has the Tools to Manage Inflation

Generally speaking, we now know why the Federal Reserve wants to see inflation at 2%, but Powell and his policymakers want to allow inflation to move above this mandated level until he is confident the economy has fully recovered from the shock of the pandemic. This is what spooked investors in March, but they have since calmed down with stocks hitting record highs.

Powell’s confidence in his ability to fight inflation may be responsible for the sudden surge in demand in equity prices and the market’s seemingly acceptance of rising Treasury yields.

As inflation rises throughout 2021, there will be pockets of volatility because some investors will believe the Fed is behind the curve by leaving its current policy of low-interest rates and aggressive bond-buying unchanged.

However, should it suspect that inflation is getting out of hand, it usually turns to open market operations, the federal funds rate, and the discount rate to stem the inflationary surge.

Open Market Operations

The Fed’s first line of defense against runaway inflation is typically open market operations. In implementing this policy, it sells securities like Treasury notes to member banks. The move reduces bank capital, giving them less to lend. Essentially, it removes money from the economy. As a result, banks raise interest rates and that slows economic growth, dampening inflation.

Federal Funds Rate

The Federal Funds Rate is probably the most well-known of the Fed’s tools. It’s also part of its open market operations. It’s the interest rate banks charge for overnight loans they make to each other. This is a very easy tool for the Fed to manipulate. Its purpose to pull money from the economy and slow inflation.

Discount Rate

This is the interest rate the central bank charges member banks to borrow funds from the Fed’s discount window. Once again the process of raising rates removes money from circulation, thereby reducing the money available for loans and mortgages. This helps slow down economic growth or inflation.

Reserve Requirement

The most powerful tool at the Fed’s disposal is the Reserve Requirement. The Fed eliminated the reserve requirement, effective March 26, 2020. This occurred at the beginning of the COVID-19 pandemic. The last thing the Fed wanted during that critical time was for banks to be pulling money out of the economy.

Once the economy regains its footing and as inflation hovers at or over 2%, the Fed has the power to reinforce the reserve requirement rule that will force member banks to hold more capital in reserve. This is another tool that removes money from the economy, and thus trimming inflation.

Summary

Federal Reserve Chair Jerome Powell and other Fed policymakers recently voted to keep short-term borrowing rates steady near zero, while continuing an asset purchase program in which the central bank buys at least $120 billion of bonds a month. Despite this move, inflation continues to run below 2 percent.

Treasury yields have been rising rapidly for weeks because the market is expecting inflation to heat up, which could force the Fed to change policy sooner than expected. The Fed however says that won’t be enough to change policy that seeks inflation above 2% for a period of time if it helps to achieve full and inclusive employment.

While some economists fear the Fed is inviting risks to the economy by allowing inflation to run above the 2% mandate, Fed policymakers believe they have the weapons to control inflation and to make changes quickly enough to push inflation back to or below 2%.

What are NFTs? Evrything you Need to Know About Non-Fungible Tokens

These are essentially cryptographic assets on blockchain with unique identification codes and metadata. These codes and metadata make them individual and unique.

One characteristic of an NFT, therefore, is that it cannot be copied or duplicated.

An example of an NFT from the real world would be a piece of art, such as the Mona Lisa. While Leonardo Da Vinci is known for numerous pieces of art, there is only one Mona Lisa.

While you can trade one Litecoin for another, you can’t trade one Mona Lisa for another Mona Lisa.

For the world of blockchain, a key advantage of NFTs is that they cannot be copied. And so, unlike the Mona Lisa, NFTs can be bought and sold without the possibility of fraud.

In the art world, a lot of money is spent to authenticate pieces of work before being sold. An NFT does not need middlemen to ensure authenticity.

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What is fungible vs. non-fungible?

According to the Cambridge Dictionary, fungible or fungibility means simply interchangeable. “This is a characteristic of most financial instruments and market assets.”

By contrast, non-fungible property/assets/funds are not easy to exchange or mix with other similar goods or assets.

In other words, stocks, Certificates of Deposits, Cryptos, etc. are fungible assets.

An example of a non-fungible asset would be land or even diamonds. While land is a simple one to classify, each individual diamond is also unique. Each diamond has a different cut, size, grade, and so forth and therefore can’t be interchangeable with another diamond.

How Are NFTs Created?

NFTs are very simple to create, unlike blockchains and cryptocurrencies.

A number of NFT market places allow users to freely create an NFT and no programming knowledge is required.

Market places that currently allow users to freely create NFTs include OpenSea, Raible, or Mintable.

Creating art NFTs is particularly popular and these market places cater for just that.

How do NFTs work?

NFTs are digital tokens that are on a blockchain ledger. Once created, the market then trades the NFTs across market places.

Once an NFT is created, there is a proof-of-ownership that must be stored securely in an NFT wallet.

It is the proof-of-ownership that is ultimately the tradeable and non-fungible asset.

Once created, the blockchain ledger records the NFTs and their unique identifying codes. The blockchain ledger then also records each sale and resale and ownership.

This not only prevents the copying of an NFT but also removes fraudulent claims of ownership or even claims over creation.

Why do NFTs have value?

This is simply a case of supply and demand. The key here is the supply side that drives up the value of NFTs. Since there is only one individual asset, high demand can lead to significant increases in value.

Taking the Mona Lisa as an example, experts estimate the value of the Mona Lisa at more than $800m. Had Leonardo da Vinci painted numerous Mona Lisa paintings to exactly the same quality, these would be fungible. Their value would also be significantly less than the single painting thought to be edging towards $1 billion.

As the NFT market expands, the number of NFTs are likely to increase significantly. At this stage, demand will likely become the key price dictator.

Market appetite will continue to dictate value. A unique NFT of interest versus one of little interest to collectors and investors will vary significantly in price.

For example, Twitter CEO Jack Dorsey recently tweeted a link to a tokenized version of his first-ever written tweet.

Bids have reportedly reached in excess of $2.5 million. Other Jack Dorsey tweets are unlikely to have a collectible value, however, even though each tweet is unique.

How do I buy or trade NFTs?

For those looking to buy or trade NFTs, identifying the right marketplace is the first step.

There are numerous market places at present that cater to different areas of the collectible world.

For instance, NBA Top Shot is a marketplace for those looking to buy video highlights. Cryptoslam! is a site that lists the largest market places by sales volume for those looking to enter the NFT space.

There is also Sorare, which is a fantasy soccer marketplace, where you can manage, and buy and sell virtual teams. At the time of writing, Sorare ranked fifth on the all-time sales list, with $24.41m in total sales.

CryptoPunks ranks 2nd on the all-time sales volume list has 10,000 uniquely generated characters. Each can be officially owned and proof of ownership is logged on the Ethereum blockchain.

While there are many market places, those wanting to purchase an NFT will need an NFT wallet in order to store any purchased NFTs.

There are a number of NFT wallet providers in the marketplace. As with cryptos, NFT holders must store-purchased NFTs securely. Hard wallets would be more secure, protecting NFT holders from hackers.

When it comes to purchasing NFTs, some market places support purchases with a credit card. Others, however, require purchases with Ethereum.

For Ethereum purchases you will need to fund your NFT marketplace account with Ethereum to proceed.

To purchase your NFT, most market places sell NFTs in an auction. You simply need to place your bid and wait until the conclusion of the auction.

If your bid was successful, your account would be debited and your NFT wallet credited with your newly purchased NFT.

What are the most expensive NFTs?

Of late, NFT market news has flooded the crypto and mainstream newswires. With tech-savvy investors looking to be first to market, there have been a number of eye-watering bids for NFTs.

The largest NFT market places ranked by sales volume (all-time) at the time of writing include:

  • NBA Top Shot: Total sales $386.55m.
  • CryptoPunks: Total sales $161.32m.
  • Hashmarks: Total sales $43.71m.

For a full list of the largest marketplace NFT sales over the last 24-hours, 7-days, 30-days, and all-time, visit Cryptoslam.io.

Here you can view sales over a specified time period, the price change over the specified time period, and the number of buyers and transactions.

Taking a look at NBA Top Shot, there have been a total of 2.46m transactions that have led to total sales of $385.56m.

What is NBA Top Shot?

An NBA-Dapper Labs collaboration, delivering an on-line platform for trading virtual basketball cards.

These all exist on the blockchain making them unique and impossible to copy. More importantly, for some, authentication is immediate.

With the added advantage of virtual tech, it’s not just virtual basketball cards that are drawing attention.

There are also “moments” that are selling for 6 figure sums. Moments are video clips of the more popular players from the NBA.

One LeBron moment reportedly sold for $208,000…

Looking at the numbers for the broader NFT market, the last 30-days has been headline-grabbing.

From the $385.56m total sales across NBA Top Shot, more than $300m came from the last 30-days.

Looking at individual NFT sales

Christie’s Auction sold Beeple NFT for a whopping $69.3m. This is by far the largest sale to date.

The next 4 largest NFT were the sales of CryptoPunk characters. Sale prices ranged from $7.6m for CryptoPunk #3100 to $1.3m for CryptoPunk #4156.

What is Dogecoin?

Dogecoin describes Dogecoin as “the internet currency”.

The Shibu Inu is a Japanese breed of dog that was popularized as an online meme. “Doge” is a Shibu Inu and Dogecoin’s friendly mascot.

Dogecoin’s Community members are referred to as Shibes.

As a true cryptocurrency, Dogecoin provides users with a completely anonymous, decentralized, and secure environment.

Dogecoin holders can use Dogecoin to buy goods and services or trade them for other currencies.

Holders are also known to use Dogecoin to “tip” fellow internet-goers who create or share great content.

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Who invented dogecoin?

Jackson Palmer and Billy Markus created Dogecoin.

Dogecoin was born as a concept in 2013 and launched in December 2013 by engineers Jackson Palmer and Billy Markus.

Before the creation of Dogecoin, the two engineers had reportedly never actually met in person.

How can I buy dogecoin?

There are multiple ways to obtain Dogecoin, including getting tipped on the Dogecoin community and mining them.

You can also buy and trade Dogecoin, however, on crypto exchanges that support Dogecoin.

There are numerous crypto exchanges that support the buying and selling of Dogecoin.

Based on 24-hour volumes, WenX Pro, Binance, and CoinDCX have the largest 24-hour Dogecoin/USDT trade volumes at the time of writing.

Other popular exchanges supporting the buying and selling of Dogecoin include:

When choosing a suitable exchange to buy Dogecoin, the trading volume must be among one of the key deciding factors.

Others factors

When selecting an appropriate exchange, there are also a number of other factors to consider. These include:

  • Jurisdiction: Ensure that you find an exchange that supports your jurisdiction and language.
  • Exchange security: When considering the cases of exchange hacks in the not too distant past, 2FA should be a minimum requirement if you plan to hold your Dogecoin on an exchange.
  • Exchange Capabilities: For those look for more than just buying and holding, access to trading indicators and risk management controls including stop loss would be a consideration.
  • Trade pairings: For those looking to purchase with fiat money, the option to deposit fiat or purchase with fiat money is important. Not all exchanges support crypto purchases with fiat money.
  • Exchange Fees: Fees do vary significantly across the exchanges. This becomes a greater consideration for those looking to buy and sell Dogecoin on a more frequent basis.
  • Platform customer support: It is always important to have access to customer support to assist with any issues.

When considering the above, WenX Pro has the largest 24-hour DOGE/USDT trading volume at $360.16m

A distant 2nd and 3rd, by volume, are Binance ($149.81m) and CoinDCX ($149.70m), according to Coinranking.com.

For many, Binance may be the preferred exchange simply for market position and the sheer size of its global network.

When trading cryptos, significant daily volatility means that liquidity must be a deciding factor to limit slippage.

Dogecoin Wallets

Before signing up to an exchange in order to purchase your Dogecoin, you will need a Dogecoin wallet.

To get started, simply:

  • Get a Dogecoin compatible wallet.
  • Buy some Dogecoin.
  • Use your Dogecoin.
  • Stay up-to-date.

From the Dogecoin homepage, you can download a Dogecoin wallet for desktop or smartphone.

For your desktop, you can select a wallet for Windows, OS X, or Linux.

We do recommend that you store all of your purchased Dogecoin within your personal Dogecoin wallet.

Once you have your Dogecoin wallet, sign up to a Dogecoin-supported exchange and purchase your Dogecoin.

<h2 “what”>What can I buy with dogecoin?

The main uses of Dogecoin are currently:

  • Purchasing goods and services.
  • Tipping across the Dogecoin community.
  • Donating to charities.

For those looking to purchase goods with Dogecoin, there are numerous merchants that accept Dogecoin.

Dogecoin holders can purchase a wide array of goods ranging from cars to precious metals.

One of the more prominent companies accepting Dogecoin is the U.S NBA franchise the Dallas Mavericks.

In early 2021, the Dallas Mavericks owner claimed to have done more than 20,000 #Dogecoin transactions. Mark Cuban’s NBA franchise had become the largest Dogecoin merchant in the world.

What is going on with it now?

Its rise to fame has led to a far wider acceptance of Dogecoin.

Across the U.S, CoinFlip announced in early 2021 that people could purchase Dogecoin at 1,800 ATMs across 46 states.

Through the early part of 2021, Dogecoin had hit the crypto news headlines as more famous members of the crypto community began to plug Dogecoin.

Unlike other cryptos, such as Bitcoin and Litecoin, there is an infinite number of Dogecoins. As a result, Dogecoin will not face the same supply and demand outlook as the likes of Bitcoin and Litecoin.

While the endless supply means that the upside for Dogecoin may not be as meteoric as Bitcoin’s, there are also benefits.

The endless supply does mean that Dogecoin is ideal for smaller transactions.

At the time of writing, DOGE stood at $0.0575. While well below the January 2021 all-time high of $0.1004, DOGE has managed to retain much of its 2021 gains.

The crypto newswires contributed to late January’s spike and the upside for the current year.

Year-to-date, Dogecoin was up by over 1,000%, with the Dogecoin Shibes looking for a return to $1 levels.

As the community grows and Dogecoin becomes more widely accepted, more plugs by the crypto elite would support a return to $1 levels.

What are the risks of investing in dogecoin?

As is the case with any crypto, the volatility alone means that investors must trade Dogecoin with care.

As previously mentioned, the other issue that Dogecoin holders face is the endless supply.

This means that any intrinsic value could be diluted as the crypto market gets flooded with more Dogecoin.

As Bitcoin and Litecoin gain market interest, their finite supply remains an allure that Dogecoin is unable to compete with. This leaves holders facing downward pressure as the broader market makes ground.

On the tech side, there have been no material changes to the Dogecoin blockchain in recent years. This means that Dogecoin could also become dated and fall behind its peers.

There have been reports of Dogecoin Shibes leaving the Dogecoin community in favor of more current platforms.

As things stand, the Dogecoin community has been key to delivering price support. The community has, in the past, raised funds to return monies to those who have been hacked.

Once the community begins to weaken, Dogecoin may lose ground without any blockchain enhancements.

Why is dogecoin so popular?

In the early years, Dogecoin’s almost instant popularity was attributed to the founders’ lightheartedness.

While a number of crypto communities were battling it out, Dogecoin was meant to be a joke.

More significantly, however, was undoubtedly the generosity of the Dogecoin Community.

Not only did the community raise funds for multiple charities and good causes but also raise funds to cover losses faced by hacked Dogecoin holders.

To this day, the Dogecoin Community remains integral to the ongoing success of Dogecoin and its continued popularity.

Celebs and Dogecoin

A number of crypto celebs have surfaced and 4, in particular, have plugged Dogecoin, contributing to its early-2021 surge to $1.

Elon Musk, Gene Simmons, Mark Cuban, and Snoop Dogg are perhaps the most famous of them all.

Tesla Motors CEO Elon Musk single-handedly drove Bitcoin to its current all-time high $61,699 and Dogecoin to its all-time high.

After Tesla Motors’s purchase of Bitcoin and its acceptance of Bitcoin as payment, the Dogecoin plug had hit in the midst of the crypto market frenzy

As more prominent crypto advocates plug the likes of Dogecoin, the markets will be looking for fresh highs.