Dan Morehead, the founder and managing partner of Pantera Capital, appeared on \u2018Squawk Box\u2019 on 5 October 2023 to discuss a range of topics including Treasury rate trends, the Federal Reserve\u2019s approach to inflation, the impact of interest rates on equities, and the current state of the cryptocurrency market.<\/p>\n
Morehead expressed that the financial industry is currently experiencing a \u201cfailure of imagination\u201d as most traders have never dealt with a rising rate environment. He argued that the Federal Reserve has been bailing out the market by lowering rates for the past 40 years, but that era is coming to an end. Two years ago, Morehead predicted that both the Federal Funds rate and the 10-year Treasury yield would rise to at least 5%. He believes that rates will go even higher, as the normal real rate for the Federal Reserve is 1% over inflation, a level not yet reached.<\/p>\n
When asked about the current inflation rate, Morehead stated that core inflation is at 4.4%, which is more than double the Federal Reserve\u2019s target. He also mentioned that wage inflation is at 4.5% and increasing. Morehead disagreed with the notion that rates are already too high, stating that the Federal Reserve\u2019s goal is to keep inflation under 2%, a target that has been significantly exceeded. Additionally, he pointed out that an \u201cowner\u2019s equivalent rent\u201d factor in inflation takes two years to fully play through. Even if housing prices remain stable, inflation will still go up by 1.1% due to factors from two years ago.<\/p>\n
Morehead warned that if his predictions about rising rates are correct, equities are significantly overvalued. He suggested that equities should be 20% lower based on the S&P 500\u2019s current valuation. Morehead believes that equities could experience a downturn for the next few years, not necessarily tied to interest rates but rather to risk factors. He also noted that there have been two 13-year periods where equities did not go up, indicating the potential for long-term stagnation.<\/p>\n
Discussing the cryptocurrency market, Morehead stated that the correlation between cryptocurrencies and the S&P 500 is currently only 0.2, and historically it\u2019s 0.1. He believes that cryptocurrencies are affected cyclically by Federal Reserve actions. Morehead also emphasized that Bitcoin has been operational for 14 years without any downtime, holding about 50% of the entire cryptocurrency market cap. He mentioned that the market had been influenced by highly leveraged platforms like FTX and Celsius in the past, describing these as \u201conce in a generation weird occurrences\u201d that are now behind us.<\/p>\n
Morehead advised asset allocators to consider diversifying into blockchain technology, describing it as a trillion-dollar asset class. He suggested that investors should allocate a couple of percent of their portfolios to blockchain:<\/p>\n