Market News 5/18

Market News

The stock market witnessed a remarkable surge as both President Biden and House Speaker Kevin McCarthy conveyed optimism about an impending debt ceiling deal to avert a potential US default. However, reports suggest that certain anxious Democrats are still advocating for alternative solutions.

Politics

Montana Bans TikTok

Montana becomes the pioneer in the United States as Republican Governor Greg Gianforte enacts a law that imposes a comprehensive ban on TikTok, the Chinese-owned app. While other states have previously prohibited TikTok on government devices due to national security concerns, Montana's law goes a step further by blocking the app's operation within the state and penalizing app stores that offer TikTok for download in Montana. The ban is set to take effect on January 1st, but it is highly likely that opponents, including TikTok and free speech advocates, will challenge this significant escalation in court.

Crypto

BlockFi has made the decision to liquidate its crypto lending platform

Bankrupt cryptocurrency lender BlockFi intends to liquidate its cryptocurrency lending platform due to a lack of potential value for its creditors from selling the business to a new owner.

BlockFi, based in Jersey City, N.J., has presented its chapter 11 reorganization plan to U.S. Bankruptcy Court in Trenton, N.J. The plan will be put to a vote by creditors, including over 100,000 retail customers.

In a filing submitted on Friday, the company stated that despite actively engaging with potential buyers for its digital-assets platform and approximately 660,000 client accounts since January, it determined that a sale might not result in significant value for creditors. BlockFi attributed the absence of attractive offers from prospective buyers to recent regulatory developments.

Aritifial Intelligence

According to the Chair of the SEC, the next financial crisis could potentially originate from AI

Securities and Exchange Commission Chair Gary Gensler has cautioned that the next financial crisis could potentially arise from the utilization of artificial intelligence (AI) by firms, highlighting the potential "systemic risk" associated with the widespread adoption of this technology.

During a conference hosted by the Financial Industry Regulatory Authority, Mr. Gensler expressed concerns about data aggregators and AI platforms becoming significant factors contributing to future financial system "fragility."

Looking ahead, Mr. Gensler speculated that future observers might attribute a crisis in 2027 to the over-reliance on a foundational layer known as "generative AI." He further noted that a multitude of fintech applications are built upon this generative AI level, which can generate intricate outputs of text, images, and sounds.

Looking Ahead

We May Be Getting Used to High Inflation, and That’s Bad News

During the last fall, inflation became a major concern for Americans, dominating discussions during the midterm elections. Gallup's survey revealed that one out of five respondents considered it the nation's most significant problem.

However, the focus has now shifted elsewhere. Only 9% of Gallup respondents currently identify inflation as the most important problem, with government leadership and the general state of the economy taking precedence. This decreased attention is observed even as the debate over raising the debt ceiling unfolds in Washington.

While this shift may initially seem positive, it could actually signify a worrisome development. If people start accepting higher inflation as the new normal, it could reinforce its persistence. This would then present the Federal Reserve with a difficult choice: either risk inducing a deep recession to lower inflation or abandon its 2% inflation target.