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Welcome to the On the Margin Newsletter, brought to you by Casey Wagner and Felix Jauvin. Here’s what you’ll find in today’s edition:

• We break down the charts behind On the Margin’s latest Weekly Roundup.
• We know what to expect from tomorrow’s FOMC decision, but here’s what to listen for.
• The SEC’s got a new approach to unregistered securities. We cover some theories as to why.

Rounding out the roundup

For those who aren’t regular listeners of the Weekly Roundup, or perhaps wanted further explanation of some charts discussed in our latest edition, we thought it would be helpful to round out the roundup and provide a high-level look at some key topics! Let’s dig in.

Growth rebound

Last week, we received the Q2 GDP print and it came in hot at 2.8%.

Why the big change? We have a few insights:

• There was a big rebound in consumption expenditures, hinting at a resilient and strong consumer.
• Net exports, caused largely by a strong dollar, continue to drag down GDP growth.
• After multiple months of a downtrend in government spending, we saw a rebound. In a world of outsized fiscal deficits and dominance, this is a key driver of the resilient economy we’ve seen.

Digging deeper, goods saw a rebound after seeing a contraction in the previous quarter:

This is a crucial datapoint since goods disinflation has been one of CPI’s key drivers over the past couple years. If goods growth starts to expand again, it could trickle into a bounce in goods inflation from the current deflationary goods regime we’re in.

PCE in line with little surprises

On Friday, we also received the updated Personal Consumption Expenditure print.

Overall, the print came in line with expectations and led to very little market movements:

A very interesting point here is the slight bounce in Core PCE from 0.1% month-over-month to 0.2%. Core PCE is the Fed’s key inflation data point, and is therefore the input used in a variety of models, such as the Taylor Rule for measuring restrictiveness.

Yen carry trade unwind

Due to marginally increasing hawkish rhetoric from the Bank of Japan at the same time the US Fed is leaning toward cutting in the near-ish future, we’ve been seeing the yen finally begin to strengthen.

Due to the popular yen carry trade — which involves borrowing yen at a low/negative rate and buying USD denominated tech equities — beginning to unwind, we’ve seen a significant sell-off in the QQQ ETF. As seen in the chart below, this tightly correlates with the strengthening of the yen against the USD:

This carry trade unwind comes at a fragile moment for US tech because of how extended and stretched valuations are. The resulting air pocket in the sector is continuing to get hit hard as the yen strengthens.

— Felix Jauvin

$257 million

The amount of money the SEC alleges Nader Al-Naji raised by selling unregistered offers and sales of BTCLT, the native token of media platform BitClout.

The securities regulator announced charges Tuesday afternoon against Al-Naji, who launched BitClout under the pseudonym “Diamondhands,” in March 2021. Regulators allege Al-Naji misled investors by fraudulently claiming that BitClout was a fully decentralized entity.

US attorneys at the SDNY also filed criminal charges against Al-Naji.

Forward guidance tutorial

It’s FOMC decision day eve!

Markets pulled back Tuesday, led by big tech, as investors waited for the latest earnings reports. The S&P 500 and Nasdaq Composite indexes lost 0.7% and 1.4%, respectively, midway through Tuesday’s session.

As we mentioned yesterday, markets are already pricing in that central bankers will hold rates tomorrow. What investors are hoping to see is any indication from Fed Chair Jerome Powell and central bankers that rate cuts will come in the fall.

All eyes will be on the so-called “forward guidance” portion of the FOMC statement, which is found in the third paragraph.

Here’s what Committee members wrote in June:

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward [2 %].”

If the Fed thinks rates can and will start to come down in September, it’s going to be reflected in an edited version of the sentence above. Look out for language like “the Committee is satisfied” or “the Committee is confident” that inflation is trending downward.

If the Fed opts to keep forward guidance as is, expect markets to take a tumble.

“Investors have aggressively priced in a September rate cut and this would put that expectation in doubt and we could easily see something similar to last Wednesday (where the S&P 500 falls more than 1% and perhaps close to 2%),” Tom Essaye, founder of Sevens Report Research, said.

Buckle up, we have 23 hours till the statement drops.

— Casey Wagner

Hey SEC, what are you up to?

The SEC has been busy these past 18 months, so here’s a quick review:

In June 2023, the SEC filed back-to-back lawsuits against Coinbase and Binance. The charges were not exactly the same, but regulators accused both exchanges of selling unregistered securities and operating as unregistered brokers, exchanges and clearing agencies.

Both cases also listed several third party tokens as securities, although the issuers of these tokens were not named as co-defendants in either case.

The situation made me wonder: Why is the SEC naming these third party tokens in lawsuits against exchanges rather than just suing the issuers themselves, like they did with Ripple?

I’ve heard various theories. The SEC can’t sue all hundreds of issuers it believes are creating unregistered securities. It lost against Ripple, so it decided to change strategies. Going after the exchanges is just easier.

A quick note to securities law experts out there: I love a good theory, if you’d like to share any others.

Early this morning though, things changed — at least for Binance. The SEC filed a proposal with the court stating that it plans to drop the section of its complaint pertaining to “third party crypto asset securities.”

You may be thinking, “Wait, I thought Binance’s legal troubles were all settled?” Wrong. Binance in November settled with FinCEN, the CFTC and OFAC, but not the SEC.

For now, the SEC has made no such filing in its case against Coinbase.

Again, my big question is: Why? But also important here is: What does this mean?

Attorney Jake Chervinsky says it means a whole lot of nothing. The SEC just didn’t feel like going through the discovery process for these 12 additional tokens.

Seems plausible enough. But again, in that case, I’d expect the SEC to make the same amendment to its Coinbase complaint, which is also headed toward the discovery phase. We will have to wait and see.

— Casey Wagner

Bulletin Board

• Crypto infrastructure firm Oxhead Alpha on Tuesday announced it had partnered with the California DMV to bring 42 million car titles onchain to Avalanche. Vehicle owners in California will soon be able to claim their digital titles on the DMV app.
• Days after former President Donald Trump promised to stop selling seized bitcoin, a US government-associated wallet transferred $2 billion of BTC to Coinbase Prime, Arkham Intelligence data shows.
• On a different note: One anonymous and very generous newsletter reader donated to Casey’s NYC Marathon fundraiser for the Lung Cancer Research Foundation yesterday. Thank you so much!