Macro Dragon WK # 22: Crypto's Freefall & Biden Infra-Bill Downgraded to $1.7trn from $2.25trn...
Summary: Macro Dragon = Cross-Asset Quasi-Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon WK # 22: Crypto's Freefall & Biden Infra-Bill Downgraded to $1.7trn from $2.3trn...
Top of Mind…
- TGIM & welcome to WK #22…
- So at least two things are standing out on the KVP skew for what is going to be a great wk ahead: the first is crypto – check-out our Latest Dragon Interview from one of the most interesting players & firms in the space, Casper B. Johansen, Co-Founder & Partner from The Spartan Group – which KVP will do a later piece today called: “Welcome to Crypto…”, given some of the volatility that we have seen last wk in the space.
Source: Bloomberg & Saxo Bank
- Worth noting that the Fed’s Brainard should be speaking at a crypto conference later today, which is that much more interesting given the IRS news last wk that’s transfers of more than USD10k in Bitcoin have to be reported to the IRS (& yes, that is continued legitimization, institutionalization, governmentalization…).
- The Soprano fans – remember Furio? That was one of the best closing episodes when he knocks on the door of the loan shark that was giving Tony’s restraint bud a hard time – will remember Carmela Soprano, practicing risk management, wealth preservation & optionality by opening multiple accounts & depositing sub USD10K (i.e. banks don’t have to declare it). She also took it a step further, by correctly assessing the family business as high risk, she allocated the deposits to low risk investments like treasuries & money market funds.
- The second is Biden, where we are seeing an infra bill that KVP originally believes had a +$3trn handle, go to $2.25trn & now has been diluted to $1.7trn. Now, intuitively from a spending negotiation context, one starts of with X & the deal is closed at a discount to X. Yet this is shaving a clean $500bn off & we are still not clear on a Dem/Rep agreement on the deal.
- The potential near-term signal here is that, this administration may not be spending as much as was originally envisaged. And irrespective of whether that ends up being true or false, what it likely does is put a cap on US nominal yields (i.e. not as much debt coming as we envisaged just a wk ago), on inflation expectations & real yields.
- What it may also do is put a floor on some of the growth tech names that have been getting hammered, whilst their value, cyclical cousins have massively outperformed. Whether this is a permanent floor, or just some MR between the two groups will remain to be seen.
- Yet last wk’s charts & price action alongside the likes of Peloton (chk out piece on this from last Tue: Reflections on Peloton [PTON] $92, -46% from its peak, +15% from recent lows), Coinbase, Palantir, AirBnB, Beyond Meat, Compass Pathways & even the now infamous ARK ETF – suggest that those names & that genre is trying to put in a floor.
- Harder to know if there is a bigger effect on the USD, gold (likely still all about real rates), crypto, global currencies. Yet it should not be positive for commodities for a variety of different reasons:
- 1. They’ve had an epic YTD start (just think annualized, most commodities are on track for +50% to +100% for the year), so folks are sitting on a lot of profits & the noise continues
- 2. We know there are covid-induced supply constraints that are going to be coming off over the next few quarters as the world opens up
- 3. It’s a super crowded trade & crowded narrative – this does not make it wrong, yet makes it prevalent to sharp positioning rinsing
- 4. Does not look like we will be getting as much spending done by Biden as we thought just a week back – think of it this way, how much harder is it going to be to get more fiscal bills through, once the US has fully reopened & we have regained c. 6 to 8m of the lost jobs since pre-Covid?
- 5. The 2, 5 & 10yr break-even inflation charts [respectively 2.82%, 2.64% & 2.45%] have reversed sharply from previous highs – whether this is a consolidation & break before moving higher, or start of a reversal remains to be seen.
Source: Bloomberg & Saxo Bank
Rest of the Week & Other Reflections
- US will see 2nd reading on 1Q GDP 6.5%e 6.4%p, core PCE which will likely be key focus, as well as personal income, personal spending, durable goods & the weekly Thu jobless figures.
- CH is data light this wk. Europe has final German 1Q GDP, GER IFO index, as well as regional CPI & GDP data out of France. UK has house prices & housing sector borrowing due.
- CB: Indonesia 3.50%e/p, New Zealand 0.25%e/p, South Korea 0.50%e/p
- Fed speak: Brainard (later Mon @ a crypto conference! Is she a HODLer?), Bostic, Evans, Quarles.
- BoE’s Bailey speaking on Mon
- Hols: Quite a few countries are out today including Germany, France, Switzerland & Canada. Worth noting the US should be out next Mon, 31 May on Memorial Day. So long wkd coming up in the US.
- Dragon Interviews U-Tube Channel for easier play-ability…
Start<>End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.
This is The Way
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.