Macro Dragon WK # 22: Crypto's Freefall & Biden Infra-Bill Downgraded to $1.7trn from $2.25trn...

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 2^nd 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

Namaste,

KVP