Comment of the Day
Video commentary for May 16th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: chicken and egg of tightening financial conditions and buy the dip instinct, energy and grains break out, gold steadies, increased demand for bonds as growth fears mount, bitcoin closes below $30,000
Ride of the 'Volkyries'
Thanks to a subscriber for this report by Zoltan Pozsar for Credit Suisse. Here is a section:
As I see it, the risk of recession, whether it is real or merely implied by an inversion of the yield curve, won’t deter the Fed from hiking rates higher faster or from injecting more volatility to build up negative wealth effects, and signs of a recession might not mean immediate rate cuts to ramp demand back up …
…cuts may have to wait until the Fed is certain that inflation is surely dead.
Back to the level of the stock market under the Fed call.
According to President Daly’s comments, the recent stock market correction and the rise in mortgage rates is “great”, but not enough (“want to see more”). Chair Powell also noted in his press conference that he wants to see further tightening in financial conditions still. At face value, that implies that the Fed won’t stop shaping expectations until we see more damage to stocks and bonds.
Rallies could beget more forceful pushback from the Fed – the new game…
My view - A link to the full report is posted in the Subscriber's Area.
This is a welcome elucidation of the “chicken and egg” argument I have been talking about the audio/video commentary.
If the stock market and other financial assets sell off, the Fed will believe their policies are working which reduces the need for further tightening. However, if investors believe tightening is less likely they will buy the dip which will convince the Fed their policies are not sufficiently tight.
Delhi suffers at 49C as heatwave sweeps India
This article from the BBC may be of interest to subscribers. Here is a section:
The effects are visible. Farmers say the unexpected temperature spikes have affected their wheat harvest, a development that could potentially have global consequences given supply disruptions due to the Ukraine war.
The heat has also triggered an increase in power demand, leading to outages in many states and fears of a coal shortage.
Mr Modi also flagged the increased risk of fires due to rising temperatures.
And
D Sivananda Pai, director of the Institute for Climate Change Studies, points to other challenges apart from climate change - such as increasing population and the resulting strain on resources.
This, in turn, leads to factors that worsen the situation, such as deforestation and increasing use of transport.
"When you have more concrete roads and buildings, heat is trapped inside without being able to rise to the surface. This warms the air further," Mr Pai says.
And the cost of such extreme weather events is disproportionately borne by the poor.
My view - Anyone who has suffered through a muggy August in London will be familiar with the heat well effect created by concrete structures and air conditioners pouring hot air into the street.
That’s for a country that does not typically get temperatures approaching 40 degrees. For India, where pre-monsoon heat waves are typical, the urgency to industrialise is creating some unique issues.
Another Stablecoin Loses Its Peg as Algorithm Fails to Keep Pace
This article from Bloomberg may be of interest to subscribers. Here it is in full:
Deus Finance’s DEI token has lost its 1-to-1 peg to the dollar, becoming the latest failure of an algorithmic stablecoin during a period of crypto market stress.
DEI is currently trading at 70 cents, according to data tracker CoinGecko. With a market value of about $63.5 million, the token is tiny compared with the more than $18 billion TerraUSD stablecoin that shook crypto markets when it become depegged last week.
Read more: Crypto Hedge-Fund Head Predicted Terra’s $60 Billion Implosion
Put out by Deus Finance, a marketplace for financial services, DEI is different from TerraUSD, or UST, in that it’s a fractional reserve stablecoin, backed by coin collateral, consisting of 20% DEUS tokens and 80% of other stablecoins, such as USDC.
Deus’s team is working to restore the peg, according to a Tweet.
The depegging comes several months after Deus Finance was hacked, with some coins stolen.
UST is currently trading at about 6 cents. Last week, even the world’s biggest stablecoin, Tether -- which is not algorithmic and claims to have full reserves -- lost its dollar peg before regaining it. Crypto bellwether Bitcoin is trading at less than $30,000, down from over its all-time high of almost $69,000 in November.
My view - The TerraUSD coin is an algorithm based stablecoin, which relies on the value of its underlying token to support its value. That token, Luna, collapsed last week and took the stablecoin with it. The potential for contagion arises when stablecoins using money market instruments fail.
Please note - variable hours in late May and early June
I am flying to Ireland on May 25th ahead of The Chart Seminar in London on June 6th and 7th. I’m looking forward to taking some time off since it feels like a long time since I’ve had more than a couple of days break in a row. Between those dates updates will be sporadic but I aim to post regular audio/video updates.
The Chart Seminar June 6th & 7th in London sold out
Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
This event is sold out. A waitlist has now begun.
To reserve your place please contact Sarah@fullertreacymoney.com.
Delegate Rates:
Full fee: £1799
Each additional delegate: £850
Fuller Treacy Money Subscriber rate: £850
Prices exclude VAT where applicable
Eoin's personal portfolio: bond long closed at a loss, investment positions sold and stock market short increased. May 5th