20 Oct 2021

Macro Market Movements

The news of the day remains inflation and its appearance in almost every indicator, let me get back to that because we have a historic new all time high appearing in the crypto markets as we speak.  You can see a daily chart below of Bitcoin, we are still a tiny bit short of the record but I think it is safe to say that we will shortly see the high. (side note I am short 66k calls expiring today so lets hope the record is not too much higher today 😜). 

I often get this incredulous question about the value of Bitcoin and how its intrinsic value is zero. This is true it has very little intrinsic value, perhaps a little bit for its ability to transact, see chart below to see its transaction activity. Clearly the value driving Bitcoin is not due to its ability to replace money from a transaction point of view. Its value comes firstly because it was first, the second and most important driver is it has a finite number of coins to mine (21m). Working with this principle, Bitcoin is seen as a true store of wealth that is free of government and central bank meddling. The irony is that while governments are fearful of the strength of the crypto market (now more than $2.5 trillion) they are the principle architects of its rise with their reckless spending and quantitative easing. Unintended consequences ……. 

News Themes & Charts of Interest

The OECD is forecasting a drop in living standards for Australia and other developed worlds. One of the primary factors they cite is the ageing population, a key recommendation is to extend the age of retirement. I would like to say that retiring too young is probably the biggest mistake anyone can make. We all desperately need to feel like we are contributing to society and have stuff to do in the morning. We are living longer than ever, I recommend that they extend retirement to 99yrs old. I think at 100 you deserve a little bit of chill time.

Who remembers the subprime days? Who bought the dip?

The RBA continues to ignore the inflation signs saying they are focused on the wage inflation which is currently sitting at 1.7% and until it is firmly in the 2 – 3% space they will not act. In the meantime the April 2024 bond with its 0.1% target is now being breached. The RBA will need to start buying to keep a lid on this. One has to wonder if the bottom is in.

I think this chart of the UK 3yr bond yields gives you a clear indication of what the bond market thinks about inflation.

Despite all this uncertainty there is almost no fear with the VIX crashing.

I wasn’t the only one who didn’t position myself correctly. Interestingly we are now into the seasonally strongest months of the year. What to do with my SP500 shorts – gulp.

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