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A Trillion Here, a Trillion There


The late Everett Dirksen, a long-serving Minority Leader of the Republicans in the U.S. Senate, is famously quoted as saying a billion here, a billion there, and soon we’re talking real money. That was back in 1969. At the time, a billion dollars was about one-tenth of 1 percent of GDP.

What about today?

During 2020, the federal government provided a total of $3.2 trillion of Covid relief, starting with a mere $8.3 billion, then adding $104 billion, then adding $2.2 trillion, and finishing off the year with another $900 billion.

We’re now three months into 2021, and the federal government has provided yet another $1.9 trillion in Covid relief; and, the Biden administration has just asked for $2 trillion for infrastructure.

To put these amounts into perspective: A trillion dollars is today about 4 percent of GDP.

Back in 1969, Ol’ Everett was being funny when he referred to a billion dollars. Back then, a billion dollars was already real money. In 1969, the newest nuclear-powered aircraft carrier, the USS Enterprise, cost $451 million, not even $1 billion. The cost of the Apollo 11 mission to put the first man on the moon wast $335 million, not even $1 billion. Only two companies made more than $1 billion in profits (General Motors $1.7 and Exxon Mobil $1.3). A billion dollars, representing one-tenth of 1 percent of GDP, was a fantastic amount of money. Ol’ Everett’s statement that a billion here and a billion there and soon we’re talking real money was a wild understatement.

And, now, we’ve gone from thinking of spending money at a clip of one-tenth of 1 percent of GDP to thinking of spending money at a clip of 4 percent of GDP, as though 4 percent of GDP isn’t already real money.

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Millions are tumbling out of the global middle class in a historic setback


An estimated 150 million slipped down the economic ladder in 2020, the first pullback in almost three decades.


One of the most economically significant trends of the past few decades has been the emergence of a global middle class. The expectation that this cohort of consumers would continue to grow relentlessly, as rising incomes in developing countries lifted millions out of poverty each year, has been a central assumption in multinationals’ business plans and the portfolio strategies of professional investors.


You can now add that to the list of economic truths that have been upended by this pandemic. For the first time since the 1990s, the global ­middle class shrank last year, according to a recent Pew Research Center estimate. About 150 million people—a number equal to the populations of the U.K. and Germany combined—tumbled down the socioeconomic ladder in 2020, with South Asia and sub-Saharan Africa seeing the biggest declines.

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Markets Rally, but what about COVID?


This morning: Markets look set to rally strongly into Q2, but are they over-exuberant? The rise in deaths and new strains in Brazil hints the Covid war isn’t won yet, there are rising political risks in Europe, and widening wealth inequality is apparent everywhere. Just how solid are our expectations of stability, renewed global travel and recovery if Covid is here for the long-term?

We are now properly into the second quarter and, cosmetically, what’s not to like? These godless ‘Muricans kept markets open over the religious weekend (lest we forget; all the Sons of Adam were celebrating), and markets are all higher. Sentiment is opening up strong. No one seems particularly worried about the risks of rising bond yields or inflation – for the moment. The market has moved on. Summer is coming so buying boots on!

Driving the market’s strength are a number of factors including Friday’s blow-out US employment numbers and service sector growth on Monday. Low interest rates into perpetuity looks to be nailed on. As a result, the Dow and S&P are both at record levels. The frothy mood has been fuelled with some very strong sales numbers from Tesla and a host of puff-articles suggesting Bitcoin is apparently the perfect hedge on everything.

Meanwhile, Biden’s $2.3 trillion infrastructure fiscal spending plans have been seen as positive; even as the programme runs into predictable speedbumps from Republicans fuming about higher corporate taxes, while the Democrat left says it’s not enough. Janet Yellen’s call for a global corporate tax rate will fall on deaf ears. That’s all normal noise… The end of the pandemic means everything will get better! I can’t wait for normalisation – and the pubs to reopen!

But, there are always spoilers.

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Talk about a rough week at the office.

Over the past week, Wall Street has been picking through the implosion of a $10B fund called Archegos Capital Management.

A number of highly leveraged bets went sideways and the fund — run by industry vet Bill Hwang — went poof virtually overnight.

Per The Wall Street Journal, Hwang is purported to have personally lost $8B in 10 days while 2 global lenders (Credit Suisse, Nomura) are also reporting 10-figure losses.

While these numbers are big…

… the longer-term effects may send ripples through a much larger pile of money: The family office industry.

Family offices are privately held companies that manage assets for the superrich ($100m+ in investable assets) with the goal of preserving wealth over generations. The source of the funds can be from generational wealth or uber-successful entrepreneurs.

Per the Financial Times (FT), the industry’s numbers are staggering:

  • 7k+ family offices globally (up ~40% between 2017 and 2019)
  • ~$6T in assets under management across all the offices (nearly 2x the hedge fund industry)
  • $1.6B is the average family office holding

Here’s the kicker: the industry is very lightly regulated

While hedge funds, endowments, and pensions are accountable to outside money, family offices are able to stay a secretive affair.

Dan Berkovitz — a commissioner of the Commodity Futures Trading Commission (CFTC) — believes the current disclosure requirements are totally insufficient as reported by FT.

“The information required would fit on a Post-it note,” he said in a statement regarding Archegos. “And… the annual cost of the filing [is] merely $28.50.”

What will happen next?

While many family offices employ boring financial strategies to preserve wealth, Archegos — which had a peak portfolio value of $100B+ boosted by bank leverage — shows the risk.

Even though Hwang admitted to securities fraud in 2012 (and paid a $44m fine), leading investment banks were happy to have his business.

In the aftermath of the real estate crisis, the 2010 Dodd-Frank Act tightened financial regulation. Post-Archegos, the industry may see new rules for family offices, banking services, and the specific financial product used in Hwang’s trades (called total return swaps).

All of this seems totally reasonable…


Mike’s Editorial

Bad news for China’s goal of becoming a world financial centre but good news for our economy. Do Canadian politicians understand why?

Turkey’s slumping lira adds fuels to crypto trading boom


The Turkish lira’s dramatic slump has added fuel to a surge in cryptocurrency trading in the country, data showed, with investors hoping to both gain from bitcoin’s rally and shelter against inflation.

Turkey’s currency has lost over 13% since President Tayyip Erdogan fired central bank Governor Naci Agbal earlier this month, stoking fears of looser policy and rising price pressures that could erode the lira’s value.

The aftermath of the Agbal’s sacking accelerated an already growing boom in Turkey’s crypto market.

Trading volumes between the start of February and March 24 hit 218 billion lira ($26 billion) with a spike on the weekend of Agbal’s ouster, data from US researcher Chainalysis shared with Reuters showed, surging from a little over 7 billion lira in the same period a year earlier.

The jump echoes soaring global interest in crypto, driven by bitcoin’s rally to a record of just under $62,000 as major investors and companies embraced the emerging asset.

Yet investors in Turkey said a weaker lira and inflation pressures, as well as hopes of quick gains, have driven demand.

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