Featured Article
By now, you’re probably familiar with Gartner’s Hype Cycle, a visual representation of how momentum for new technology builds over time.
It’s something to keep in mind as we hear more and more about cryptocurrencies and where they will play in financial services and capital markets in the years ahead. After what some have called the crypto nuclear winter of 2018-2019, crypto is coming through the “trough of disillusionment” and it is now something you shouldn’t ignore — not simply because of the market price of the currencies themselves, but how cryptocurrency is becoming and will become a platform economy going forward.
We already live in a platform economy. Amazon, Google and Apple are the most visible examples of platform economies where these companies have created technology-driven platform models where they engage with users and consumers instead of making physical things. Platforms are about connections, data, sharing and utility for the user. We have many transaction platforms and investment platforms that are part of the digital economy. And as the platform economy evolves it will be more efficient if it has its own platform currency.
Which brings us back to cryptocurrencies. Remember, although we take fiat currencies as the norm (fiat currencies are government back currencies not linked to a commodity such as gold), fiat currencies are only 50 years old. In August 1971, American President Richard Nixon decoupled US dollars from gold, establishing the beginning of fiat currencies on a global scale.
So don’t fall into the trap that the current fiat currency system will last forever. As platform-based digital economies continue to grow rapidly and without borders, it will be inevitable that they will look for an evolved currency environment to fuel and support their growth.
And that’s where cryptocurrencies come in. More on that in my next piece.
DH Kim is the CEO of Finhaven Capital and the Finhaven Private Markets
We live in a time of radical monetary policy and dramatic technological change. Cheap money finances innovation, and innovation helps hide the full effects of cheap money. In the process, everything we know about work, investment, and consumption is being redefined.
To understand what this means in practice, let’s start with a familiar example.
Taken for a Ride
Uber has more than 100 million customers and is synonymous with “getting from A to B.” But this does not mean it has a good business. On average, every time someone takes an Uber, the company loses money. Over the past decade, investors kept Uber from going bankrupt by pouring more money into the company. In essence, these investors are subsidizing Uber’s customers.
Uber and its investors are part of a bigger trend which Derek Thompson first described in 2019. Companies such as Casper, Peloton, Uber, WeWork, DoorDash, Lyft, and Postmates lowered their prices to a loss-leading level in order to maximize their growth. They got more customers but lost money on every sale. By doing so, these companies and their investors helped fund the lifestyle of their customers — mostly young people living in cities. Thompson calls this the “Millennial Lifestyle Sponsorship.”
This strategy offers important hints about the future of other businesses and professions. But before we get to these, we need to understand how technology and monetary policy enable the Millennial Lifestyle Sponsorship and why this strategy is more reasonable than it sounds.
Losing Interest
“Money never sleeps,” Gordon Gecko explains to a young banker in the original Wall Street movie. Gecko is referring to the fact that markets are always open somewhere. But his deeper message is that money cannot rest: it needs to generate more money. Sleeping means missing out on investment opportunities and losing value to inflation.
CNA Financial Paid $40 Million in Ransom After March Cyberattack
(Bloomberg) — CNA Financial Corp., among the largest insurance companies in the U.S., paid $40 million in late March to regain control of its network after a ransomware attack, according to people with knowledge of the attack.
The Chicago-based company paid the hackers about two weeks after a trove of company data was stolen, and CNA officials were locked out of their network, according to two people familiar with the attack who asked not to be named because they weren’t authorized to discuss the matter publicly.
In a statement, a CNA spokesperson said the company followed the law. She said the company consulted and shared intelligence about the attack and the hacker’s identity with the FBI and the Treasury Department’s Office of Foreign Assets Control, which said last year that facilitating ransom payments to hackers could pose sanctions risks.
“CNA is not commenting on the ransom,” spokeswoman Cara McCall said. “CNA followed all laws, regulations, and published guidance, including OFAC’s 2020 ransomware guidance, in its handling of this matter.”
In a security incident update published on May 12, CNA said it did “not believe that the systems of record, claims systems, or underwriting systems, where the majority of policyholder data – including policy terms and coverage limits – is stored, were impacted.”
Bonds aren’t working as a safe haven like they used to.
On a day when risk aversion swept across everything from stocks and commodities to crypto currencies, Treasuries barely budged. In fact, the S&P 500 and 10-year Treasury futures haven’t been so positively correlated since 1999, with the 60-day metric reaching 0.5 on Wednesday. In contrast, the average correlation over the past two decades was negative 0.3, meaning a decline in stocks was often accompanied by a rally in bonds.
The relationship flip signals that the role of Treasuries as a shock-absorber has been eroded as the fear of inflation becomes a common denominator for both stock and bond investors. If it persists, it would mark a sea change as strategies such as risk-parity and 60/40 are likely to become more volatile.
“Long bonds as your hedge worked in a Goldilocks era” of stable growth and inflation, said Charlie McElligott, a cross-asset strategist at Nomura Securities. “But now, due to the pandemic response, that old dynamic simply no longer applies. Inflation is a volatility catalyst.”
The stock-down-bond-up scenario that investors have grown accustomed to has only been a staple since 2000. Earlier, a positive correlation had been more common as inflation was more volatile.
While the core U.S. consumer price index increased in April at the fastest pace since 1982, the Federal Reserve has insisted the surge is “transitory” and the central bank will be patient in removing monetary stimulus. If the Fed is right, the bond-stock correlation could normalize, said McElligott.
“Only in the case of an extreme inflation overshoot would the Fed’s hands be tied,” forcing it to raise rates more quickly and crash both bonds and stocks, he said.
-
I know Mike is a very solid investor and respect his opinions very much. So if he says pay attention to this or that - I will.
~ Dale G.
-
I've started managing my own investments so view Michael's site as a one-stop shop from which to get information and perspectives.
~ Dave E.
-
Michael offers easy reading, honest, common sense information that anyone can use in a practical manner.
~ der_al.
-
A sane voice in a scrambled investment world.
~ Ed R.
Inside Edge Pro Contributors
Greg Weldon
Josef Schachter
Tyler Bollhorn
Ryan Irvine
Paul Beattie
Martin Straith
Patrick Ceresna
Mark Leibovit
James Thorne
Victor Adair
Mike’s Comment
on Saturday, 22 May 2021 10:32
The Bank of Canada says high housing prices are a big worry. Ironic because they’re the one who created the problem with record low interest rates – and now they’re stuck.