Lots of random notes from all the media I’ve consumed over the past week. And here are notes from week 2 and week 1.
First, I recently shared some highlights from an intense book on currency crises, here’s a favorite excerpt:
Although many now-advanced economies have graduated from a history of serial default on sovereign debt or very high inflation, so far graduation from banking crises has proven elusive. In effect, for the advanced economies during 1800–2008, the picture that emerges is one of serial banking crises.
Next, here are some interesting charts I saw on Twitter, starting with a chart on why gold is likely to appreciate (source):
Hé lộ các tính năng thế hệ tàu ngầm mới nhất của Nga
Thursday September 10, 2020
Quân SựHỏi đáp – Thư giãnQuân đội Việt NamQuân đội nước ngoàiGóc ảnh – videoBình luận quân sự Clip: Tiêm kích Su-27 của Nga đụng độ máy bay Mỹ trên biển. Bá Di | 10/09/2020 14:13 Clip: Tiêm kích Su-27 của Nga đụng độ máy bay Mỹ trên biển Su-27 chặn đường máy bay trinh […]
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Personally surprised by how little of the US debt is actually owned by Japan and China, despite how much msm talks about it (source):
95% các token DeFi đang chịu lỗ sau đợt bán tháo tuần
Thursday September 10, 2020
95% các token DeFi đang chịu lỗ sau đợt bán tháo tuần. 95% các token DeFi đang chịu lỗ sau đợt bán tháo tuần qua Tháng Chín 10, 2020 0 Bong bóng tài chính phi tập trung (DeFi) dường như đã xuất hiện vào lúc này, . Với phân nửa các token DeFi hàng đầu […]
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Onto the random notes!
Lily Wu, The Crisis of China’s Investment Environment (source)
China cos are less profitable than those in US, but more worryingly, gross margins have shrunkg (for example, even as Alibaba has gotten much bigger, its gross margins have declined; one reason is Alibaba entering less and less profitable markets)
Another example: GM’s profit in China is $300 USD per car, versus $1K in the US
In semiconductors, TSMC has arguably widened its lead over China’s state backed SMIC
Chinese companies do well in new / emerging industries, but are most challenged when late to the game, and there are strong global competitors
The gov’t recognizes private entrepreneurs and private companies generally perform better
There are increasing localization requirements for foreign cos on things like IP transfer, localizing tech and content
McDonalds sold its China ops to PE
China has world class IP laws, but problem is enforcement, not transparent, and penalties not punitive enough
Some similarities to Japan in 80s, but China is 10x larger population, much more unpredictable than Japan
Today 75% of HK stock exchange by weighting is China cos! Main reason intl capital goes to HKEX is because denominated in HKD, which is an open currency system and pegged to USD
Some highlights from Matt Iglesias’s new book, One Billion Americans (Kindle)
More random notes from all the media I’ve consumed over the past week. Here are notes from week 3, week 2, and week 1. A few posts I published recently: Ray Dalio describes the 3 forces driving our economy Select highlights from Niall Ferguson’s The Ascent of Money — Top thing I learned this week […]
But the United States is not “full.” Many of its iconic cities—including not just famous cases of collapse like Detroit but also Philadelphia and Chicago and dozens of smaller cities like Rochester and Erie—actually have fewer residents than they had decades ago. And virtually all of our thriving cities easily have room to grow and accommodate more people.
Right now the United States has about 93 people per square mile. If the aggregate population tripled, then density would too. Many, many countries are far denser than this, including not just city-states like Singapore (more than 20,000 per square mile) or small island nations like Malta (3,913 per square mile) but also poor and arguably “overpopulated” countries like Burundi (1,127 per square mile). Successful developed countries that include a healthy mix of cities, suburbs, and countryside manage to far exceed tripling America’s population density. South Korea has 1,337 people per square mile and Belgium has 976.
And here’s Tyler Cowen podcast chat with Matt. The idea is kinda out there but it’s well reasoned, and inspires me to think bigger.
Ark recently put out an amazing whitepaper on bitcoin. I covered part 1 in the last random notes, and here’s part 2:
Bitcoin As An Investment, Ark whitepaper (source)
With little more than a 10-year price history, bitcoin has been the best performing asset of the 21st century. Five years ago, a $10,000 investment in bitcoin would have delivered a 119% compound annual rate of return and would be worth roughly $500,000 today. In fact, during any yearly holding period since inception through September 1, 2020, bitcoin’s return has been positive, significantly so in most cases
With daily trading volume of $3 billion, bitcoin’s spot markets are di minimis compared to U.S. equity markets, U.S. bond markets, and global foreign exchange markets. In other words, bitcoin trading is comparable in size to a large cap stock rather than an entire asset class. […] Compared to the “FANG” stocks, bitcoin’s trading volume is higher than that of Netflix and Google but lower than that of Amazon and Facebook, as shown below.
We believe that historical growth rates, bitcoin’s daily volume would exceed the volume of the US equity market in fewer than 4 years, and the volume of the US bond market in fewer than 5 years, as shown below.
Liquidity as measured by bitcoin-US dollar bid-ask spreads is illuminating. Today, at the largest trading venues globally, spreads can be di minimis at the top exchanges, as low as 0.0001%, as shown below. For comparison, the average US equity bid-ask spread is roughly 0.035%, suggesting that bitcoin often is more liquid than the average publicly traded equity.
With hindsight, to construct a portfolio with bitcoin while maximizing the Sharpe Ratio or minimizing volatility at the efficient frontier, an investor would allocate between 0.27% and 6.55% to bitcoin.
Gold expert Marin Katusa on TIP
Big fan of Equinox Gold, it’s profitable even at $1100 gold (per oz)
17 rare earths, US used to be big producer, China biggest now, but very hard to buy from China, have it shipped, and have it be good quality
Massive stimulus coming after November election
Will see $2K+ gold prices soon
Gold miners staying disciplined this cycle unlike 2007-2012
Japan is MMT case study; covid was excuse for govts do MMT, and it will continue even after covid is gone
Barricks (GOLD) is a leader in preaching discipline; it wasn’t Buffett but one of managers that did the research
Marin believes people are underpricing geopolitical risk big time re gold miners
Ray Dalio on Bloomberg — among all the financial pundits, Dalio offers perhaps the clearest – yet nuanced – understanding of what’s going on in today’s crazy financial world. But not when it comes to bitcoin. I think he just hasn’t learned enough about it…it’s probably not big enough for him to care (yet).
1. End of the long term debt cycle which started in 1940s
2. Most divided political and wealth inequality
3. Rising global power in China
Central Bankers control capital markets now, coordinated with central government. “They’re the market makers”
Central Bank balance sheets will explode. They’ll go as far as they need to in order to keep system functioning
History shows a perfect track record of doing this
Risk premium is driven by amount of liquidity injected, PE ratios going to 40, 50 is no more implausible than zero interest rates
Capital markets drive the PE and risk premiums more than the real economy drives the capital markets
“You don’t want cash and you don’t want bonds”
What is the storehold of wealth? “It’s the reciprocal of the value of money”: Equities, Gold, an alternative currency (eg, mentions China digital currency), “reflation assets”
Most analogous period to today is war period of 1930 to 1945 (me: this is similar to Lyn Alden’s writings)
US can’t let interest rates rise, because interest payments will rise and asset prices will fall
“We’re in a fiat monetary system”
Thucydides Trap – in the last 500 years, 16 times a rising power challenged a dominant power, and 12 times there were shooting wars
Compared to China, question for US is “how well are we playing the game?”; they’re on other side of chess board, smart, have historical perspective
Why Tokyo, despite significant population growth, has seen far lower increases in housing prices compared to the US:
As FT’s Tokyo bureau chief Robin Harding wrote in the article, the city had 142,417 housing starts in 2014, which was “more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m).” Compare this, also, with the roughly 20,000 new residential units approved annually in New York City, the 23,500 units started in Los Angeles County, and the measly 5,000 homes constructed in 2015 throughout the entire Bay Area
Fascinating book excerpt on how Genghis Khan was able amass so much gold and silver and issue his own paper money:
Let me tell you further that several times a year a fiat goes forth through the towns that all those who have gems and pearls and gold and silver must bring them to the Great Khan’s mint. This they do, and in such abundance that it is past all reckoning; and they are all paid in paper money
Lyn Alden with another clearly argued essay on why fiscal policy will likely drive inflation:
So, historically, the difference between a normal short-term deleveraging event and a long-term deleveraging event, is that the long-term version usually includes a significant component of currency devaluation
Even an example from 2600 years ago captures today’s situation in an eerily accurate way:
In the Athens of 594 B.C., according to Plutarch, ‘the disparity of fortune between the rich and the poor had reached its height, so that the city seemed to be in a dangerous condition, and no other means for freeing it from disturbances seemed possible but despotic power.’ The poor, finding their status worsened with each year- the government in the hands of their masters, and the corrupt courts deciding every issue against them- began to talk of violent revolt. The rich, angry at the challenge to their property, prepared to defend themselves by force. Good sense prevailed; moderate elements secured the election of Solon, a businessman of aristocratic lineage, to the supreme archonship. He devalued the currency, thereby easing the burden of all debtors (although he himself was a creditor); he reduced all personal debts, and ended imprisonment for debt; he cancelled arrears for taxes and mortgage interest, he established a graduated income tax that made the rich pay at a rate twelve times that required of the poor; he reorganized the courts on a more popular basis; he arranged that the sons of those who had died in war for Athens should be brought up and educated at the government’s expense. The rich protested that his measures were outright confiscation; the radicals complained that he had not redivided the land; but within a generation almost all agreed that his reforms had saved Athens from revolution
Japan, as the largest creditor nation in the world currently, is the one example out of 52 that has avoided that outcome vs the other 51 examples. Japan didn’t fix their problem; with record debt-to-GDP, they likely just delayed and mitigated it far better than most. Their sovereign debt as a percentage of GDP has continued to increase, pushing the previously-known boundaries on how much debt a sovereign entity can hold
It’s like the Titanic hitting an iceberg; once struck, the outcome of sinking became almost inevitable, and yet the ship persisted in a state of being afloat and slowly sinking for quite a while. It became a question of timing, and most importantly, acquiring lifeboats.
The economy superficially recovered from those 2009 lows, especially in terms of asset prices, but GDP growth was slow by historical standards throughout the cycle, the labor participation rate among prime age workers never fully recovered to pre-crisis highs.
Instead, whether QE is inflationary or not, largely depends on whether it is accompanied by high fiscal spending, since QE’s role in that environment is merely to recapitalize the banking system and monetize those fiscal deficits
The long-term structural trend is towards lower inflation or outright deflation, and normally, that would be a good thing. As humanity’s technology progresses and productivity improves, it would be natural for your money to buy more goods and services than it could 5 or 10 years ago, rather than less. However, because we structured our economy around a debt-based system, deflation is viewed by policymakers as the biggest enemy; something to be fought off wherever it shows up, so they seek to counter that inherently deflationary trend with inflationary monetary and fiscal policy
If fiscal policymakers realize that the economy is stagnant and banks aren’t lending, they can pass fiscal bills to go around the banks (or through the banks by backstopping loans for them) and get money directly to consumers and businesses, aka “helicopter money”. This could take the form of higher spending, or could take the form of unfunded tax cuts, or both
Michael Saylor goes on the Pomp podcast to explain his decision to invest almost the entirety of Microstrategy’s corporate treasury in bitcoin:
Microstrategy (MS) stock went from $330 to 42c after dotcom bubble (!)
Would never buy 30yr bond at 2%
One of the longest tenured public company CEOs
Risk free rate used to be 5%!
Asset inflation ~7% but this year it’s more like 25-30%
MS business model got better thru covid, reduced cost structure (no travel, no conferences) and customers stuck around (govts, big biz)
Limit to how much stock buyback you can do without moving price, would take MS 4 years
Hated remote work, but adjusted now
Went thru all asset options for investing the $500M:
Commercial RE isn’t fairly priced right now, impaired asset
FANG tech stocks overpriced now
Considered precious metals but bitcoin better
Wants something that can be cut in half but also go up 10x
All winning cos were tech cos in their time from Nestle to Boeing
Looked at defi and other coins but thinks bitcoin’s focus on PoW and SoV and all this energy invested means it’s got best chance
“It’s already won”; Believes $100B is this threshold after which you win, if you have a network and a dominant position
Vetted bitcoin institutional exchanges, custodians, got to know teams well, then did 1000s or more transactions every day over period of time
Confident he didn’t materially move the market, “let the market come to you”
“Every CEO had a lot of assumptions shaken this year” from TikTok to remote work to macroeconomy
Putting bitcoin in corporate treasury “It’s like the 4 minute mile”. Didn’t think it could be done, now someone has done it and next year dozens will do it
A nimble public co takes 6 mos to do what MS did, a rational big public co takes 9-12 mos, expects more to follow late this year and into next
“It’s not 10x better than gold, 100-1000x better”
3500 publicly traded cos, $5T in their treasuries
“There’s a negative real yield on anything else I can buy”
$200T or more of negative real yield on treasuries, precious metals, etc,
bitcoin’s upside is not just gold mcap
Wonders why Dorsey with $10B between Square and Twitter doesn’t buy $500M?
Pomp believes Dorsey has more pressing problems eg dealing with activist investors
Amazed at the community ethos
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Mises
I learned from Wondery’s Business Wars podcast that when Dominos and Pizza Hut began to offer delivery, there was a legal battle and protracted fight between HQ and franchisees, because franchisees thought it would lower quality of product and cannibalize store sales!
Niall Ferguson and Michael Casey on Laura Shin’s Unchained podcast:
Niall Ferguson notes:
Son first got him into it, if he had bought bitcoin at that time he’d be retired
In developed countries inflation not a problem, only in first decade of existence, problem is actually the opposite (deflation)
Monetary policy was often set by merchants in eg Western Europe. State has not always been driving force
Bitcoin = option on digital gold for now, eventually will be digital gold
US no longer at edge of financial and monetary innovation; leaders have pathology that rejects new innovations like digital currency and ignores China wechat / Alipay
KEY: “Present situation is not a steady state”
Expectations of US stability and dominance will undergo a step change, and the alternatives are not obvious
We are in early stages of pandemic, usually pandemics are 2 year affairs in history
Next phase will be how China does with digital currency and digital payment platforms
Michael Casey notes:
He got into bitcoin because of Argentina, lived there, saw firsthand their history of dysfunction in public finances
For him it’s not about scarcity but rather about trust of governance, of transparency
On the importance of focus and presence for productivity and flow:
To get things done, you have to do. That’s it. You need sitzfleisch (ZITS–flysh), or “chair glue,” which—as Quartz’s Anne Quito notes—is a German word for the ability to sit through a boring or complex task for a considerable amount of time, however long it takes.
Peter Seishin Wohl of the Treetop Zen Center in Oakland, Maine tells a story about watching Soto Zen monks in Japan—who dedicate their lives to cultivating philosophical focus through meditation—cleaning a monastery. They work speedily, practically running as they dust. This demonstrates that slowness isn’t the goal of focus. “Zen has nothing to do with the speed at which we do things and everything to do with the intimacy with which we do things. And by intimacy I mean, not forming a separation between ourselves, our minds, and the activities we’re involved in,” Wohl explains.
Finally, Cass Sunstein on the power of nudge:
A simple intervention is to alter the institution’s default printer setting from “print on a single page” to “print on front and back”. A number of years ago, Rutgers University, in the US state of New Jersey, adopted such a double-sided printing default. In the first three years of the new default, paper consumption was reportedly reduced by well over 55 million sheets, or 44%, the equivalent of 4,650 trees. Similarly impressive results were found at a large university in Sweden.
That’s it folks. All typos and misrepresentations are 100% mine!
If you want more, here are the last two weeks:
Til the next one!