WM 6 September 2021

Quotes

Lessons & Thoughts of the week

How to spot a contradiction or when facts are ignored by the believers

If money was not making the world go round, what would it be? An answer= energy.

Growth = machines = energy

The main conundrum of today's world. How do you get rid of oil when 80% of energy is oil based and responsible for 200x increase in productivity over the last 200 years, but also majority of C02 emissions that the world is trying to stop! +How do you reinvent an economic model that takes into account the fact that natural resources are depleting and are currently accounted for as free (the price of natural resources is mostly reflection of capital costs, extraction opex and transport vs demand)

In 1974, a book entitled the Limits of Growth revealed a gloomy “Malthusian” prediction for the future of humanity, based on simulation model done by MIT professors and asked by the Club of Rome. It reviewed the interaction of natural resource depletion, population exceptional growth, industrialization and environmental degradation. The model looked like this. We have now passed the point of no return.

Trend, trade, volatility of volatility: check volatility smile

The two actors, who played Interview of a Vampire have not aged. Below is the picture of the above mentioned 57 year old and a 59 year old actors.

Macro news

Central banks balance sheet

US money supply

China money supply

When money supply growth below nominal GDP growth, asset prices fall (money that is spent is not saved)

UK money supply

Danger zone

USD 280tn+ of debt

Economy slowing down everywhere

Jobs opening suggests that slow down could be as much a matter of supply bottleneck than a problem of demand (for housing, cars etc )

China government is changing gear and focus on reorienting economy

In the US, the actors/the narrative is different but the direction is the same

SPX vs CNY: liquidity is king

Expect earnings growth to slow down as a result. If you look for a link between ISM and SPX yoy change, look no further

Real yields going down

Gold should react positively to this

Silver too

What could go wrong?

Meanwhile, one asset class continues to grab attention: crypto

Crypto: Where the big action was this week

Ethereum 2.0 looks like Bitcoin after halving. What’s the difference between Bitcoin and Ethereum. Bitcoin is the first cryptocurrency and was born in 2009 growing its base from “mining” supposed to create up to 21m coins by the end of time, while Ethereum came about at 2015 via an ICO starting its life with 72m coins. Bitcoin is characterized by “scarcity”, and is the “gold” standard of the crypto ecosystem, but not scalable. Ethereum is more “scalable”, but not as scarce. It’s a platform. The benefit of “scalability” is network effects. Coinmetrics shows that Ethereum has 61 million addresses with a non-zero balance versus 38m for Bitcoin. Ethereum 2.0 is a major catalyst for the crypto money. It cutting the supply to 11m at a time when the NFT boom is driving exponentional demand. Bottom line the coin could balloon in price. However, beware that when ethereum will become a reality in 6 months time, many coins will be brought back and the price will crash.

The other fever

Bottlenecks and inventories are very low levels

Consumer feeling the pinch after buying spree

Housing prices looking bubbly

Market still overweighting deflationary assets (ie growth+quality vs value)

EM vs DM: EM bonds in focus

Is S&P 500 unstoppable?

Sell at Yom Kippur and Buy at Rosh Hashana?

Fund flows already showing profit taking

IPO already showing supply of shares to increase

Just as equity holders deleveraging

New highs is bullish

But breadth poor

Bubble?

Some like it hot.

What about commodities

Copper/Gold

Carbon

China and commodities

Biofuel demand to drive new agro boom?

Commodities = ST pain for LT gain?

Uranium could be on the verge of a (very) big move, as Sprot is squeezing out inventory in a sector already in supply deficit: hip hip URA! As a reminder, 38c per pound spot compares with 56 cents production costs.Inventory shortages can be witnessed everywhere. In a world starving for energy and preparing for peak oil and net zero Co2 economy, nuclear energy is having a rebirth, notably in emerging markets. Demand is rising steadily but in the absence of supply, inventories are depleting. Put the arrival of an ETF in the mix and you have an “explosive” cocktail for a short squeeze. Like everything “nuclear” a small quantity can produce huge results.