finance
The laws of macro investing are being re-written, and investors who fail to adapt to the rapidly changing monetary environment will struggle to keep pace. Felix Jauvin interviews the brightest minds in finance about which asset classes they think will thrive in the financial future that they envision. Follow Felix: https://twitter.com/fejau_inc Follow Forward Guidance: https://twitter.com/ForwardGuidance Subscribe on YouTube: https://www.youtube.com/@ForwardGuidanceBW Follow Blockworks: https://twitter.com/Blockworks_ Forward Guidance Newsletter: https://blockworks.co/newsletter/forwardguidance Forward Guidance Telegram: https://t.me/+nSVVTQITWSdiYTIx
Matt Hougan of Bitwise and Bob Heber of Preficio have partnered to launch a new ETF focused on hedging against currency debasement. Hougan described debasement as the degradation of the underlying unit of account, the dollar, which he believes is accelerating. Heber provided historical context, noting that the dollar has lost over 99% of its value since the creation of the Federal Reserve.
The traditional 60/40 portfolio, composed entirely of fiat-denominated assets, may no longer be sufficient for diversification, according to Matt Hougan. He argues that assets like gold and Bitcoin offer a hedge against debasement, which is the erosion of the dollar's value against hard assets. This evolution is driven by concerns over fiscal and debt outlooks in global markets.
Bob Heber traced the history of currency debasement, stating that the US moved from gold and silver coins to the Federal Reserve system 100 years ago, marking the start of debasement. He highlighted that the US officially ended its link to gold approximately 50 years ago and is now in an 'accelerant phase' of debasement. Heber suggested that gold and Bitcoin serve as key assets to watch for investors seeking to diversify against this trend.
Bob Heber, founder of Preficio, shared that his firm has been operating for 12 years as a multi-family office managing $7 billion. He emphasized their unique model where family investments align directly with partner investments, ensuring shared interests. This approach led to their partnership with Bitwise, recognizing Bitwise's expertise in ETFs and Bitcoin, to develop their debasement ETF.
Legendary investor Stan Druckenmiller has penned an op-ed criticizing Treasury Secretary Scott Besson's alleged use of buybacks to defend against higher yields. Druckenmiller argues that artificial yield suppression acts as a subsidy to procrastination and that buybacks should be reserved for small, scheduled liquidity operations.
In his op-ed, Stan Druckenmiller stated that if the 30-year Treasury yield must trade at 5.5%, it signals a clear crisis. He equated this situation to an "invoice" for the nation's fiscal policies.
The market structure is described as being 'pinned' with little movement outside of 'debasement trades' like gold and Bitcoin, while equity markets are 'chopping around.' This is attributed to the summer doldrums, with traders likely waiting for Nvidia earnings, the Jackson Hole meeting, and the return of 'big money' after Labor Day.
The current market environment is characterized by low liquidity and volume, with policymakers intervening at an extreme pace. The speaker advises against making aggressive moves, noting that policy makers are actively trying to remove 'left tail risk' by pumping certain assets.
Tyler announced his departure from Muddy Waters, heading to Schotten Capital. He described the new firm's focus on "real things" like large industrial companies, as AI commoditizes software sectors. Tyler expressed excitement for this macro play and the secular trend of investing in hard assets rather than software.
The speaker suggests that government entities are actively working to suppress market volatility, shifting from the Federal Reserve to the Treasury. This policy is seen as a way to manage economic growth and potentially benefit the middle and lower classes by directing growth towards specific sectors, similar to China's approach with the Chips Act.
The discussion highlights a shift in economic policy from a Fed-driven liquidity model to a more active 'statecraft' approach. This new regime is characterized by fiscal dominance, where government actions are more directly aimed at influencing economic outcomes, potentially to create a more level playing field for different economic classes.
The speaker posits that government entities are actively intervening to control market volatility, citing examples where they 'smash' or defend markets when they reach critical points. This intervention is seen as a deliberate strategy to prevent wider market disruptions, particularly in the bond market.
Leopold Asbraener, a prominent investor in the AI trade, is reportedly seeking to raise capital as his market position is unwinding. News emerged that his firm had to sell off its public and private market positions, with Ken Griffin of Citadel reportedly stepping in to buy assets at a low point.
The Federal Reserve's recent meeting has created market uncertainty, particularly regarding their approach to inflation. Investors are questioning which inflation gauges the Fed is prioritizing, with concerns that a lack of clarity could lead to significant volatility in the bond market.
There's a discussion about the Federal Reserve's balance sheet policy and its impact on long-end yields. The sentiment is that a core question posed to the committee was how much accommodation the Fed's balance sheet is providing, with the potential to let the long end of the curve price to fair market value.
SK Hynix experienced an earnings miss, which is seen as the first significant downturn for the semiconductor sector in this cycle. The timing of this miss, coinciding with peak leverage in the system and market 'tape warfare', suggests a potential connection to the broader AI trade unwind.
The market is experiencing a significant "momentum factor implosion," particularly affecting tech stocks, with a four-standard deviation unwind observed. This is happening concurrently with Yen intervention and broader concerns about peak growth and inflation. Speakers express caution for those heavily invested in tech.
The recent Yen intervention by the Ministry of Finance is noted as occurring at the same time as a significant unwinding of momentum factors in the market. This parallel is compared to a similar event in July '24, suggesting a potential pattern where currency interventions coincide with market factor reversals.
Meta is reportedly considering selling its excess AI compute capacity, a move that has market watchers speculating about a potential oversupply. This news, coupled with a tweet about a memory efficiency breakthrough, is seen as a catalyst for the unwinding of the AI and memory stock rally.
A tweet predicting a significant breakthrough in memory efficiency, originating from a team spun out of OpenAI, has garnered significant attention. This information, circulating widely, is seen as contributing to the recent factor implosion and questioning the valuations of memory companies.
The US government's decision to rescind a 'fabled model ban' from Anthropic had no discernible impact on the market. This lack of reaction is highlighted as an indicator that market sentiment is not being swayed by such regulatory news.
Donald Trump's repeated tweets about Micron are interpreted as attempts to manipulate the stock, potentially due to personal investment. These efforts are described as 'not working,' suggesting a disconnect between his commentary and market movements.
The narrative of economic reacceleration, previously driven by AI, is now facing challenges as AI-related stocks show weakness. This comes at a time when inflation and labor data suggest a potential economic slowdown, creating a 'dicey' setup for the market.
The fair value of semiconductor and AI-related trades is questioned, with current market movements attributed to significant inflows into triple-leveraged ETFs rather than fundamentals. This suggests a disconnect between asset prices and intrinsic value.
Bob Sheehan of Lighthouse Macro discusses the Federal Reserve's messaging shift, moving away from the "Fed put" a market assumption that the Fed would intervene during market downturns. He believes this change is significant and should alter how investors view Fed policy.
Bob Sheehan of Lighthouse Macro details his career journey, starting at Bank of America in portfolio management, where he managed both large-cap equity and multi-asset portfolios. He later transitioned to macro shops like Trane Macro and Ström Capital Management, incorporating data science into his macro analysis.