In the northern hemisphere, May marks the last month before summer begins, and at Lykeion, it also marks the end of Tim’s annual spiritual and surfing retreat in Central America. This period is traditionally followed by as many months as his Visa will allow for in Europe. France, Malta, Austria, Spain, and Portugal are all in the works.
This segment of the year is where Tim does his best work: he gets to overplay his California surfer looks, overindulge in proper Aperol Spritz, learn a couple of words in a new language (usually forgotten a couple of days later because of the Aperol), and, above all, spend some time with his former analyst turned business partner whom he first tried not to hire, and subsequently fired several times… can’t really blame him tbh. (If you don’t get that previous joke, you can learn a bit more about our team here.)
May also marks the completion of the rebranding of our website, which will finally allow us to re-launch Instagram (don’t roll your eyes boomers…).
With that, as is customary, here’s the wrap of what we wrote this month, in case you were too busy watching the European football season finale / Rolland Garros / F1 Grand Prixes / NBA Playoffs or binging Peaky Blinders.
May was, without a doubt, a macro month – which is why we had back to back macro updates from Roger (more on this below). But nothing caused more debate and drove more sensationalistic headlines than the Luna/Terra blow up. North of $50 billion was wiped out in a matter of days, and many reputations were destroyed overnight (big shout-out to Remi Tetot, who was extremely bullish on Luna and, during the collapse, acknowledged his mistakes head-on). Besides the obvious pain, what matters most, in our own opinion, is that crypto, whilst incredibly volatile and full of promoters, is one of the few areas within capital markets where Creative Destruction is allowed to run its course.
The bear market is probably not over (some would argue it’s just getting started), but the industry is slowly clearing out projects that shouldn’t exist in the first place. It’s a painful, but healthy and necessary process. There are no ‘zombie company’ equivalents in crypto – and that’s a good thing. Once the market decides a project shouldn’t exist because its product no longer serves a purpose (or it’s a fraud) it goes away, immediately. No bailout, no mucking about. That’s capitalism.
Macro Update, Volume I. After correctly calling a negative surprise shock on economic growth in April, Roger followed up in May with an update on how a significant devaluation of the Japanese Yen could turn into a wider currency devaluation war amongst exporting countries in Asia.
Keep an eye on the 50-year downtrend break of the Yen. This matters to all of us as most of the goods we buy in the west have at least some part of their supply chain in Asia, and more likely than not, the entire supply chain runs through this region.
Macro Update, Volume II. Tech’s underperformance has continued throughout the month (despite the bear market rallies) and steering away from being long duration, the preferred investment strategy of the last decade, has become the prevailing consensus view of market participants. For the first time in a very long while, contrarian investors might be able to finally add some exposure to tech companies at a reasonable valuation.
Additionally, Roger likes:
- Eurodollar futures if you want to express the view that the market has moved too far too fast on expectations of higher rates.
- Replacing owning stocks by owning call options on commodities producers if investors want to lock in some profits and avoid the negative impact of a significant economic recession (which affects demand for commodities) whilst still participating in the upside if commodities names continue to do well.
We’re all used to Tim’s rants on energy policies, and this update adds additional color to one astonishing fact:
“Over the last 20 years, across four Presidents (two Republicans and two Democrats) we have had exactly one energy secretary with any real-world energy experience before they were brought into the President’s cabinet.”
That said, what I liked most this month was his broader framing of the student debt bailouts discussion (I had never spent much time on this topic as my entire degree at Nova SBE cost around €3,000 [Tim’s Note: I just punched a hole in my laptop screen reading that]):
“ …if the question was simply, “Should we cancel student loan debt?”, my answer would be, “No”.
The problem is that’s not really the question.
The real question needs context, like this: “Given the fact that over the last few decades, every time a business goes bankrupt because they overleveraged themselves and acted irresponsibly, the government bails them out, should we not consider a bailout for students? Before reacting, realize that most students (who tend to be much less experienced than the corporate executives who were granted bailouts) were told a fairytale when they were still in the prepubescent stage of their life, that in order to ‘make it in this world’ society was going to demand of them a degree from a good school. However, for the most part, their mom and dad can’t pay for the degree and because of the exorbitant costs, in order to become that productive member of society they’ll need to take out a loan at an interest rate that would make a loan shark blush.””
That's it for this month! Obviously, none of this is investment advice.
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As always, we'll see you out there...