Archive

We look back at what we’ve written over the past month.

Remittances, Revenue per FTE, CAPEX by Industry, High Yield Debt with Negative Interest, Dying From... , Sub 3-Hour Flights

We look back at what we’ve written over the past month.

Improving collateral will reduce BTC volatility going forward, and NFTs are an overheated market that might open up many future opportunities.

Whilst ‘Tapering’ in 2013 meant higher yields, this time around, if it does take place, it’ll likely lead to lower yields.

US Spending vs. Income, SPX:TLT, TSA Traffic, Generational Debt-to-Income, Google & Apple, Share Buybacks

If you believe in inflation or deflation, chances are, you’re somehow right. For now. But we need to dive deep to figure out what the future holds for this ‘debate of our time’

Record-high equity inflows promise a continued liquidity bonanza for markets, while the oil supply and demand imbalance is likely to grow more acute than what consensus expects.

Why green bonds have a premium and what sustainability-linked debt is solving for.

Global PMIs are closely correlated with growth in the global money supply. So we asked our contributor network why this matters, and their answers range from fundamental, to techinical, to philosophical (thanks Sune!)

Despite a challenging Q2 price performance, BTC fundamentals continue to highlight healthy developments.

Debt-Driven GDP, Financial Industry Penalties, Nuclear Power, Declining Energy Intensity, Gross Output, GDP per Capita, Loan-to-Deposit Ratio

Economic and markets indicators are telling us two different stories about inflation.

A surging dollar could have significant implications for reflation, emerging markets, and volatility.

We asked our contributor network why they believe the Inverse Head & Shoulders forming in the DXY matters. Here are their responses.

CapEx and R&D to Earnings, Share Buybacks, Labor Participation Rates, Uranium Fuel, and Investor Led Rounds

Whilst ‘Tapering’ in 2013 meant higher yields, this time around, if it does take place, it’ll likely lead to lower yields.

How different carbon programs mechanically work and what they are intended to actually accomplish

The Fed’s Reverse Repo facility is at an all-time high. But “Why Does This Chart Matter?” Find out what our contributors think; Mike Green, Jeff Snider, Luke Gromen, Seth Levine, and Roger Hirst

The energy debate is not new and is brought up in every crypto market cycle.

Claiming an ESG investment as an “investment for good” is, today, still an exercise of wishful thinking. Right now, fixed income and alternative investments offer the greatest potential for impact to be measured and scrutinized. We also take a look at ESG scores and their limitations.

Does the correlation of Bitcoin to the ever-expanding Fed Balance Sheet matter?

Bitcoin’s still up +320% in the last 12 months. Its share of total crypto market cap has shrunk to 44% from 70% in early January as Altcoins (other than Ethereum) continue to grow market cap at a faster pace than BTC and ETH.

Positioning in the market has become less extreme, especially ahead of what has historically been a lower return period for the stock market. Also, Carbon allowances are one example of how governments use open markets to encourage compliance with their long-term targets.

FinTech, Historic Equity Flows, OPEC Spare Capacity, Market Valuations, and Available Cropland

Sustainable Finance is a new theme at Lykeion. It made it into our newsletter line-up not because it’s a market movement trying to bring down capitalism, but because it’s a financially material way to bring sustainability into capitalism – the birth of Conscious Capitalism.

When the TIPS Yield Curve inverts, things tend to happen in a big way

The reflation trade is still alive, but it has been somewhat under threat lately. Gold miners could potentially be the conservative opportunity to look into right now. We also explain why wind, solar, and EVs won’t be the solution we want them to be.

The long-run dollar shortage trend is the current monetary state we live in, where global economic growth is outpacing the supply of the global reserve currency. Hence, we’re net short the dollars required to run our interconnected global economy, which helps strengthen the US Dollar in the long ter…

What Bitcoin was created to do and what major advocates currently say it should be used for are two very different things. Bitcoin’s store of value narrative is valid, especially given its technological features (secure network and finite supply) and the current macroeconomic environment (worries ab…

Short-term vs long-term inflation expectations are telling two different stories about the fundamental strength of the economy. We believe inflation will pick up in the short term due to pent-up demand and base effects, but also expect that acceleration to quickly fade throughout the year.

Low rates are Not Inflationary, Commercial Bank Credit, Historical Inflation Subcomponents, Bridgewater’s Outlook, Steepening Yield Curve, and the US Debt Forecast

The Eurodollar Market is one of the most influential and least understood drivers of financial markets. We explore the origins and developments of the Eurodollar market and conclude that without efforts to fully understand it, we’re unlikely to successfully control US Dollar inflation.

January’s activity in the equity markets broke many records, helped by the increased participation of retail investors. But if history is of any help, retail investors tend to underperform, and we believe it’s unlikely that they’ll continue to be as active as they’re now in the medium to long term.

CPI vs. Real Inflation, Chile’s USD Situation, Operation Warp Speed, Oil Rigs & Productivity, Debts, Deficits & the Fed Balance Sheet, and Decomposition Rates of Marine Debris

The reflation narrative has become the overwhelming consensus view for 2021. This implies a weaker dollar, higher bond yields, and outperformance from emerging markets and commodities. As always with consensus opinions, several risks lie ahead of this narrative, chief among them is the potential for…

MicroStrategy Converting Fiat to Bitcoin, ZIRP and Intrinsic Valuations, Fed Balance Sheet, Labors Share of Output, Private Capital Flows, and Size of Fiscal Relief Packages

US Tech, Gold, and Bitcoin did very well, whilst the US Dollar and Crude Oil were the big losers. Markets rewarded businesses that did well during the lockdown (Digital and Logistics) at the expense of those who were severely affected by it (Airlines and Retail).

Do we expect reflation to be driven by global economic growth, or by “lower quality” drivers such as fiscal spending and weaker USD? Whilst the impact on asset prices might be similar, the latter narrative is weaker and should make market participants more cautious.

S&P500 the Fed Balance Sheet, Bitcoin Correlations, Ford and GM Merge to Battle Tesla, Interest on Debt, Real Wage Growth, and ESG Holdings

Recent news from Pfizer/BioNTech and Moderna have ignited one of the biggest rotations towards value in the history of financial markets, as well as potentially present a case for a continued steepening of the US yield curve.

Deteriorating fundamentals will lead to a globally synchronized move away from the USD as a reserve currency. Inflation, Momentum, Purchasing Power Parity, Mean Reversion, and the Global Commodity Production cycle all pulling the USD down in this current down cycle.

US Dollar Bull Run, Lobbying Spending, US Debt-to-GDP, US Military Spending, and Peak Oil Demand

Whilst the most common argument against MMT refers to the risks of growing inflation, the larger risk to consider is the increased size of the government’s share in the economy, which is likely to lead to the misallocation of capital and a less productive economy overall.

Given the strong market performance throughout summer, the political uncertainties ahead, and the risks of the current short gamma positioning of many market participants, we believe that risk is skewed to the downside and that volatility is likely to pick up in the near term.

Having recently read Lord Mervyn King’s book, The End of Alchemy, we thought it would make sense to share some of his ideas given the relevance of his experience as Governor of the Bank of England during the GFC. Probably the best book that came out of the 2008 Financial Crisis.

Given the recent $20 trillion of stimulus sponsored by governments and Central Banks all over the world to keep the global economy afloat amidst the COVID pandemic, we asked ourselves who and especially how are we going to pay for this spending regime.

Despite a non-eventful month, gold is up 20% since June and has now reached nominal all-time highs. We wonder if this finally signals a potential return to inflation? Early to say, but definitely interesting to follow. Moreover, the US Dollar had the worst-sell off in July since September 2010.

Many global data points appear to be carving out a V-shaped recovery. This is deeply misleading, merely reflecting the depth of the economic decline, rather than the success of the rebound. Leaders are already preparing to add yet more stimulus.

Passive investing, systematic selling of volatility and illiquid markets are the primary drivers of the current market structure. And the drivers of the current market structure are what mainly explains market performance, which then informs regulators and influences reforms and regulation.

U.S. government debt has grown to +$26 trillion today and for the first time in history, total debt to GDP will rise above 100% in 2021 (potentially 2020 depending on continued COVID response). Unsustainable growth in debt levels will, at some point force the current system to change.

We’ve seen a huge amount of new retail investors joining the financial markets, with the ambition of finding opportunities to “buy the dip”. We’ve started to study the potential solutions for the economic and financial distress we’re facing, which ends up driving political and social tensions across…

The increase in bankruptcies will primarily take place amongst small, often family-run businesses who struggle to secure emergency funding. Struggling large-cap listed entities, on the other hand, can tap into the capital markets and benefit from the intervention of central banks.

We are witnessing one of the largest divergences between the financial markets and the real economy, in history. Understanding the divergence exists is paramount to understanding what potentially comes next.

Governments and central banks will do everything in their power to help the economy stay afloat, but the current backdrop is one of fragile debt, low levels of inflation and slower demographic growth. In the short to medium term, the global economy is likely to see deflation.

The shifting of bankruptcy risk from corporations and investors to society may fundamentally force us to rethink modern capital structure theory, as well as the long-term societal impacts. We explore a potential ‘fix’ that may work in a new, slightly more socially responsible, future.