Money Guide | economic paradoxical ironies
Also: Indicators, World Watch, Quick take, Weekly Agenda, News, Musings, Opportunities
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In this issue: Crypto ETF hype, European rate-hikes, Chinese hidden debt, Share ownership concentration, Fading Tech rally, Brazilian ESG bond, and a few thoughts on economic paradoxical ironies
*🔒 Forecasts, analysis and additional information locked in the following sections are available only in the premium edition of Money Guide for paid-subscribers
Indicators
The Money Guide Indicators provide you with a macro overview at a glance of financial markets and more detailed information when you zoom-in
Do you want to know more about its components and how are they evaluated?
Part 1: How to read the Indicators from Money Guide
Part 2: Inflation Rates, Central Banks' Rates, Sovereign Bonds, Currency Exchange Rates
Part 3: Commodities, Stocks, Crypto
World Watch
The Money Guide World Watch provides you with a macro overview at a glance of the main situations that can negatively influence economic and financial markets
Do you want to know more?
2023 Threats
2023 Threats’ status updates
My Quick Takes
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Colored circles in Money Guide refer to estimations of possible economic and financial impact:
🟢=positive mid-term forecast
🔴=negative mid-term forecast
⚪=neutral mid-term forecast
Weekly Agenda
All times are US ET (UTC-4)
Monday, June 26
--
Tuesday, June 27
08:30 🔒 CA Inflation Rate report
(Previous: ***, Expected: ***)
Wednesday, June 28
--
Thursday, June 29
--
Friday, June 30
05:00 🔒 EU Inflation Rate report ⚠️
(Previous: ***, Expected: ***)
08:30 🔒 US Personal Consumption And Expenditures Index report (Core MoM) ⚠️
(Previous: ***, Expected: ***)
⚠️Probable high volatility when information is released to the public
(Click here to read about the usual market behavior)
News
📰 🔴 Rate hikes echo around the world as inflation proves unrelenting | The Bank of England and its Norwegian counterpart each accelerated their tightening with half-point rate moves, and promised more to come. Swiss officials showed they’re not ready to call time on monetary action either, even with inflation near 2% (link)
📰 🟢 China begins nationwide push to reveal hidden government debt | China has begun a fresh round of nationwide inspections to work out how much money local governments’ owe, a sign that authorities are preparing to take concrete steps to tackle a key financial risk (link)
📰 ⚪ US 401(k) plans have never been hotter. That's changing the stock market | More Americans than ever are saving for retirement and more Americans than ever are doing that by investing in 401(k) plans. That’s helped usher in a fundamental change to the investing landscape: Power on Wall Street has consolidated among the four largest asset managers of these plans -BlackRock, Vanguard Group, Fidelity Investments and State Street Global Advisors (link)
📰 🟢 Google Cloud Launches AI-Powered Anti Money Laundering Product for Financial Institutions | The risk score is based on the bank's data including transactional patterns, network behavior, and Know Your Customer (KYC) data to identify instances and groups of high-risk retail and commercial customers. The product can adapt to changes in underlying data, delivering more accurate results, which increases overall program effectiveness and improves operational efficiency (link)
📰 ⚪ Bitcoin price hits its highest level in a year | Bitcoin on Friday shot up to its highest level in about a year. The cryptocurrency rose above $31,400 a coin, its highest level since 2022, before paring back its gains (link)
📰 ⚪ EDX crypto exchange goes live offering Bitcoin and Ether trading, backed by Schwab and Fidelity | EDX has said it strives to “meet the needs of the world’s largest and most sophisticated financial institutions”. To quell any fears about misuse of funds, EDX plans to operate as a “non-custodial” exchange, meaning that rather than handling customer assets directly, it will act as a platform on which a network of firms can execute and settle trades between crypto assets and fiat currencies (link)
Musings
💭 🔴 Why inflation around the world just won’t go away | Roughly a year into their campaign against high inflation, policy makers are some way from being able to declare victory (link)
💭 ⚪ ECB’s Stournaras says hikes may end in 2023, warns on recession | While some Governing Council members warn that monetary tightening may be required beyond the summer, others are wary of speculating on the outcome of September’s meeting so early (link)
💭 🔴 Latecomers to 40% Tech stock rally arrive in time to see it fade | Whether just a breather on a longer ascent, or a peak, the jolt comes at an uncomfortable juncture for latecomers who for months resisted the lure of a tech rally that looks fragile under the threat of economic slowdown (link)
💭 🔴 The holidays aren’t looking good for clothing sales | There are warning signals that some US retailers are bracing for apparel and footwear sales to fall off sharply during the next several quarters, a sign that the better-than-expected retail sales data may give way to deeper declines in the coming months (link)
💭 ⚪ What really happened the night the nickel market broke | Documents made public in a court hearing recount in unforgiving detail the LME’s fateful decisions in early March, and how it sleepwalked into a crisis with little precedent in the modern history of finance (link)
Opportunities
💡 Brazil said to consider ESG bond debut as soon as September | Brazil has trailed other emerging-market peers in joining the rush for debt linked to environmental, social or governance issues. The nation took a step toward that goal last month, with a formation of a committee on sustainable financing to prepare a framework for ESG sovereign bond sales (link)
💡 Money funds see $5.5 trillion pile growing as toolkit expands | The US money-market industry, one of the big winners on Wall Street as the Federal Reserve hiked interest rates, is getting another lift with more tools at its disposal to attract investors and expand its unprecedented mountain of cash (link)
A few thoughts on…
economic paradoxical ironies
One of my high school teachers used to half-joke that the name of Mexico’s longest-ruling party, the “Institutional Revolutionary Party” (“PRI” in spanish), reveals a contradiction. “The party of the change that doesn’t change”, she would say. Revolutions are change, Institutions are preservation. In her view, revolutions rise against institutions. It was a lighthearted comment that highlighted one of the many paradoxical ironies that fill our worlds. The economic world is no exception.
If I wanted to, I could buy and sell gold or oil, arranging for transport and safekeeping, and keeping an eye on other financial costs. Alternatively, I could just buy shares of a gold or oil ETF. “Exchange Traded Funds” (ETFs) are investment funds that use the pooled resources to invest in specific assets and strategies, and shares of the fund can be easily bought or sold on major financial exchanges just like common company stock. ETFs allow investors of any size to participate in the pooled investment, without having to worry about the specific management of it. The ETF manager charges a small fee and takes care of everything.
Owning ETF shares is not the same as directly owning the underlying assets, but it is a good enough proxy in many cases. For a long time, there have been ETFs for commodities, for bonds, for stocks and other financial instruments.
A few years ago, some investment managers started asking the relevant authorities for permission to run Crypto ETFs, and recently there has been a renewed push. US authorities have constantly refused to allow spot Crypto ETFs (that use investors’ money to buy Crypto), while allowing futures Crypto ETFs (that use investors’ money to buy futures contracts based on Crypto). There are important differences between both types, but I want to focus on something else: These ETFs are institutionalized financial products, managed by financial institutions and regulated by financial authorites.
Bitcoin was created as an alternative to the established financial system, that runs through many intermediaries and is overseen by governments. It was envisioned as a direct peer-to-peer system, where Alice and Bob can trade without having to know or trust each other, and without having to rely on third-parties (including authorities). Bitcoin gave birth to a push for financial decentralization, free of any and all rules that could lead to censorship or restriction. While the Crypto sphere has changed a lot since Bitcoin launched and development has taken many different directions, those ideas have largely remained front and center. Many would argue that Bitcoin derives its appeal and value mainly for these reasons.
When investors buy shares of a Bitcoin ETF, they are doing it through the same intermediaries (the fund manager, the exchange, the clearinghouse, the broker) that the Bitcoin network was itself trying to replace. They are buying shares of a pool of Bitcoins, and they wouldn’t be able to use those Bitcoins as intended. They are not just perpetuating the existing model, they are effectively affirming that there is no need for an alternative! One could argue that if Bitcoins ETFs succeed, the value of the underlying Bitcoins would ultimately go down.
“Institutionalizing the revolutionary assets” doesn’t make sense. But, as I said, ironies fill our worlds. There is another I noticed last week that even made me chuckle.
Progress requires lots of resources (ideas, time, assets). To pay for those, progress requires capital. Since there are limited resources and limited capital, Capitalism proposes that the competition between free individuals results in a better allocation of both resources and capital. Only the best succeed and society, as a whole, progresses.
For a long time, companies have sold shares (ownership) to the general public to raise more capital, that could be used to grow the companies and generate profits. By selling shares to the general public instead of directly selling shares to particular individuals, they become public companies. However, they have always been thought of as private companies, because shares of each company are owned by different groups of individuals, and each company is managed according to their shareholders particular interests. What happens if all the companies are owned by everyone?
Extracts from a CNN article (included in the News section, above):
More Americans than ever are saving for retirement and more than ever they are doing that by investing in 401(k) plans.
That’s helped usher in a fundamental change to the investing landscape: Power on Wall Street has consolidated among the four largest asset managers of these plans
[…]
Participation is likely to continue to skyrocket in 2023 as the SECURE Act 2.0 goes into effect. The bill, signed into law late last year, requires employers to automatically enroll all eligible workers into their retirement plans at a savings rate of 3% of salary
[…]
Together, these four companies manage assets worth 65% of the combined value of the shares in the S&P 500. […] these companies could control more than 40% of all shareholder votes in the S&P 500 within the next twenty years.
So, workers have shares of pension funds, and pension funds have shares of companies. As the pension funds grow bigger, they buy more shares of companies. Eventually, the workers could own the majority of the shares of the majority of companies. If (when) that happens, the majority of companies should be managed according to the interests of the same huge group of shareholders: the workers. How will all those workers decide what is best for them? Will they have assemblies? Will they form committees and councils? Does that sound like something we already know?
I seem to remember a specific political and economic doctrine, that calls for the “public ownership and communal control” of companies (means of production), which is considered to be the opposite of Capitalism: Communism. Will all those investing workers with capitalist dreams cause a communist reality to exist? Is “communism through capitalism” a desired outcome?
When I ponder these ironies, and many others, I’m reminded that, ironically, the only constant in human history is change. Even when it makes us discard something for the exact thing it replaced. Wash, rinse, repeat.
take care, have fun, be chill
-SM
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