Welcome back to Weekend Reading.
One thing that might strike you about the common parlance around Bitcoin is how avidly it uses different modes of transportation; “the Bitcoin train is leaving the station”, “Bitcoin is on a rocket to the moon”, “no brakes on Bitcoin now” – it certainly gets around more than gold.
This preamble won’t be the last you hear of Bitcoin in this weekend reading.
Let’s look back on the week.
“Definitely Still Transitory”
U.S inflation showed no sign of cooling down last night, with the headline figure for May posted as +0.6% m/m – bringing the y/y figures up to a clean 5.0%.
Likewise, core inflation jumped 0.7% m/m, and the corresponding y/y figure at 3.8%.
As Jesse has pointed out in some of our calls with clients, rises incore US inflation over the past 3 months has been the highest on record since August 1982, but much like last month’s CPI result, the main drivers are still what the Fed considers ‘transitory’. For example, of the 0.7% result, the following are contributions:
- Used cars and trucks = 0.22%
- New Vehicles = 0.06%
- Airlines fares = 0.05%
- Car and truck rental = 0.02%
- With the above we’re already above 0.30% so hence the claim that inflation is 0.4% services is already disproven
- Everything else = 0.36% (rounded up from .356)
The market reaction was telling, with US 10s rallying (i.e. yields went lower) to 1.44%, down from 1.61% at the start of June and further embracing the Federal Reserve’s current story that inflation is transitory and that it won’t be removing its highly accommodative monetary policy any time soon.
No real word about the mounting evidence of wage price inflation – the “left tail event to end all left tail events” of present moment.
Their latest step into the great crypto unknown has been their junk bond issuance to fund Bitcoin purchases, to the tune of $500 million USD. This is not to be confused with the $1.6 billion USD of convertible notes they have issued so far to purchase Bitcoin. Originally planning to sell only $400 million, the pre-deal demand was so great they ramped up the deal and still had no issue offloading the entire allocation of debt in the primary market.
This is but one of many examples of investors using corporate balance sheets like MicroStrategy’s as a proxy to get direct access through to Bitcoin – how effective a proxy it is remains open to debate.
To the Moon – for real this time
Jeff Bezos is putting his (considerably large amount of) money where his mouth is, announcing plans to fly to space with his brother next month on Blue Origin’s inaugural passenger-carrying mission.
Announced via Instragram, Bezos said, “Ever since I was five years old, I’ve dreamed of traveling to space. On July 20th, I will take that journey with my brother. The greatest adventure, with my best friend.”
The flight will be an 11-minute jaunt to suborbital space (around 100km above sea level), with the company auctioning off one seat to raise money for the Blue Origin foundation – Bloomberg reported that latest bidding stands at $2.8 million USD.
Don’t Mess with the IRS
Five former U.S Treasury secretaries have publicly backed President Biden’s latest plan to give more funding to the IRS, including improving their access and ability to collect data to better retrieve tax revenue. Maybe that’s why Jeff is trying to get to space all of a sudden.
An estimate by the former officials, who don’t necessarily all agree on tax policy, said that if uncollected taxes are left unaddressed, they could total over $7 trillion USD over the next decade (roughly half of the U.S. annual GDP).
Forming one part of the wider $4 trillion USD economic agenda, $80 billion proposed investment in the IRS is on the table at the moment – which the Biden administration estimate will return $700 million over the next 10 years, not a bad return on investment for a government project.
*All numbers in USD from BofA Securities
Equities: $1.5 billion into equities
Bonds: $12.5 billion into bonds
Precious Metals: $0.7 billion to gold
Cash: $3.5 billion to cash
Flows to Know
- Large inflows into investment grade bonds and EM debt ($1.7bn) on ‘peak yields’
- Smallest inflow to equities in 2021
- 5th consecutive week of tech outflows
- Largest redemptions from growth funds since December 2020 ($5.8bn)
Core US Inflation rising at 8.3% annualised over the past 3 months
US small business labour shortage and inflation highest since 1974
El Salvador has become the first nation to officially adopt a cryptocurrency as legal tender, with President Nayib Bukele approving Bitcoin to be used in his country in a historical political decision.
62 out of 84 congresspeople voted in favour of the motion, adding Bitcoin to the list of legal tenders, alongside U.S. Dollar’s and El Salvadoran Colón’s.
Bukele has previously said that Bitcoin will help counter El Salvador’s low banking penetration rate and cut the cost of sending remittances. Such transfers, mainly from Salvadorans working in the U.S., surged to a record of nearly $7 billion over the last 12 months, which is roughly one fifth of their GDP.
Given the obvious price volatility of Bitcoin, US Dollar’s will remain as the primary legal tender used for purchase of goods and services.
Opportunity Cost in Action
Credit Suisse has apparently been handing out selective bonuses to its senior bankers, in an effort to stem the tide of executives fleeing the company after the series of scandals which have plagued the company over the last six months.
These retention bonuses have been largely focussed on managing directors and senior members of the investment banking team – the process is supposedly being done discreetly to avoid departmental conflict, although it can’t have been that discreet if we’re discussing it in this note.
Within the last few weeks two senior investment bankers have left to join Bank of America and Morgan Stanley respectively.
Our morning calls continue, please do tune in for a daily dose of market insights and access to some leading experts in the funds management field.
Have a safe and enjoyable weekend.
– Max and the Mason Stevens team.
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The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.