Friday, July 7, 2023

Building macro strain, market vulnerability, US CBDCs, blockchain gaming and more...

“Fantasy is an exercise bicycle for the mind. It might not take you anywhere, but it tones up the muscles that can.” – Terry Pratchett  ||  

Hi all, and happy Friday! And happy 7/7! I do love symmetry…

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Programming note: I have to skip publication of the daily newsletter on Monday, apologies! Back in your inbox on Tuesday.

WHAT I’M WATCHING

Good news is bad news. While we can celebrate that more people have jobs than we thought would be the case at this stage in the cycle, we also know that almost all data points are now seen through the Fed lens of “what does this mean for rates?” More on this below.

Bitcoin has not decorrelated. You’re probably hearing a lot of reports about how BTC and equities are no longer correlated. Remember, though, that correlation is backward looking, with a smoothed lag, and can change fast. We saw an example of this yesterday. More on this below.

The NY Fed approves of a CBDC. But this is not what it seems – it’s an innovation experiment, focusing on the relatively “easy” technical side. That said, a wholesale CBDC in the US is likely, and this could bring forward more dedollarization, the opposite of what it hopes to achieve. More on this below.

Defence spending. Biden has apparently agreed to send cluster bombs to Ukraine as part of a new military assistance package to be announced later today. I throw this in here because we do need to keep in mind the impact increased defence spending will have on the US budget deficit, debt issuance, the Fed balance sheet and as a result, interest rates and inflation. The US can’t not spend on defence, especially with other powers boosting their military focus. But defence requires hefty expenditure, even without taking into account the potential price impact of supply chain disruptions to essential rare earths and other metals.

Blockchain games are disappointing. You’ve probably heard by now that gaming is the “killer app” for blockchains – I’ve lost count of the investors that have told me this is the area they are most excited about. It makes sense, since we all know that people like games and the potential audience is vast. But blockchain games as yet don’t have the technological capacity to compete with more centralized versions. Perhaps they will one day? There are economic advantages, but when it comes to games, people want a mind-blowing experience. In recognition of this, gaming giant Sega is shelving its blockchain plans.  

MARKETS

Until it hurts