Friday, Oct 27, 2023

volatility vs risk, GDP impact, market concentration and more

“Money, it's a crime. Share it fairly but don't take a slice of my pie.” – Pink Floyd  ||      

Hello everyone, and happy Friday! A short newsletter today because, to be honest, it’s been an exhausting week 😝! So many topics I wanted to discuss (inflation, stablecoins, China, mobile money), but I’ll get to those next week.

You’re reading the daily premium Crypto is Macro Now newsletter, where I look at the growing overlap between the crypto and macro landscapes. There’s also usually some market commentary, but NOTHING I say is investment advice. For full disclosure, I have held the same long positions in BTC and ETH for years, and have no intention to either buy more or sell in the near future.

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IN THIS NEWSLETTER:

• Risk vs volatility

• Those GDP numbers: good news or bad?

• S&P 500 performance concentration

• A different take on philanthropy

WHAT I’M WATCHING:

Risk vs volatility

Check out this chart, which I found in a Bloomberg article: Treasuries ETF volatility exceeds S&P 500 ETF volatility by the most ever.

(chart via Bloomberg)

Why it matters:

This is nuts – government bonds are not supposed to be more volatile than stocks! US government bonds are among the “safest” liquid assets available to investors. Stocks are, well, risky. So why are they more volatile?

In part, it’s because markets are just weird right now. That is not a helpful classification of what’s going on, but it is accurate.

A lot of this weirdness has to do with high US government bond yields which just might go even higher, the uncertainty around the interest rate path from here, the potential glut of supply heading into the market, what looks like a withdrawal from the typical buyers, and a dire price performance of US government bonds so far this year. For many, bonds look cheap, for others, there’s still potential pain ahead, so it’s not surprising that prices are volatile.

What is surprising is that, according to the Bloomberg chart, US government bond prices are more volatile than those for equities, which have been on quite a rollercoaster themselves recently.

However, if we turn our gaze to look at our expectations of the relative volatilities rather than the numbers themselves, we can see that the issue isn’t really the strangeness of the market. It’s more our collective confusion over the difference between volatility and risk.