In London this month, we carried on the tradition of The Most Interesting Dinner in The World. We gathered an eclectic group of people at Ruya, a stylish Mayfair eatery serving modern Anatolian cuisine.
As is customary at our dinners, each attendee was requested to bring a chart to discuss with the group. Please find a summary of the charts and discussion below.
Chart 1: Short Richistan A wealth-induced swing in aggregate demand could be sufficient to push a vulnerable US economy into recession.
Chart 2: Long Experiments The past few weeks have been eventful for the crypto industry. Such contagion is common toward the end of financial panics.
Chart 3: Long Grief “No one makes money in the anger phase. Shorts go up, longs go down.”
Chart 4: Short Chimerica There are encouraging signs of a “socialism put” with the stimulus tap being opened once more.
Chart 5: Short Patagonia VCs are the dumb money.
Chart 6: Long Puzzles “Previous credit default cycles have had similar set-ups to what we are seeing today.”
Chart 7: Long Bushido As the largest creditor nation, Japan’s outbound capital flows have had a able impact on global markets. What if the carry trade reverses?
Chart 8: Short Priors Surprise is a key factor in markets, and as the foundation of the international rules-based system is shifting, we should be more aware of it.
Chart 9: Long Kingdom Investors must learn to not let their political views color their investment views. Saudi Arabia is the world’s least crowded trade.
Chart 10: Long Supplication “If everyone at the table prays for you, what should we pray for?”
Short Richistan
Source: Bespoke
The St. Louis Federal Reserve estimates that rising equity and property prices contributed significantly to the growth in household wealth from $116 trillion at the end of 2019 to $149 trillion at the end of 2021. This suggests that household wealth surged by around $33 trillion, or more than 150 percent of GDP, over a two-year period.
With global stocks and bonds suffering their worst first-half performance in more than fifty years, we are now witnessing an unusually large destruction of wealth.
“Given household wealth is a major factor in consumer expenditures,” the speaker argued, “such a wealth-induced swing in aggregate demand could be sufficient to push a vulnerable US economy into recession.”
The prospect of a recession is especially troubling since it may trigger another leg down in the stock market. That, in turn, could further constrain aggregate demand through the wealth effect, which would cause the economy to enter a deeper recession.
One of the attendees was more sanguine. “Declines in markets haven’t hurt household’s net worth accumulated during the pandemic,” he said.
At the end of March, households had $18.5 trillion socked away in deposit, savings and money-market accounts, more than $5 trillion above what they had heading into the pandemic, according to Federal Reserve data. Net worth—assets such as homes and stocks minus debts—was eight times disposable income, greater than 6.7 at the height of the 2000s housing boom and 6.2 during the 1990s tech bubble. The average ratio of household wealth to disposable income in the US was about 4.5 from 1970 to 1995.
During the global financial crisis, total losses amounted to $10.2 trillion, with US stocks losing $6.9 trillion and housing equity down $3.3 trillion. That was 69 percent of GDP at the time.
While total losses amount to nearly $12 trillion in 2022, with $9.3 trillion wiped of US stocks and $2.6 trillion from bonds, this amount is less than the $18 trillion increase in household wealth created in 2021 and represents 56 percent of GDP.
“Households are relatively wealthy and ready to spend, while the job market continues to hum month after month. Recession risks are minimal,” he continued.
“Where does one hide in this environment?” asked a participant.
A systemic manager shared that the macro backdrop is benefiting uncorrelated strategies like CTAs or commodity trading advisors. The SG Trend Index, which tracks the return for a pool of CTAs is up 25 percent this year (the best performance for the period since 2000 when BarclayHedge started recording such data).
A family office investor focused on generational wealth building suggested looking past the current volatility. “Time will bail you out,” he concluded, speaking from experience.
Long Experiments
Source: Refinitiv Eikon, Coingecko
It’s a scam, it’s all a Ponzi, it’s at best a failed experiment, and (perhaps ironically) “have fun staying poor” are among the most jeering comments made to the crypto community in recent weeks.
So the speaker mapped the performance of some of tech’s greatest champions against the few crypto securities which have been around for long enough to warrant comparison. He picked Bitcoin, Ether and Binance Coin (BNB) to juxtapose against Amazon, ARKK, MercadoLibre, Meta, Netflix, Sea, Shopify, Snap and Nvidia.
The results are interesting to say the least. BNB, for example, ha
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