9 ms·

Energy vs. Sovereign Bond Markets

116 points by jger15 4y ago

tuatoru 4y ago
In one or two decades this correlation (inflation with energy prices) will become history, as low and down-trending prices for solar PV, wind, batteries, and electrolyzed hydrogen mean we will have permanently cheap energy. 1. https://www.cell.com/joule/fulltext/S2542-4351(22)00410-X https://www.cell.com/joule/fulltext/S2542-4351(22)00410-X
- passwordoops 4y ago
  And in one or two decades, my mortgage should be paid off... Does that mean I don't have to worry about making payments or cash flow today?
- koolba 4y ago
  When nuclear power was the cool new thing, people would say that at some point it’ll get so cheap that it won’t be worth running a meter to track customer usage. There will always be costs for energy. Nothing lasts for ever and solar panels and batteries eventually need to be replaced.
  - bismuthcrystal 4y ago
    That is 100% correct. Energy is never enough. Increase production capacity and people will adjust their lifestyle accordingly and they will not go back. >>people would say that at some point it’ll get so cheap that it won’t be worth running a meter to track customer usage A similar case was made about automation. On the first half of the XX century people argued that by year 2000 we would only need to work 1 hour a day, because machines would do the rest. How that turned out? So i'm always very suspicious of arguments where the future holds some sort of cornucopia.
    - tuatoru 4y ago
      I don't know about "enough". There are a lot of things we need to do: fertilizer, iron smelting, off-road machinery fuel production, plastics, lubricants, shipping and airplane fuel, ... I do know that when energy is produced domestically, then your energy can't be held hostage by OPEC or the Russian Federation. That is the promise of renewables: freedom from geopolitics.
      - polotics 4y ago
        The big question with renewables is how much would they cost if their whole production chain were using only renewables: cheap mining, cheap trucking, cheap maintenance, cheap money, all courtesy of cheap hydrocarbons to burn...
        PeterisP 4y ago
        Those factors matter, but from that perspective you can treat renewables as "stored cheap hydrocarbons" - because for actual hydrocarbons you're vulnerable to short-term fluctuations (e.g. you may have gas now, and some gas stored, but in the case of a supply shock you need a fix within a year) but if you've got some renewables which were made with cheap hydrocarbons now, then you can be sure that you'll have that energy for many years in the future even if hydrocarbons get expensive or unavailable due to supply disruptions.
    - mellavora 4y ago
      May I suggest you read "The Utopia of Rules" by David Graeber (may he rest in peace). https://en.wikipedia.org/wiki/The_Utopia_of_Rules https://en.wikipedia.org/wiki/The_Utopia_of_Rules https://theanarchistlibrary.org/library/david-graeber-the-utopia-of-rules https://theanarchistlibrary.org/library/david-graeber-the-ut... He argues that we've built a giant bureaucracy, most jobs are bullshit jobs (he created that term), and most work is a scam. We could have UBI and most people working just a few hours per week, but that much freedom is dangerous. Politicians might loose power. More seriously, watch The Century of the Self (Adam Curtis), https://en.wikipedia.org/wiki/The_Century_of_the_Self https://en.wikipedia.org/wiki/The_Century_of_the_Self https://www.youtube.com/watch?v=DnPmg0R1M04 https://www.youtube.com/watch?v=DnPmg0R1M04, which describes the creation and rise of marketing as a social force in the 1900s; how the consumer-based society was created. A large driver of this was the need to "control the masses", because if they weren't controlled bad things happened. Like world wars or crystal nights. Bullshit jobs and an all-encompassing bureaucracy, keeping people working all the time and unable to think, is our current social technique for controlling the masses.
      - MerelyMortal 4y ago
        > crystal nights Are you refering to something like Kristallnacht, or is it something else?
        mellavora 4y ago
        exactly that.
      - sangnoir 4y ago
        > We could have UBI and most people working just a few hours per week, but that much freedom is dangerous. Politicians might loose power This strikes like reaching, when a simpler explanation will suffice: automation improves productivity, but the owners of capital have decided that it is better to pocket the profits than to reduce the working hours or provide UBI.
  - adrianN 4y ago
    Well at least solar panels are unlikely to make large areas of land uninhabitable for decades to centuries forcing regulations to become so strict that they become unprofitable to build.
  - roenxi 4y ago
    "When <an oxygen-producing plant> was the cool new thing, people would say that at some point <air will> get so cheap that it won’t be worth running a meter to track customer usage." There is precedent for very expensive things becoming very cheap. Energy will always have a cost to produce, but we've seen in the case of the internet that "as long as you don't use this much, do what you like" models of pricing - it is effectively too cheap to transfer data to justify metering it. Given how much energy I have a use for around my home, it is completely plausible that nuclear power could put me in a situation where I pay a grid connection cost, some nominal fee and then just use however much electricity I feel like to maintain a typical lifestyle. I don't think people appreciate how transformative the orders of magnitude cost improvements promised by nuclear power could be. The people responsible for the insane over-spending on safety deserve to be publicly shamed for the damage they've done to human progress.
- balderdash 4y ago
  I think two decades is very optimistic.
- zbrozek 4y ago
  The rates my utility (PG&E) charges don't tell the same story. Has been going up at >4x CPI since 2014.
- spaceman_2020 4y ago
  I'll wait until they figure out how to make paints and plastics from solar PV Absurd that people don't consider the industrial uses of oil and gas when they talk about green tech. Nearly a fourth of all oil and gas is used in industrial processes and as base materials for pretty much every modern product you can imagine. And that has no synthetic replacements yet.
  - tuatoru 4y ago
    Once you can make methane, you can make pretty much any hydrocarbon. Air captured carbon and electrolyzed hydrogen are not very far off comeptitive with fossil methane.
  - brutusborn 4y ago
    If renewables can produce relatively cheaper energy, it won't make sense to use oil or gas for anything other than chemical synths. And as other commenters have said, once hydrocarbon sources run out we can just build the required molecules from a hydrogen base. Reminds me of clandestine chemists who can use clove oil to synthesise MDMA because other precursors are closely watched. As long as you have the right atoms, the only issue to building a new molecule is energy and time.
  - eloisant 4y ago
    You can make plastic from starch. Most plastic are made from oil because it's cheap and convenient (you only need a small amount of oil to make plastic, unlike when burning it for energy). When it's no longer convenient to use oil for that you can be sure that there companies will find alternatives.
- brutusborn 4y ago
  I hope you're corrrect, but I am skeptical of storage tech following wrights law as the paper suggests. The current battery projects are tiny and I suspect there will be greater costs from scaling them than Wright's law suggests. Not to say they won't get cheap, but that they will get cheaper slower than a simple exponential decay relationship suggests. Just the scale of materials required and the fact that battery tech has been around for a long time. I suspect we have got more of the low hanging fruit than with PV. Again, I hope I'm wrong.
SevenNation 4y ago
> Either way, once acute Treasury liquidity problems manifest themselves, or the Fed front-runs and avoids them by shifting policy, there’s a significant probability of it resulting in a top in the dollar index, meaning it would likely mark the end of this major dollar rally, and would be a catalyst for the next leg higher in many commodity prices, which fuels the existing inflation problem even more. If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members, no? Therefore, those holding out for a for a pivot could be waiting for a long time. There seem to be three models: 1. Paul Volker. Smack the economy with a 2x4 to kill inflation. Get back-to-back recessions that were the worst since the Great Depression. 2. Arthur Burns. Bow to political pressure and ignore inflation - maybe it will go away. Get roaring inflation leading into the 1980s. 3. Roy Young. Fight wild speculation by raising interest rates and get the Great Depression.
- boppo1 4y ago
  What's the nuance between 2 and 3? luck?
- globalreset 4y ago
  > Smack the economy with a 2x4 to kill inflation. Who cares about the broader economy. First-most they are smashing USG Treasury with a 2x8. Tax revenue down across the board (income, capital, corporate, you name it), social programs spending up, deficit through the roof. K.O. They can raise the rates all the want, but as long as they are monetizing the deficit, it will be multi-trillions of money being pumped into broader economy anyway. There is no other way then to print and incinerate the debt in a inflationary inferno.
  - Judgmentality 4y ago
    > There is no other way then to print and incinerate the debt in a inflationary inferno. What good is paying off a debt in a currency that's no longer valuable? We're fucked no matter what.
  - comte7092 4y ago
    > but as long as they are monetizing the deficit Good thing they aren’t monetizing the deficit.
paulpauper 4y ago
As a result of the stimulus, developed countries had their biggest increases in broad money supply since the 1940s. Throughout 2020 and 2021, I began comparing the 2020s decade to the 1940s decade, and wrote at length about how this big blend of fiscal and monetary policy would likely be inflationary for broad prices. Too bad the crypto hasn't worked out nearly as well as other forecasts. Also, the dollar has surged despite weakness in the bond market. So maybe now is the time to buy treasuries given that these type of victory lap posts tend to mark either bottoms or tops. The bond market is pricing in huge inflation right now. Even inflation that is high but not absurdly high may still be bullish given all the negativity priced in the market. Also you don't need to hedge all of the inflation, just enough to live off of. If you got $2 million in the bank, then $80k/income plus social security will be enough even if your real return is -5%.
- erwinh 4y ago
  I don't really get crypto as inflation hedge. Yes there can be specific coins with minimised supply but its also basically a toolbox for anyone to create new bubbles by simply deploying a smart contract. See for example all of the different token pairs that exist on even a relatively low liquidity (non-vc boosted) chain: https://thestackreport.xyz/dashboards/tezos?search_term=plenty https://thestackreport.xyz/dashboards/tezos?search_term=plen...
bdbenton 4y ago
If you look at the 2-10 year spread US treasury bond rates, there is a massive yield curve inversion. Historically, this inversion has been a very consistent metric for predicting incoming recessions. https://fred.stlouisfed.org/series/T10Y2Y https://fred.stlouisfed.org/series/T10Y2Y The current inversion hasn't been since the early 2000s and ensuing recession, which was characterized by the bursting of the dotcom bubble and the attacks of September 11th. The dotcom bubble is attributed to venture capital funding, and the crash took out a lot of companies and hit others like Amazon pretty hard. Economic crisis is inevitable, it's built into the business cycle. Following this logic, the next companies on the chopping block would be tech once again. This time, likely the "unicorns" that are the darlings of VC investors. Additionally, it's kind of an open secret that FAANG stock valuations are a bit disconnected from reality. When you are on the edge of consumer tech, a lot of stock investors don't even understand how your business model functions and what gives it such a high valuation, and they don't really care as long as the price goes up. It's a darker side of the culture, as the trend is to splurge with VC millions and cash out at the zenith then move on to the next thing. History shows it's not sustainable.
- nugget 4y ago
  I'm just old enough to remember the dot com bubble. Very few companies back then had much revenue, let alone any profit. Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. The S&P 500 overall is in the high teens. I'm not sure I'd call that disconnected from reality. Within the startup ecosystem there are embryonic products that if nurtured can develop into existential threats to most of the current Fortune 500 companies. Incumbents eventually have to pay up to survive, eg. Adobe acquiring Figma. This dynamic supports startup valuations broadly. Startups represent the future and the future is usually priced at a premium.
  - Zanfa 4y ago
    > Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. While this is true for the largest of ad companies like Google and FB, the same isn't true for the vast majority of recent tech IPOs like Robinhood, Duolingo, Couchbase, Monday not to mention literally all of the ridesharing and food delivery companies to name just a few. In a way, excessive acquisition valuations are likely also a side-effect of too much money floating around that might change radically with increasing interest rates.
neilwilson 4y ago
"Japan has over 250% public debt-to-GDP. " And an inflation rate of ... oh sorry that didn't fit the narrative, I'll just skip that bit. "The market basically goes “no bid”." except for the Gilt-Edged Market Makers (GEMMs) because "GEMMs are committed to make, on demand and in all conditions, continuous and effective two-way prices to their clients, in all gilts for which they are recognised as a market maker." (GEMM Guidebook, Sept 2021, UK Debt Management Office)[0] I'll leave the rest of the article to the Gell-Mann Amnesia hypothesis. [0]: https://www.dmo.gov.uk/media/22bbjndz/guidebook200921.pdf https://www.dmo.gov.uk/media/22bbjndz/guidebook200921.pdf
- rippercushions 4y ago
  Japan's inflation rate is currently tracking at 3%. Which sounds piddling by Western standards, but is a massive change compared to -1% they were experiencing as late as last year, and not to mention the more-or-less zero they've been at for the last 20-30 years. https://tradingeconomics.com/japan/inflation-cpi https://tradingeconomics.com/japan/inflation-cpi
  - Danieru 4y ago
    Indeed, the Bank of Japan has been hoping for inflation like this for twenty years. They are not going to complain now that their wish has been granted. 3% is massive, in a good way. Japan's problem is the Americans have absurd inflation causing rate increases and encouraging the carry trade.
- prottog 4y ago
  "No bid" doesn't mean you log into your broker and see literally no bids for your gilts. As you rightly point out, primary dealers are obligated to supply a bid and an ask in the gilts markets, and in return receive various privileges in the same markets. But obviously that doesn't mean that they are obligated to absorb billions of pounds in selling pressure (due to large pension funds needing to meet margin calls) without significantly moving prices, which is the question at hand, and that's what the author means by "no bid".
givemeethekeys 4y ago
Something I don't fully understand: - Let's say the UK treasure issues bonds. 10, 20, and 30-year bonds at 3%, which are then purchased by pensions. - Risk of recession grows, and the price of bonds fall and yields rise because risks go up. - The Bank of England buys bonds to prop up bond prices. - Since the UK treasury has already issued the bonds at a fixed rate, why do they care what the secondary aftermarket price of their bonds is? - How does propping up the bond market reduce the risk of the impending recession or help the UK treasury pay off its debt obligations? - Doesn't keeping yields low just help the treasury sell more cheap bonds (ie take out more debt)? I may have answered my own question. The problem with the greater than 100% Debt to GDP ratio means that, should they decide to stop printing money, they'd immediately go into default on existing debt, regardless of the interest rate. What if the UK Gov't passed a law to prevent the treasury from issuing any new bonds, and the Bank of England stopped QE. The UK would go into austerity, while it reduces the Debt to GDP. What if interest rates were then dropped to zero to stimulate the economy. There would be inflation until the economy finds equilibrium with all the extra money that has already been printed. Reducing interest rates will devalue the British Pound - and Britain is a net importer. So, yeah.. thats no good. Check mate indeed.
- nickff 4y ago
  The UK's bond issues have a lot to do with how their pension funds are structured. If you want to learn a bit more about it, the latest Bloomberg Odd Lots podcast is quite good: https://www.bloomberg.com/news/articles/2022-10-06/odd-lots-podcast-uk-market-madness-with-toby-nangle-gbp?srnd=oddlots-podcast https://www.bloomberg.com/news/articles/2022-10-06/odd-lots-...
- goodcanadian 4y ago
  Since the UK treasury has already issued the bonds at a fixed rate, why do they care what the secondary aftermarket price of their bonds is? As I think you figured out for yourself, it affects the interest rate that they have to pay on new issues. Even when the budget is balanced (HA!), they are still constantly issuing new bonds to pay off maturing ones. How does propping up the bond market reduce the risk of the impending recession or help the UK treasury pay off its debt obligations? Buying bonds puts more cash into circulation which can (at least in theory) act as an economic stimulus. Of course, it also increases the risk of price inflation.
BenGosub 4y ago
Luke Gromen has already made this case in much finer detail.

116 points by jger15 4y ago

In one or two decades this correlation (inflation with energy prices) will become history, as low and down-trending prices for solar PV, wind, batteries, and electrolyzed hydrogen mean we will have permanently cheap energy. 1. https://www.cell.com/joule/fulltext/S2542-4351(22)00410-X https://www.cell.com/joule/fulltext/S2542-4351(22)00410-X

passwordoops 4y ago
And in one or two decades, my mortgage should be paid off... Does that mean I don't have to worry about making payments or cash flow today?
koolba 4y ago
When nuclear power was the cool new thing, people would say that at some point it’ll get so cheap that it won’t be worth running a meter to track customer usage. There will always be costs for energy. Nothing lasts for ever and solar panels and batteries eventually need to be replaced.
- bismuthcrystal 4y ago
  That is 100% correct. Energy is never enough. Increase production capacity and people will adjust their lifestyle accordingly and they will not go back. >>people would say that at some point it’ll get so cheap that it won’t be worth running a meter to track customer usage A similar case was made about automation. On the first half of the XX century people argued that by year 2000 we would only need to work 1 hour a day, because machines would do the rest. How that turned out? So i'm always very suspicious of arguments where the future holds some sort of cornucopia.
  - tuatoru 4y ago
    I don't know about "enough". There are a lot of things we need to do: fertilizer, iron smelting, off-road machinery fuel production, plastics, lubricants, shipping and airplane fuel, ... I do know that when energy is produced domestically, then your energy can't be held hostage by OPEC or the Russian Federation. That is the promise of renewables: freedom from geopolitics.
    - polotics 4y ago
      The big question with renewables is how much would they cost if their whole production chain were using only renewables: cheap mining, cheap trucking, cheap maintenance, cheap money, all courtesy of cheap hydrocarbons to burn...
      - PeterisP 4y ago
        Those factors matter, but from that perspective you can treat renewables as "stored cheap hydrocarbons" - because for actual hydrocarbons you're vulnerable to short-term fluctuations (e.g. you may have gas now, and some gas stored, but in the case of a supply shock you need a fix within a year) but if you've got some renewables which were made with cheap hydrocarbons now, then you can be sure that you'll have that energy for many years in the future even if hydrocarbons get expensive or unavailable due to supply disruptions.
  - mellavora 4y ago
    May I suggest you read "The Utopia of Rules" by David Graeber (may he rest in peace). https://en.wikipedia.org/wiki/The_Utopia_of_Rules https://en.wikipedia.org/wiki/The_Utopia_of_Rules https://theanarchistlibrary.org/library/david-graeber-the-utopia-of-rules https://theanarchistlibrary.org/library/david-graeber-the-ut... He argues that we've built a giant bureaucracy, most jobs are bullshit jobs (he created that term), and most work is a scam. We could have UBI and most people working just a few hours per week, but that much freedom is dangerous. Politicians might loose power. More seriously, watch The Century of the Self (Adam Curtis), https://en.wikipedia.org/wiki/The_Century_of_the_Self https://en.wikipedia.org/wiki/The_Century_of_the_Self https://www.youtube.com/watch?v=DnPmg0R1M04 https://www.youtube.com/watch?v=DnPmg0R1M04, which describes the creation and rise of marketing as a social force in the 1900s; how the consumer-based society was created. A large driver of this was the need to "control the masses", because if they weren't controlled bad things happened. Like world wars or crystal nights. Bullshit jobs and an all-encompassing bureaucracy, keeping people working all the time and unable to think, is our current social technique for controlling the masses.
    - MerelyMortal 4y ago
      > crystal nights Are you refering to something like Kristallnacht, or is it something else?
      - mellavora 4y ago
        exactly that.
    - sangnoir 4y ago
      > We could have UBI and most people working just a few hours per week, but that much freedom is dangerous. Politicians might loose power This strikes like reaching, when a simpler explanation will suffice: automation improves productivity, but the owners of capital have decided that it is better to pocket the profits than to reduce the working hours or provide UBI.
- adrianN 4y ago
  Well at least solar panels are unlikely to make large areas of land uninhabitable for decades to centuries forcing regulations to become so strict that they become unprofitable to build.
- roenxi 4y ago
  "When <an oxygen-producing plant> was the cool new thing, people would say that at some point <air will> get so cheap that it won’t be worth running a meter to track customer usage." There is precedent for very expensive things becoming very cheap. Energy will always have a cost to produce, but we've seen in the case of the internet that "as long as you don't use this much, do what you like" models of pricing - it is effectively too cheap to transfer data to justify metering it. Given how much energy I have a use for around my home, it is completely plausible that nuclear power could put me in a situation where I pay a grid connection cost, some nominal fee and then just use however much electricity I feel like to maintain a typical lifestyle. I don't think people appreciate how transformative the orders of magnitude cost improvements promised by nuclear power could be. The people responsible for the insane over-spending on safety deserve to be publicly shamed for the damage they've done to human progress.
balderdash 4y ago
I think two decades is very optimistic.
zbrozek 4y ago
The rates my utility (PG&E) charges don't tell the same story. Has been going up at >4x CPI since 2014.
spaceman_2020 4y ago
I'll wait until they figure out how to make paints and plastics from solar PV Absurd that people don't consider the industrial uses of oil and gas when they talk about green tech. Nearly a fourth of all oil and gas is used in industrial processes and as base materials for pretty much every modern product you can imagine. And that has no synthetic replacements yet.
- tuatoru 4y ago
  Once you can make methane, you can make pretty much any hydrocarbon. Air captured carbon and electrolyzed hydrogen are not very far off comeptitive with fossil methane.
- brutusborn 4y ago
  If renewables can produce relatively cheaper energy, it won't make sense to use oil or gas for anything other than chemical synths. And as other commenters have said, once hydrocarbon sources run out we can just build the required molecules from a hydrogen base. Reminds me of clandestine chemists who can use clove oil to synthesise MDMA because other precursors are closely watched. As long as you have the right atoms, the only issue to building a new molecule is energy and time.
- eloisant 4y ago
  You can make plastic from starch. Most plastic are made from oil because it's cheap and convenient (you only need a small amount of oil to make plastic, unlike when burning it for energy). When it's no longer convenient to use oil for that you can be sure that there companies will find alternatives.
brutusborn 4y ago
I hope you're corrrect, but I am skeptical of storage tech following wrights law as the paper suggests. The current battery projects are tiny and I suspect there will be greater costs from scaling them than Wright's law suggests. Not to say they won't get cheap, but that they will get cheaper slower than a simple exponential decay relationship suggests. Just the scale of materials required and the fact that battery tech has been around for a long time. I suspect we have got more of the low hanging fruit than with PV. Again, I hope I'm wrong.

SevenNation 4y ago

> Either way, once acute Treasury liquidity problems manifest themselves, or the Fed front-runs and avoids them by shifting policy, there’s a significant probability of it resulting in a top in the dollar index, meaning it would likely mark the end of this major dollar rally, and would be a catalyst for the next leg higher in many commodity prices, which fuels the existing inflation problem even more. If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members, no? Therefore, those holding out for a for a pivot could be waiting for a long time. There seem to be three models: 1. Paul Volker. Smack the economy with a 2x4 to kill inflation. Get back-to-back recessions that were the worst since the Great Depression. 2. Arthur Burns. Bow to political pressure and ignore inflation - maybe it will go away. Get roaring inflation leading into the 1980s. 3. Roy Young. Fight wild speculation by raising interest rates and get the Great Depression.

boppo1 4y ago
What's the nuance between 2 and 3? luck?
globalreset 4y ago
> Smack the economy with a 2x4 to kill inflation. Who cares about the broader economy. First-most they are smashing USG Treasury with a 2x8. Tax revenue down across the board (income, capital, corporate, you name it), social programs spending up, deficit through the roof. K.O. They can raise the rates all the want, but as long as they are monetizing the deficit, it will be multi-trillions of money being pumped into broader economy anyway. There is no other way then to print and incinerate the debt in a inflationary inferno.
- Judgmentality 4y ago
  > There is no other way then to print and incinerate the debt in a inflationary inferno. What good is paying off a debt in a currency that's no longer valuable? We're fucked no matter what.
- comte7092 4y ago
  > but as long as they are monetizing the deficit Good thing they aren’t monetizing the deficit.

paulpauper 4y ago

As a result of the stimulus, developed countries had their biggest increases in broad money supply since the 1940s. Throughout 2020 and 2021, I began comparing the 2020s decade to the 1940s decade, and wrote at length about how this big blend of fiscal and monetary policy would likely be inflationary for broad prices. Too bad the crypto hasn't worked out nearly as well as other forecasts. Also, the dollar has surged despite weakness in the bond market. So maybe now is the time to buy treasuries given that these type of victory lap posts tend to mark either bottoms or tops. The bond market is pricing in huge inflation right now. Even inflation that is high but not absurdly high may still be bullish given all the negativity priced in the market. Also you don't need to hedge all of the inflation, just enough to live off of. If you got $2 million in the bank, then $80k/income plus social security will be enough even if your real return is -5%.

erwinh 4y ago
I don't really get crypto as inflation hedge. Yes there can be specific coins with minimised supply but its also basically a toolbox for anyone to create new bubbles by simply deploying a smart contract. See for example all of the different token pairs that exist on even a relatively low liquidity (non-vc boosted) chain: https://thestackreport.xyz/dashboards/tezos?search_term=plenty https://thestackreport.xyz/dashboards/tezos?search_term=plen...

bdbenton 4y ago

If you look at the 2-10 year spread US treasury bond rates, there is a massive yield curve inversion. Historically, this inversion has been a very consistent metric for predicting incoming recessions. https://fred.stlouisfed.org/series/T10Y2Y https://fred.stlouisfed.org/series/T10Y2Y The current inversion hasn't been since the early 2000s and ensuing recession, which was characterized by the bursting of the dotcom bubble and the attacks of September 11th. The dotcom bubble is attributed to venture capital funding, and the crash took out a lot of companies and hit others like Amazon pretty hard. Economic crisis is inevitable, it's built into the business cycle. Following this logic, the next companies on the chopping block would be tech once again. This time, likely the "unicorns" that are the darlings of VC investors. Additionally, it's kind of an open secret that FAANG stock valuations are a bit disconnected from reality. When you are on the edge of consumer tech, a lot of stock investors don't even understand how your business model functions and what gives it such a high valuation, and they don't really care as long as the price goes up. It's a darker side of the culture, as the trend is to splurge with VC millions and cash out at the zenith then move on to the next thing. History shows it's not sustainable.

nugget 4y ago
I'm just old enough to remember the dot com bubble. Very few companies back then had much revenue, let alone any profit. Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. The S&P 500 overall is in the high teens. I'm not sure I'd call that disconnected from reality. Within the startup ecosystem there are embryonic products that if nurtured can develop into existential threats to most of the current Fortune 500 companies. Incumbents eventually have to pay up to survive, eg. Adobe acquiring Figma. This dynamic supports startup valuations broadly. Startups represent the future and the future is usually priced at a premium.
- Zanfa 4y ago
  > Public tech companies in 2022 have enormous revenue and profit streams. Alphabet/Google is trading around 20 times earnings and Meta/Facebook is around 10 times earnings. While this is true for the largest of ad companies like Google and FB, the same isn't true for the vast majority of recent tech IPOs like Robinhood, Duolingo, Couchbase, Monday not to mention literally all of the ridesharing and food delivery companies to name just a few. In a way, excessive acquisition valuations are likely also a side-effect of too much money floating around that might change radically with increasing interest rates.

neilwilson 4y ago

"Japan has over 250% public debt-to-GDP. " And an inflation rate of ... oh sorry that didn't fit the narrative, I'll just skip that bit. "The market basically goes “no bid”." except for the Gilt-Edged Market Makers (GEMMs) because "GEMMs are committed to make, on demand and in all conditions, continuous and effective two-way prices to their clients, in all gilts for which they are recognised as a market maker." (GEMM Guidebook, Sept 2021, UK Debt Management Office)[0] I'll leave the rest of the article to the Gell-Mann Amnesia hypothesis. [0]: https://www.dmo.gov.uk/media/22bbjndz/guidebook200921.pdf https://www.dmo.gov.uk/media/22bbjndz/guidebook200921.pdf

rippercushions 4y ago
Japan's inflation rate is currently tracking at 3%. Which sounds piddling by Western standards, but is a massive change compared to -1% they were experiencing as late as last year, and not to mention the more-or-less zero they've been at for the last 20-30 years. https://tradingeconomics.com/japan/inflation-cpi https://tradingeconomics.com/japan/inflation-cpi
- Danieru 4y ago
  Indeed, the Bank of Japan has been hoping for inflation like this for twenty years. They are not going to complain now that their wish has been granted. 3% is massive, in a good way. Japan's problem is the Americans have absurd inflation causing rate increases and encouraging the carry trade.
prottog 4y ago
"No bid" doesn't mean you log into your broker and see literally no bids for your gilts. As you rightly point out, primary dealers are obligated to supply a bid and an ask in the gilts markets, and in return receive various privileges in the same markets. But obviously that doesn't mean that they are obligated to absorb billions of pounds in selling pressure (due to large pension funds needing to meet margin calls) without significantly moving prices, which is the question at hand, and that's what the author means by "no bid".

givemeethekeys 4y ago

Something I don't fully understand: - Let's say the UK treasure issues bonds. 10, 20, and 30-year bonds at 3%, which are then purchased by pensions. - Risk of recession grows, and the price of bonds fall and yields rise because risks go up. - The Bank of England buys bonds to prop up bond prices. - Since the UK treasury has already issued the bonds at a fixed rate, why do they care what the secondary aftermarket price of their bonds is? - How does propping up the bond market reduce the risk of the impending recession or help the UK treasury pay off its debt obligations? - Doesn't keeping yields low just help the treasury sell more cheap bonds (ie take out more debt)? I may have answered my own question. The problem with the greater than 100% Debt to GDP ratio means that, should they decide to stop printing money, they'd immediately go into default on existing debt, regardless of the interest rate. What if the UK Gov't passed a law to prevent the treasury from issuing any new bonds, and the Bank of England stopped QE. The UK would go into austerity, while it reduces the Debt to GDP. What if interest rates were then dropped to zero to stimulate the economy. There would be inflation until the economy finds equilibrium with all the extra money that has already been printed. Reducing interest rates will devalue the British Pound - and Britain is a net importer. So, yeah.. thats no good. Check mate indeed.

nickff 4y ago
The UK's bond issues have a lot to do with how their pension funds are structured. If you want to learn a bit more about it, the latest Bloomberg Odd Lots podcast is quite good: https://www.bloomberg.com/news/articles/2022-10-06/odd-lots-podcast-uk-market-madness-with-toby-nangle-gbp?srnd=oddlots-podcast https://www.bloomberg.com/news/articles/2022-10-06/odd-lots-...
goodcanadian 4y ago
Since the UK treasury has already issued the bonds at a fixed rate, why do they care what the secondary aftermarket price of their bonds is? As I think you figured out for yourself, it affects the interest rate that they have to pay on new issues. Even when the budget is balanced (HA!), they are still constantly issuing new bonds to pay off maturing ones. How does propping up the bond market reduce the risk of the impending recession or help the UK treasury pay off its debt obligations? Buying bonds puts more cash into circulation which can (at least in theory) act as an economic stimulus. Of course, it also increases the risk of price inflation.

BenGosub 4y ago

Luke Gromen has already made this case in much finer detail.