[Market Madness] July 2021 Edition
There's money in the air
Administrative topics and an introduction
Well folks, we’re back for the July edition of Market Madness.
This edition, I am going to do the same, and highlight a handful of posts that I’ve made over on Bookshlf, highlighting a palette of topics that I’ve been paying attention to. Additionally, I end this month’s post with some longer articles and papers I’ve been making my way through more recently.
Did you miss the last edition? No worries! Get it right here and catch up on the madness.
What’s been on my radar
Below are some posts I’ve made on Bookshlf (oldest to newest) that highlight some of the bigger picture topics that I have been paying attention to over the past weeks.
SoftBank-backed construction startup burns $3 billion
A really interesting take on the current venture landscape. The cookie cutter, throw money at it until it succeeds mantra is not always going to work. Even in a bull market like this one, a ship with many holes will not float.
Notable quote: “Venture-backed startup Katerra Inc. aimed to revolutionize the construction business by mastering every element of the trade at once. Instead, its June bankruptcy filing made clear just how difficult it is for Silicon Valley to disrupt this complex industry.
The firm’s downfall wiped out nearly $3 billion of investor money, making it one of the best-funded U.S. startups ever to go bankrupt. Katerra thought it could save time and money by bringing every step of the construction process in-house—from manufacturing windows to factory-built walls to making its own lightbulbs.”
BTC ETFs continue
Cathie Wood jumps in the BTC ETF ring, filing an initial prospectus, making them the 12th firm in line to bring the first bitcoin focused ETF to market. The ticker $ARKB has been secured, which is further along than some of its competitors.
It comes as no surprise that Cathie Wood and ARK Invest wanted to bring this kind of a product to the market. This is also the first BTC ETF that has a fee listed in the initial filing; 95 bps or 0.95%, which is pricey, but in line for other actively managed ETF funds.
Twitter Release: https://twitter.com/EricBalchunas/status/1409606711325888515?s=20
I feel like we’ve talked these to death, and given how much scrutiny is arising with this whole Tether thing, I’m not sure the foundation is as stable as everyone likes to hope. And if it’s not, we definitely don’t need that kind of tail risk in the equity markets.
One of the last PE giants looks to go public
Rumor has it, TPG, one of the last private-equity giants that has stayed a closely held partnership is considering a potential IPO/SPAC to go public. While it is not set in stone, it appears the company is shopping around, considering a public listing... or not.
Given enough time, even the private markets appear to want to go public. And how could you not? IPOs and SPACs have been red-hot in H2 2020 and H1 2021 (thus far); why not test investor appetite for a private equity giant hitting the public landscape?
Notable quote: "TPG, with nearly $100 billion in assets under management, has flirted with an IPO multiple times, only to end up balking while rivals forged ahead. Blackstone Group Inc., Apollo Global Management Inc., KKR & Co. and Carlyle Group Inc. went public years ago, transforming businesses that have enjoyed rapid growth as the industry is flooded with assets.”
I could never do the justice that Walt does on this piece, but he brings out so many strong points.
Here's a notable quote: "Since the financial crisis, developed markets have been buying debt from themselves. When you consider that “debt” isn’t really “debt” for a currency-issuing nation with sufficient monetary sovereignty, the entire exercise is exposed as a ridiculous, self-referential carousel. One organ of the state creates currency to buy an interest-bearing version of that same currency from another organ of the state. Then, the state spends the “proceeds” from that “transaction.”"
If this was interesting to you, surely you should read the rest.
The WSJ came out with a pretty spot-on post today regarding the rise of global government debt. A combination of major factors are at play. We're seeing the overreaction of government in effort to not replay an under-reaction like we saw in 2008. Additionally, we're seeing unprecedented central bank actions, purchasing up safe securities, keeping businesses afloat in the credit markets, and some central banks even purchasing ETFs.
Now, as we approach the 'backend' of the recovery, we're still seeing heavy central bank intervention (albeit there are plans to taper in the upcoming year(s)) and government debt loads nearing the tops of what we've ever seen before. The fear, most notably, is not present in the markets (apart from some sporadic trigger moments regarding inflation). Traditionally speaking, large government debt ceilings bring about concerns in the markets and from investors as they parse the potential and likelihood of repayment, or (worse) default.
I'd argue that we're not really sure what's going to happen on the outset of this pandemic parade of finances.
It’s just paper, right?
Read this quote twice: "Even sillier is the extent to which the people who lampoon monetary largesse are, almost as a rule, aghast at the idea of simply printing money with no offset. As if that’s somehow sillier than the idiotic process by which we conjure currency to buy an interest-bearing version of the same currency from ourselves, in order to “justify” expenditures denominated in — wait for it — the same currency. Just to prove how insane we really are, we later pay ourselves interest in that currency too. Do me a favor: Read the preceding paragraph again. We may one day look back on that arrangement as one the most mind-bogglingly ridiculous (not to mention pathologically inefficient) schemes modern humans ever came up with. If you presented that plan to a middle school student who knew absolutely nothing about economics or monetary policy, she’d surely laugh on the way to asking why the government wouldn’t just print money and spend it."
This article is a great touch on the wild world of spending and deficits. The data shows that we're spending far more than we're generating/printing, and yet, we continue onward.
After all, it's just paper, isn't it?
I end the recap with this post, as it brings up a lot of good points surrounding the current state of confusion that exists with the Fed’s role in the pandemic recovery and the overall disconnect between underlying economics and the financial markets. Much more to come on this in the future editions, as I’ve been reading and paying more attention to this specific area.
Bonus video for those interested:
What I am reading now / plan to read
Here are some articles that I’ve saved and am making my way through in the last few days:
This edition of Market Huddle with guest star Morris Sachs was really good. I highly recommend.
I had the wonderful opportunity to become connected with Alfonso Peccatiello, who heads up fixed income portfolio management at ING Deutschland. He also writes a kick-ass newsletter, The Macro Compass. Here is the latest edition; highly recommend the sub on this newsletter.
Finally, I’ve started binging Inside Baseball with Old Chestnut, a podcast with Liam Allen and Morris Sachs. It’s a great market podcast filled with anecdotes from Morris’ time on Wall Street.
Please let me know what you think of this new style. I really enjoy posting on Bookshlf. The community over there is strong, and I’ve gained a strong readership over there. The social media site itself is growing and tends to lend itself nicely to honestly curated and factual information.
I plan to keep this newsletter refreshing with different styles and reporting methods. I was complacent for too long but am excited for this next chapter.
Well done. You’ve made it through the madness. I’ve worked hard to ensure that you leave this page having learned something, and I hope that it benefits you in your daily adventure. Thank you again for checking in.
[Market Madness] Edition 0145