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The Bond Market “Paradox”

The Bond Market "Paradox"

Authored by Peter Tchir via Academy Securities,

I don’t remember a lot from the 90’s, but one memory has come…



This article was originally published by Zero Hedge

The Bond Market “Paradox”

Authored by Peter Tchir via Academy Securities,

I don’t remember a lot from the 90’s, but one memory has come back with vivid clarity.

Working with friends and colleagues, who were taking start-up projections and being “conservative” yet completely impossible.

Yes, in their models, users slowed from 200% growth to 50% growth a few years down the road, but their projections still gave them more users than humans within a few years.

That reminds me of legend about grains of rice and a chessboard. According to legend, a ruler asked a servant what they wanted as a reward for some incredible deed. The person asked for one grain of rice to be placed on the first spot on the checkerboard. Two on the second. Four on the third and so on. Doubling the number of grains for each new space on the checkerboard. While that seemed like an absurdly low reward to the ruler, who was probably expecting to be asked to pay his weight in gold (too bad we didn’t have bitcoin back then), but it turns out to be an impossibly large number.

Which brings me to Tesla’s recent price action. Up 12% on Monday, up 7% on Tuesday morning before falling by almost 9% from that level. While at a glance, the percentage moves are on the high side, it is the market cap moves that are simply astounding. 100’s of billions of market cap are being created and sometimes lost, in hours. Even as someone who doesn’t believe in efficient markets, that seems bizarre, at best. According to the WSJ, $16.1 billion of option premium was traded on Monday on Tesla. Which was more than the next 99 most actively traded option tickers combined! What is amazing about that is it includes contracts on S&P and Nasdaq futures and ETFs like SPY and QQQ. I assume they only publish the top 100, so if the value of Tesla option contracts wasn’t more than the value of every other option contract traded on Monday, I’d be surprised.

Whether we are at a blow-off top or not, remains to be seen, but

  • Those sorts of market cap swings seem inexplicable

  • Those sorts of option trading volumes seem inexplicable

But since they happened, the inexplicable must be explicable, I just wish I had a good explanation other than it is a gambler’s market and true liquidity, low at the best of times, is being severely tested by gamma squeezes and portfolios need to be hardened against that (or positioned to take advantage).

The Bond Market “Paradox”

We went into more detail on this in Sunday’s “Clear as Mud” but the following seems to be happening:

  • The market is pricing in the Fed hiking sooner. This is causing yields at the front end to rise. I think it is the wrong thing for the market to do, but I think the headlines will help that trade move along (so I’m betting on something happening that I don’t think should happen, but it is also too early to get in the way of the theme). I continue to believe that the next act in the play of not hiking will be to switch from talking “transitory” to talking “long term averages” but that isn’t the narrative the market is fixated on, at least not yet.

  • The long end rallies on Fed hikes. The simple narrative would be that the Fed is going to raise rates, which causes bond yields to rise. That is currently not the reaction, as bond investors are sniffing out the potential for the Fed to slow growth too early, or at exactly the wrong time. So fears of a more hawkish fed are driving curves flatter in a “pivot” sort of format (this morning, the pivot point is around 5 years, with bonds less than 5 years to maturity are seeing yields rise, while those longer than 6 years, are seeing yields fall).

  • Stocks No Longer “Love” Lower Long-Bond Yields. Parts of the stock market that had been positively correlated to bond prices are now “normalizing” and trading as though they are negatively correlated. That makes sense, because if longer dated bond yields are going lower because of fear of the Fed snuffing growth out, it just isn’t good for the market (unlike when yields are going lower because the Fed is buying so much and there is no material threat of sustained inflation).

Longer dated bond yields could benefit from a “risk-off” type of move, which the market seems far less positioned for today, than they were a few weeks ago.

I do miss the 90’s, but those are stories for another day.

Tyler Durden
Wed, 10/27/2021 – 10:46

Author: Tyler Durden


Are taxes the price we pay for civilization?

Autumn is usually the time when countries’ parliaments try to reach an agreement on the amount of taxes to be paid during the twelve months of the coming…

Autumn is usually the time when countries’ parliaments try to reach an agreement on the amount of taxes to be paid during the twelve months of the coming year. If, as many people seem to believe, “taxes are the price of civilization,” this seems to imply not only that we live under the implicit threat of barbaric chaos, but also that there is some mischievous organization out there which, in order not to unleash that chaos on our doorstep, demands that we pay an expensive ransom.

In other words, if taxes are the price of civilization, that is a sign that someone has effectively and successfully claimed for themselves “the monopoly of the legitimate use of physical force” in our common territory. This person, or group, is called the State (it is Max Weber – surely not an anarchist – who states this at the very beginning of his famous essay “Politics as a Vocation”).

Curiously enough (or perhaps not), the way that this modern State of ours legitimizes its “monopoly of physical force” is precisely by telling us that such “kidnapping” is done in our name (“we are the state.”) and for our own good (“it was the National Health Service that saved us.”). Nonetheless, the kidnapping remains – and in this, libertarians, beyond looking up to Frederic Bastiat (“The state is the great fiction by which everyone endeavors to live at the expense of everyone else.“), also end up agreeing with Engels: “the state is nothing but a machine for the oppression of one class by another, and indeed in the democratic republic no less than in the monarchy.”

What they do not agree on is what constitutes the relevant social classes. The libertarian class struggle is not the one that Karl Marx brought into the world (despite the 3rd volume of his Capital ending precisely when he was at last going to explain us “what constitutes a class“…). To libertarians, as long as this “kidnapping argument” serves as the foundation of government, the class struggle will always be between the governing and the governed (see Dunoyer, Comte and Thierry, or Calhoun), that is, between those who live off the ransom and those who pay for it.

As has been noted for several centuries (see La Boétie or David Hume), the rulers, being a minority, would easily be put at a disadvantage in a direct clash. Rulers need to make the citizen believe that they are the only bulwark that prevents the Hobbesian “state of nature” from swallowing up the routine of everyday life. To achieve this, the most effective way is for the State to create an ever-larger layer of the population whose livelihood depends, at least in the short term, on maintaining this civilizational kidnapping – be it by belonging to the literal or figurative (administrative, functional, academic, retired) armies of the State, be it by having close relatives who belong to them, or be it by, say, benefiting from Minotaur-subsidized goods and services. This layer of the population will constitute the class whose interests and “guarantees” ensure the maintenance of the ruling minority. If, in the meantime, one is able to centralize power and undermine the autonomy of all the independent fortifications that could oppose the expansion of the Bismarckian Minotaur, so much the better (on this point, de Jouvenel is required reading).

Still, it is interesting – and important! – to note that most liberals in the classical tradition do not support this pessimistic and cynical view of the nature of the state. Ludwig von Mises, who confided with Weber in Vienna for a few months in 1919, goes so far as to claim in his last work that government is “the most necessary and beneficial institution” of life in society. To classical liberals like Mises, “if all men were able to realize that the alternative to peaceful social cooperation is the renunciation of all that distinguishes Homo sapiens from the beasts of prey, and if all had the moral strength always to act accordingly, there would not be any need for the establishment of a social apparatus of coercion and oppression.” To these authors, it is not even correct to say that the State constitutes a “necessary evil,” because in their view the evil is not in the State but in the imperfection of human beings (John Locke, three hundred years earlier, was saying essentially the same thing).

Thus, taking both arguments into consideration, perhaps the most sensible thing to do would be to follow Mark Skousen and settle that taxes are, in fact, “the price we pay for failing to build a civilized society”, a definition that is also in line with the Spencerian libertarian ideal, since from it we can derive that “a centrally planned totalitarian state represents a complete defeat for the civilized world, while a totally voluntary society represents its ultimate success.”

Now, note the dichotomy that emerges from these two alternative “prices”. If taxes constitute “the price of civilization”, this suggests not only such “civilizational kidnapping” as libertarians see it, but also such social engineering as envisioned by social-progressives, who consider it on the State to foster the advance of civilization. If, on the other hand, taxes are “the price of uncivilization”, such definition makes it clear that the burden is on the individual to promote (and implement) a set of institutions and moral rules that, little by little, fulfill the civilizational fate of mankind and leave behind the “uncivilizational” vestiges of the State – of the “machine for the oppression of one class by another” (something that the communists from Marx’s time would supposedly also like to achieve, but through completely counterproductive means…).

Moreover, the economist in me also can’t help noting that, if taxes are “the price of civilization”, then it means that this “good” – i.e. civilization, social peace – is probably the only one whose price has continued to escalate since the dawn of modern civilization, regardless of the monetary policy pursued by the central bank (a development which, in accordance with the libertarian view, does not speak well for government management of this “public good”…). On the other hand, if taxes are seen as “the price of our failing to build a civilized society”, then the reason for our current tax burden becomes clear…

So, whatever the reader’s preferred definition of what the State is and should do, I believe that the Fall period could well serve as a sort of “Budget Lent”, in which we honestly reflect on the essence of taxes and the State.

Pedro Almeida Jorge is an Economist and Library & Translations Coordinator at Instituto +Liberdade, in Portugal.


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Michael Saylor: “Bitcoin Is The Oxygen Mask”

Michael Saylor: "Bitcoin Is The Oxygen Mask"

"So what is bitcoin, exactly?" Tucker Carlson asks.

To explain it, Tucker notes that they scoured…

Michael Saylor: “Bitcoin Is The Oxygen Mask”

“So what is bitcoin, exactly?” Tucker Carlson asks.

To explain it, Tucker notes that they scoured the world for someone to explain it that had “skin in the game” and Michael Saylor fits that bill perfectly with billions of his firm MicroStrategy’s balance sheet invested in the cryptocurrency space.

Saylor begins: “Bitcoin is the first engineered monetary system in the history of the human race…full stop!”

And to explain it, “the first question is ‘whats money?’; the second question is ‘whats the problem?’; and the third question is ‘whats the solution?’.”

And so the Microstrategy CEO begins by explaining what is money…

“Money is social, economic energy… it is monetary energy.”

Wending his way from African’s glass beads to gold and on to the present day, the bitcoin advocate notes that “money is that shared ledger of who owes what to whom,” explaining the difference between “weak money and strong money” in terms of being able to manufacture glass beads and dump them on Africa-past (glass beads are weak money) analogizing to the dollar (being able to ‘manufacture’ dollars and dump them on the world).

Because of the inflationary impact on goods of this ‘manufacturing’ of dollars, you’re never going to catch up because you are being paid the currency: “the only way you can actually stay ahead is to grow your cashflows faster than the rate of monetary inflation… and that’s why the rate of expansion of the money supply is so critical.”

Saylor makes the prescient point that while CPI dominates inflation discussions, “the government gets to pick what’s in that basket of goods and how it is weighted.”

The last decade has seen monetary inflation rise at around 14% per year… and the S&P has risen around 14% per year.

The best inflation rate for an investor, Saylor explains, or for anyone who wants to stay wealthy or be wealthy – if you’re concerned about maintaining your economic purchasing power – “it’s the monetary inflation rate – the rate at which the supply of money is expanding.”

Then Saylor takes us on a journey:

“…the currency is to the economy what your blood is to your body… and economic energy or money is to the currency what oxygen is to your blood.”

“So, common sense says that, if I keep sucking the oxygen out of the room, you’re going either suffocate or freeze to death…”

“…and if I keep sucking the economic energy out of the currency, the economy collapses… and in the extreme you get ripped back to stone-age barter.

“…when the money doesn’t work anymore, I have trade you cigarettes for bullets… and the problem with that is the economy becomes a million times less efficient.”

“…how many countries in the world have a collapsed currency…66 of the dollarized [ZH: have an inflation problem]… there’s about 130 floating currencies and all of them are weaker than the dollar.”

“The US dollar is the world’s reserve currency and the US dollar is expanding… it was expanding 10% a year for a decade… it’s now expanding at 14% a year and expanded 34% over the past 12 months…”

Saylor is discussing the expansion of the US money supply (in a TMS – True Money Supply or Rothbard-Salerno Measure)…

Saylor continues, “…thus the dollar is weakening… it’s like the oxygen is getting sucked out of the room…”

Saylor turns to Tucker and asks “..if I told you the oxygen is getting sucked out of the room… but there’s an oxygen mask dropped out of the ceiling over there, what would you do?”

Tucker exclaims “I’d run for it!”

Saylor replies “yeah, put the oxygen mask on…” concluding his analogy by explaining that “Bitcoin is the oxygen mask.”

As Tucker adds, Saylor has made the most compelling case I’ve ever heard for the need something like bitcoin:

“the whole point of bitcoin is to escape the inflation vortex that has consumed all these previous empires.”

Saylor clarifies further:

“…the point of bitcoin is to fix the money… and money is energy… and energy is life… and if I keep sucking the energy out of the economy, I’m sucking the oxygen out of your system…”

“…under the best case, you perform poorly. Under the worst case, I suffocate you to death, or freeze you to death.”

“That’s the problem. That’s why economies collapse… and that’s why empire’s collapse.”

Watch the full-length interview below:

Tyler Durden
Sat, 12/04/2021 – 09:55

Author: Tyler Durden

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Goldman: Are We Starting To See What The “New Normal” Looks Like?

Author: Tyler Durden

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