Wrap

At the end of last week, markets were spooked by the Fed saying that they might need to raise rates a tad by the end of 2023. Given we had an inflation print of 5% a few weeks ago, this seems like stating the obvious. James Bullard, president of the Reserve Bank of St Louis made some anodyne remarks, such as that the Fed might stop buying mortgage backed securities (MBS). The market reaction was to swoon, with the major indexes dropping by several percent.

I did not write a Wrap on Thursday or Friday, because I didn’t really understand what was going on. It didn’t seem possible that such innocuous statements from the Fed could explain the market reaction. Sure enough, today everything went into reverse. Commodities, stocks … all risk assets climbed.

In detail: DX lost 0.4%, oil gained 2.6%, gold gained 0.8%, the SPX gained 1.5%. However, bitcoin lost 7.7%. $MSTR (Microstrategy), which seems to have turned itself into an SPV for owning bitcoin, fell nearly 10%.

Lightning Network

The Lightning Network seems to be a layer built on top of bitcoin which fixes the problem of slow transactions and vast power consumption needs. I don’t really know how it works, but I did install a wallet which allows me to use the network. It’s called Lightning, but there are others which might be better: I did minimal research: I just wanted to experience the speedup. I need to find someone on the same network to pay now.

The Transferwise story

It’s worth reading how Transferwise (Wise) got started.

The banks have a huge inbuilt advantage. The get massive economies from being at the nexus of many payments. This was recognized a long time ago. This is why banks make such huge income from making entries in ledgers: an activity which has zero marginal cost. Maybe all this will be rendered obsolete by crypto.

Someone pointed out on Twitter that Western Union invented telegraphic transfers a hundred and fifty years ago.

In 1871, Western Union invented the wire transfer. Cost 3%, took 2-4 days, and a person had to transfer physical money on horseback. 150 years and multiple technological revolutions later, a wire transfer still costs 3% and takes 2 days.

Ziglu

I don’t know much about Ziglu. I installed it on my phone. It seems to let me lend crypto. If crypto is a substitute for money, it will need to do all the things I can do with money. Probably the most important of these two is to lend, i.e. allow me to buy or sell money today in exchange for a fixed sum of money in the future. I am reasonably convinced that crypto has utility, but that’s a very different matter from it having value.

Oil going to the moon!

Oil may go higher! Well, producers are being forced, by activists or by legislation, to stop investing in production, but no practical substitutes for the actual good have been found. This, to me, adds up to a bull case. It’s nice to know that the Bank of America, using a more sophisticated argument, comes to the same conclusion.