Long Hot Summer Reading List, and Shakespeare’s Annotated Guide to Bitcoin
The last two Eye on the Market pieces covered our views on the sequence of events around recessions: markets decline, then earnings, then GDP and finally employment. Also, the worst mistakes of this cycle (YUCs – young unprofitable companies, SPACs, renewable energy with limited commercialization potential, Fintech dependent on regulatory arbitrage and/or catering to the lowest quality borrowers, Metaverse, crypto, etc) have all been repriced, which is positive in terms of where we go from here. I envision one last leg down later this summer, since the Fed has more work to do on the inflationary aftershocks of the most stimulative policy in 150 years.
Most summer reading lists are carefully curated, inspirational, guaranteed not-to-offend elegies to the human spirit. This is not that. See below for materials to inform your discussions on energy, economics, finance, the Supreme Court, geopolitics, China and COVID/cancer research as this long hot summer rolls on. We conclude with the recently unearthed “Shakespeare’s Annotated Guide to Bitcoin”.
ENERGY
Vaclav’s 47th book, “How the World Really Works”, is an interdisciplinary and comprehensive look at food, energy, data, globalization, viruses and the main pillars of the modern world. Required reading for the legions of futurists trying to redesign the world we live in. Having Vaclav as an energy mentor for the last decade has been one of the most rewarding experiences of my career.
Click here
“The Elephants in the Room”. Our 12th annual energy piece starts with the energy crisis in Europe, the recovery in the oil & gas sector and a warning label on industrial electrification and carbon sequestration forecasts. We examine electric vehicle adoption, the transmission quagmire, bans on combustion of fossil fuels for heating in favor of electric heat pumps and a deep and skeptical dive on the hydrogen economy.
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“Russia’s War Is the End of Climate Policy as We Know It”. Ted Nordhaus of the Breakthrough Institute believes that geopolitical strife and energy scarcity will do more for the climate than decades of climate policies.
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Some cabinet members bring ample prior applicable technical experience to bear on their critical functions, while others bring almost none. Here are the last six Secretaries of Energy. Politics is a strange profession.
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MACROECONOMICS and FINANCE
“The Death of Modern Monetary Theory”. My former colleague Simon Lack of SL Advisors conducts a funeral for Modern Monetary Theory by dissecting its flawed premises and its most avid academic cheerleaders.
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“How the Fed Bond Binge Predictably Stoked Inflation”, and “How did they get inflation so wrong?” As Yellen and Powell (and Krugman) walk the plank on their inflation mistakes, the Council on Foreign Relations and the Atlantic deconstruct what the Fed got wrong. The CFR piece makes it clear: the rising gap between Treasury bond buying and bank excess reserves was a pretty good indication of where inflation was going next.
How the Fed Bond Binge Predictably Stoked Inflation - CFR
How did they get inflation so wrong? - Atlantic
“Squaring venture capital valuations with reality”. Researchers from Stanford found that unicorn valuations have been vastly overstated by an average ~50% (!!) over fair value. The primary reason: sloppy valuation methods which use the valuation ascribed to the latest round of capital, even if that round benefits from IPO return guarantees, liquidation preferences, vetoes over down-IPO rounds and/or seniority over other investors. The average unicorn has eight share classes; after valuing each class based on its specific terms and conditions, almost half the unicorns in this analysis lost their billion dollar unicorn status. This has implications for how unicorns are marked on the way up, and on the way down.
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“The Chart that Everybody Hates”. An update on an analysis we did a few years ago. The chart shows how entitlement spending is displacing discretionary spending on infrastructure, education, job retraining, energy and the judiciary that contribute to future growth, employment and intergenerational mobility. A forensic deep dive on what it would take to restore the prior balance between entitlements and discretionary spending, from the separate perspectives of fiscal progressives and fiscal conservatives. A real crowd-pleaser at parties.
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“No free lunch”. A piece I prepared for the bank’s Operating Committee. Bank capital adequacy and liquidity rules established after the financial crisis reduce insolvency risk for depositors and taxpayers, but come at a cost: a decline in market liquidity and greater execution risks in multi-trillion dollar US fixed income markets. Almost all measures of liquidity and market depth are close to the lowest levels on record. A growing risk as the largest stimulus program in history is withdrawn, requiring fixed income investors to fend for themselves.
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SUPREME COURT DOBBS vs JACKSON DECISION
Three studies of note: “Socioeconomic Outcomes of Women Who Receive and Women Who Are Denied Wanted Abortions in the United States”, “Global Contraceptive Failure Rates: Who Is Most at Risk?” and “A Preview of the Future of Abortion Bans: Texas Senate Bill 8”. Six months after denial, women who were denied abortions were 3.8x more likely to be in poverty, 37% less likely to be employed full-time and 6.3x more likely to receive public assistance than women who obtained abortions. Related topic: failure rates of contraception (5.5%-9.0% for the pill and 5.5%-18% for condoms), which would require a woman to bring a child to term in several states. While some states include language allowing abortions to save the life of the mother, patients with pregnancy complications or preexisting medical conditions that may be exacerbated by pregnancy are forced to delay an abortion until their conditions become life-threatening and qualify as medical emergencies.
“Socioeconomic Outcomes of Women Who Receive and Women Who Are Denied Wanted Abortions in the United States” [American Journal of Public Health]
“Global Contraceptive Failure Rates: Who Is Most at Risk?” [Johns Hopkins School of Public Health]
“A Preview of the Future of Abortion Bans: Texas Senate Bill 8” [New England Journal of Medicine]
“Planet of the Apes” (1963), a science fiction novel by Pierre Boulle. Dr. Zaius and the other members of the Ape National Assembly are driven by an intense traditionalism and an originalist interpretation of the Sacred Scrolls. Any similarity to actual Supreme Courts or governing tribunals is purely coincidental.
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GEOPOLITICS and RUSSIA
“Interview with Sergey Karaganov: We are at war with the West”. The world according to Putin/Yeltsin advisor Sergey Karaganov is a conspiratorial place not particularly rooted in historical accuracy.
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“Opposition to NATO expansion”. A letter sent to President Clinton in 1997 warning that NATO expansion in Eastern Europe would be an error of historic proportions. Signatories included Paul Nitze (Secretary of the Navy), Stansfield Turner (Navy Admiral, commander of the Second Fleet, CIA Director of Central Intelligence), Robert McNamara (Secretary of Defense) and several US Senators and historians.
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CHINA
“US-China competition enters the decade of maximum danger”. A piece from the Baker Institute at Rice University on what the authors see as China’s deteriorating long-run demographic and economic profile, its technological estrangement from the West, the issue of Taiwan and heightened risks for US-China relations.
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US GUN CONTROL and SUBSEQUENT IMPACT
A RAND Institute analysis of US gun control measures and their subsequent impact on gun violence. Each study is categorized as “inconclusive”, “limited”, “moderate” or “supportive”. The clearest benefits: child access prevention laws decrease youth suicides and unintentional firearm deaths. The second link is a Congressional Joint Economic Committee report on the cost of US gun violence: $230 bn per year, or 1.4% of GDP.
Rand Institute analysis of gun control legislation and outcomes
Congressional assessment of gun violence costs in America
COVID and CANCER RESEARCH
“The bright side of the COVID pandemic”, and “A turning point in cancer”. An article from Eric Topol at Scripps Research on the remarkable advances in medical research which have resulted from the COVID pandemic. Topol traces the long history of mRNA vaccines and how they are now being tested on malaria, HIV, cytomegalovirus, rabies, RSV, influenza A and chikungunya. mRNA therapeutics are also being used to amplify the body’s immune response to various cancers and neurodegenerative diseases. mRNA + nanoparticle vaccination has also elicited tick resistance and prevented Lyme disease in an experimental model.
A related article from Topol reviews potentially transformational breakthroughs in the field of “individualized medicine”, using genomics and artificial intelligence to treat cancer.
The bright side of the COVID pandemic
A turning point in cancer
We continue to maintain our online COVID web portal, which has data on infections, hospitalization and mortality, as well as summaries of the latest studies of vaccine efficacy in light of Omicron variant mutations.
Click here
RESEARCH ON FATHERLESS FAMILIES
This is a controversial topic which is sometimes hijacked for reasons unrelated to sociology and human welfare. I believe that these two sources (the Annual Review of Sociology and the Minnesota Psychological Association) approach it from an unbiased academic perspective with the goal of understanding outcomes and impacts.
Annual Review of Sociology
Minnesota Psychological Association
Who says Shakespeare isn’t still relevant to the modern world
Here’s Shakespeare’s take on Bitcoin. Quote #5 was the inspiration for the title of our crypto/blockchain piece from earlier this year, the Maltese Falcoin. See footnote for comments on the imploding DeFi lending market 1.
1 One issue roiling crypto: the collapsing DeFi lending market. From our February piece: “What kind of lending is actually taking place here? From what we can tell, most DeFi lending is simply over-collateralized crypto loans to other holders of crypto so that the latter can either (a) buy more crypto, or (b) obtain liquidity against appreciated crypto holdings without incurring capital gains taxes. Either way, it does not appear to be the kind of lending that could survive a large sustained decline in crypto prices themselves”. As we anticipated last February, DeFi lending volumes have collapsed at almost the identical rate as Ethereum and other token prices.
It would be hard to overstate just how “house of cards” the DeFi lending market is. DeFi lending failures so far include Celsius, Anchor Protocol, Babel Finance, BlockFi, Vauld and Voyager.
It would be hard to overstate just how “house of cards” the DeFi lending market is. DeFi lending failures so far include Celsius, Anchor Protocol, Babel Finance, BlockFi, Vauld and Voyager.
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In the United States, bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.
JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank-managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPM. Products not available in all states.
In Germany, this material is issued by J.P. Morgan SE, with its registered office at Taunustor 1 (TaunusTurm), 60310 Frankfurt am Main, Germany, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB). In Luxembourg, this material is issued by J.P. Morgan SE – Luxembourg Branch, with registered office at European Bank and Business Centre, 6 route de Treves, L-2633, Senningerberg, Luxembourg, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Luxembourg Branch is also supervised by the Commission de Surveillance du Secteur Financier (CSSF); registered under R.C.S Luxembourg B255938. In the United Kingdom, this material is issued by J.P. Morgan SE – London Branch, registered office at 25 Bank Street, Canary Wharf, London E14 5JP, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – London Branch is also supervised by the Financial Conduct Authority and Prudential Regulation Authority. In Spain, this material is distributed by J.P. Morgan SE, Sucursal en España, with registered office at Paseo de la Castellana, 31, 28046 Madrid, Spain, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE, Sucursal en España is also supervised by the Spanish Securities Market Commission (CNMV); registered with Bank of Spain as a branch of J.P. Morgan SE under code 1567. In Italy, this material is distributed by J.P. Morgan SE – Milan Branch, with its registered office at Via Cordusio, n.3, Milan 20123, Italy, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Milan Branch is also supervised by Bank of Italy and the Commissione Nazionale per le Società e la Borsa (CONSOB); registered with Bank of Italy as a branch of J.P. Morgan SE under code 8076; Milan Chamber of Commerce Registered Number: REA MI 2536325. In the Netherlands, this material is distributed by J.P. Morgan SE – Amsterdam Branch, with registered office at World Trade Centre, Tower B, Strawinskylaan 1135, 1077 XX, Amsterdam, The Netherlands, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Amsterdam Branch is also supervised by De Nederlandsche Bank (DNB) and the Autoriteit Financiële Markten (AFM) in the Netherlands. Registered with the Kamer van Koophandel as a branch of J.P. Morgan SE under registration number 72610220. In Denmark, this material is distributed by J.P. Morgan SE – Copenhagen Branch, filial af J.P. Morgan SE, Tyskland, with registered office at Kalvebod Brygge 39-41, 1560 København V, Denmark, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Copenhagen Branch, filial af J.P. Morgan SE, Tyskland is also supervised by Finanstilsynet (Danish FSA) and is registered with Finanstilsynet as a branch of J.P. Morgan SE under code 29010. In Sweden, this material is distributed by J.P. Morgan SE – Stockholm Bankfilial, with registered office at Hamngatan 15, Stockholm, 11147, Sweden, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE – Stockholm Bankfilial is also supervised by Finansinspektionen (Swedish FSA); registered with Finansinspektionen as a branch of J.P. Morgan SE. In France, this material is distributed by JPMCB, Paris branch, which is regulated by the French banking authorities Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers. In Switzerland, this material is distributed by J.P. Morgan (Suisse) SA, with registered address at rue de la Confédération, 8, 1211, Geneva, Switzerland, which is authorised and supervised by the Swiss Financial Market Supervisory Authority (FINMA), as a bank and a securities dealer in Switzerland. Please consult the following link to obtain information regarding J.P. Morgan’s EMEA data protection policy: https://www.jpmorgan.com/privacy.
In Hong Kong, this material is distributed by JPMCB, Hong Kong branch. JPMCB, Hong Kong branch is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Hong Kong, we will cease to use your personal data for our marketing purposes without charge if you so request. In Singapore, this material is distributed by JPMCB, Singapore branch. JPMCB, Singapore branch is regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided to you by JPMCB, Hong Kong/Singapore branch (as notified to you). Banking and custody services are provided to you by JPMCB Singapore Branch. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. You are advised to exercise caution in relation to this document. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. For materials which constitute product advertisement under the Securities and Futures Act and the Financial Advisers Act, this advertisement has not been reviewed by the Monetary Authority of Singapore. JPMorgan Chase Bank, N.A. is a national banking association chartered under the laws of the United States, and as a body corporate, its shareholder’s liability is limited.
With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. We may offer and/or sell to you securities or other financial instruments which may not be registered under, and are not the subject of a public offering under, the securities or other financial regulatory laws of your home country. Such securities or instruments are offered and/or sold to you on a private basis only. Any communication by us to you regarding such securities or instruments, including without limitation the delivery of a prospectus, term sheet or other offering document, is not intended by us as an offer to sell or a solicitation of an offer to buy any securities or instruments in any jurisdiction in which such an offer or a solicitation is unlawful. Furthermore, such securities or instruments may be subject to certain regulatory and/or contractual restrictions on subsequent transfer by you, and you are solely responsible for ascertaining and complying with such restrictions. To the extent this content makes reference to a fund, the Fund may not be publicly offered in any Latin American country, without previous registration of such fund’s securities in compliance with the laws of the corresponding jurisdiction. Public offering of any security, including the shares of the Fund, without previous registration at Brazilian Securities and Exchange Commission— CVM is completely prohibited. Some products or services contained in the materials might not be currently provided by the Brazilian and Mexican platforms.
JPMorgan Chase Bank, N.A. (JPMCBNA) (ABN 43 074 112 011/AFS Licence No: 238367) is regulated by the Australian Securities and Investment Commission and the Australian Prudential Regulation Authority. Material provided by JPMCBNA in Australia is to “wholesale clients” only. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Corporations Act 2001 (Cth). Please inform us if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.
JPMS is a registered foreign company (overseas) (ARBN 109293610) incorporated in Delaware, U.S.A. Under Australian financial services licensing requirements, carrying on a financial services business in Australia requires a financial service provider, such as J.P. Morgan Securities LLC (JPMS), to hold an Australian Financial Services Licence (AFSL), unless an exemption applies. JPMS is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (Cth) (Act) in respect of financial services it provides to you, and is regulated by the SEC, FINRA and CFTC under U.S. laws, which differ from Australian laws. Material provided by JPMS in Australia is to “wholesale clients” only. The information provided in this material is not intended to be, and must not be, distributed or passed on, directly or indirectly, to any other class of persons in Australia. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Act. Please inform us immediately if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.
This material has not been prepared specifically for Australian investors. It:
May contain references to dollar amounts which are not Australian dollars;
May contain financial information which is not prepared in accordance with Australian law or practices;
May not address risks associated with investment in foreign currency denominated investments; and
Does not address Australian tax issues.