Our Post-Covid Society and Economy #25
Market Meditations | October 9, 2020
Today we have a deep reflection on our post Covid society and economy.
It becomes increasingly apparent that Covid is around to stay. Optimists (and indeed many people) in March laughed at the idea of the virus still being an issue in September time. After all, we are accustomed to an instant gratification culture. The internet and subsequent ease to do just about anything you want to in your life, as well as all the freedom and convenience provided by technologies make the average person not used to slow and clunky processes like the Covid recovery. Most of us get frustrated if our web page takes longer than 3 seconds to load, let alone if we are made to stay in our bedrooms for the better part of a year and restricted from travel. And yet, these are all things we have had to come to terms with and they don’t seem to be going anywhere.
Our society and economy will enter a ‘new normal’ rather than ‘going back to normal’. It is an unsettling thought indeed but we must return to fundamentals such as survival of the fittest and be pragmatic in our response to the new normal (such that we don’t fall behind). So let us begin to consider the new normal.
What is strikingly obvious is that huge gaps between the performance of countries are opening up, which could recast the entire world economic order. By the end of next year, according to forecasts by the OECD, America’s economy will be the same size as it was in 2019 but China’s will be 10% larger. Europe will still languish beneath its pre-pandemic level of output and could do so for several years – a fate it may share with Japan, which is suffering a demographic squeeze.
The variation comes down to three things:
The spread of the disease. China has all but stopped it while Europe and perhaps soon America, is battling a costly second wave. Over the past week Paris has closed its bars and Madrid has gone into partial lockdown. In China, meanwhile, you can down sambuca shots in nightclubs.
The pre-existing structure of economies. Think about it, it is far easier to operate factories under social distancing than it is to run service businesses that rely on face to face contact. Of course, manufacturing makes up a bigger share of the economy in China than in any other big country.
Policy response. Some countries were much faster in introducing tight lockdowns and injecting fiscal stimulus.
And then there are the broader themes. Risks in supply chains will lead to manufacturers bringing production closer to home. As office workers continue to work in their kitchens and bedrooms, lower-paid workers who previously toiled as waiters, cleaners and sales assistants will need to find new jobs in the suburbs.
In America, permanent job losses are mounting even as the headline unemployment rate falls. As more activity moves online, business will become more dominated by firms with the most advanced data and technology. This year’s boom in technology stocks is only the beginning.
The challenge for democratic governments will be to adapt to all these changes while maninting popular consent for their policies and for free markets. The latest rounds of elections in America show how divided politics remains, with the most notable output of the debate being a fly that sat on Pence’s hair for the better part of two minutes. What a world we have come to live in.
On a more subtle level, we will all live our lives with ‘Covid’ tinted glasses. Activities that seemed completely normal before will be incomprehensible. Imagine going bowling now, and putting your hand in a bowling ball or sitting in a packed meeting room with 20 people all day long.
I am afraid you don’t really have a choice and Covid does not seem to be going anywhere. For those that are burying their heads in the sand, it is a good time to smell the ocean air and embrace the reality of the situation. Make sure you are taking reasonable steps to preserve your mental health. Make sure you are leaving the house, even if for a walk and continuing to look after your health. Remain social and in contact with colleagues and friends. Also consider how you will fit into the new world economy.
It brings me comfort to know that many of my followers will only need a laptop and internet connection to look after their finances so do spend ample time ensuring you are technology savvy and know how to use the tools on the internet. This is not a good time to be overly reliant on a traditional 9 to 5 role. My entrepreneurial followers may want to consider ideas that will suit this new world order. When the times change we too must change to best suit them. A tale as old as time, literally, given evolution.
For those who are struggling, please refer to my various social media platforms where I offer many tools to help you learn to trade if that is what you wish to do and I also offer lots of advice to help your mental and physical health. Remember you do have a community here. Feel free to leave a comment on this edition and I will come back to you. If you are struggling, let us know or if you have any helpful hints and tips, let others know.
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Bitcoin and Balance Sheets
Jack Dorsey’s Square Purchases $50 Million Worth of Bitcoin
Bitmex Announces Leadership Changes After U.S. Government Charges, Arthur Hayes No Longer CEO
Trump’s Chance to Win Is Fading With Little Time Left to Recover
FCA: Crypto Fascists?
Twitter Imposes Restrictions Ahead of U.S. Election.
Bagsy: The Masked Crypto Trader Shares Coin Pre-Sale Secrets
Inversion & Problem Solving
Bitcoin and Balance Sheets
A big sentiment shift in crypto yesterday after Square, the crypto friendly internet payments company led by Twitter CEO Jack Dorsey, announced they had bought $50 million in bitcoin to “expand our largely USD-denominated balance sheet and make a meaningful investment in bitcoin.” With this move, Square became the second publicly traded company to put bitcoin on their balance sheet, after MicroStrategy already announced their move in early September. Are we witnessing the start of a new trend and will other companies follow suit?
There’s Always a First
MicroStrategy and their CEO Michael Saylor announcing they had bought a total of 38.250 bitcoins, valued at around $420 million, totaling 90% of MicroStrategy’s treasury balance was nothing but a bold move when it became public in September. Being first at something, especially as a CEO of a publicly traded company, comes with potentially high upside, but also involves a lot of risk. There’s no precedent and if something goes wrong, shareholders will hold you accountable. On top of that, there’s a good chance you’ll get voted out of your own company.
The important part of MicroStrategy and now Square announcing they started investing in bitcoin is not only that supply continues to decrease. The bold move by the first companies to do it removes career risk for other people who have been considering it as well. A CEO of a multi-billion company buying bitcoin sends a signal that there might be something there. It makes the investment thesis defendable to a company board for CEOs who want to follow suit as well.
In that regard, the importance of these developments holds as much weight as Paul Tudor Jones’s entry into bitcoin earlier this year. A well-respected hedge fund manager announcing to the world that he’s willing to add bitcoin to his portfolio suddenly makes it attractive for a lot of other managers as well. We humans are mimetic creatures, once there’s social proof a situation can suddenly become attractive.
Here’s Our Playbook
Square realises the important role they are playing in making buying bitcoin as a company more acceptable and in order to lower future barriers to entry, they provided a detailed playbook on the steps they took to successfully perform the operation and “maintain transaction privacy and price slippage on execution”. You can’t just buy $50 million worth of bitcoin on the open market without moving the price upwards, so most if not all of these purchases are done through big over-the-counter (OTC) trades.
In an environment with 0% interest rates and central banks pushing for inflation, holding hundreds of millions of dollars isn’t that attractive. Companies are forced to think outside the box and it is not unreasonable to think that other companies will follow suit and put bitcoin in their treasury now that some of the career risk is removed. This is the very beginning of a trend that will take a long time to play out, but it’s undeniable that this is yet another positive sign of bitcoin adoption.
Jack Dorsey’s Square Purchases $50 Million Worth of Bitcoin. Square, Twitter CEO Jack Dorsey’s company, has bought $50 worth of bitcoin, totaling about 1% of Square’s total assets as of Q2 2020. After MicroStrategy in September, Square has become the second publicly listed company to invest in bitcoin. The company purchased around 4,709 bitcoin at an aggregate purchase price of $50 million, i.e. at an average price of around $10,600 per bitcoin. In their announcement, Square said that cryptocurrency is “an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose.” More importantly, Square CEO Jack tweeted that the company also made public how they managed to do it, providing a playbook for other companies considering a similar move in the future. Read more.
Google Cloud Does Not Intend to Take EOS Rewards as a Block Producer. On Tuesday, Block.one announced that Google Cloud had begun preparations to list itself as a candidate to serve as a block producer – one of the 21 nodes chosen by the EOS community to serve effectively the same role as miners on Bitcoin or Ethereum. “Google Cloud is not getting into crypto mining. This is really an infrastructure play for us” said Google Cloud Developer Advocate Allen Day to CoinDesk via a spokesperson. He added that “we are committed to ensuring that the information on public blockchains are securely stored, reliably available and can be accessed in meaningful ways.” After the announcement, EOS token price shot up from $2.5 to $2.88 but quickly fell back and traded at $2.6 at the time of writing. Read more.
Bitmex Announces Leadership Changes After U.S. Government Charges, Arthur Hayes No Longer CEO. Hong-Kong based derivative exchange Bitmex announced leadership changes yesterday, almost a week after the U.S. government charged its founders for running an unregistered trading platform and violating anti-money laundering and know-your customer regulations. All the four named defendants, including CEO Arthur Hayes, have stepped back from executive management responsibilities. Earlier today, The Block also wrote that Bitmex CTO Samual Lee has been released on a $5 million appearance bond. After the two lawsuits last week, HDR Global Trading Bitmex’s parent company) vowed to fight the charges. As a result of the lawsuits, there was a massive exodus out of Bitmex. More than 40,000 bitcoin, currently worth about $422 million, has been withdrawn from BitMEX, according to various data trackers. Read more.
Trump’s Chance to Win Is Fading With Little Time Left to Recover. While the lesson of the 2016 campaign was never to count out Donald Trump, his path to re-election is narrowing dramatically as Democrat Joe Biden’s lead continues to grow and votes sour on the president’s handling of the coronavirus pandemic. Trump now trails Biden by an average of 9.7 percentage points nationally, and by about 5 to 7 points in key battleground states. With just 25 days left, it’s not clear how Trump can make up the lost ground. The challenge got even harder Thursday when Trump rejected the idea of a virtual debate with Biden next week, erasing one of his few remaining opportunities to change the trajectory of the race. Democrats, still haunted by Trump’s 2016 victory over Hilary Clinton, aren’t celebrating yet. Clinton enjoyed a 5.3 point lead against Trump, on average, the same number of days before the election four years ago. But there are crucial differences this time, including a much higher favourability rating for Biden than Clinton enjoyed and Biden’s competitiveness in several states Trump carried in 2016, which could also shrink the president’s possible paths to re-election. Read more.
FCA: Crypto Fascists?. Saying no to things is the primary task of any decent regulator. But the FCA took it to a new art form this week when it in effect said “no, no way, absolutely no chance, forget it” to the nation’s cryptocurrency fans. The watchdog had started a consultation process on cryptocurrency derivatives back in July 2019, seeking views on whether it should allow retail punters to trade financial products pinned to the price of bitcoin and the like. The response was lively, and emphatic. Some 97% of 527 respondents called for it to be permitted. How could the FCA say no to such an overwhelming outpouring of public opinion? Pretty easily, it turns out. This week the regulator banned the sale of contracts for difference, options and exchanged traded notes pegged to crypto. “Retail customers can’t reliably assess the value and risks” involved, it said. The underlying assets – bitcoin, dogecoins, etc – have “no reliable basis for valuation”, it added. And retail costumes have no “legitimate investment need” to dabble in them. For crypto fans, this is somewhere between a nanny state and outright fascism. Read more.
Twitter Imposes Restrictions Ahead of U.S. Election. Twitter announced today that it will remove tweets calling for people to interfere with the U.S. election process or implementation of election results, including violence, as the company also announced more labels and restrictions to slow the spread of misinformation. This is a significant step for social media, which is increasingly under scrutiny for failures to capture misinformation. Twitter said in a blog post that, from next week, users will get a prompt pointing them to credible information before they can retweet content that has been labeled as misleading. It said it would also add more warnings and restrictions on tweets with misleading information labels from U.S. political figures like candidates and campaigns, as well as U.S. based accounts with more than 100,000 followers or that get “significant engagement”.Read more.
Bagsy: The Masked Crypto Trader Shares Coin Pre-Sale Secrets
Today’s episode features ImBagsy.
Bagsy is a canadian cryptocurrency trader and advisor and is single handedly responsible for making masks cool again. He wears a mask during all his live streams with friends covering the crypto market. Bagsy is also the brain behind various bots, including BagsyBot, ProofofListing and ProofofGithub.
In this episode we talk about his reasons for staying anonymous, building a Twitter account and the friends and connections you encounter along the way. We also talk about how Bagsy took the time to really get to know himself, finding your true purpose in life and books he recommends for people on a similar path. We end our conversation with some useful tips on how to approach pre-sales and common setbacks to avoid in order to maximize your chances of success.
Inversion & Problem Solving
“All I want to know is where I’m going to die so I’ll never go there” – Charlie Munger
We can sometimes spend hours or days looking at a problem without coming up with the right solution. Approaching something from a different perspective can be a step in the right direction. A solution to a complicated problem often comes unexpected and looking at a problem from another angle helps someone come up with different approaches they wouldn’t have considered before.
Well known thinkers like Charlie Munger and James Clear are big proponents of using inversion as a way to come up with solutions to a problem. They believe that flipping a problem on its head is sometimes an easy way to come up with different perspectives. Instead of thinking about what it would take to become successful, think about the things that could prevent it from happening. Considering the opposite of what you want helps you protect yourself from the setbacks that will inevitably cross your path. Avoid the bad to protect the good.
Inversion can be an excellent tool in your toolbox because it changes the point of focus. It puts a spotlight on errors and potential roadblocks that are barely noticeable when looking at it through a normal lens. As James clear writes: “Instead of asking how to do something, ask how to not do it.” Similarly, good trading is largely about the bad trades you avoid. Avoid mistakes and your winners will take care of the rest.
Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.