Epsilon Theory Professional
If B117 becomes the dominant SARS-CoV-2 strain in the United States, that is a profoundly deflationary, risk-off, dollar higher, flight to safety event.
I don’t believe that ANY of this is priced into markets.
I believe there is a non-trivial chance that the United States will experience a rolling series of “Ireland events” over the next 30-45 days, where the Covid effective reproductive number (Re not R0) reaches a value between 2.4 and 3.0 in states and regions where a) the more infectious UK-variant (or similar) Covid strain has been introduced, and b) Covid fatigue has led to deterioration in social distancing behaviors.
Right now, Wall Street is trying to identify which inflation narrative will be an investment thesis that makes lots of people nod their heads.
Recognizing THAT – and maybe even trying to get ahead of THAT – is how you play the game of markets successfully.
This weekend’s regulatory news on Bitcoin is a big step forward in creating “flow” in the form of a highly liquid, easily transacted financial product that Wall Street can administer. But it’s a death knell for any “revolutionary” application for Bitcoin, as it becomes just another highly regulated game in the Wall Street casino.
We are seeing language in both the Central Bank and Security Analysis narrative regimes that would have been unthinkable even a few months ago, language that is market-negative. It’s not enough to change the market-positive narrative regimes in place today, but it’s definitely enough to make my risk antennae start to tingle.
Wall Street is redefining Bitcoin to be an Inflation Hedge™ product.
This is how Wall Street creates flow. This is how Wall Street makes money. All that stands in the way is the unregulated nature of Bitcoin. So that’s gonna change.
Three times in my professional life as an investor, I have felt a trade in my bones, by which I mean a certainty that there is a massive disjuncture between a real world poised for sharp secular decline and a market world at buoyant narrative highs. The first time was in the summer of 2008. The second time was in February of 2020. The third time is today.
In the summer of 2008 and February of 2020 I saw the trade to, yes, make money from those real world calamities. I do NOT see the trade here.
The insight of Schrödinger’s Cat is that the cat is alive AND the cat is dead before the box is opened. It’s not merely unknown whether the cat is alive or dead. The cat is actually alive AND actually dead at the same time.
In our real-life world of investing in markets, we frequently deal with real-life cats that are both alive AND dead at the same time. Like US Treasuries.
Every once in a very rare while, we see what we call a Missionary statement (an action or a speech by a famous person or organization on a ubiquitous media platform) that has the potential to change the Common Knowledge (what everyone believes that everyone believes) about an important aspect of our investment lives.
Here’s one.