I've been thinking about your thesis on the fed (tapering will fail narrative) which is very intriguing. How much certainty do you see this happening? is there anyone that holds a differing POV?
Can never be 100% certain that tapering will fail. There are quite a few people that disagree with my POV. Most of the large hedge funds with established reputations in Trad-Fi disagree with me. Some like Cathie Wood were even calling for deflation to occur. Some individuals like Steve Van Metre (the bond king) accurately predicted inflation, but believe that the Feds taper is going to occur as they've stated it will.
I am 100% certain that the Fed will be unable to normalize interest. We already saw their failure in Sep. 2019, and the speed of this cycle will be accelerated compared to the previous one. It's quite possible that the narrative collapses from a simple inability to even find enough bid liquidity at the treasury auctions. But it's also possible that they scrape through and get to the point where they can start raising interest rates.
If they do, they run into another problem. Higher interest rates can work when you are selling less debt on a regular basis. But if you need more buyers to cover significant deficits, then you run the risk of treasury bond rates dislocating from the overnight rate pretty significantly, and if one of the auctions sees even a moderate drop in bid liquidity (which isn't an uncommon event) then the next marginal bidder might be quite higher in interest rate than the treasury is ready to pay.
Last time, this crisis occurred in the overnight markets, where it mainly affected banks ability to have enough deposits prepared to cover lending ratios. Currently all required reserve ratio regulations have been discontinued so that is no longer a "problem," in the overnight markets, and instead the liquidity crisis will likely occur in the treasury markets instead.
The treasury will be demanding more money than the markets can bear at the price they will try to force the market to pay. That sort of exchange only has one logical conclusion. The narrative has to fail, and the only way to guarantee buyers is to print money.
I've been thinking about your thesis on the fed (tapering will fail narrative) which is very intriguing. How much certainty do you see this happening? is there anyone that holds a differing POV?
Can never be 100% certain that tapering will fail. There are quite a few people that disagree with my POV. Most of the large hedge funds with established reputations in Trad-Fi disagree with me. Some like Cathie Wood were even calling for deflation to occur. Some individuals like Steve Van Metre (the bond king) accurately predicted inflation, but believe that the Feds taper is going to occur as they've stated it will.
I am 100% certain that the Fed will be unable to normalize interest. We already saw their failure in Sep. 2019, and the speed of this cycle will be accelerated compared to the previous one. It's quite possible that the narrative collapses from a simple inability to even find enough bid liquidity at the treasury auctions. But it's also possible that they scrape through and get to the point where they can start raising interest rates.
If they do, they run into another problem. Higher interest rates can work when you are selling less debt on a regular basis. But if you need more buyers to cover significant deficits, then you run the risk of treasury bond rates dislocating from the overnight rate pretty significantly, and if one of the auctions sees even a moderate drop in bid liquidity (which isn't an uncommon event) then the next marginal bidder might be quite higher in interest rate than the treasury is ready to pay.
Last time, this crisis occurred in the overnight markets, where it mainly affected banks ability to have enough deposits prepared to cover lending ratios. Currently all required reserve ratio regulations have been discontinued so that is no longer a "problem," in the overnight markets, and instead the liquidity crisis will likely occur in the treasury markets instead.
The treasury will be demanding more money than the markets can bear at the price they will try to force the market to pay. That sort of exchange only has one logical conclusion. The narrative has to fail, and the only way to guarantee buyers is to print money.
Looking forward to the DeFi guide!
My request would be to use CVX finance as the defi example due to its timely nature.
Yeah. On second though, maybe not on the ETH block.
hahaha, yeah I tried to include examples outside of ETH, since this bit of advice kind of counters my generic advice for beginners.