Continued Turmoil and Market Zigzag

What is going on? What does it mean? Where are we headed?

The pot continues to stir creating splashes that deliver waves in practically all markets. And as the picture darkens, it becomes more and more difficult to understand each variable in the equation and what it all means. Everyone’s heads are hurting trying to balance all narratives and probabilities. What is going on? What does it mean? Where are we headed?

The Ukraine War

The situation in Ukraine/Russia does not seem to be deescalating as many had hoped. On the contrary, it has become quite difficult to believe in any kind of resolution within the near future between the two countries. Ukraine is holding up with support provided by its allies while its own economy is tanking. Russia refuses to change its course of action and continues its march forward. Many parts of Russian economy is also in splinters but with the increased pricing of its energy exports, its national trade balance still looks in good shape despite heavy economic sanctions imposed by the West. The conflict enters a third phase were both parties keep the engines running while suffering greatly as ripple effects worsens around the globe for each passing day.

Inflation Not Under Control

Following this weeks publication of June’s official CPI numbers, it has become clear that the already high inflation are still accelerating, and that the Federal Reserve’s tightening of rates has not (yet) had the wanted effects in bringing inflation down. This is a problem.

Watching this unfold, macro commentators have long formed into two camps: One that believe current levels of inflation will be sticky for quite some time, and that we will have to get use to higher than normal inflation numbers. The other camp is more optimistic and believes the continued economic tightening will result in lower inflation numbers quite soon. As time passes and central banks continues to tighten economic policy, it seems evident that a slow transition from the first camp to the second should happen at some point. However, with accelerated inflation and a CPI reading of 9.1%, things still look dire. And for as long as things fail to improve, it remains most likely that the Federal Reserve will not change course as their main objective remains to win back confidence that they are in control of what is going on.

Bitcoin’s Not Liking It Either

An immediate and negative response to the CPI print could also be observed in the bitcoin market when BTC started dumping the second the news broke. From a fundamental level, that’s an interesting thing to observe as it sort of contradict the arguments to why bitcoin should be a safe heaven for inflation (scarcity plus fixed supply dynamics). Satisfyingly enough, the market quickly recovered back to levels before the news broke and we are left with the notion that the market is largely indecisive and not very directional at the moment. With no other material updates, my opinion about the market remain unchanged since my last letter, and I believe we are still range bound for the time being.

More Crypto-Skeletons Coming Out of the Closet

• 3AC Founders Going A-wall
  Founders of 3AC Kyle Davies and Zhu Su went missing as liquidators accused them of showing little to no meaningful participation in the liquidation process. Zhu Su later defended himself on Twitter. This situation is looking to get quite messy.

• Celcius Declares Bankruptcy
  After FTX had passed on the opportunity to acquire any infrastructure and/or assets here due to economic despair in the company, there’s hardly any surprises here.

• Crypto Lender Voyager Files for Bankruptcy
  Voyager finally turning the key after it has become clear 3AC will not be able to pay back the $650M that was issued to them.
  

Other things

• Elon Musk Terminates his Twitter bid
  In heinseight, it seems obvious that the deal was ill timed why I speculate Elon' wants to stay liquid. Twitter is of course taking legal action and it will likely take time for this saga to end.

• Boris Johnson is Set to Resign
  Public and political confidence could not be lower for Boris Johnson. Boris is usually not one to throw in the towel but this time, it seems he has little choice. I would not be surprised to see Boris Johnson make one last attempt to stay in power.

• Sri Lanka in Haywire
  The president is yet to resign and has allegedly already fled the country. The population is in complete uproar and the country is in full economic meltdown. I found this Tweet helpful in understanding the dynamics that led to this.

• Farmer’s Protest in the Netherlands

  A large protest of 40.000 Dutch farmers showed their dissatisfactions with the new regulations of nitrogen oxide and ammonia emissions. Grand scale event with surprisingly little media coverage.