Hi Everyone,
I hope you all had a great week. Is it just me or in the last couple of years, there has not been one week that has gone by where I stop and think, genuinely, what a time to be alive? Last week was not different.
From the federal reserve that stopped updating the M2 data below, the bond yields keep rising, bitcoin at 50,000 USD being the new norm, the complete shift in the narrative in nuclear energy, the fragility in the equity market, and let’s not even get started with covid 19. My personal favorite, however, is finally starting my own consulting business with my first client and first billable. As you can see, we don’t have one topic this week but will review what I think were the most interesting facts in the last seven days.
M2 discontinued?
What is M2 and why should I even care? M2 is often referred to as broad money supply which includes cash in bank accounts and checking accounts as well as term deposits and mutual funds. M2 is most often used by economists and market participants to understand the potential inflation. As we have learned from Milton Friedman: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output”. So why is this news interesting at all? Federal chairman Jay Powell was testifying Wednesday in front of the USA congress and when asked if we should be concerned with the increase in the money supply of more than 25% in the last year and whether that could lead to currency devaluation, Powel answered: “there was a time when monetary policy aggregates were important determinants of inflation and that has not been the case for a long time.” I personally find it very interesting that something that we have been closely monitoring for the last century in finance will be discontinued and that furthermore, the federal reserve does not see any correlation between M2 increase and inflation.
Rising Bond Yields
What is it and why should I care? As you can see from the chart below depicting the 30-year treasury yield, the chart for the 10-year Treasury yield is a copy-paste, and now for the first time since August of last year, we are now well above the 2% rate. The treasury yield is the return on your investment from investing in a bond of that duration. In oversimplified terms, because the US bonds are seen as risk-free, and because the bonds are sold at auction with a given interest rate if the yield rises without a rate rise, it must mean that we have less demand for the bonds. (See the accompanied latest US government auction where 56 billion was offered and only 27billion was sold for the 30-year bond and 96 billion was offered on the 10 years and only 41billion was accepted). While that does not tell us a whole lot it's worrying/interesting to follow this in the next couple of weeks.
Bitcoin at 50,000 USD
I will not spend much time on it but look at the below chart. From Microstrategy adding another 1 billion last week in Bitcoin, Square added more than 170 million, JP Morgan, who had been a harsh critic earlier in 2017, compelled clients to add 1% of their asset allocation to Bitcoin. What a reversal of sentiment.
Nuclear will see better days
Anyone invested in uranium after Fukushima had to go through years where absolutely not a single good news in that sector would surface. Nuclear was on its way to grace. Germany, in one of their worst energy policy move ever, decided to move away from nuclear to embrace solar and wind. German citizens now pay their electricity 200% compared to when nuclear was the baseload power. Furthermore, wind and solar are a poor baseload constant source of power leading Germany to now import natural gas and electricity from their neighbors. I digress, in the last couple of weeks, the number of Governments and agencies making a 180 degree on their stance on uranium gives the sector breadth of fresh needed oxygen. France extended the life of 32 reactors by decades. In Australia, a new bi-partisan group will try to influence the government on the benefits of nuclear energy. The price of U308, the “nuclear fuel” is now reaching 30/lbs after a decade of sub 20$/lbs indicating a potential shortage in the sector.
Yellow Cake PLC, a uranium company that buys and holds uranium, which has a very advantageous contract with Kazatomprom, the largest uranium producer in the world, exercised their option to purchase 100 million USD worth of U308 at roughly 21$lbs. This news is quite bullish in many expert’s opinions since the current spot price is not much higher than the acquisition cost but would tend to suggest improving structural economics of the sector in the future.
Equities see red
Update on my Tesla shorts. They paid off and I cashed them out. I was lucky to time this to the T and even if I think this has more leg to go down, I would prefer to not overstay my welcome in a winning trade. Also, my TLT trade, from my last blog post, is in positive territory as expected, albeit a small gain, acting as a hedge to the general market. Both the SP500 and the Nasdaq had a rough week and even if in the grand scheme of things, these short pullbacks are not significant, one should always listen to the narrative of the story. And this week, the question on everyone’s mind was, is this another march 2020 event beginning. No one ones, but it will be important to follow how the markets open tomorrow morning.
I started my consulting business
I started this blog with the goal to reach 500k in total investment assets within the next 5 years with a 30k starting capital. I however know that the biggest source of wealth and financial independence comes from starting your own business. While the first project is very small, I am stoked to have finally generated a second source of income at 36 years old. I will elaborate in another post on what this consulting business is all about!
Have a great weekend and see you all next week! Don’t forget to help me spread the word about the blog if you enjoy the content by sharing it and/or subscribing.
Max
PS: First illustration from chad crowe