Cheap Money, Bernie vs. Musk & Vaccine Wars
Cheap Money, Bernie vs. Musk & Vaccine Wars
Money is cheap and an obscure FED system has sparked crazy theories about the market., Musk might be tweeting too much and the dichotomy between what sells and what works in healthcare.
Bonjour! 👋👋
First of all, welcome to the new subscribers who joined this week! And I hope everyone had an awesome weekend!— On this week’s edition of Aconomics:
[1] News Roundup: Musk tweets too much & The vaccine discussion Pfizer vs. the WHO.
[2] Main topic: Reverse repos conspiracies, does it matter?
[3] A Stock I’m flirting with.
[4] Funny meme or recommendation
If you’re reading this but haven’t subscribed, do it 👇 And If you like it and want to share it on social media, you have my blessing 😉
[1] News Roundup
Musk tweets too much
I’m going to go out on a limb and say it.
Elon, shit the f* up!
Another week and again we’re talking about this super smart, attention seeker billionaire narcissist. And don’t get me wrong, I’m a big fan of Elon but I can’t help than feel that he might thinks he’s beyond good and evil.
My interest in Elon is for him to continue what he’s doing professionally, he is without a doubt, a force for innovations and trailblazing in this world but everybody gets tired of a troll.
This is the latest: Bernie Sanders, the hypocrite that praises communism while owning 3 houses and having millions in the bank tweets:
And Elon responds with:
And, more annoying:
Funny? Yes. Necessary? No. Could have unintended consequences? Hell yes. First, he should stop messing with the stock market. Second, with many companies in his portfolio that require government approvals, grants and/or contracts like Neuralink and SpaceX for example. Why bother with an almost dead, hypocrite senator?
Am I the only one that has the feeling that Musk might end up having an Icarus story? If he flies to close to the sun, his wings will melt too.
The vaccine discussion Pfizer vs. the WTO
There is political international pressure supported by the US government to apply an IP waiver on the Covid vaccine and Pfizer is fighting it. The WTO wants to reach an agreement on the global response to the pandemic at its ministerial conference in Geneva from Nov. 30 to Dec. 3.
If you own vaccine stocks (Pfizer, Moderna, AZ, BioNTech, etc. you might want to hedge your position by then.
Now. In principle, it sounds great, its easy to sell the idea that an IP waiver is the right thing to do but lets stop for a second and question the IP waiver and the ramifications of such policy.
is an IP waiver the only measure we have to get the vaccine everywhere? Wouldn’t it be more reasonable to apply quotas of production so that companies like Pfizer (the capitalist poster child) stop selling to the highest bidder when billions of people are still exposed and without access to the vaccine?
Does this mean that, for the next pandemic, all the companies in the world will be a little hesitant in pouring billions of dollars into research, development and production?
Pfizer’s shot has more than 280 materials made by suppliers in 19 countries, some of them also have IP and are not a multibillion dollar corporation. Are they all going to be affected by this and their innovation secrets released?
I don’t know the answer to all of this questions, and nobody is arguing that the access to this vaccines isn’t unfair and uneven. I’m just thinking that there must be something in the middle that safeguards the capitalistic ideals that made this vaccine possible in record time, and the populistic rhetoric that seems to be predominant among politicians and institutions today.
[2] Reverse repos conspiracies
We can say a lot about Reddit but one thing is for sure, it’s probably the place with the most interesting conversations are happening online. The latest debate in Finance groups came about when somebody started posting the daily reverse repos from the FED, and don’t worry, I’ll explain what they are.
A reverse repurchase agreement (known as reverse repo or RRP) is a transaction in which the Fed sells a security to an eligible counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future. For these transactions, eligible securities are U.S. Treasury instruments, federal agency debt and the mortgage-backed securities issued or fully guaranteed by federal agencies.
In layman's terms, its a place where eligible institutions that are now sitting on maintains of cash can “invest it” in the FED’s Overnight Reverse Repo Facility and get a tiny yield, now at 0.05%.
Now, what about Reddit?
Well, the super high never-seen-before amount of money we saw recently in RRP has many Reddit users debating if we predict stock market moves by analyzing the ups and downs of the FEDs RRP facility?
The short answer is NO, we cant predict movements in the market but that does not mean, we cant learn something about the economy and create hypothesis about what might happen in the near future. Let me explain.
The economic stimulus that followed the Covid-19 pandemic meant that the FED started buying (and still is) Treasury and mortgage-backed securities from banks in exchange for reserves AND at the same time, the Treasury issued a huge amount of bills to raise capital to fund all those stimulus programs the government came up with.
All those hundreds of billions of dollars that the treasury raised made their way into the financial system via bank balance sheets.
Now, usually, when institutions have piles of cash and they need to have it readily available, they look for secure short term investments. But when everybody has piles of cash, those investments start to pay less because the system is flooded and it pushes the yields closer and closer to zero. And with time, that 0.05% in the reverse repo facility start looking better and better.
The best way to look at the FED’s Overnight RRP is to look at it like a mid/late stage symptom of a desease. The symptom reached 1.6 Trillion dollars one night a few weeks ago and since then it has gone down a bit but it’s still at record highs.
So, what can we learn?
There is no such thing as a free lunch. By printing money and pumping the economy to avoid a disaster we have put ourselves in an interesting situation that might bring unintended consequences and perhaps another disaster in the end.
High inflation as we’re seeing, some say it’s transitory but what isn’t? transitory also means a 7-12% inflation rate for 5 years.
Market overvaluation. We see it clearly with the rise of PE ratios across the board and it might (sooner or later) crash.
Higher barriers to excess capital markets, increasing inequality and lowering entrepreneurial activities.
So yes, we averted a really tough and hard crisis, but the consequences of this financial and economic experiment we’re living might bring not so pleasant but lasting surprises down the road.
I know, what a downer. Sorry for that. :)
[3] A Stock I’m flirting with.
Lam Research Corporation (incorporated in 1980 and is headquartered in California), designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits.
I did a whole deep-dive on the stock here:
And just recently did a video about it. Check it out 👍
The assets that I own besides Lam Research are: AMD, AMS AG, TSM, QCOM and INTC.
[4] Funny meme or recommendation
This has been a dense Newsletter, lets go for a meme this week :)
If your like me, you love checking the market, the rates, the treasury yields. I cant tell you how often I open my etoro app on a Saturday or Sunday and feel exactly like this :)
And that’s it!
If you got to this point you either have too much time on your hands or I made it compelling enough :) I’ll choose to believe the latter. If you can share this newsletter it would mean a lot to me. Thank you again and have a great week!!
Until next time!
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