October 22 2021

Pedal to the Metal

Decidedly, investors have decided to look past the threat of inflation. Those who invest the most are not the ones to worry about an increase in everyday-life goods after all. What is an increase in 5%, when your investments punched much higher over the past year? Those things are not exactly comparable but help explain the current bullishness, the subtle difference between being richer and feeling richer.

Investor sentiment skyrocketed higher in the past week, and put-to-call ratio dropped to Jun21 level. Risky assets roared back, among them Bitcoin that crushed past its $60k threshold with flying colours. Some data are on their side: retail sales are ebullient, unemployment pulls back, covid anxiety has decreased, and most people are genuinely happier socialising than not.

Although there is no denying that happiness is not a straight line, so is not the economic prosperity, cocktail mixers are plenty available on the table, and people want to party. Even the most responsible parents in the room are joining in, so long as the paradigm stays the same: central banks are afraid to raise interest rates for fear of stifling the economic rebound, and cranking up the interest load, and politicians struggle to establish consensus for a dose of austerity. See how Biden’s reform on increasing taxes, channelling money to unproductive assets face resistance in Congress. If you’re a politician in your mid 80s, already facing an out-of-touch crisis with your electorate, do you really want to be the one who turns down the music, and turn the lights on?

The most rationale among us already foresee a potential disastrous end to this story. Well, what if? What if buying this stupid jpeg-NFT of a crypto punk for half a million would one day be the next Picasso painting equivalent? What if this car company (#Tesla) valued 13x-FY22 sales would be the next 10 car manufacturers combined? What if this wind turbine firm (#VestasWind) trading at a price-earning ratio of 52x would takeover the business of E.O.N, EDF and others? What is Axie Infinity and Decentraland are the future of gaming?

You see that some of these bets might work out, like Moderna delivering the astonishing success of rising from an ambitious mRNA platform to a covid-vaccine juggernaut…saving the world at that. But probably not all of these bets would work out. It’s not just about a very generous liquidity environment, it’s that to some extent investors in some compartments are going nuts. It’s one thing to feel good about putting your money where your heart is, it’s another to defy the laws of physics.

360 Advisory – Markets