0/ Ben Bernanke back on the road talking about all things inflation, monetary policy, the Fed's response from here, tightening, social responsibilities, crypto, CBDCs and more. Very similar sentiment to last week so highlighting a few nuances he expanded upon including...
1/ The 5.4% CPI print raised some eyebrows at both the White House & Fed, and it's a historically high #. He continued to reiterate we're not in the '90s anymore & the Fed is very much trying to overshoot its 2.0% target

But he still believes its transitory w/ some upside risks
2/ Re: transitory considerations he once again discussed base effects, the uneven opening resulting in bottlenecks & problems with supply chains (notably chips leading to auto inflation spilling into used cars) as well as commodity prices.
3/ What are upside risks to inflation?
-Labor Supply- a lot of forces temporarily holding down # of people working but this could be longer lasting with people retiring, participation rate lower, etc...
-Home Prices- big increase in home prices will feed into rents eventually
4/ -Inflation Expectations- thus far it's mostly contained particularly in the medium term but if it stays elevated for another 6 months, firms might change views, etc...
5/ In terms of Fed's response from here he thinks if we have more good employment #s at Jackson Hole Powell will highlight "substantial further progress" and start tapering in Nov / Dec where $120B/mo of UST & MBS is cut by $10B/mo for 12 months over '22
6/ At that point in time the conditions to raise rates will have been met or nearly met (e.g., inflation closer to 2.0% for a year & something close to full employment) but the Fed will implement a delay & we start to see rate increases in the middle of '23 which will be gradual
7/ Bernanke noted that the Powell Fed does not put excessive weight on R* or U* and are more "feeling through the dark" approach where they will raise rates pay close attention to economy / market response & gradually move upward (not on autopilot)
8/ He thinks there's a much smaller chance of a taper tantrum than there was in '13 because the market has seen this before & understands it better, while the Fed has better intelligence on markets than they did in '13. Purchases are also across the curve unlike '13 and March '20
9/ showed the Fed could intervene if Treasury market becomes volatile. No strong conviction either way but he thinks they taper MBS / UST symmetrically.
10/ In terms of the flow of QE he doesn't think this QE flow is much bigger than previous episodes as it should be measured not in $, but duration removed from the market. Post GFC QE was long-term securities this is across the curve with duration removal comparable to QE3
11/ He did highlight risks of Fed B/S approaching $9.0T which means a lot of reserves / reverse repos in the system but you can defend it and it's been effective in combatting the unusual COVID-19 pandemic
12/ On labor force participation rate to raise rates the economy needs to be at "full employment" Thus far Fed has pointed to pre-COVID level which in Jan '20 was 3.5% UE and PR of 63%. He thinks this could be a problematic definition as participation tends to respond to
13/ conditions in the economy.

Long-term economic growth depends on (i) Demographics & (ii) Productivity. On the demographic side things haven't been favorable, fertility which is already low dropping lower, aging society, lots of retirements, immigration slowing down, etc...
14/ Re productivity the last few Q's productivity has perked up in official data (but thinks that too is transitory).

Asked about the Fed & increased expectations about social implications he said the Fed is part fo the gov't and if gov't consensus is to try to address social
15/ inequalities the Fed should try to do what it can
-Research; Fed employs 100s of PhD economists
-Bank Regulation; could do green / ESG considerations in bank reviews, work w/ minority bank institutions, community reinvestment act, etc...
-Biggest thing is try to promote a hot
16/ labor market (within FAIT framework no longer raising rates just b.c economy is getting stronger)

He thinks easy money is supportive of social justice when used appropriate.

Also cites fiscal policy, taxes & transfer, education & HC that are outside of Fed's scope
17/ Finally on crypto, stablecoins & CBDC's:
- $BTC " has had success as a speculative asset but has had no success & will have no success as a monetary / payment asset. It's not stable, difficult to tx in & expect regulatory headwinds
18/ - On stablecoins he thinks they have some pot'l & are more usable, and are subject to innovation in private sector (which is +). But believes there are risks around consumer protection / regulatory issues & like money market funds they are a source of liquidity that may be
19/ subject to runs.

Finally re: CBDC's he notes a report is due out in a few months but thinks they ultimately go down this path for safer, faster, more efficient payments.

CBDC will be a liability of Fed & other CB's. It will be in conjunction with banks, as the Fed doesn't
20/ want 200M accounts. It would provide an asset that's safe, allow for instantaneous tx, & would work within the banking system

Policy Implications (e.g., CAREs Act could be done instantaneously; likewise monetary policy could operate by changing IR's on CBDC deposits).

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More from @JohnStCapital

21 Jul
0/ According to II, since Steve Mandel founded Lone Pine in '96 it has returned $42.3B to investors, 3rd all time. Last year his L/S fund was +30% & his LO fund +46% joining other Tiger Cubs Tiger Global & Viking at the top of the list.

Another master class w/ @patrick_oshag
1/ In terms of margin of safety Steve is focused on the nature of the business franchise, the replicability of that & the quality of the people running it versus things that are financial in nature.
2/ He started his career in retail & said it was an interesting area to grow up in, due to the fact that it is rapidly changing & there's always winners & losers. Many of the richest people in the world are retailers (e.g., Beranard Arnault, Amancio Ortega, Francoise Bettencourt
Read 24 tweets
20 Jul
0/ With $BTC fighting with $30K theres a lot of parallels being drawn to the $6K level from 2H18.

The theoretical cost basis from June-Nov '18 was $5,126 and BTC traded at an average ~27.4% premium over that time to that level.
1/ Comparing $BTC & $ETH, ETH tends to move later in the cycle and the market is notably worse at buying it.

The avg / median "premium" for $BTC holders is 79.1% / 65.6% with just ~15% of days "under water."

For $ETH the avg / median is 45.3% / 35.1% with ~31.1% under water
2/ So we know the market isn't good at buying $ETH and from June-Nov '18 it traded at a ~18% discount to the theoretical cost basis which didn't trough until April '20 at $212.89.

This should be even greater divergence the further out the crypto risk curve
Read 10 tweets
19 Jul
0/ Interesting InsurTech deal today with @kinsured going public via a merger w/ @mhiggins $OCA. Congrats to @seanharper & team.

The OCA team w/ Matt & @garyvee has deep DTC expertise helping to build the first brand for home insurance

$1.0B EV is 4.4x '22E GWP / 15.0x '22E GP
1/ Home insurance is a $105B/yr compelling end-market that has seen little technological disruption; the product is homogeneous, incumbents are inefficient from a cost perspective & it is a product people are required to buy, with long retention rates (8-9 years).
2/ InsurTech names have been under pressure YTD with $LMND $MILE $ROOT (30%)-(50%) & $RTPZ below trust.

These names were being valued at double digit multiples on GWP and 40-50x GP vs. incumbents trading on a multiple of book value often w/ worse fundamentals (but > growth).
Read 9 tweets
18 Jul
0/ The @Paytm team filed to go public & the S1 is a good read on all things payments / India.

A few highlights:
-Paytm has a two-sided network with 333M consumers & 21M merchants (114M ATU's)
-800K payment devices
-They consider themselves a "payments-led super app"
1/ They talk up the macro India story:
-GDP of $2.7T (6th largest in the world); growing 7%/yr since '15
-Projected to grow 9%/yr from '20-'25 to hit $4.2T & by 2030 projected to be third largest economy in the world.
-745M working age people (vs 172M / 849M in the US / China)
2/ -Median age of 28 (vs. 38 in China & the US, 43 in West. Europe, & 48 in Japan)
-700M gen Z & millennials, largest in the world.
-450-500M urban population, expected to grow to 550M by the FY 2026.
-Indian middle class is 55-57% of the population (proj to be 65%+ in '30)
Read 23 tweets
14 Jul
0/ Ben Bernanke spoke in a fireside chat on inflation, the real economy, monetary policy, etc... Re: inflation he notes Economists / Fed have revised their inflation forecast higher. "There is a very substantial transitory component, looking at base effects; used cars, airfares /
1/ hotel prices that dropped dramatically in '20 are coming up to more normal levels. There are bottleneck supply issues, chips not being able to produce cars, a commodity price jump that's not sustainable or won't continue to provide an inflationary shock, etc... Other pot'l
2/ transitory effects are the labor market. Including trend, Fed is still ~10M jobs short from pre-pandemic rate, yet participation rate hasn't moved since last summer, a lot of vacancies, there is a supply effect coming from labor market which is no doubt transitory. Parents
Read 32 tweets
14 Jul
0/ $BAC CEO Brian Mohynihan on spending: "We are halfway through the year & total payments are $1.8T or ~60% of last year's level (which was a record).

Total BAC consumer SMB payments set a 4th quarterly consecutive record, reaching $976B, +41% YoY & +23% over '19.
1/ "Spending accelerated as COVID vaccinations increase, business reopen & domestic travel increase. Combined spend at retailers & services comprises over 50% of debit & credit card spending, a portion of the total spend +27% vs 2Q19.
2/ As of mid-June, domestic airline purchases were +8% vs '19 while int'l airline purchase on their cards are still down ~40%, showing the difference of the progress in United States versus other places (relevant for $V).
Read 6 tweets

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