The Breakdown - "The Biggest Macro Event Since March”

Episode Date: November 10, 2020

Today on the Brief:  GRIN gets 51% attacked Crypto trading volume down 25.8% in October  How the market is receiving Joe Biden Our main discussion: The stock market soars on promising Pfizer COVID-19 vaccine trials.  The S&P 500 and DJIA hit new all-time highs after Pfizer announced its experimental vaccine had prevented COVID-19 in 90% of patients. Travel stocks soared, work from home stocks suffered and safe havens fell. In this episode, NLW explores the shifting market sentiment, as well as what it means for bitcoin.

We've seen a situation where the money supply has increased dramatically, but the inflationary impacts of that haven't really been felt because the velocity of money isn't there. People have been behaving more resiliently with their spending. What happens if that changes? How fast do we switch to a concern about inflation happening really quickly? Would we see something that was hot enough that they would have to take emergency action in the other direction? We have been so hungry for good vaccine news that they're going to be.

are feeling right now in the markets, like this is all going to be over soon. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com and nexo.io and produced and distributed by CoinDess. What's going on, guys? It is a Monday, November 9th, and I am back from traveling and excited to be with you again. And today, we are talking about the biggest macro events since March. And no, it is not Joe Biden. It has been since the very beginning all about the vaccine trade. And boy, oh boy, is that the story today? First up, however, let's do the brief.

First on the brief today, the latest 51% attack in crypto. There have been a spade of 51% attacks this year. This is, of course, where miners or a minor acquire more than 50% of a network's hash power. The latest to fall victim is Grin. If you'll remember, Grin was an absolute VC darling. They pushed the idea of a fair launch. They had a pseudo-anonymous founder. They had a Harry Potter mythology. But the other thing about this whole story was that they also saw something like $100 million

of estimated VC mining activity. right from the beginning, which of course brought up the question, is there any such thing as a fair launch? Maybe they didn't pre-sell tokens, but you still had a situation where money dictated the power in the network, and because we lived in a world in a context where everyone was paying attention to any plausible project, there really wasn't any at least evenly distributed launch. Anyways, the reason I think this is interesting is it shows just how far this market has moved away from these projects. No one has talked about Grin in a very long time. We're really seeing power laws taking effect in a huge way. And I wonder to what extent the window for base layer tokens,

competitive base layer chains to actually compete. I wonder if it's closing. Next up on the brief today, speaking of crypto, crypto exchange volume was down across the board in October. Decentralized exchange volumes, which had soared over the previous couple months, were down from $24 billion in September to $18.46 billion in October. Bot exchange volume fell 25.8% in October as well, from $169.5 billion to $125.8 billion. This, I think, reflects that everyone was in this mood, this moment of prelude. Everyone was waiting to see what was going to happen with some of these big picture macro issues, particularly the U.S. election in October. In the first week or so of November, obviously Bitcoin has soared up past 15,000,

as we discussed last week. So clearly there's some more activity going in now. Third, while there's still some contention, the markets are starting to react to the idea of a President Biden. The Wall Street Journal over the weekend wrote a piece called what the markets are making of Biden, and it begins this way. The U.S. presidency is set to change in January, but the two powerful forces that have driven financial markets this year will likely remain the same, the Federal Reserve and the pandemic. So the interesting thing here is that emerging conventional wisdom, at least before today, and we'll come back to that, is that Biden will have basically very little control over some of the key parts of the economy. Because of COVID

and a weak labor market, a labor market that continues to struggle to get back on its feet, the Fed's hand is effectively set. There's also a bit of a recalibration in terms of expectations after this blue wave never really materialized. Assuming things stay the way that they're looking, we're going to see a Biden presidency that doesn't have a mandate by any stretch of the imagination, a Republican-controlled Senate potentially that is set to block any big changes that that Biden administration would want, and a Congress that while still in the hands of Democrats actually has a reduced majority from what it did before. The point of this seems to be that where businesses landing is they may not have as favorable

treatment with Biden, but his ability to change things in a way that they perceive as worse is limited, and they at least are going to get some expectations of stability. They'll be able to know how the rules of the game are played again. There's going to be a lot more to discuss about topics like this. Even just as I was going to record, I was seeing people start to freak out that Eric Schmidt, the former CEO of Google who still owns a significant amount of Google stock, was set to be involved in the Biden transition in some way. So there are going to be a lot of new things to discuss if and as this new administration comes to bear.

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Let's shift to our main discussion because you would have thought after one of the most contentious elections in recent U.S. history that our main discussion of the biggest macro event since March would be all about that, right? But that's not the case. Alex Kruger this morning tweeted out the title of our piece, saying, Markets seeing the Pfizer vaccine news as the biggest macro event since March. So what is this news? Pfizer and BioNTech SE say that their experimental vaccine for COVID has been 90% effective in preventing infections in their on.

ongoing trial. 90% sounds good on spec, but really it's important to understand that no one expected the number to be this high. The hope was for around 75%, but 50% to 60% even could have been acceptable. This is something that Dr. Fauci repeatedly said over and over in terms of expectation setting. No one was using numbers like 90%. On the news, the S&P 500 and the Dow Jones Industrial Average climbed to new all-time highs. Kruger also summed up the winners and the losers. He said winners, small caps, reopening stocks, European stocks, and the energy complex. Losers work from home stocks, precious metals, tips, treasuries, and Bitcoin. Economy reopening faster means higher real yields, means headwinds

for assets that benefit from this. So to call out a couple specific examples, airlines and other travel stocks are up big, American and Carnival are both up more. more than 22%. AMC, the theater company, is one of the biggest winners on the day, up almost 56%. Win hotels up 27%. Meanwhile, let's flip over to the darling stocks of the new work-from-home era. Peloton and Zoom are both down 18% or more. Turner Novak tweeted, Zoom dropping 15% is a head scratcher to me. Hybrid in-person slash work-from-home just means everyone still needs to use it, but usage costs are lower. So this is something that we're going to start seeing a lot of now battles for interpretation about how many of these impacts are long-lasting,

how many of these behavior shifts are for good, versus how many of them return to the mean, right, return to what was normal before. And I think you're already starting to see that now. There are big debates around the interpretation of all this. So let's look now at a few more interpretations. So although this isn't, strictly speaking, about Biden, you are seeing a lot of coverage that sees it as part of a whole, right? Chris Larkin, who's the managing director of trading and investing products at E-Trade Financial says, the bull market has a ton of ammunition to keep going, with more certainty around the election, a strong quarter of earnings across many sectors, and extremely positive news on the vaccine front, there is little to hold us back.

The Wall Street Journal echoes this in their headline. U.S. stock surge on vaccine results, comma, Biden, win. Travis Kimmel, however, has a different look at this. He says, gold, silver, tips down, dollar up. Whatever today is, it ain't reflation, that's for sure. Looks like a macro bear liquidation, right? Shorts getting liquidated and having to use other bear collateral, like bonds and golds, to cover, explains the dollar bid, too.

So this is someone who's viewing this as more of a market structure adjustment based on something short-term than a long-term trend reflective of a fundamental shift. And I think this has to be part of the question. We have been so hungry for good vaccine news that things are feeling right now in the markets like it's all going to be better. This is all going to be over soon. The reality is much more complicated. One, we're still in trials with this.

Two, there's a huge portion of America who are unwilling to take a vaccine for a variety of reasons. Three, even if we do shift into a new modality, there are potentially different types of consequences that are worth noting. So much of this year has been about the stimulus trade, the expectation of the stimulus trade. Does this change now? If a vaccine is implemented, does the Fed actually raise rates? what would happen if it did? Here's a different way to look at it. There is a huge amount of pent-up demand. This is something we've talked about on this show lots of times. A huge amount of pent-up demand, but there's not a lot of velocity of spending right now. So we've seen a situation

where the money supply has increased dramatically, but the inflationary impacts of that haven't really been felt because the velocity of money isn't there. People have been being more resilient. They've been behaving more resiliently with their spending. What happens if that changes? How fast do we switch to a concern about inflation happening really quickly? Certainly, the Fed has made it clear that they're willing to let things run hot, but would we see something that was hot enough that they would have to take emergency action in the other direction? And what would that mean for the different assets that are either thriving or struggling today? Bitcoin specifically was running right up 15,000 headed towards 16,000 and stopped on its face when this vaccine news was released.

The standard explanations that I've seen are that either one, all safe havens are selling off, so Bitcoin is working alongside them, or this question or this idea of reduced stimulus, an expectation that in a world where we have a vaccine where COVID has evaporated and is no longer a major concern, there's going to be less need for government stimulus, which means less of a raise on debt for Bitcoin. However, I think there's a couple things that we need to keep in mind. First is that situation that I just mentioned, that pent-up demand that could switch very quickly to an inflationary issue because velocity starts to match that increased money supply. But second, of course, there's the much longer-term issue about whether the genie is out of

the bottle, the toothpaste is out of the tube when it comes to government intervention in markets. one of Biden's first commitments or something that people are discussing is the idea of student debt forgiveness right away. We are going to engage in a new set of policies that are about direct government intervention in markets on a go-forward basis. And I don't think COVID-ending really changes that. I think if anything, it's part of the way that governments who are more powerful now than they were a year ago at this time consolidate and get more of that power in a permanent way. And I'm not debating the merits of any of these policies or another. I'm more just pointing out that COVID has been an accelerating force on a longer-term secular set of trends that I think are likely to

persist, continue, and grow, and that I still think are very key to the underlying thesis for Bitcoin on a macro level. However, for now, it is all about the vaccine trade and what it might mean. And let's take a second to be hopeful. I do hope that this vaccine works as well as it seems like. I don't want everyone around the world to continue to live in the context of this disease and trying to deal with these lockdowns and everything else that comes from it. So let's be hopeful for today. Let's figure out what the economic implications are. But for now, I appreciate you listening. And until tomorrow, be safe and take care of each other. Peace.