Kaoboy Musings

Share this post

ORDERED KAOS: Themes of the Week (3/19/23-3/24/23).

www.urbankaoboy.com

Discover more from Kaoboy Musings

KAOBOY MUSINGS and its associated podcast KAOS THEORY focus on the intersection of Financial Markets, Macroeconomics and Geopolitics. I've spent 30+ years as a trader/hedge fund manager and now manage money for my family office across many asset classes.
Over 10,000 subscribers
Continue reading
Sign in

ORDERED KAOS: Themes of the Week (3/19/23-3/24/23).

As always, I start with my Musings of the Day, followed by broad THEMES that bubbled up to the surface.

Michael Kao
Mar 25, 2023
14
Share this post

ORDERED KAOS: Themes of the Week (3/19/23-3/24/23).

www.urbankaoboy.com
8
Share

As always, I start with my Musings of the Day, followed by broad THEMES that bubbled up to the surface.

3/19/23:

Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/19/23: Same Sentiment, Different Country:
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
I have been saying this all week.☝️ LIQUIDITY/SALVATION DOES NOT COME WITHOUT EXACTING A POUND OF FLESH. THERE IS NO FREE LUNCH. https://t.co/2iDkTv8bZP
2:58 PM ∙ Mar 19, 2023

3/20/23:

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/20/23: I feel like its apropros to repeat this at this point if it's not already as clear as an icepick in the head:
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Almost seems like people have totally forgotten that SHOTGUN MARRIAGES between banks scare the SHIT out of markets. Does anyone remember Bear Stearns? WaMu? Wachovia? Countrywide? This market is not ANYWHERE CLOSE to capitulation, imho.
12:37 PM ∙ Mar 20, 2023
5Likes2Retweets

3/21/23:

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/21/23: PB analog for thinking about FX Swap Lines: The Fed is PB to RoW's CB's. CB's are SHORT USD, and it's become a hard-to-borrow. Fed extends special borrow facility that is expensive but allows CB's to avoid getting bought in. CB's still short USD.
1:41 PM ∙ Mar 21, 2023

3/22/23: FOMC Decision = 25 bps

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/22/23: Who will OUT-DOVE the Fed first? US UK EU GDP: 3% 0% 0% Unemp: 3.6% 3.7% 6% CPI: 6% 10.4% 10% Count out the USD Wrecking Ball at your own risk.
2:19 PM ∙ Mar 22, 2023
26Likes1Retweet

Spoke on this Twitter Space Panel today:

Kaoboy Musings
Twitter Space: Panel with Unusual Whales / FOMC & Macro.
Read more
8 months ago · 3 likes · Michael Kao

3/23/23:

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/23/23: This is where "GOOD = BAD." Remember that the Fed would like to see Unemployment at ~4.6%, which implies a loss of 1.5-2 mm jobs. We are still going the other way -> HIGHER FOR LONGER.
Image
12:49 PM ∙ Mar 23, 2023

3/24/23:

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/24/23: I said yesterday to a friend that I kinda miss being in the HF manager seat right now given all the opportunity. Nah, I take that back. 😎
1:15 PM ∙ Mar 24, 2023
79Likes1Retweet

THEMES OF THE WEEK:

THEME 1:

RISK-ON / RISK-OFF DRIVEN BY VOLATILITY IN RISK-FREE RATE EXPECTATIONS.

IF RISK-FREE RATE IS THE BEDROCK UPON WHICH ALL RISK ASSETS ARE VALUED, THEN THE VOLATILITY IN RISK ASSETS IS JUST THE “TIP OF THE WHIP”!

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
When you consider that the Risk-Free Rate is the financial linchpin for ALL ASSETS, this is akin to repeated pulling out/pushing back in of the bottom-most Jenga Block beneath a teetering tower.
Image
1:56 PM ∙ Mar 21, 2023
53Likes4Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Re-invoking this animation of Risk-Free Rate (Rf) expectations for one last Musing tonight: If Rf is the BEDROCK of all things financial, be careful conflating these moves in EVERYTHING w/ meaningful signals. You're just witnessing the TIP OF THE WHIP!
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Watch this animation and tell me again that the Bond Markets / Yield Curve have a better crystal ball than anyone else! 😂 https://t.co/MnASEFlL00
1:37 AM ∙ Mar 22, 2023
23Likes4Retweets

THEME 2:

RIFLE-SHOT POLICY PRECLUDES BAZOOKA POLICY.

THESE RING-FENCED ACTIONS ARE NOT QE.

DEPOSITOR BAILOUTS ARE USUALLY TERRIBLE FOR INVESTORS.

BTFP ≠ BTFD AND FED IS NOT DONE.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
BTFP ≠ BTFD!!! As my good friend Lakshmi points out, "this liquidity isn't free money it is collateralized and high interest bearing...it will show up on all the charts as liquidity, but practically no because this is TIGHTLY RING-FENCED liquidity."
8:04 PM ∙ Mar 19, 2023
54Likes6Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Reminder that FX swap line liquidity ≠ stimulative liquidity. It is expensive and collateralized. This is yet another SCARY sign that the real ICEBERGS are in SHADOW-BANKING SECTOR.🫣
Twitter avatar for @Reuters
Reuters @Reuters
The Bank for International Settlements has warned that pension funds and other 'non-bank' financial firms now have more than $80 trillion of hidden, off-balance sheet dollar debt in the form of FX swaps https://t.co/YVrcEvlwXm
1:52 PM ∙ Mar 20, 2023
68Likes7Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
That POUND OF FLESH is coming.
Image
3:30 PM ∙ Mar 19, 2023
37Likes4Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Yes. I am 💯 in agreement. Don’t Shrug The Rug.
Twitter avatar for @jasonfurman
Jason Furman @jasonfurman
Market now strongly betting on a pause in May followed by 25bp cuts at each of the next 5 meetings--bringing the FFR at the end of the year to 3.50-3.75%. This is worryingly disconnected from what I think is likely to happen. Which could mean more bad surprises in store. https://t.co/f1GRL8MvNI
3:50 PM ∙ Mar 24, 2023
19Likes1Retweet

THEME 3:

BY THE TIME THE FED FEELS THE NEED TO PUT OUT FIRES HERE, IT WILL LIKELY BE SCORCHED EARTH ELSEWHERE.

WHO IS GONNA OUT-DOVE THE FED?

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Even if I am wrong about the Fed NOT pausing, there are 2 things I am confident of: 1. A full-blown FED PIVOT is highly unlikely anytime soon. 2. If the FED pauses, it will be a RACE for other CB's to see who can OUT-DOVE the Fed.
Twitter avatar for @katzayiannaki
Zoe Katzayiannaki @katzayiannaki
London: Concerns over the banking system. BoE considers halting the interest rate increase in the aftermath of Credit Suisse collapse. Read more in my new article for Deutsche Welle. #dw #london #BoE #CreditSuisse #banks #bankingsystem #Swiss https://t.co/ieXFg5N6mq
3:27 PM ∙ Mar 19, 2023
33Likes2Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/22/23: Who will OUT-DOVE the Fed first? US UK EU GDP: 3% 0% 0% Unemp: 3.6% 3.7% 6% CPI: 6% 10.4% 10% Count out the USD Wrecking Ball at your own risk.
2:19 PM ∙ Mar 22, 2023
186Likes27Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Great work @charliebilello -- might I suggest you add GDP & Unemployment Rate columns as well? Note who is already OUT-DOVING the Fed and then check the top of this thread to see why ECB/BOE might be about to join their ranks.
Twitter avatar for @charliebilello
Charlie Bilello @charliebilello
Global Central Bank Update: -The Fed hiked rates for the 9th time, 25 bps increase to 4.75-5.00%. This is now the highest Fed Funds Rate since September 2007. -Hong Kong: 25 bps hike to 5.25% (9th hike) -Saudi Arabia: 25 bps hike to 5.50% (9th hike) https://t.co/TiY1Lu4MfG
2:01 AM ∙ Mar 23, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Even BOE hiked 25 bps. Note from my Musing yesterday that UK just showed 10.4% CPI. The problem is that their GDP is ALREADY straddling 0%. Who's gonna OUT-DOVE the Fed?
Image
12:53 PM ∙ Mar 23, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Focusing mainly on the dominant economies (France/Germany as EU proxies, UK, Japan), Real GDP still lags US despite the Fed's significant head-start in tightening. China's GDP number I find highly suspect. Why is PBOC still stimulating?
Twitter avatar for @charliebilello
Charlie Bilello @charliebilello
Global Growth Rates... https://t.co/pbhapHHoXi
1:04 PM ∙ Mar 23, 2023
24Likes2Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Note chart in lower right quadrant. I’m sure the BOE is watching. Gilt Crisis 2.0 coming? Who’s gonna OUT-DOVE the Fed first?🤔 https://t.co/0wqDVBgfhL
Twitter avatar for @RobinBrooksIIF
Robin Brooks @RobinBrooksIIF
Financial market stress metrics are at moderate levels. Futures price a Sep. '23 Fed policy rate at 4.0% vs 4.9% currently (top left). That's pricing recession but NOT financial market meltdown. 3-month FRA - OIS spread (top right) and cross-currency basis send similar signals... https://t.co/YwaO3mrdRQ
3:12 PM ∙ Mar 24, 2023
13Likes5Retweets

THEME 4:

OIL SUPPLY CURVE LIKELY TO BECOME MORE SUPPLY INELASTIC NEXT FEW YEARS BUT THIS DOES NOT MEAN YOU CAN’T HAVE SHARP DRAWDOWNS FROM DEMAND SHOCKS.

BE CAREFUL OF PROCYCLICAL PLAYS IN SHORT TERM.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@PauloMacro This is where I'd rather make a lot of $ with you being right rather than me being right about Oil in the ST. Alas, absent action from OPEC+, I would be very cautious of ANY PROCYCLICAL commodity bets right now. Even wholesale CB reversals can't reverse demand on a dime.
2:49 PM ∙ Mar 19, 2023
41Likes2Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Oil's aggregate Supply Curve is becoming more and more INELASTIC going forward, but what people forget is that the SWORD OF SUPPLY INELASTICITY CUTS BOTH WAYS. I think there is potential for MUCH LOWER OIL PRICES IN ST BEFORE SUPER-SPIKE IN '24-'25.
urbankaoboy.substack.comRe: Oil-Forward Curves & Holy Grails (or Lack Thereof).Been having many discussions on Twitter about the forward curve/time-spreads of Oil, so I wanted to collate my thoughts into a coherent thread here.
6:35 PM ∙ Mar 19, 2023
74Likes6Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
This is what happens when you blindly believe that Oil can't experience BRUTAL DRAWDOWNS while in backwardation. One is today's forward curve in Brent, and the other is the 1-month ago forward curve. Guess which is which. IGNORE THE SWORD OF INELASTIC SUPPLY AT YOUR PERIL.
Image
2:11 AM ∙ Mar 20, 2023
35Likes3Retweets

THEME 5:

USD FX SWAPS ARE A SIGN THAT USD SHORTAGE IS ACUTE AND HIGHLIGHTS HOW ENTRENCHED USD SYSTEM IS.

ANOTHER EXAMPLE OF EXPENSIVE, COLLATERALIZED RING-FENCING, BUT ONLY TO ALLIES.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/21/23: PB analog for thinking about FX Swap Lines: The Fed is PB to RoW's CB's. CB's are SHORT USD, and it's become a hard-to-borrow. Fed extends special borrow facility that is expensive but allows CB's to avoid getting bought in. CB's still short USD.
1:41 PM ∙ Mar 21, 2023
133Likes11Retweets
Twitter avatar for @joefrancis505
joseph francis @joefrancis505
@SantiagoAuFund @asegpi @Bellehos @JC_Investment @UrbanKaoboy Is it a coincidence that the long-term increase in the value of the dollar (and its greater stability) coincides with the first use of liquidity swaps?
Image
4:37 PM ∙ Mar 21, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@SantiagoAuFund @joefrancis505 @asegpi @Bellehos @JC_Investment Definitely not a coincidence imho. The tell is this the USD Basis spiked MUCH higher than the LIBOR-OIS spread during GFC, which is an indication of what actual USD funding costs would have been ex-swaps. Bottom-line: the USD addiction is only getting more pronounced not less.
7:09 PM ∙ Mar 21, 2023
19Likes2Retweets

THEME 6:

CHINA SLOWDOWN/CNY DEVALUATION IS THE BIG ELEPHANT IN THE ROOM — ESPECIALLY WHEN WE DON’T EXTEND FX SWAPS TO OUR BIGGEST GEOPOLITICAL RIVAL.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@SantiagoAuFund @joefrancis505 @asegpi @Bellehos @JC_Investment Yet it's about the only way China can hope to defibrillate its economy, imho. Thx to Oil's collapse and the transferral of our SPR to China's, that path looks relatively better to PBOC now I think.
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Oil getting slammed (and the fact that China has bought so much of our SPR bbls) leads me to think that China is incrementally LESS worried about CNY devaluation now. Maybe PBOC steers closer to Scylla?🤔 https://t.co/22q1ySWH4e
7:24 PM ∙ Mar 21, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
So guess who's not invited to the party? Not to worry, though, I'm sure Xi's pals Putin, the Ayatollah, and Kim Jong-Un got his back.
Twitter avatar for @ecb
European Central Bank @ecb
Press release: Coordinated central bank action to enhance the provision of US dollar liquidity https://t.co/eOjI4tBRPz https://t.co/Zvz0yJg1Mr
11:44 PM ∙ Mar 19, 2023
29Likes1Retweet
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@SantiagoAuFund @joefrancis505 @asegpi @Bellehos @JC_Investment The more interesting question is what happens to CNY this time around WITHOUT the benefit of USD FX swaps.
7:12 PM ∙ Mar 21, 2023
15Likes3Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Although I don't trust the official Chinese numbers, if you take their CPI of 1% at face value and rationalize it with how they've taken advantage of falling Oil prices, it does explain why the PBOC gov recently said that 7+ CNY was no longer unthinkable.
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Oil getting slammed (and the fact that China has bought so much of our SPR bbls) leads me to think that China is incrementally LESS worried about CNY devaluation now. Maybe PBOC steers closer to Scylla?🤔 https://t.co/22q1ySWH4e
2:08 AM ∙ Mar 23, 2023
Kaoboy Musings
Re: Geopolitics/Inflation/USD-Ball In A China Shop.
While the past week in the financial markets has revolved around the demise of Silicon Valley Bank and the ramifications therein, I personally don’t think the extremely poor risk management practices of a bank focused on banking the most speculative sector of the economy will lead to a major domestic banking crisis. Consequently, I do not believe it der…
Read more
9 months ago · 47 likes · 8 comments · Michael Kao

THEME 7:

EPICENTER OF THIS CRISIS IS UNLIKELY TO BE IN BANKING SECTOR (AT LEAST DOMESTICALLY) AND MORE LIKELY TO BE IN LESS-REGULATED SHADOW BANKING SECTOR.

ICEBERGS IN SHADOW BANKING CAN TAKE A LONG TIME TO SURFACE.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
☝️ Almost 18 mos passed between Thai Baht devaluation in 1997 and the Russian Default/LTCM Collapse.
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
This was the tweet last summer that inspired me to write the above thread. https://t.co/ohA2QELQhT
1:53 AM ∙ Mar 20, 2023
24Likes1Retweet
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Reminder that FX swap line liquidity ≠ stimulative liquidity. It is expensive and collateralized. This is yet another SCARY sign that the real ICEBERGS are in SHADOW-BANKING SECTOR.🫣
Twitter avatar for @Reuters
Reuters @Reuters
The Bank for International Settlements has warned that pension funds and other 'non-bank' financial firms now have more than $80 trillion of hidden, off-balance sheet dollar debt in the form of FX swaps https://t.co/YVrcEvlwXm
1:52 PM ∙ Mar 20, 2023
68Likes7Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
I've been saying to watch out for problems in the SHADOW BANKING sector, and this is an ominous sign. And yet I wonder what the forcing function/crystallization event would be for Life Insurers? A sudden spike in deaths?
Twitter avatar for @boazweinstein
boaz weinstein @boazweinstein
A new front in the battle opened up this week - life insurers. The fundamental rationale is CRE and financials exposure even if they don’t have the HTM issues of the banks. https://t.co/eEqmlPjNea
8:26 PM ∙ Mar 24, 2023

THEME 8:

FED WANTS UNEMPLOYMENT TO BE MUCH HIGHER.

TRADEOFF BETWEEN DUAL MANDATE IS SIMPLY NOT HERE YET.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
I keep hearing how the Fed is fucking everything up and going to "break" things and cause job losses. Unpopular Opinion: The Fuckup was the ENDLESS LIQUIDITY LOTTERY. This is the ANTIDOTE to the Fuckup.
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@NickTimiraos Devil’s Advocate opinion: 1. There was not a STRUCTURAL INFLATION issue in early 90’s. 2. Keep in mind that Powell needs to engineer 2 MM job losses not 20K.
12:26 AM ∙ Mar 22, 2023
202Likes19Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
The Fed WANTS to see Unemployment at 4.6%. The delta from the current 3.6% is not 20k, or even 200k jobs. It's 1.5 mm to 2 mm jobs. That is the ONLY way it can lower aggregate demand enough to have a shot at its 2% Inflation target, imho.
Twitter avatar for @JMoore1123
Better a Has-Been than a Never-Was @JMoore1123
Watch the spread between U6 (underemployment) and U3 (unemployment). Slight recent tick up, but if it moves up strongly, sign recession is near/upon us, and the Fed will reverse direction soon. Still a ways away. https://t.co/RsAXaVSJYn
11:20 PM ∙ Mar 22, 2023
17Likes2Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Musings of the Day, 3/23/23: This is where "GOOD = BAD." Remember that the Fed would like to see Unemployment at ~4.6%, which implies a loss of 1.5-2 mm jobs. We are still going the other way -> HIGHER FOR LONGER.
Image
12:49 PM ∙ Mar 23, 2023
16Likes2Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Pretty much confirms what I’ve been saying last 2 weeks: Fed’s Tradeoff not even close to being here. Watch out for the Pivot Posse — so many Assets are simply mispriced on the misguided assumption that it is.
Image
2:41 PM ∙ Mar 24, 2023
47Likes6Retweets

THEME 9:

USD/UST DOOMSAYERS OFTEN CONFLATE INTEREST RATE RISK WITH FUNDAMENTAL LOSS OF FAITH IN THE US, YET IN TIMES OF CRISIS THE WORLD INVARIABLY FLOCKS TO USTS AS THIS WEEK AS SHOWN.

SUPPLY INELASTIC COMMODITIES LIKE GOLD AND BTC CANNOT REPLACE USTS AS LIQUID RESERVES.

THE SWORD OF INELASTIC SUPPLY CUTS BOTH WAYS, AND IT IS A FATAL FLAW IN THE HAYEKIAN THESIS IN A WORLD ALREADY DEPENDENT ON FIAT.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Why do those “toxic” USTs that everyone is supposed to be dumping get A FLIGHT TO SAFETY RIP EVERY TIME THE SHTF? As we said in our West Point paper, TRUST ultimately stems from NATIONAL POWER, and National Power has far deeper roots than mere Debt/GDP. open.substack.com/pub/urbankaobo…
Image
3:40 PM ∙ Mar 24, 2023
44Likes4Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@LukeGromen @DanOBrienPoker You are conflating a basic law of finance (rates go up -> bonds go down) with loss of faith in USTs. I’m done with arguing you on this. It’s just completely wrong.
7:01 PM ∙ Mar 24, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
There seems to be confusion with the notion of USTs being termed "Risk-Free." Hope this clears it up. To conflate INTEREST-RATE / DURATION RISK with SOVEREIGN CREDIT RISK is grossly incorrect.
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@LukeGromen @DanOBrienPoker The term "Risk-Free Rate" denotes the CREDIT RISK-FREE discount rate used in a DCF model. It's a holdover term from Modigliani & Miller/CAPM as taught in Corp Fin 101. To suggest that it is devoid of DURATION RISK is completely MISLEADING.
1:07 AM ∙ Mar 25, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@SantiagoAuFund @LukeGromen @DanOBrienPoker Reasonable take. 👆 Of course China wants to diversify, but their degrees of freedom are limited. Gold simply does not have the liquidity nor the interest-bearing attractiveness of USTs. If US/China relations weren’t so bad, Gold would not even be a consideration for PBOC.
6:29 PM ∙ Mar 24, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@SantiagoAuFund @LukeGromen @DanOBrienPoker Remember that Gold has the same Supply Inelasticity problem of $BTC which makes it near impossible to serve as a GRC once the world is already awash in Fiat. The Sword of Supply Inelasticity cuts BOTH ways. Watch out when CBs already short USD need liquidity. @BurggrabenH
6:47 PM ∙ Mar 24, 2023
15Likes1Retweet
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@steve_alarm @SantiagoAuFund @LukeGromen @DanOBrienPoker @BurggrabenH That’s where the Hayekian vision goes horribly wrong. Yes it means continual debasement, but OVER TIME. The alternatives without that elasticity would crater IMMEDIATELY upon concentrated liquidity-necessitated selling.
6:53 PM ∙ Mar 24, 2023
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Yep. If I was a betting man, and I certainly am, this is exactly where I think we are headed:
Twitter avatar for @concodanomics
Conks 🥷 @concodanomics
you will know we're in a credit crunch when gold and bitcoin puke, the dollar spikes, and the cross-currency basis goes uber negative
4:14 PM ∙ Mar 24, 2023
33Likes1Retweet

THEME 10:

BEWARE OF SECURITIES HELD UP ARTIFICIALLY BY HIGH YIELDS OR IMPENDING MATURITIES/EVENTS, ESPECIALLY IF UNDERLYING CREDIT/FUNDAMENTALS ARE DETERIORATING.

Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Here is a Next Shoe: Dividend cuts are coming across-the-board as debt costs of capital eat into margins and coverage ratios.
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
@INArteCarloDoss “The road to financial ruin is paved with unusually positive carry.” I used to say this to my analysts all the time.
5:47 PM ∙ Mar 23, 2023
59Likes4Retweets
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Note to self and others: “Impending events” can be bond maturities in dicey cap structures.😬 https://t.co/UXUKMs1qHk
Twitter avatar for @UrbanKaoboy
Michael Kao @UrbanKaoboy
Cheapest tail puts in a market with exploding volatility can be had in names held artificially aloft by impending events that are subject to rug-pull. Not naming names.
8:58 PM ∙ Mar 23, 2023
21Likes1Retweet

Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

14
Share this post

ORDERED KAOS: Themes of the Week (3/19/23-3/24/23).

www.urbankaoboy.com
8
Share
8 Comments
Share this discussion

ORDERED KAOS: Themes of the Week (3/19/23-3/24/23).

www.urbankaoboy.com
Jim Miller
Writes Comments From Connecticut
Mar 25Liked by Michael Kao

Great piece. I have a hard time keeping up with everything you put out, despite wanting to read it all.

Problem solved.

Expand full comment
Reply
Share
2 replies by Michael Kao and others
Pranshu Tewari
Mar 25Liked by Michael Kao

Excellent post, Michael.

Expand full comment
Reply
Share
6 more comments...
Top
New
Community

No posts

Ready for more?

© 2023 Michael Kao
Privacy ∙ Terms ∙ Collection notice
Start WritingGet the app
Substack is the home for great writing