First a reprise of December's "Izabella Kaminska: "2020: The year bitcoin went institutional"":
Bitcoin is on a tear. And this time, the hyper valuations might stick.
On December 11, a prominent but very private financial newsletter author noted to clients that while he had never previously written about bitcoin, it was correct to say that institutional capital had now started to arrive in scale and that it would be churlish to pick a fight with it. Demand for bitcoin would now outstrip supply.
Bitcoin, he observed, would become an excellent metaphor for risk appetite in 2021 as a result.
Less than a week later, Coindesk confirmed that UK-based asset manager Ruffer had accumulated some £550m of bitcoin since November, representing some 2.7 per cent of the firm’s AUM. Ruffer’s move is now being widely interpreted as the beginning of a major portfolio diversification trend into bitcoin. It seems institutional money can no longer afford to ignore it. And bitcoiners are understandably overjoyed....
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(it had begun the month of November 2020 at $13,803.69)
And our outro from her piece:
Jonathan Ruffer is justifiably famous for some high kurtosis (fat tail/black swan) VIX trades that ZeroHedge was tracking.
I like Ruffer's quarterly Investment Review but I have a serious problem when I read it.
I start to sing. This song:
"I like… fat… tails and I cannot lie, You vol sellers can’t deny..."
And from Jonathan Ruffer, July 2, 2021:
I am writing this just before a US inflation report which, to quote Bloomberg, “may provide clues on the monetary-policy outlook; S&P futures were little changed, as were European stocks [awaiting] the next policy statement from the European Central Bank…”
This seemed to catch exactly the calm-before-the-storm characterised by the right wing picture magazine France Illustrée in the early months of 1939. Its pages were filled with pacific speeches by Hitler, tub-thumping thoughts by French ministers, and artists’ impressions of the latest troop carriers and tanks to roll off the prototype production lines. The run of volumes I have stops abruptly with the issue dated avril 1940.
We have been talking of inflation for well over a decade – which is not the same thing as calling its timing. An impasse was created by the failure of the economy to grow after the 2008 crisis – all the risks (as we patiently explained) were deflationary, and in vain did the central banks and governments try to force an inflationary impulse into a sluggish world. Their primary weapon? An invention, deployed on a grand scale – quantitative easing (QE to its friends).
Government money pumped into the system, accompanied by wholesale purchases of existing assets, looked as though it would spark inflation – in fact, the extra liquidity flowed in a different direction, into asset prices. There is nothing like an increase in net worth to reassure the financial community that the authorities are on top of things. QE, which looked like a big risk in 2009, turned out to be the right answer, provided the right answer was synonymous with a positive response to the question “am I richer?”.
It is still perhaps too early to declare QE a success, because it exacerbated two mischiefs. Governments were already indebted in 2008, and the gap between rich and poor was already wide. The failure of the economy to grow exposed the danger of over-indebtedness, since a bigger economy matched by deeper indebtedness would have bought time at no cost; as it was, it bought time, but came at the price of wartime levels of debt.
In 1994, the investment house of Ruffer came into existence following a correct macro call. I saw the early 1990s as a bookend. Most investors assumed inflation was a modern malaise, with us forever – and yet the three prongs of the trident which delivered inflation had, to my eye, already been blunted. Those concerned about the first prong – inflation as the child of too much money in circulation – needed to consider the actions of the Neptune-like figure of Paul Volcker, Chair of the US Federal Reserve from 1979 to 1987. Volcker, six foot seven in his socks, had been wringing money growth out of the system through eye-wateringly high interest rates: ‘whatever it takes’, with a New Jersey twang.
The second prong came in the form of wage increases worldwide. Here, those concerned needed to consider the defanging of the trade unions. Divided, the workforce of the early 1990s would resume its role as price-taker, rather than inflation-maker. Wage growth looked to be a past problem, not a future one.
The supply chain made up the third prong of the trident. China was emerging as an economic power, one that had outgrown its role of making plastic presents for Christmas. Supply shortages looked to be on the way out; supply gluts, on the way in.
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