Optimism, Talus, Fink

Optimism

Markets and economies are complex adaptive systems. This makes them good at responding positively in the long run to the many unique challenges presented over the short run. When we wear the hat of the risk manager, as we are all programmed to do naturally, it’s tempting to get caught up in a string of negative narratives. While it’s important to be aware of the current set of challenges, it’s equally important to be aware of the opportunities. Higher rates, for example, have dramatically impacted bank balance sheets, real estate, venture capital, the IPO market, private equity transactions and many other assets. At the same time, higher rates have made credit investing attractive for the first time in 15 years.

It’s shocking to see the 30-year mortgage rate at 8% and the 10 and 30 year treasury rate at 5%. You have to go back 20 years to find rates near that level. It takes time for markets to digest these dramatic changes and most people are rightly concerned that this will lead to more serious financial pain for large swaths of the global economy. The first rate cut looks as though it might be sometime around July 2024 while there is a 90% chance the first cut will happen by Dec 2024. The first .25% cut will immediately save the US about $1B/mo in short term interest expenses. An eventual 1% cut will save $50B/yr.

On the other hand, for investors with cash on the sideline, earning 5% risk free and investing in other credit assets at attractive rates for the first time in 15 years is a bit of a breath of fresh air. 

Andreessen’s Techno Optimist Manifesto

Speaking of optimism, Marc Andreessen recently published his Techno Optimist Manifesto. Personally I don’t like the formatting, presentation or writing style. However it may serve primarily to motivate and inspire young people, which is critically important as they represent the future and today are constantly bombarded with recordings of our current problems.

It will come at no surprise to our readers that I agree with his central arguments:

• Technology is the core of societal growth and economic development and is essential for advancing society.
• Technology is a solution provider, capable of solving real world problems ranging from poverty to pandemics.
• Technological advancements lead to increased productivity, economic growth and the creation of new industries.

TalusAG

Our friends and partners at TalusAG had an article in Bloomberg this week about their first deployed green ammonia facility in Kenya. Talus is among the first companies to bring onsite production of green ammonia to farms. Talus uses solar power, water and air to produce ammonia on demand in shipping container sized facilities. The environmental benefits of locally produced green ammonia are extensive.

Larry Fink and Bitcoin

Larry Fink is the CEO of Blackrock, one of the largest asset management companies in the world with over $10 trillion in assets. On Fox Business this week he referred to the rally in Bitcoin as a flight to quality and compared it to treasuries and gold. I linked to the clip in case you want to see it to understand the full context. Bitcoin is still an intensely controversial asset so for a person of Larry’s stature and authority to refer to it as a flight to quality is a big deal. Blackrock is the largest ETF manager in the world and is in the race to launch their own Bitcoin ETF.