Mad to quit

Tether has more bonds than you

📚️PDF⏳️ 5 min 📖 7

Mad to quit

So our prediction for a surprise July cut was wrong. 

“If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”

The ‘test’ is of course inflation versus unemployment. The Federal Reserve, unlike the ECB, is tasked with maintaining stable employment as well as stable prices. The labour market is wobbling though. I distrust the overall labour market statistics but ‘Quit Rate’ is not a bad measure because it is absolute; once you quit you quit. After Covid lots of people did indeed do just that. 

Now the Quit Rate is in steep decline, which suggests that people are not so confident in their prospects moving forward. That appears to be the lived experience in Australia too. There are jobs, but good ones are perhaps hard to find.

Is something bigger happening? Perhaps intelligence is becoming a commodity. To get a good job you will need some particularly niche skill, or be in sales. Whatever happens from here, back office roles are under siege. 

This excellent series of essays called ‘situational awareness’ lays out where we are.

Despite the differing opinions on all this, I subscribe to the view below that a lot of people are asleep at the wheel. 

Maybe people are waking up? In this environment, whatever happens to interest rates, you would be mad to quit. 

Proton Mail

Proton Mail launched in 2014. The CEO, Andy Yen, was a physicist at CERN in Switzerland and was concerned about their work being hacked and monitored via their email accounts. So they built ProtonMail, a heavily encrypted email service. It remains one of the more secure platforms for email to this day and now has over 100 million users. 

This week they launched their bitcoin wallet. There are of course thousands of bitcoin wallets out there but this one is significant because of the level of distribution it will immediately bring. First of all, you will now be able to send bitcoin to Proton Mail addresses, which is nice, and much simpler than using bitcoin addresses.

I wouldn’t recommend keeping large amounts of money in a service like this. For small amounts though, it will be convenient and secure and it is perhaps meaningful that such a high profile service like this has chosen to add bitcoin payments as one of its core functionalities. 

Incidentally, once you see Proton Mail, you cannot unsee it. A quick search of Financial Review journalists makes clear that Proton Mail is an important tool for a lot of people. 

Nashville

The largest Bitcoin conference of the year concluded on the weekend with an appearance from former US President Trump. As far as delivery goes it was classic Trump “let’s talk about me” but beneath the bombast their were clear policy statements:

- The removal of Gary Gensler

This one is not really a policy. But Gazza has been awful for this industry and it is particularly disappointing that he has been co-opted by the regime when he used to be a lecturer on bitcoin and cryptocurrency and understands it so well. 

- Operation Choke Point 2 to end 

Choke Point 2 was coined by Nic Carter early 2023. His excellent article at the time revealed the full extent of the US government war on the industry which backfired horribly when it brought down Silvergate bank. It was the near total weaponization of the bank system. 

-  A Strategic bitcoin reserve 

Much has been made of this but in essence this will simply mean that the US Government does not sell the bitcoin it already has. As soon as you aren’t selling it I guess you are holding it for some other strategic purpose.  I’m not convinced that any US President is going to start buying bitcoin since it would weaken the US dollar and Trump is a self confessed “dollar guy”.

- Clarify crypto rules within 100 days

There was some cheering in the stands about this; maybe we cheer and maybe we don’t. It rather depends on what the ‘rules’ are. Since if elected, Trump could not run again, he does not need to particularly care about whether bitcoiners like him in four years time.

- Embrace stables for dollar dominance

I believe this final announcement is the most significant. US dollar stable coins help the US dollar. This point has been little understood since the beginning but it seems the penny is dropping. They are a magnificent export mechanism for the US government to get their dollars out into the world circulating. Both sides of the aisle will eventually come to this conclusion and Tether will likely be one of the largest companies in the world.

The market cap of USDt went past $100 billion a few months ago. It now stands at $114 billion which is significant growth in a matter of months. The Tether market cap is going to $1 trillion dollars and beyond because it's actually good for the USD. 

Tether

Speaking of which. Tether reported their Q2 earnings this week

* $1.3 billion in net operating profit.

* $520 million increase in Tether's Group own equity, bringing it to a total of $11.9 billion.

* $5.33 billion in excess reserves

* more than $97.5 billion in U.S. Treasuries (direct + indirect exposure), ~$7 billion increase from the previous quarter, a new all-time high. This achievement brings Tether’s exposure to treasuries above Germany, the United Arab Emirates, and Australia. 

It is nothing short of remarkable. Tether, some years ago one of the most maligned entities in the world, now owns more US Treasuries than Australia or Germany! 

As the they pointed out, the $5.33 billion could have been paid out as dividends but they decided to keep it as ‘excess reserves’. One assumes to bolster the overall image of the company. I doubt that will work, the haters will continue to hate but what of it? They are winning. I again draw the contrast between the Tether business model and banking. Even massively well capitalised banks like CBA and NAB only the have liquidity to pay a small fraction of deposits at call. Tether can pay everyone, today. All $114 billion of it and then have some change.

We were also reminded this week by the CEO of Cantor Fitzgerald that Sam Bankman-Fried tried to crash Tether in 2022 by redeeming $10 billion in a single day. It backfired when Tether sent them $10 billion within 24 hours.

They had the money. They have the money. 

I confess to being worried about Tether over the years; if it had ever gone down it would have been a disaster that made FTX look like a teddy bear's picnic. When I see audited results like this and Wall Street confirming that indeed those US Treasuries do exist, I feel relief. I should feel joy, but it’s just relief. 

Euro-Trash

Last week was a very exciting one for technology, lots of high tech launches which are summarised well in this video. The thing I found most striking was this:

You might recall that GPT4 when it was first released did not reach the European market for three months after the rest of the world had it. That’s an awful long time in a fast moving sector. This time around it is Meta’s open source model which is being held back. At the moment, nobody has the multimodal model, we just know that it’s coming. The telling thing here though is that the model is completely open source. The licensing is extremely generous with this model. You can do almost anything you want with it, yet Meta is still going to the trouble of blocking EU companies from using it. 

Not just Meta either. Apple has made clear that when Apple Intelligence rolls out (possibly with the new iPhones in September), the EU will also be excluded from that roll out. So the core functionalities of the new phones will not be available to European users

The man behind the Euro-Tech calamity is Thierry Breton. His message back in December 2023 (which incredibly he still has pinned to his profile) will be one for the ages. 

It's flat out idiocracy in Europe now. A continent not just in decline but in denial. 

Further information

Our July 2024 report to investors can be found here.

If you are considering an investment in the Managed Fund, you can apply using our online application form: