Mad Hedge Technology Letter
March 13, 2023
Fiat Lux
Featured Trade:
(METAVERSE FLAMES OUT WITH SILICON VALLEY BANK)
(SIVB), (META)
The word “metaverse” is a popular word recently and it has to do with a world almost from science fiction.
It refers to a future version of the internet accessed through immersive technologies such as virtual reality and augmented reality headsets.
Metaverse could supposedly be a $13 trillion market by 2030 according to a prominent research firm.
The internet built around decentralized technologies and virtual worlds is a novel idea.
The definition of the metaverse goes beyond sticking to virtual worlds, like gaming and applications in virtual reality.
A comprehensive vision of the metaverse includes smart manufacturing technology, virtual advertising, online events like concerts, as well as digital forms of money such as cryptocurrencies like bitcoin.
The metaverse could see 5 billion unique internet visitors by the end of the decade, funneling trillions of dollars in revenue in this next-generation of the internet.
This isn’t the only source labeling the metaverse and web3 a trillion-dollar opportunity. In research published in December, Goldman Sachs put a $12.5 trillion number on the space, in a bullish outlook that assumed one-third of the digital economy shifts into virtual worlds and then expands by 25%.
But so far, the metaverse has been a cash guzzler with not much to show for it.
With a huge amount of money already flowing into companies addressing the space and not much revenue, companies face years of poor revenue showing.
Unit economics wasn’t about to turn the corner at all with all signs showing that the Metaverse has stalled, but the bank contagion at Silicon Valley Bank (SIVB) means that many employees from metaverse projects simply won’t get paid their salary.
That’s how the momentum has been demonstrably pushed back lately.
Call the Metaverse dead in the short term.
What are the Metaverse risks?
Besides funding drying up like the Sahara desert in the short term - it doesn’t stick because it’s only tolerable for a few minutes.
There’s definitely a real risk that the metaverse never goes from the “fake it until you make it” to the real killer app that every consumer is clamoring for.
Just take for instance the art of a business meeting.
One might argue that using VR for meetings is less enticing than familiar technologies such as Zoom.
Would you rather see a real version of someone on a video or a fake avatar of someone up close?
The metaverse could turn out to be just hype and nothing more because the leaders of these companies building it are surrounded by yes-men who tell them it’s a great idea.
Many analysts have mentioned that Meta’s version of the virtual now is “terrible.”
Many also chime in saying “it’s been tried many, many times over the past four decades and it's never worked."
Even if Meta does improve on the technology and it does become more advanced, it still could be turn out to be mediocre.
If many can remember, we were already supposed to have self-driving cars 3 years ago and that never happened.
A lot of this failed technology has a tendency to just fall by the wayside never to be talked about again or regurgitated with a new headline.
I am not a believer of the Metaverse and you can bet your hard-earned bacon that these bank blowups means that metaverse and crypto employees will be more focused in the short term of how to pay rent and put food on the table than figuring out how to trap the rest of us in a virtual world.
Even if the salary is issued for employees of crypto firms, web3 firms, and metaverse firms by another third party saving their bacon, I can guarantee that no cash burn company will be funded to lose money in the short term.
“I think a lot of my progressive friends have a little bit of an inferiority complex – if you’re right, why do you care that you’re having a dialogue with someone that’s wrong?” – Said CEO of Palantir Alex Karp
The Silicon Valley Bank debacle
March 13th, 2023
Oh no! This is a financial shock the economy just does not need. It only took 48 hours for Silicon Valley to blow up. Financial regulators are discussing two different facilities to manage the fallout from the closure of Silicon Valley Bank if no buyer materializes.
One way that the regulators may step in would be to create a backstop for uninsured deposits at Silicon Valley Bank, using an authority from the Federal Deposit Insurance Act. The move would also touch the systemic risk exception that allows the Fed to take extraordinary action to stem contagion fears.
Silicon Valley Bank sowed the seeds of its own downfall. It was a key player for venture capital-capital backed companies in technology and related industries and this appears to have played a major role in its demise, according to J.P. Morgan Asset Management. Michael Cembalest, chairman of the firm, said in a note to clients over the weekend that SVB’s heavy reliance on corporate deposits, (rather than retail) and a high percentage of assets held in loans and securities made it unusually risky compared with other banks. In other words, SVB carved out a distinct status for itself in riskier assets and this set itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.
The chart below shows how unique Silicon Valley really was… it sits in the lower right far away from the other regional banks:
The concentrated mix of deposits appears to have contributed to a massive bank run. There were $42 billion in withdraws initiated last Thursday, according to a regulatory filing. SVB’s demise was also accelerated since it had to sell longer-dated fixed-income securities at a loss – from where they were held on the balance sheet in order to meet withdrawals.
While SVB was unique, there is some concern about these fears spreading to other regional banks. So, it should be an interesting day on Monday.
Economic Calendar this week
Monday UK Employment Data Time: 3.00am ET (Tues) Market: GBP/USD
Tuesday US Inflation Rate Time: 08:30am ET Market: USD pairs
Wednesday US Retail Sales Time: 08:30am ET Market: USD pairs
Thursday Euro Area Interest Rate
Decision Time: 09:15am ET Market: EUR/USD
Friday Euro Area Inflation Rate Time: 06:00am ET Market: EUR/USD
The Money Supply
Nick Geril, Founder and CEO of Reventure Consulting has presented a chart that looks a little disturbing. He has used M2 accounts (all money in your pocket at your immediate disposal and savings accounts, certificates of deposit, and money market funds) and U.S. inflation rate data from the Federal Reserve Bank of St. Louis and the U.S. Census Bureau and has plotted out how the money supply and inflationary/deflationary pressures can sometimes correlate.
The U.S. Money Supply is a leading economic indicator with an extensive track record of success within certain parameters.
On that cheery note, I will wish you all an excellent week and much joy.
Take care.
Cheers,
Jacque
"There is nothing impossible to him who will try." - Alexander the Great
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more