Perspective on Risk - May 22, 2022
Burning Down The House (Pt. 1-4); Good/Important Gensler speech; This Is How The Terra Stablecoin Actually Imploded; Lehman's Not Dead Yet
Seems like a good day to send this out.
Burning Down The House (Pt. 1)
Extreme Temperatures Around The World @extremetempsJacobabad again ! Today 14 May the Pakistani town of Jacobabad rose to 51.0C,highest temperature of 2022 in the world (above the 50.7C recorded in Australia). 50.5C also at Nawabshah and 50.0C at Moen Jo Daro. Later a tweet about India. Stay tuned. https://t.co/mdioIRQzf8
The wet-bulb temperature (WBT) is the temperature read by a thermometer covered in water-soaked (water at ambient temperature) cloth (a wet-bulb thermometer) over which air is passed. At 100% relative humidity, the wet-bulb temperature is equal to the air temperature (dry-bulb temperature); at lower humidity the wet-bulb temperature is lower than dry-bulb temperature because of evaporative cooling.
Even heat-adapted people cannot carry out normal outdoor activities past a wet-bulb temperature of 32 °C (90 °F), equivalent to a heat index of 55 °C (130 °F). The theoretical limit to human survival for more than a few hours in the shade, even with unlimited water, is a wet-bulb temperature of 35 °C (95 °F) – theoretically equivalent to a heat index of 70 °C (160 °F), though the heat index does not go that high.
India and Pakistan’s brutal heat wave poised to resurge (Yale Climate Connection)
A brutal, record-intensity heat wave that has engulfed much of India and Pakistan since March eased somewhat this week, but is poised to roar back in the coming week with inferno-like temperatures of up to 50 degrees Celsius (122°F). The heat, when combined with high levels of humidity – especially near the coast and along the Indus River Valley – will produce dangerously high levels of heat stress that will approach or exceed the limit of survivability for people outdoors for an extended period.
Burning Down The House (Pt. 2)
Burning Down The House (Pt. 3)
Burning Down The House (Pt. 4)
Good/Important Gensler speech
I think what we’re living through in the 2020s is as transformative as the 1990s was with the internet. What I’m referencing is the use of predictive data analytics, built upon artificial intelligence and machine learning, tapping into the veritable explosion of data on every one of us.
Coupled with differential marketing, differential pricing, and individually tailored behavioral prompts, these technologies—what we’ve called digital engagement practices (DEPs)—are increasingly shaping many parts of our economy.
He then uses a useful thought experiment of a grocery store as if it were a virtual experience, using it to highlight conflict of interest, bias, systemic concentration risk issues, and Reg BI (best interest)..
Imagine if the store rearranged its inventory, shelving, and pricing for each shopper who visited the store, each time they visited that store, down to the impulse items by the register. The precision with which the store could nudge you toward certain purchases—and the algorithms behind those nudges—could be powerful and profitable.
This Is How The Terra Stablecoin Actually Imploded
Oddlots did a really nice job covering this blowup. Here they interview Kevin Zhou, the founder of the crypto hedge fund Galois Capital, who early-on called out the Terra/Luna problems.
I would say either perpetual motion machine or giant Rube Goldberg machine. Right? So some of these are just really elaborate contraptions and, you know, you don't know where the hand crank is, but someone's turning a hand crank to keep the system going.
… the anchor yields on deposits for UST, this 19.5%, which then eventually dropped down to 18%. That's exactly the hand crank in this perpetual motion machine that makes it not perpetual. And it's a great question, always, I think, to ask where do the yields come from? I think a lot of times, you know, it just seems like there's free money, but it turns out you're just subsuming all of this kind of indirect or hidden risk that you're not aware of. A lot of this kind of like tail risk, which, you know, only manifests once in blue moon, but when it does it completely wipes you out. So it's just really kind of like very dangerous kind of invisible risk.
… if you can't find where the yield is coming from, then effectively it's coming from future bag holders.
Classic discussion of intra-crypto contagion (and spillover to regulated financial markets) @44:03, with commentary on Tether breaking-the-buck.
Lots of details on bonding curve shapes, automated market makers (AMMs), types of stablecoins, inter-coin liquidity; listen or read as I won’t do justice quoting here.
David Gerrard in Foreign Policy also has a nice summary: The Cryptocurrency Crash Is Replaying 2008 as Absurdly as Possible
Interesting “Flight to Quality” in Crypto
Lehman’s Not Dead Yet
The Last of Lehman Brothers (Business Week)