What we’re reading (5/1)
“Wall Street Reluctantly Embraces Crypto” (Wall Street Journal). “Hedge funds and other professional investors were already trading cryptocurrencies, but many money managers—from mutual-fund giants to pension funds—are increasingly eager to find a way into the crypto markets, executives said. Inflation and rising interest rates have damped expectations for returns on stocks and bonds, making cryptocurrencies more attractive.”
“Bonds Are Suddenly Getting Love From Investors Hedging Recession” (Bloomberg). “Investors plagued by fear and shunning stocks are rediscovering a time-honored antidote: U.S. government bonds. That may seem surprising, given that the Treasury market has been battered by its worst losses on record this year. But with yields holding at the highest in years, the Federal Reserve on course to raise interest rates aggressively in the face of surging inflation, and growth sputtering overseas, cash is flowing back in as investors seek to protect against the risk that the economy will tumble into a recession -- pulling the stock market further down with it.”
“Why A Fragile Stock Market Faces Danger From Rising Real Yields As ‘TINA’ Trade Fades” (MarketWatch). “Rising inflation-adjusted yields in the U.S. are undermining the long-running trade in which investors favor stocks over other asset classes, and are poised to hit the technology sector even harder. That trade — known as ‘TINA,’ an acronym for ‘There Is No Alternative’ to equities — is being increasingly tested by real yields, which have risen from below zero on expectations of aggressively higher interest rates by the Federal Reserve. Five-, 10- and 30-year inflation-adjusted yields are at their highest or least negative levels of roughly the past two years, according to Tradeweb.”
“Dissecting The Equity Premium” (Tyler Beason and David Schreindorfer, University of Chicago Press). “We use option prices and realized returns to decompose risk premia into different parts of the return state space. In the data, 8/10 of the average equity premium is attributable to monthly returns below -10%, but returns below -30% matter very little. In contrast, prominent asset pricing models based on habits, long-run risks, rare disasters, undiversifiable idiosyncratic risk, and constrained intermediaries attribute the premium predominantly to returns above -10% or to the extreme left tail. We show that the discrepancy arises from an unrealistically small price of risk for stock market tail events in the models.”
“Netflix’s Big Wake-Up Call: The Power Clash Behind The Crash” (The Hollywood Reporter). “Sources say some Netflix executives began to worry about the burgeoning number of shows. ‘It was, ‘Hey, guys, do we think this is enough? Because we are cannibalizing our own shit,’ ’ says a former insider. And then there was Holland’s concern about the lack of curation and quality control. An important creative talent who had successes working with Holland muses: ‘I wonder if, say, a bonobo throwing shit at a whiteboard full of titles as a method of deciding what projects to make would have more or less success than all of these other ‘deciders’ who think they know what people want or don’t want.’”
