The Emperor's NFT Clothes

Life and markets continue to move beyond satire faster than I can satirise them – but I will do my best regardless.

Russia says recent talks with NATO were a failure; US Senator Rubio states it is “almost certain” Putin will move on parts of Ukraine “very soon”; US National Security Advisor Sullivan says he is “taking stock” and is trying to prevent a “potentially massive” Russian invasion; the Director of Russian Studies at CAN says “Russian preparations for an operation are steadily advancing. Support and logistics trickling in, formations with personnel sent from Eastern MD. The outlook, in my view, has grown worse.”; NATO head Stoltenberg says Sweden and Finland will be accepted into the organization “very quickly” if they decide to join; Der Spiegel reports NATO is preparing for even worse scenarios, such as an armed conflict with the West beyond Ukraine; and the Deputy Russian Foreign Minister suggests Moscow could send troops to Venezuela and Cuba if it does not get what it wants.

On one level, if we start throwing in Latin America, we are perhaps pushing credulity: does Russia have THAT many troops ready to roll/fly, even given the ones in Kazakhstan can now come home? Moreover, given the current and Obama White House stance towards the Monroe Doctrine (which asserted US primacy in the Americas for 200 years until declared dead by John “difficult choices” Kerry) and Cuba, they might just say “Ooh, how nice! But it’s really expensive this time of year – don’t forget sun-cream, and have a nice time!” However, what we are also seeing is a stand-off over ‘a far-away country of which we know nothing’ rapidly escalating across geographies, and markets if the trigger is pulled, because, following Afghanistan, it is taken as part of a broader hegemonic retreat.

Yet markets are not worried about a replay of the 1962 Cuban Missile Crisis, which took us to the edge of the nuclear precipice. They see The Michael Bay of Pigs – lots of huge CGI bangs and explosions that rip cities apart *virtually*, with no danger to the goodies, while the guys in suits chomping on cigars keep making big, big money. That’s sadly because markets opt to hang out with the Decepticons all the time. Or at least the Self-Decepticons.

Indeed, the best and brightest in the West are not even interested in the real economy anymore, let alone great-power politics: it’s the memes, not means, of production that count (to adapt Bruno Maçães’s clever pun), and it’s “meta” that matters. For example, the luxury British department store Selfridges --just bought by Thailand’s Central Group, showing how power is shifting-- will become the world’s first retailer to sell a range of dresses by legendary Spanish designer Paco Rabanne in digital form only: Rabanne’s dresses from his ‘unwearable’ collection of the 1960s are to be sold as non-fungible tokens (NFTs) from £2,000 to more than £100,000. Customers get a digital certificate of ownership for each outfit, but not the original item. Welcome to The Emperor’s NFT Clothes!

Of course, the ‘metatarsals’ will reply that this is a step up from paying silly money for an invisible statue, which happened in 2021 in the art world, or a banana taped to a wall, which also did, because ‘NFTs are forever’. And you don’t have to worry about fitting into them or dry-cleaning, I suppose. How Absolutely Fabulous.

Meanwhile, real life is starting to tread on many toes:

  • On the ground, in Ukraine (and Venezuela and Cuba?);
  • In the western economy, via inflation and empty shelves, which cannot be spun as about NFTs - (“Customers get a digital certificate of ownership for each sandwich, but not the original item.”);
  • As supply-chain problems get even worse, and nobody in power now even pretends to have a real plan of action beyond “things will improve in H2”;
  • In the Chinese economy, as Bloomberg says “China’s Property Market is Set for State-Dominated ‘Age of Rust’” and “state-owned developers seen taking over the key industry”, despite virtual ballrooms full of Wall Streeters who don’t know Marx from Spencer saying this wouldn’t happen;
  • On Covid, via the likes of alternative media like Joe Rogan, and as the US Supreme Court shoots down the White House OSHA vaccine mandate except for healthcare facilities that take federal money;
  • In Congress, where the White House legislative agenda also looks in tatters after a further emphatic rejection of removing the filibuster from Senators Manchin and Sinema – and as a fiscal cliff, not mountain, now looms; and
  • Perhaps even within the legal system, given the travails of The Prince Formally Known as Andrew (hat-tip to a brilliantly witty regular reader) – although the No-vax Joke-ovich saga shows courts of all kinds can produce odd serves.

The longer end of the US yield curve seems one of the few areas of markets resistant to meta meshuga, which is why it is one of the few things I still take seriously in a world full of Michael Bays and Emperors’ NFTs. 10-year yields are now down to 1.72%, and while 2-year yields don’t seem willing to listen to all the Fed-ertarsals saying X, Y, or Z rate hikes are coming this year, the more the short end does eventually respond higher, the more the long end is likely to remain grounded, or sink. Not that this can’t mean a hugely negative real yield, mind you, due to sticky supply-side inflation. There is a limit to how much reality we can take, after all.

Happy Friday!  By Michael Every of Rabobank

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