💼 The Balaji Brief

Good morning! As you prepare for Q2, may you start fresh like today’s new moon 🌚.

Now here’s what other CEOs are talking about.
-Anuj

Balaji predicts systemic banking downfall

• What to know: Noted contrarian Balaji Srinivasan predicts the U.S. will enter hyperinflation by June 15th, dooming financial system.

• How so? He paints a vicious cycle:

  • The government printed too much $

  • ➡️ Inflation

  • ➡️ Raise interest rates to fight inflation

  • ➡️ Bonds lose value & banks holding them fail

  • ➡️ Print money to backstop banks 

  • ➡️ Repeat

• Where’s the doom? He believes the government can’t stabilize the economy. The main tools - rate hikes, and money printing - either break things (e.g. SVB failure) or exacerbate the problem (e.g. inflation). No path to stability is clear.

Balaji backs up his prediction with a big bet

• What to know: Doubling down, Balaji bets Bitcoin will reach $1M by June 15th. A ~40x increase! He bet with 2 people. If he wins, he gets 1 BTC. If they win, he gives them $1M.

• Why?: Balaji claims he’s doing this to bring attention to the impending doom of the U.S. financial system and how Bitcoin is “the only global safe haven.”

• What do his supporters say? Those persuaded to buy Bitcoin from this are either crypto diehards, tail risk managers, or simply FOMO’ing as Balaji has been contrarian and right before.

Opponents criticize it as lacking taste

• What to know: Critics call it poor logic at best and fear-mongering at worst. This bet is divisive.

• Why #1? Opponents argue backstopping is not supported by the government printing money, but rather fees collected from FDIC members.

• Why #2? Economist Tyler Cowen discusses even with a systemic bank failure, hyperinflation is not likely to occur:

  • ⬇️ Bank failures left unaddressed wipes deposits (deflation)

  • ⬇️ Demand then falls (further deflation).

  • ⬆️ Printing more money then reduces deflation (opposite of Balaji’s reasoning)

• Why #3? The bet has terrible odds for Balaji, making it easy to dunk on him. Noah Smith notes if the US hyperinflates:

  • 1) $1 million won't be much for the loser to pay, and

  • 2) if Bitcoin goes to $1 million, Balaji should instead buy $1 million of Bitcoin and make $36M in profit.

First Republic Bank is on life support again

• What to know: The stock of First Republic Bank nosedived 47% yesterday after its credit rating was downgraded twice in 4 days, this time from BB+ (barely junk) to B+ (firmly junk).

• Why does this matter? Lower ratings mean the bank makes less on its bond offering. Thus a recovery gets even harder. The market remains unsatisfied and options traders are betting against FRB in droves.

• How will the bleeding stop?: Still TBD. Yesterday JPMorgan’s Jamie Dimon proposed converting last week’s $30 billion deposit to equity.

• What should you consider?: If you are banking with First Republic, it’s wise to reduce your holdings to below their FDIC coverage.

Make yourself proud today! 👊🏽

The news can be overbearing

Remember to focus on what’s in your control!