Ep.43: Decentralised Finance Goes Mainstream & Will The Fed Blink As Inflation Surges

Hello and welcome to episode 43 of the Market Maker podcast. And if you missed it earlier this week and you are a student, don't forget to check out the latest career hack episode where myself and my colleague Zhao talked about networking and the power of networking and why as a student it's one of the most important things that you can do. And it's never too early to start networking, so go back, check that out, came out earlier this week on Wednesday. But Right now, I am joined by Head of Trading and Amplify founder, Piers Curran, to talk about the week. And to give you some context and a heads up of what we're going to cover, we are of course going to talk a little bit about the crypto world. And the rationale there is because we've seen record highs in the most established sizable coins like Bitcoin itself and also Ether. So we're going to talk a little bit about that. We're also going to talk about global inflation from a macro perspective. That certainly has been the main talking point. And so we'll delve into that and have a look at where we might head from here from a policy reaction point of view, specifically talking about the Fed. And then finally, we're going to talk about UK COVID heading in, I can say thankfully, the right direction now, but not the case in mainland Europe. And so what does that mean for central banks and policy decisions, both from governments and central banks going forward? Then we'll bookend it then tying in a little bit of Brexit, probably seeing that coming back into the headlines this week. So we'll get you up to speed on what you need to know on that matter. But Piers, to kick things off then, Bitcoin jumped past 68,000 for the first time this week, while Ether also set a new record high. Actually, the broader rise in digital tokens overall has now amassed an overall market value passed $3 trillion, which I know you said before, it's kind of a drop in an ocean against some, let's call it trad-fi, as I'm going to refer to it, assets. But one of the things here is that what we have seen is the broader rising in crypto, this whole kind of renewed, I guess, interest in decentralized financial services. Services, so whether it's NFTs, whether it's— I mean, talking of NFTs, AMC, the meme stock kind of theater favorite, I don't know if you saw it earlier this week, Piers, but they're talking. So not only are AMC considering creating their own cryptocurrency, they are also talking with Hollywood studios about creating commemorative non-fungible tokens of major films.

Right.

That's how you cash in on the general vibe at the moment.

Know your audience.

Right. But then surrounding this, and certainly what's started to pique my interest, and we're going to take this discussion into investing, how do we invest in this type of direction, is about the metaverse. And we've talked a lot about Facebook changing to Meta and Google have been quite vocal as well about getting— sorry, Microsoft— about getting quite aggressive into that space as well. And this whole immersive online environment, which will likelihood create a virtual reality where cryptocurrency will be highly adopted. And so yeah, just getting your thoughts really on some of these developments and what's been going on. And I know that you and I have had since the very episode 1 some sort of light discussions about crypto, but has your mindset started to change at all in terms of where we're at at the moment?

Yeah, I mean, yes. I guess what's happened in 2021 in my head now is that the whole crypto thing has shifted shifted to not crypto, it's shifted to DeFi, and it's shifted to blockchain, and it's shifted to some actual— I was going to use the word tangible, but that's the wrong word. Some actual concepts that are coming to market that are real. —like Meta, for example—that is really now showing me that this whole space has moved from crypto punting around, trying to trade crypto, highly volatile assets. So for me, crypto used to be just trading a commodity, and a commodity that was incredibly difficult to fundamentally assess what its value is, and a commodity that's insanely volatile. And it was crypto trading. I think we need to stop really using the word and term crypto, because it's now moved on to— it's blockchain. Blockchain has matured to the point where, as I said, now I think Right now, and then certainly in 2022, you're going to see the adoption levels, not of Bitcoin, Tesla adopting Bitcoin. Oh no, they're not. Hang on. Are they? Are they not? Not that. I mean, adoption of blockchain. And I mean, I guess in my head, there's kind of 3 different ways blockchain might evolve in this increased adoption journey. It might be firstly based on the existing financial systems. I guess we had an example of this this year. It's like supplanting the existing financial system. It's like replacing it. El Salvador, you'll remember, we did a bit on a podcast, I don't know, whatever, a couple of months ago. El Salvador adopted Bitcoin as a legal tender. So this is the idea. And they're way out ahead, and they're the first mover on that, and no one's going to follow them anytime soon. I think that's too big a step right now. Who knows in 5 years' time? I don't know, 10 years' time, whatever. But El Salvador attempted to really replace— or not replace, but yeah, supplant the established financial system with with Bitcoin. The second way is you could see the DeFi area begin to merge with conventional finance. So not replace it, but— so I don't know. Assets in the typical financial system. So what did you call them? Trad— TradFi. TradFi.

What is that? This is traditional finance. OK. So that's— Rather than DeFi.

I like it. OK. So I've learned something new this morning. So TradFi.

Well, don't get me wrong. This is my own made-up language here. This is not benchmark terminology.

So this is like traditional financial assets. I don't know, stuff like whatever— houses, shares, bonds, whatever, right? And how can the blockchain system improve the way in which we deal, trade, store these types of assets? And so that's certainly kind of moving along. There's some good examples there, like for example, payments. Making payments super cheap and almost instant. There's also some interesting stuff around settlement risk. Rules of transactions, you can code these on the blockchain, where it makes it pretty much impossible to mess up or mess with the rules of the transaction. So sometimes you have settlement risk where you're dealing with— I don't know, I make a car and I deliver that car to the client. And then the client— I invoice the client and then the client pays me. And there's a kind of settlement risk where the client might not pay me. And they might run away with my car. That's a very, very basic example of settlement risk, but using blockchain and coding these transactions in a way that can't be messed with, you remove that risk entirely. The same goes with things like counterparty default risk on loans, where again, you can use smart contracts on the blockchain that essentially lock in that underlying collateral. If your borrower misses a payment and defaults, well then automatically that collateral is immediately sold and distributed to the lender. There's definitely ways that blockchain can improve on the existing trad fi system and how that works. But I think the third way and the much more interesting way, and probably the way where we are really going to see the full adoption option is actually not necessarily disrupting the way existing things work, the existing financial system or the existing financial assets. It's actually developing that kind of new world real economy on top of blockchain, which is what we talked about, like the metaverse and things like that. So— and this is where— and again, creating videos, images, music, whatever, these are wholly digital assets. That are then traded. So that's a huge space. So look, I think in my own head, 2021 has been quite a pivotal year for me in terms of how I see crypto. And actually, it's not crypto, it's this whole new economy that is going to be created. And it's like, right, well, how do I, as an investor, how can I— because I'd never traded any crypto. So how do I get involved with this now as a definite non-expert? And probably as you've been hearing me try and explain how I think this thing might evolve, you can probably hear that I'm not an expert. So what do I buy? What currencies do I buy? How can I get exposure to this? And for someone who's never really studied up on it, it's so technical. It's so complicated. So for me, I'm not really buying any currencies. I'm owning up and saying, look, I don't know much about this, but there's people out there who know a hell of a lot about it. And so I've actually now started investing in some crypto funds. And these funds are managed by people who are experts on this. And not only does— It means I can buy into their expertise, but it also means I can get a diversified exposure to this whole thing rather than just picking 3 or 4 coins that really— I think that's just having a punt. Sure, one of those coins might be the one that gets adopted, and great, you're going to make a fortune. But actually, none of them might get adopted, in which case they might fall away. So I think in any investment, diversification is really, really key. So I can kind of kill two birds with one stone, buy in someone else's expertise and get diversification through investing in funds. And this is what's happened, I guess, the launch of ETFs, particularly in the US, right, has been something that's come along in the last few weeks and certainly had a big influence. So how—

I mean, people having heard you say this, people, the obvious question they're going to ask is, so how do I find these funds? Like, where do you get access to this?

Well, there's this thing which I might talk about in a minute in a different way. But there's this thing, you might have heard of it, Google. You've got to do your due diligence. I started— my starting point was, I want to try and get exposure to this whole thing, DeFi, metaverse, crypto. And so I— and as I said, I know nothing. So I want to find people who are experts and will give me some diversification. So I Googled crypto funds, DeFi funds. I just Googled it, right? Then you're going to come up with a list of funds. And then it's about due diligence. You've got to start drilling into each one. Who are these people? When did they launch? Who's managing the money? What kind of track record have they got perhaps pre that fund? Have they come from trad fi backgrounds before then moving into this space? And just looking at the performance of their fund over the last few years.

And just out of interest, without going into too much detail, what is the background of a normal fund manager of a crypto space? I mean, it is relatively new, right? So where have these people come from?

What do they look like? I think you get two types. One is your person who's come from traditional finance. And recognized, was way more visionary than most in that traditional finance realm where they did see what's about to start happening a few years ago. And where most of us, me included, were thinking, well, what are these crypto coin things? I mean, waste of time kind of thing. They were very much— so I think they were an early adopter of this not adopt, that's the wrong word, might confuse you. They recognized where it was going and got on the pathway of investing in this stuff early on, and then brought that to the professionally pivoted in that direction while still maintaining their trad fi exposure as well. So that's one. The other type are people who don't have traditional finance backgrounds. And they've come purely on this kind of crypto and kind of blockchain and digital wave. And they're just a different caliber. I personally, I think bringing a bit of trad fi flavor to it from an investment point of view is better because in the end, a lot of this stuff you're investing in, it's just an investable product that has a price that goes up and down. And with that comes having some experience in investing in assets, doesn't matter what the asset is, I think brings a lot of value to the table. Just being an expert on that particular sort of— like a technical expert is really valuable, but you perhaps don't have that investment expert that I think is required.

Yeah. And then from my side, I totally agree with the kind of ethos of seeking out— it's kind of that mantra, isn't it? Is you want to form a team with people who are better than you. Right. Yeah. It's just in this case, you're the one with the capital to deploy then the funds to make that happen. And so one of the things I did earlier this week is I had a really had a really fantastic call with a chap who for 20 years was the global head of research at Deutsche Bank in Nomura. So this guy is like super heavyweight. And he put out a research piece, his quant team, and now his private research firm. And they basically put out 7 bullish signals specifically pertaining to Ethereum, but they had been— They correctly called when people were panicking about a recent dip a few weeks back in Bitcoin, that that was overdone and it was consolidation to move higher. They were right. The Ethereum call they made, 616, was right. They've got a good strategy based on specific definable metrics that they look at. And to give you a flavor, some of these were talking about monitoring of institutional flows, as well as the movement and volumes into ETFs and things like that. They were looking at HODL behavior, which is the idea of mapping then from exchanges the duration of people's holdings and how their behavior changes over time. And yeah, in short, with Ethereum at the moment, you're seeing more people who are less trading and more investing, looking for further long-term gains rather than a quick buck on short-term price appreciation, liquidity demand. They look at mining activity, general broad space DeFi activity, open interest in the futures market. And so I don't look at these things as like a silver bullet, but I look at them as like, okay, he's come out with a piece and he's saying that basically he remains very bullish of Ethereum. And then you see the rationale to supplement then other research you do and broader thinking and people you talk to. And it's these sorts of things where, when he was talking about it in detail with one of his quant guys, it's like, yeah, 50% goes over my head, but that doesn't really matter. As long as he's sure, well then it's about my trust and faith in him as a researcher and as an analyst. And it's not like I don't know this guy. I've known him or been aware of him since day one of my career. He was already assumed in those positions with the day I started in 2006. So yeah, the trust is there, built on his reputation. Like you said, like you kind of view any fund manager in a similar way, but this is research specifically. But if you want—

I was just going to say, one of his, um, one, one of his kind of metrics that you didn't mention, which I actually found really interesting was looking at how people behave who are buying Ethereum in terms of where are they storing that Ethereum that they have purchased. He was talking about, to again, simplify massively, because I don't know enough about it, but you can either hold it at the exchange, which is a liquid, much more liquid form of Ethereum. When we talk about liquidity, we mean how easy is it to buy and sell. Because one of the things, when I started off on this due diligence on these funds that I was researching, and I want to get exposure here, I did also think, well, all right, if I wanted to buy some coins, starting from a point where I know pretty much nothing, how easy is it? Because that's something I'm really concerned about, is liquidity risk with cryptocurrency. So in real small size, I I opened some account, I opened a Coinbase account, I opened a Binance account. And on Coinbase, fine, really easy to use, the user interface, the user experience is fantastic, except you can't buy much on there. I didn't think there was— because there were some coins I was reading up on and going, actually, that does sound quite interesting. Is it tradable? And I went on to Coinbase, you can't trade it on Coinbase. It's not available to buy or sell. I'm like, okay, fine. Well, let's go to Binance then. Okay, there it was tradable. But I don't know if you've used that, but the user interface is just shockingly bad, really hard to use the platform, I mean. And so that's one form of liquidity risk, just hard to use the actual system. But then where do you store it? So I said you can either store it at the exchange, so then it's really easy to trade out of it. And I can trade out of it super quickly if I want. Or you can take it off the exchange, because if you hold it at the exchange, you're really relying on a third party there. The exchange is holding it for you. So if you're a little bit nervous about that and you want to keep it yourself, well, I've got to put it in my wallet. And your wallet, I mean, what is it? A USB stick? Or you've got to remember a ridiculously long code, or I don't know.

People used to have a go at me, you included, about my USB stick. How do you like me now?

Well, if you were holding crypto on that USB stick when you had it back in 1985, you're a rich man. But my point is, so it's really illiquid when you're off the point of view where you don't want to rely on a third party to hold this crypto for you, and you want to be in control of it yourself. In doing so, you're solving one risk, You're solving third-party risk, but you're creating yourself another risk, which is liquidity risk. Because if you do want to then sell out of that, it's much harder. So I know that the guys at MacroHive were looking— one of their metrics is looking at how people behave once they've bought. Do they hold that crypto or that Ethereum on exchange, at the exchange, or do they remove it into their own wallet? And they've been seeing flows off the exchange into people's own wallets. Which in their view is a signal that they're long-term bullish. They're happy to take on the liquidity risk because they're long-term bullish. I think the one slight hint of, um, counter-argument I have to that view is that is assuming that the person understands what liquidity risk is and they understand they're increasing liquidity risk by putting that coin in their own wallet. I'm not sure everybody who's doing that does. But anyway, I quite liked it as a metric.

Yeah. OK, well, look, cool. Just to remind everyone, you can watch part of that video on the AmplifyMe YouTube channel, or you get the full session. Just go to AmplifyMe.com, and you can just sign up for free to access the content hub, and you can go and watch it. Definitely, if you're into crypto, worth a watch for sure. But let's move on to the next subject, Piers, and let's talk about global inflation. I'm going to throw a few numbers your way. So US CPI came in at 6.2% in October, higher than expected 5.8%. It was over and above even the highest estimate on the street, which was looking for 6%. And in fact, it marks the fastest annual increase since 1990. China Producer Price Index, the PPI number, hit its fastest pace in 26 years this year. CPI, its fastest pace since September 2020. And then to round it off with the 3 major global world economies, producer price inflation in Japan, the highest level in more than 40 years in October. Thoughts?

So I'm still with the Fed. We'll perhaps talk about them later. In that, yes, we're in an inflation spike, but it will calm down. I guess let's drill into why there's a spike a bit, and then we can maybe decide whether it will come down. Like Jerome Powell thinks, and like I think actually. But there's obviously a few reasons for the price spike, most of which are COVID-related. So you've got the supply chain bottlenecks, number one. And the thought has been that those supply chain bottlenecks will alleviate, and therefore prices will start to calm down as we go into 2022. Obviously, that's assuming we don't have another COVID situation. I know we're perhaps going to touch on COVID later, but are we out of the woods on COVID? Could there be another sort of Northern Hemisphere winter spike like we had last year and so on? And therefore, I guess what I'm saying is these supply chain bottlenecks because of COVID are only going to go away if COVID goes away. And there's obviously that risk that COVID doesn't go away, in which case, fine, this inflation, supply-side inflation is going to stay. There's then the kind of energy price spikes that we've had. And these numbers for October do coincide with another decent leg up on things like oil prices, for example. So certainly a lot of that rise in inflation in October is energy-related. But then there's this whole labor force thing, which I think is the bigger thing to focus on if you're trying to judge what inflation is going to do next year. Because we've got wages rising, we've got the scenario where companies are finding it incredibly difficult to find people to come and work for them. And so it's almost like you've got this supply shortage, right? Workers, but then to entirely counter that argument, there's 4 million Americans who haven't returned to work since COVID's calmed down. So it's like, well, hang on, how can you have a supply shortage of workers, but then 4 million people who aren't working, who used to be working? And it's like, well, that doesn't fit. And I think that's kind of looking at the labor market in way too simplistic terms. There's 4 million jobs available, and there's 4 million people, done, perfect. Well, that's obviously not how it works. Someone was talking about it the other day, and I found it really interesting in that they called the labor market— it's actually a matching market where you not only choose a job, but you need to be chosen as well. So there might be 4 million people and 4 million jobs, but that doesn't work because these people might not be right for the job. They might not have the right skills for the job. The opposite way around, the individual might think, well, that job's beneath me, or that job's not paying enough, or I'm still living off my stimulus check from the AMC pump.

Right. Absolutely.

So there's obviously that fiscal side. And there was a huge amount of fiscal support there through COVID. And I'm sure people are still stretching that out. And so look, there are these reasons. So do you think the labor market is going to return to normal is the key question in this inflation argument. It's probably for me not getting quite enough airtime. People are talking way too much about supply chains. They're talking way too much about energy prices. And I think the actual thing that will— the spanner in the works for everyone in 2022 will come if this labor market issue is sustained. Because the real worry is, it's sustainable inflation is driven by the expectation by people that prices are going to go up. Therefore, they drive a demand for higher wages in order to then be able to afford to buy the stuff that they want to buy. And so if they're going to job interviews, this is then in the psyche. No, I'm not going to accept that I need higher. And the employer, well, there's no one else queuing for this job, so they've got no choice. So they employ them at a higher rate. And if that's a self-sustaining feedback loop, then that's how you get inflation rising sustainably, which is what happened in the '70s, which is the last time that the Western world had to raise interest rates to contain inflation knowing it would have a negative impact on jobs and the economy. But there's a lot of differences between now and the '70s. One being in the '70s, there were a lot of— the labor market was way more unionist-driven. There were a lot of workers unions. And so there were the unions that were negotiating higher wages for all of their members. And so there was this system where wages could move higher more easily across the board. For it to happen this time around, you're really relying on the individual. We've got way less union control these days. So you're having to rely on the individual worker to go to their boss and say, I want a pay rise. Or you're at the interview, and you're brave enough to say, look, you've offered me the job, but you know what? No, I want more. And if it goes down to the individual, then I think there's less propensity for that kind of wage growth to be big, broad-based, all at the same time. So that's why, yeah, these October inflation numbers are definitely higher than we thought. And it's another— that's a bit of a worry. But it's one month of data. And it hasn't changed my view.

Okay. Well, I've got a view from someone else, which is a Fed watcher. And for those of you who don't know what a Fed watcher is, it's a person who's tasked specifically, normally from a background of an economist route, who just looks at a singular central bank. So in this case, the Fed, and they're seen as an expert People in markets, investors, but big hedge funds, investment banks might well look to Fed watchers, given that they have a very unique specialized focus and understanding about Fed policy. Often Fed watchers are well informed because they talk to people at the central bank as well. That's not a bad thing from a central bank that acts as a non-official channel to kind of support this forward guidance idea. And so there's a Fed watcher called Tim Dewey. May not have heard of him, but he's like the boss man as far as 2021 goes for the Fed. It used to be— I can't remember the name of the guy now— to the Wall Street Journal.

Yeah, it used to be many years ago. Gun with H, wasn't it, his surname?

You have a, have a think while I give you the what Tim has been saying. But this Tim, Tim Dewey was the university— he works at University of Oregon as a professor. He's also worked as SGH Macro Advisors as chief economist. And so a couple of points here that he said. He argues that while the Fed will become increasingly nervous about inflation it will not become so nervous that a policy pivot is imminent. And obviously this is one of the things that markets— again, rates markets— got a bit excited about this week. He goes on to say that the general view at the Fed is that there's plenty of room for pulling rates forward from 2023 into 2022, adding, in other words, that there's room to turn more hawkish without accelerating the pace of tapering. He also suggests that at a minimum, the Fed believes it has until March meeting before it needs to do some hard signaling around the second half of 2022. And then moreover, talks about the leadership turnover, which is also happening at the Fed exactly the same time, and argues then for maintenance of status quo until staffing is settled out a little bit more. And I think all of those are absolutely spot-on reasons.

Yeah, I think that I like, I like that rationale. And certainly like that one point about— well, certainly the leadership, we talked about that I think last week, didn't we? Um, and really things are set up, I think, where that kind of leadership at the Fed remains super dovish. Um, also It's got to be wait and see mode on interest rates. The Fed have set in motion tapering, and great. I don't think they're going to— if possible, they don't want to adjust the speed of that. I don't think they want to accelerate the speed of it. I think he's right in saying the hawkish step from this current position would be not speeding up tapering, but starting to kind of project or bring in expectations as to when rates might start to go up. But I think wait until March is right because really, get through the winter, see if any of these COVID-related factors are temporary and start to calm down. And if so, does the labor market kind of begin to normalize further, and in which case is that upside wage pressure sort of concern, does that diminish? And I think certainly wait until March to really start to kind of make any noises about the timing of interest rates or changing the current expectation of 2023 is right. I think this guy's— I think he's nailed it.

I think he's spot on. That's why he's the boss, man. That's right. John Hillsenrath was the other guy. Hillsenrath. That's it. I told you. John Hillsenrath. It's funny, though, because what tends to happen with these Fed watchers, they're really in vogue, and they're the absolute go-to for the latest Fed thinking, and they're absolutely in tune, as we've just heard here. And then they just disappear, and a new person comes in. So I'm not sure what happens. Perhaps then through this backdoor communication strategy with the Fed, they go they get a little bit big for their boots because they realize that actually the entire market's listening to me and not Jerome Powell so much. And perhaps then they step a bit out of line. But I would just say, just on the inflation thing, that headline—

can we just make that point as well about the headline was super high at 6.2% year on year on the CPI, which is the highest in this inflation surge. So the highest of the year, the highest for however many years you were talking about. But remember that when you strip out some of those food and energy, and the Fed are more interested in looking at things like core CPI or PCE and so on, and core inflation did jump as well, don't get me wrong, and was much higher than expected. And one thing people were— the transitory cramp were really happy that core inflation had been starting to tick back lower over the last 3 months. And it was like, we're right, us transitory, team transitory are right. So this is a little bit— it flicked up to 4.6%, which is the high of the year for core as well. But it's only just above that June reading. So a new high for the year, but nowhere near as kind of alarming as that headline CPI reading. But yeah, so on the core side, it's not quite as bad. It's still a worrying number, but not quite as bad. So I think the November reading— and I always say one month, you can't make any big judgments on one month's set of data. You need a trend. You need a trend of now further upside inflation pressure over the next few months. And then sure, in March, Powell's going to start talking about hiking rates by the end of the year, as in 2022. So that's what I'd say. Okay, cool.

Well, let's move on to the final topic, which is UK COVID and a little bit look at the context to mainland Europe and then Brexit. So England has recorded its longest unbroken run of declining daily coronavirus caseloads since February. As COVID-19-related hospital admissions begin to fall in every region of the country. Just summarising some of the other figures, it's also beginning to feed through into lower weekly hospital admissions. They fell 12% in the last 7 days. Obviously, this is quite critical of what we had seen in the previous year going into the typical winter cooler period where historically that puts greater pressure on the NHS and infrastructure. And then the other element that the FT were talking about in their analysis this week was some data out of the Office of National Statistics, the ONS, and they were showing about antibody levels in basically the older demographic, which is a reflection of what was a bit of a concern because only a month ago COVID cases were looking like they were heading north, and you had the Health Secretary coming out raising the 100K alarm bells again. And this was coming kind of prior to really, I guess, the booster campaign really rolling out. And then the efficacy levels were declining because these, these were all people who got jabbed very early. But that seemingly has also pivoted, and actually then those antibody levels now are on, on an increase. And so the final component was about the COVID demographics of the youth. So the under-20s, and that's also continued to decline as well. Um, not that you've probably read any of this in any major newspaper this week because it doesn't really get talked about when it's heading in the— what the papers probably is the wrong direction to, to sell clicks and generate, uh, kind of a response. But yeah, some positive developments there. And one thing is though, it's not quite the same in mainland Europe at the moment. Right. Some of the charts are looking— particularly Germany, which of course still doesn't really have a functioning government at the moment. Post their federal election, they're still trying to find their feet. In an early multifaceted coalition, it's all about finding your kind of what power do you assume within that combination. And so this isn't a quick fix. The problem of course, with a coalition is nothing is quick in the decision-making process. But they've got a bit of an emerging crisis happening because the case rates actually are heading in a direction that's probably the worst that they have been in that—

Well, it is. I'm looking at a chart right now, and actually for Germany, their average case rates this week, uh, has been about 32,000. That's higher than the Q4 2020 peak, and it's higher than the spring 2021 peak as well. So yeah, for Germany, this is now new territory. And I guess, but what I always look at, mainland Europe are behind the curve in terms of case numbers compared to the UK, for example. And that's always been the case throughout the pandemic. Pandemic, well, give or take. But I'm just looking at the chart. So take the UK, right? In the summer or the spring, our case rates bottomed out. This is kind of pre-Delta variant, bottomed out at the start of May. OK, that was the trough. And then Delta came in. And it was through May and June and July that case rates in the UK really kind of started to spike again. Okay, so our— we troughed at the start of May, Germany troughed the start of July before then the Delta variant uptick began. So Germany are 2 months behind the patterns that we're seeing in the UK. So now UK numbers are on the way back down, right? We've peaked. So whilst Germany, yes, is right now surging and it's looking really bad, and of course obviously action maybe is going to get taken in— I don't know whether we'll see more lockdowns in mainland Europe, but the point is that, you know, in 2 months' time you'd expect those German numbers to also come back down like we're seeing in the UK. But that's case rates, and really from an economic point of view and from a policy point of view, and are there going to be more lockdowns or not, I mean, really you need to look at the death rates more than the case rates. But there, there's obviously that risk that the efficacy of the if you're double jabbed, well, fine, but now you need a booster. And do you want to get a booster? Are there boosters available for you? All of these concerns, which is why this winter there are certainly uncertainties as to, is this Delta variant peak the end? Are we now going to trend lower throughout winter? I mean, obviously, last year, January was a really bad time here in the UK. So there's kind of those fears, uncertainties out there, but certainly death rates are of course a lot, lot, lot, lot lower in this wave higher than we've seen in previous waves.

So I guess what this leads to then is from a policy reaction effect to ascertain timing of, I guess, removal of stimulus, let's call it. So we've got the Fed underway tapering We've just talked about the potential— we weren't talking about delaying, we're talking about with inflation, the potential to bring forward the communication on rate rises into 2022, let's say. You've got the Bank of England, which was like ultra-aggressive in its pricing, only for the communication clanger from, from Bailey, and that's been pushed back, but still way more aggressive. Where does this leave Europe then, if this is the case? Of what we're seeing with the COVID impact? Yeah, other things at this point in time.

Well, they've been— I think Europe have been more, um, their policy towards dealing with COVID has been more onerous than here in the UK in terms of on people's lives. Lockdowns lasted longer, you know, wearing of face masks is very much still the norm and insisted upon. I mean, here in the UK it's like What COVID? So I think because of that, their economic recovery from the worst parts of COVID has been a lot slower. And so I think from an economic perspective, they are behind. Now, they are having those inflationary pressures as well. But I think their economy's not running as hot as certainly the likes of the US, for example. So they're way less concerned about this inflation thing. And don't forget, and I will bring in 2011, by the way, because in 2011, the ECB made, in my— certainly since I've been watching markets, the worst monetary policy mistake I've ever seen, where they hiked rates because of inflation pressure, because there was an energy price spike. There was a supply-side spike in energy prices in 2011. The ECB hiked and basically caused another recession because the European economy had not recovered enough from the financial crisis or indeed their own debt crisis. And they hiked stupidly, and it had a massive negative impact on their economy. They are not going to make the same mistake again. They've learned from their major error. And that's why now you're hearing them and they're nowhere near rate hiking. What? No way. They're way more dovish than the Fed or indeed the Bank of England. And I think that's because their economy's behind in terms of recovery, and they don't want to make the same mistake they did last time.

So I guess the obvious question there is, So what opportunities does that bring either from a currency or geographic equity exposure if rates are going to remain very low in Europe? Dollar strength.

I mean, or certainly the euro-dollar, you should expect, in my opinion. I mean, I think the dollar hasn't strengthened this year like people expected it to strengthen. And I think part of that is Powell, because he's been less flip-floppy about the inflation spike, and he's been more consistent. We're not going to suddenly turn hawkish. But I do think in 2022, hopefully emerging more fully from COVID then you are in a straight-off huge divergence from an economic point of view. And this should lead to the Fed's trajectory being way more hawkish and the ECB staying pat. And I think that, I expect some dollar strength next year.

Yeah. And this week the dollar has hit a 52-week high, just to kind of say the wheels are already in motion somewhat, given that.

But I think that trend will continue. I don't think just because we're at a 52-week high now, I don't think that's the end. What are we trading down at? Eurodollars trading below the 1.15 handle. And fine, yeah, that's the lowest that exchange rate's been, well, really only since last summer of 2020. But the low in 2020 off the actual pandemic crisis was just below the 1.07 handle. So I expect that downtrend that has been in place for the last few months, I think it's going to continue.

Yeah, and actually, I mean, if you have access to charts, the 115 breach which we've had this week is quite a meaningful one. That actually defined the peak of activity through the summer of 2019 and the initial volatility of dollar-led movements around the onset of the pandemic. So it's been a meaningful actual technical week as well for the euro-dollar currency pair in a bearish formation in that sense. So just finally, to wrap things up, a quick word on, on the, on the Brexit. I'm going to call it the Brexit pantomime, which with the, the main shows being— yeah, the, the Northern Irish Protocol, because it's been such a a classic Brexit week. And it's kind of started with London saying that concessions made last month by Brussels to reduce the impact of checks on goods traveling between Great Britain and Northern Ireland across the new customs border in the Irish Sea did not go far enough. It came even though they had made some concessions. It was all again tied to the fact that Europe, in any kind of questionable situation, the European Courts of Justice would have the final say, and that's just a red line as far as the UK are concerned. The EU then came out, I think it was Tuesday, and said, 'We'll have no option but to retaliate if the UK goes ahead with threats to suspend the Brexit deal for Northern Ireland.' They talked about the idea of just canceling the entire deal of Brexit. And then this morning we go full circle from going as far apart as they can be to the UK Chief Brexit Negotiator Frost this morning telling the Times newspaper and his EU counterpart that the UK wants to renew its efforts to get an agreement on Northern Ireland and will enter intensive discussions over the next few weeks. Frost reassures Brussels that Johnson does not wish to trigger Article 16, which is to the specific part around Northern Ireland. So should we pay any attention to this, Piers, or is this just a broken record of the last 5 years?

Well, I remember having a conversation with you 5 years ago. So remember, the vote, Brexit vote, was 2016. Um, so yeah, it probably was about 5 years ago where we were talking about how's this all going to work, and, and, and we've— and it was very very quickly obvious that the Northern Ireland situation was easily the biggest kind of hurdle to, you know, actually successfully engineering Brexit. And that was the case 5 years ago, and it's the case today. And now everything else has fallen away. All the other items on the list that need to get sorted out, generally speaking, have kind of been dealt with-ish. But, you know, it's Northern Ireland that is the number one, and it still is. And so they've spent 5 years trying to fix it. So is this now the time where it's going to get solved? Absolutely not. That's one thing to say. This Northern Ireland, you can't solve it. I mean, well, I don't want to talk about the one way it might get solved, but, um, but you can't solve it quickly. It's a political nightmare. And what happens because of that during these negotiations, you know, of course you have a negotiating window that you've defined at the start of it. Now you set out your stall, I want this, this, this, this, and this, and the other party go, well, hang on, no way, because we want this, this, this, and this, and you're miles apart. And then as the negotiations kind of move along, you know, you start to kind of inch reluctantly towards the kind of middle ground where then, okay, fine, we can make some kind of deal— not deal, some kind of agreement— but then we can either push it down the road further, which is generally what will happen, um, or we'll kind of solve one part of it and, okay, now there's a whole bunch of other stuff we've got to solve.

So I don't want to open Pandora's box, but I'm conscious of the fact that for anyone listening who's perhaps under the age of 25, perhaps they don't really understand the, that layer of complexity that comes with just going, just drop Northern Ireland, like, um, which I could understand if no one actually knew their history. But again, without like— it's obviously a delicate subject, but could you summarize that in any shorthand way, if that's possible, to just give someone of that demographic who's not educated in the history, an idea of why that's not so simple to just make a decision over Northern Ireland from the point of view of the sectarian history of that.

Well, you're in a better place than me to explain that, given your—

Well, I'm actually going. I'm spending Christmas in Northern Ireland. Carried into it. Yeah. So I'll be with the in-laws. And so I'll report from the ground. But I guess the idea being is that that specific geographic region has had a very— a history of sectarian violence of a scale that's quite unprecedented in a kind of Western society. And a peace agreement was finally brokered in the mid-'90s. That's been in place, but it's based on certain conditions being met to stop the violence between the Republican island of Ireland perception under the IRA and the Unionists, which is tied to then the belief that they're part of the UK British kind of system. But the problem is, of course, it's landlocked with what is now Europe, and hence then lies in the problem at this point in time. And what then could happen is, given the border checks between these two countries, a re-establishing of more onerous border checks might well flare then more renewed sectarian confrontation, and that could lead to violence and a pressure on that agreement broken in the '90s, on a peace agreement. And so does that Does that cover it to some extent?

Yeah, it does. I mean, you know, you've got that, that religion, you know, it's the Protestants and the Catholics, you know, Southern Ireland or Republic of Ireland versus that kind of Protestant Northern Ireland. I mean, you go way, go way, way, way back, and obviously Britain, you know, invaded and stole a bit of lands, and, and that's where the kind of, you know, the Protestant kind of settlement happened, and then it's been there for so long that there's obviously, you know, generations of Protestants that have lived and been raised in Northern Ireland. And then you've always had that clash between the two. And yeah, finally they made that agreement to halt the violence, the border, because there used to be fences along the border. So that's all come down, and hugely amazing kind of progress made. And that's right. So to sort out the physical goods traveling from Northern Ireland to the Republic of Ireland, you either, you have to put in some border checks, right? But putting in border checks means putting the fences back up. Putting the fences back up means you're going to see a reversal of what's been a really positive trend. And you'll see kind of sectarianism and that. Kind of, hopefully not, but that violence kind of returning. And so that's why a fence on that border is absolutely never going to happen. What's more likely, and again, won't happen either, or certainly not on Boris's watch, right? The other way is to say, well, all right, let's not have a fence on that border. Let's have some kind of border checks in the sea. Between Northern Ireland and the UK and Great Britain mainland. But then you're kind of pushing Northern Ireland away from Great Britain. And then that kind of maybe stokes the trend towards some kind of referendum going on in Northern Ireland, which actually sees Northern Ireland being reunified with Republic of Ireland and no longer being a part of the UK anymore. It's an impossible situation. It can only be solved by technology. And there's no technology for it yet. And that's having a fenceless border where checks can happen in some kind of clever way using technology, which is what Boris mentioned. That's, oh, we'll solve it like that. He said that 4 or 5 years ago. There hasn't been a solution invented yet, or not that I know of. But where there's a need, necessity is the mother of invention. As they say. So that's the only way it's going to get solved. These politicians will argue, and they'll argue, and they'll argue. Politicians cannot solve anything. You need the private sector. You need the private sector to come up with some clever bit of kit. And they're only going to do that if there's an economically viable reason to invent this bit of kit, right? Where you get an entrepreneur who goes, right, I've got an idea. I can make money out of it. Right, let's build this thing. And that's how you get these amazing products created.

But until there's that kind of— you're never going to get that when there's such political uncertainty coming out of Westminster and Brussels about what they're going to do with this, right? So hence you're stuck in a— yeah, in this situation. But okay, well, we'll wrap it up there. Um, thanks as ever, Piers, for your time and your insights. Uh, again, as I mentioned earlier, We touched upon a few different things here in regards to decentralized finance, to UK COVID, Brexit. We've just spoken about the Fed, inflation. And so more content like that's available on the, the hub, which you can access for free on AmplifyMe.com. And then also as well, there's some other sessions there from interviews I've done with people from industry. There's other career sessions as well you can access and other cool stuff as well. So Do check that if you have time. But otherwise, Piers, take care and, and take care everyone else. And, and the new Careers Hack episode will come out on Wednesday. Cool, see you next week.