The chief executive of the $40 billion fund says that bringing back defined benefit funds could make the public service an attractive career path again and strengthen the social compact with nurses, teachers and police.
The set-up for emerging markets is better than ever, and harks back to the beginning of their decade-long run following the end of the Asian financial crisis. And while Trump has investors running scared, fears about another brushfire trade war are overblown.
Crypto might never be more than a meme
While proponents believe that cryptocurrencies will inevitably disrupt traditional finance, it’ll be harder than it seems – and less lucrative than they think.
As cryptocurrencies like Bitcoin and Ethereum have shot to prominence in the last several years, it’s now being taken as a given that they will eventually disrupt traditional finance. Blockchain technology offers a “disruptive, decentralized solution to problems with centralized, traditional finance” – and so it follows that it will ultimately disrupt traditional finance.
But Alex Pickard, Research Affiliates vice president of research, believes that the expected primacy of cryptocurrencies is nothing more than a meme – that is, “an element of a culture or system of behavior that may be considered to be passed from one individual to another by nongenetic means, especially imitation” – and one that has been used to encourage rife speculation, which forms the cornerstone of cryptocurrency profitability.
For crypto markets to “transition away from speculation and memes and actually disrupt the traditional financial industry”, they will need to overcome three main problems:
“First, the profitability problem: disruption would be paradoxically unprofitable for cryptocurrency holders because speculation, the primary modality by which cryptocurrency investors profit, would decline,” Pickard writes. “Second, the power problem: traditional financial institutions are powerful and heavily entrenched within business and politics; disrupting such an established industry is an arduous goal.”
“Third, the crypto-community problem: the crypto community has transitioned from a grassroots community focused on disruptive utilization of blockchain to a speculation-centric community that encourages the belief in and evangelization of memes.”
On the first point, Pickard puts forward a pricing model based on four factors: fair value, plus an “avant-garde premium, a speculation premium, and a byzantine premium.” Were cryptocurrency to become truly disruptive, its fair value might increase, but three premiums associated with it would decrease accordingly and result in lower prices. The “avant-garde premium” comes with being associated with an innovative community; the “speculation premium” is ” a lottery ticket that provides the chance for a massive upside return”; and the “byzantine premium” arises from the complexity of cryptocurrency investing.
“Investors read confusing, jargon-laden articles and become convinced that smarter people than themselves are investing, so they should too. Simplicity does not inspire investment in the way that complexity does,” Pickard says.
“A good understanding of blockchain does not support a byzantine premium. In a post-disruption world where cryptocurrencies and blockchain are commonplace and demystified, investors’ knowledge should increase and in turn reduce the byzantine premium. Said another way, uninformed investment will decrease.”
Another problem is that there’s no reason that traditional finance would be toppled by cryptocurrency, given that traditional finance is also embracing so-called “DeFi” (decentralised finance). As Pickard notes, there’s nothing stopping traditional finance from upgrading its systems to use the same innovations that have powered the rise of cryptocurrencies, and it would be in their best interests to do so.
“If crypto disruption is truly a threat to the power and profitability of traditional finance, these institutions would not ignore the threat and willingly allow it to occur,” Pickard writes. “The meme “Blockchain is permissionless” has some truth because blockchain is a public database. But… the public, permissionless nature of blockchain means that the well-capitalized financial institutions of today have access to these systems too.”
“As I alluded to earlier, crypto advocates have adopted a suboptimal strategy in their quest for disruption: they are telling their enemy precisely what they intend to do. Sun Tzu, the ancient military strategist and author of The Art of War, advised “let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.”
