What is a soft landing?

good morning. It was another terrible day for stocks yesterday. Examining the reasons for this again would be superfluous after we combed through the charred remains of the bull market last week. It is sufficient to say that a large oil sale and falling two -year return indicate that on Monday there was a fear of slowing down growth - in contrast to fear of inflation. When we looked over the Red Sea, we were surprised to find this deep green spot on the factset screen:

buy investors literally conserve, toilet paper and bleach, everything in large quantities. This tells you what you need to know about mood. If you have a nice, opposite, optimistic opinion, send us: robert.armstrong@ft.com and ethan.wu@ft.com.

from soft to soft

We and several other giggles than Fed chairman Jay Powell pointed out the possibility of a "gentle" landing of the economy when the central bank raises interest. Jokes were made about how annoying it would be to hear the term from the pilot of your aircraft.

This was apparently not from the rifle or a slip from Powell. Several people have pointed out to us in a presentation that Alan Blinder, former deputy Fed chairman, held in February. In it he makes the soft soft distinction explicitly.

The agreement is that almost every tightening of the Fed culminated in a recession in the last half century, with the only noteworthy exception of the 1993-1995. Blindly contradicts. He has 11 tightening cycles since 1965 and finds that three of them were hard, three soft, three "soft" - which means that they were accompanied by rather flat recessions - and two were two ambiguous. Blindly provides a key interest diagram of the US Federal Reserve with stars to mark the end of the tightening cycles. I scribbled some notes:

The cycles/stars that think blindly is "hard", I marked with red ticks. In these cases, says Blinder, the FED wanted to bring about a recession and was successful. I circled soft cycles (without official recession). The yellow circles mark cycles that followed GDP contractions of less than 1.5 percent. The last two cycles in front of the real estate bubble and pandemic are difficult to assess. The recessions were caused by tightening-or by the financial crisis and covid-19?

Here are the numbers, as blindly explains:

In view of this scorecard,

argues blindly, "soft landings cannot be too difficult to reach".

Maybe last week we saw that Powell postponed the goal post by signaling that it will be very difficult to avoid recession, but hopes for a flat recession are more realistic. From the point of view of real economic growth alone, a recession in the order of 1970, 1990 or 2001 would be a result to be welcomed at this point.

But investors have to worry more than GDP. With the exception of 1993-1995, all tightening cycles brought considerable price losses to the stock markets. And the extent of the recession from a GDP perspective does not always correlate with the extent of the drawdown. The numbers:

In this tightening cycle, which has just started, we have already experienced such a large sale as ’66, ’80 and ’84. But the experience of the last three cycles and ’69 are important. While the landings may have been soft, the damage to the stocks was serious. Recessions trigger sales. The extent of these sales depends on factors such as the evaluation that go beyond the real economy.

The Bitcoin experiment from El Salvador has failed

el Hodlador is back! After Bitcoin fell by 50 percent of his maximum, President Nayib Bukele tweeted on Monday:

Bukele's hug of Bitcoin has been carried out in three forms: direct purchases, a sale of Bitcoin bonds and the declaration of Bitcoin to the official currency. The first two were flops. Although the government did not say much, its Bitcoin punts have almost certainly lost money. Meanwhile, the Bitcoin bond is in the suspension, while a debt crisis emerges.

still remains the official currency thrust, the bukele argues would reduce the costs of transfers that make up a quarter of GDP. In January I tried to find out if it went well. What I found - a small unique increase in the transfers - was not encouraging. But data was scarce at the time.

Now three economists - Diana van Patten from Yale, Fernando Alvarez from the University of Chicago and David Argent from Penn State - have published a remarkable study on the introduction of Bitcoin in El Salvador. Her results, which are based on a representative personal survey of 1,800 Salvadorians, indicate that outside of young, educated, technically experienced men, there was no permanent interest in Bitcoin.

A little something that makes the paper painfully clear is how far the government has gone to get the Salvadorians, Chivo, their app for digital payments, including:

• an installation bonus of $ 30, paid in Bitcoin. This is a sensible flat rate of 8 percent of the monthly minimum wage

• A discount at the country's largest petrol stations, only for Chivo users

• A national fund of $ 150 million for subsidizing Bitcoin-related fees (the details are unclear)

• Introduction of 200 Bitcoin money machines in El Salvador and 50 others in America

• A big marketing boost in the social and traditional media

• status as a legal means of payment, so that companies have to accept cryptocurrency and taxes in Bitcoin

Covid also spurred a global boom for contactless payments, as Van Patten emphasized to me. Apart from a few technical problems, almost every conceivable obstacle for the introduction was minimized. The result? Here is the key table:

The typical Chivo user was a young man with high school qualifications and access to the Internet and the formal financial system-which refutes bukele's claims that technology would promote financial inclusion. The most common reason for the use of Chivo was the payment of the $ 30 bonus; 61 percent of users left the app immediately afterwards.

Even among the Chivo users who received transfers, most did this in dollars, not in Bitcoin. Some companies, about 20 percent, also accept Bitcoin. But these are mostly larger companies, and almost all of them convert into dollars immediately after the Bitcoin sale.

The government of Bukele distributed free money and many Salvadorians took it. Some still use the Chivo app, but mainly for dollar transactions. The authors conclude:

We document that Bitcoin is not widespread as a medication [Despite] The great pressure that the government exerted. . .

The most important reason [People Who Knew About Chivo Did not download it] was that users prefer cash. This was followed by trust problems - the respondents did not trust the system or Bitcoin itself.

There were some silver strips for Bitcoin in the newspaper, which were emphasized by people close to the government. Felipe Vallejo, head of regulation at El Salvador's crypto-tech partner Bitso, told CoinTelegraph that the 20 percent of Salvadorians who still use Chivo showed that this was only the beginning:

We believe that this is a relatively strong sign of adoption. Since the information about cryptocurrency and everyday applications increases in the region, more users will remain with a deeper understanding of the technology and the associated possibilities in the application.

Well, no. This diagram has shown chivo downloads since the app started. In 2022 they were flattened close to zero:

This early adoption pattern is not normal, said Alvarez. A much more common adoption pattern is to start slowly, accelerate and then break off. Alvarez, Van Patten and Argente is currently examining a digital payment platform operated by a central bank in Costa Rica, where 80 percent of the population send 10 percent of GDP via the system. As Argent put it:

[Costa Rica IS] An example of how technology can be used for financial inclusion as soon as there is enough planning for implementation. But it took at least seven years.

Bukele's gambling looks like a comprehensive failure. ( ethan wu )

a good reading

The Tech/VC bubble has swollen and shrunk, but never burst. Is this time different?