Agree that calm is better than chaos even if it means a weaker crypto raison d’etre.

Not quite seeing the relevance of PP for safe haven demand. PP basically just tells us if someone is richer or poorer due to a change in relative prices. Def relevant if that change in relative price is your currency collapsing and the exchange rate plummeting. But not sure if demand for safe haven goes up for the line cook that’s getting financially squeezed since his wages are stagnant but his kid’s nanny keeps getting more and more expensive. I might be misunderstanding something though.

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I may be conflating PP w/ strength of USD (but I think they are the same?). Idea is when USD is stronger, demand for safe havens goes down. When USD is weaker, demand for safe havens goes up. Do you think they're not usable interchangeably? If not, maybe clearer to replace PP with USD strength.

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Aug 15, 2019Liked by Tony Sheng

I see PP as related to currencies but still distinct. Like, an oil spike can erode PP, same with a housing shortage that sends rents soaring...it doesn't have to be currency-related. PPP (purchasing power parity) definitely squarely gets into the realm of currencies since the premise is that exchange rates should settle at a level that makes local prices the same across the world. (of course it doesn't hold) But it's been awhile since Ec 10 so I could be totally off. The financial market convention is just to use USD strength/weakness as the primary driver to safe haven demand. If monetary policy is tight, USD is scarce, interest rates are high, and it's a more attractive SOV...and converse if monetary policy is loose. The weird thing these days is that even though the Fed is in cutting mode, which would speak to a weaker USD, everyone else is cutting more, so the USD is actually strengthening. But then gold is also strengthening. So the geopolitics is probably dominating the USD/monetary policy impact. But it's a super complicated market with a lot of macro and geopolitical cross-currents. Figure it out and I'll pay you $200/yr.

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