Overview

This week’s note revisits several key themes, adding to what we know about high inflation, economic trends, the risk of recession, the path forward for central banks, supply chains and China. It also examines the particular vulnerability of the U.K. to stagflation and the recent plight of cryptocurrencies.

Positive developments include:

• Prices have fallen for some products – possibly a precursor to lower inflation.
• Recent hard economic data remains consistent with economic growth.
• Supply chains have made some slight improvement, with further gains possible.

Negative developments include:

• U.S. inflation was yet again higher than expected in the latest month.
• Developed-world central banks appear set to raise interest rates by even more than previously anticipated (again!).
• After beginning to re-open, China is closing again as additional COVID-19 infections have been detected in Shanghai and Beijing.
• Business expectations about the future have soured significantly in recent months.
• The probability of recession was already elevated and has increased further.

Rapidly rising prices

As evidenced by the latest U.S. Consumer Price Index (CPI) report, inflation continues to rise and to exceed consensus expectations. Consumer prices rose by 1.0% in the month of May alone – the second strongest monthly print since the beginning of this inflation surge. This has added to earlier increases such that consumer prices are now 8.6% higher than a year ago. Deducting food and energy costs, prices are now 6.0% higher than last year. This sent risk assets tumbling and central bank expectations rising.

Our expectations have been broadly consistent with this strength as we have maintained above-consensus inflation forecasts for the past year.

That said, and as discussed in our last MacroMemo, there have been some signs of certain price inputs peaking. These include inflation expectations, used car prices and an expected inflection in dwelling costs. Add to this lumber costs that have recently fallen as fewer individuals are pursuing do-it-yourself construction projects.

At the same time, we’ve seen a notable decline in base metals prices. Base metal prices are still elevated relative to pre-pandemic norms, but are well off their highs reached after the Russian invasion of Ukraine (see next two charts). Thanks goes in part to the fact that Russian metals have continued to find foreign buyers even as oil has not, and in part to weaker Chinese demand as that country has slowed.

Nickel spot prices falling

As of 06/10/2022. Source: London Metal Exchange (LME), Macrobond, RBC GAM

Aluminum spot prices also off their previous highs

As of 06/10/2022. Source: LME, Macrobond, RBC GAM

On a similar note, while energy prices remain problematic, it should be noted that natural gas prices in Europe are not nearly as high as they were during the early phase of the war in Ukraine (see next two charts).

Germany NCGI Natural Gas Index falling

As of 06/10/2022. Source: Intercontinental Exchange (ICE), RBC GAM, Macrobond

U.K. NBPI Natural Gas Index also off previous high

As of 06/10/2022. Source: ICE, RBC GAM, Macrobond

For all of that good news, inflation has not been beaten yet. It is now very broad and is subject to considerable wage pressures. Food inflation has also not yet cracked (see next chart). Given the lag between sowing and harvesting, the worst has likely not yet been experienced for food prices.

Agricultural commodity prices have been rising rapidly

As of 06/10/2022. Shaded area represents recession. Source: S&P Dow Jones Indices, Macrobond, RBC GAM

Conversely, it is heartening that U.S. small businesses are beginning to report slightly lower price and wage hike intentions (see next chart). It could be that we are inching past the worst of high inflation.

Inflationary pressure from pricing power and wages rising

Selling price as of Apr 2022, worker compensation as of May 2022. Source: National Federation of Independent Business (NFIB) Small Business Economic Survey

Falling economic forecasts

Economic forecasts continue to sour. This trend was particularly prominent recently as the World Bank and the Organisation for Economic Co-operation and Development (OECD) both slashed their global growth outlook for 2022, from 4.1% to 2.9% for the former and from 4.5% to 3.0% for the latter. These are enormous downgrades to occur all at once, though arguably long overdue.

The 2023 outlook was similarly paired by both institutions, with new forecasts that call for growth of 2.2% and 2.8% respectively. These estimates are 1.0 and 0.5 percentage points weaker than their prior forecasts.

The trend among private sector forecasts remains similarly negative. Among 13 major developed markets, the month of May saw the consensus 2022 outlook fall for 11 of the countries; the consensus 2023 outlook fell for 9 countries.

Our own growth forecasts have been reliably below consensus for the past year and that remains the case today (see next table). That doesn’t mean our forecasts have been perfect. We have also been significantly downgrading our forecasts for both 2022 and 2023 – just from a weaker starting point and to a weaker end point.

Our growth forecasts remain below consensus

RBC GAM forecast as of 05/28/2022. RBC GAM vs. Consensus Economics (CE) calculated as RBC GAM forecast minus CE forecast. Developed countries include U.S., Canada, Eurozone, U.K. and Japan. World includes afore-mentioned developed countries, plus China, India, South Korea, Brazil, Mexico and Russia. Source: CE, RBC GAM

In the U.S., after an arguably anomalous first-quarter GDP print of -1% annualized, the highly reputed Atlanta Fed is now tracking a mere +1% annualized gain for the second quarter – so some deceleration appears to be occurring there.

In Canada, first quarter growth was good, but the +3% annualized gain was well shy of the +5% performance that had been expected by markets.

Resilient job market

Even as hard economic data has begun to disappoint, it can’t be said that it is outright bad.

U.S. payrolls managed a robust 390,000 job gain in May, keeping the unemployment rate at a low 3.6%. The labour market is even tighter than this unemployment rate would suggest. Interestingly, wage growth eased slightly, but remains a strong +5.2% year over year (YoY).

The story was similar in Canada, which added a robust 40,000 new positions in May. Full-time employment rose by a remarkable 135,000 positions in the month alone. In turn, the unemployment rate fell to 5.1%, the lowest in modern memory. After having lagged the U.S. for the past year, wage growth snapped higher, from +3.4% YoY to +4.5% YoY in a single bound.

That said, there are little hints that labour markets may be becoming just a hair less strong. The rate of hiring, while good, has slowed relative to the past year. Now, the rate of U.S. jobless claims has begun to inch higher over the past several weeks, suggesting layoffs are picking up. But the labour market is still some distance from trouble.

Cooling real-time data

Real-time data remains mixed, with some cooling visible. The New York Fed’s Weekly Economic Index is particularly vocal in this regard (see next chart).

New York Fed Weekly Economic Index is cooling

For the week ended 06/04/2022. Change vs. 2019 derived by linking Weekly Economic Index (WEI) for current week and WEI for the same week in previous years. Source: Federal Reserve Bank of New York, Macrobond, RBC GAM

The number of global flights has rebounded nicely from two years ago, but is now seemingly stagnating at levels well short of the pre-pandemic norm (see next chart). In part, this reflects some structurally lower business travel and the struggles of airlines and airports to hire additional workers in a tight labour market. But this stagnation could also reflect more cautious spending patterns.

Global commercial flights stagnating, tracked by Flightradar24

As of 06/09/2022. Include commercial passenger flights, cargo flights, charter flights and some business jet flights. Source: Flightradar24 AB, RBC GAM

Turning to traffic congestion data, the trend isn’t particularly clear. One region is rising, one is falling and one is steady. Yet it is eye-opening to step back from the wiggles to realize that traffic jams are apparently more intense in Europe than they were before the pandemic, whereas North America and Asia remain well shy of prior norms (see next chart). It isn’t clear why this should be. The European economy has not rebounded more quickly than elsewhere. Perhaps inflexible European businesses are still insisting on workers coming into the office every day? Some secondary data supports this notion.

Global traffic congestion varies around the world

As of 05/25/2022. Five-day (weekday) moving average of regional aggregates indexed to the peak congestion of the average week in 2019. Data not available from 03/21/2022 to 04/18/2022. Source: TomTom, BloombergNEF, RBC GAM

Abysmal consumer confidence

Consumer confidence continues to plummet as per the University of Michigan survey. It is now plumbing depths not experienced in half a century (see next chart).

U.S. consumer confidence plummeting on inflation and recession concerns

As of Jun 2022. Shaded area represents recession. Source: University of Michigan Surveys of Consumers, Macrobond, RBC GAM

We continue to warn that there are other measures of consumer confidence that are not quite so grim. Take the Conference Board’s equivalent metric, for example, which focuses more on labour market conditions and less on inflation and spending (see next chart). But we would concede that the University of Michigan survey probably merits more attention and so the weakness cannot be completely discounted.

U.S. consumer confidence falling: another view

The Conference Board Consumer Confidence as of May 2022, University of Michigan Consumer Sentiment as of Jun 2022. Shaded area represents recession. Source: The Conference Board, University of Michigan, Macrobond, RBC GAM

Consumers have not yet acted on their plummeting confidence by materially scaling back overall spending. A real-time metric capturing credit and debit card spending in the U.S. shows no real softening (see the next chart). However, U.S. retailers have begun to report more conservative spending behavior beneath the surface. This includes shoppers downgrading to store brands and prioritizing essentials over discretionary items. All of this could be a precursor to weaker overall spending later.

U.S. aggregated daily card spending still up

As of 06/04/2022. Total card spending (7-day moving average) includes total BAC card activity which captures retail sales and services which are paid with cards. Does not include Automatic Clearing House (ACH) payments. Source: Bank of America Global Research, RBC GAM

Business expectations falling

Alongside consumers, the other key piece of the expenditure puzzle are businesses. Our composite measure of U.S. business expectations shows a sharp decline in optimism about the way forward (see next chart).

U.S. business expectations composite shows declining optimism

As of 05/2022. Principal component analysis using NFIB optimism and business conditions outlook, ISM Man and Services new orders and Conference Board CEO expectations for economy. Source: Conference Board. Institute for Supply Management (ISM), NFIB, Macrobond, RBC GAM

This has not yet mapped onto significantly less business investment or hiring, but it seems reasonable to expect that it eventually will. Capital expenditure intentions are still solid according to one measure, if ebbing (see next chart), and becoming fairly weak according to a different measure (see subsequent chart).

U.S. capex expectations robust but ebbing

Capital expenditures in 6 months (May 2022, in 3-month lead) are 3-month moving average of an aggregate of normalized indicators of future capex from surveys on manufacturing and non-manufacturing firms conducted by NFIB, the Federal Reserve Bank of Chicago, Dallas, Kansas City, New York, Philadelphia and Richmond. Real equipment investment as of Q1 2022. Source: Haver Analytics, RBC GAM

U.S. CEO capital expenditure intentions now fairly weak

As of Q2 2022. Estimated by combining different categories of spending growth intentions into a single series. Source: Conference Board, Duke University & Federal Reserve Banks of Richmond and Atlanta, Macrobond, RBC GAM

From a hiring perspective, job openings remain extremely high and hiring plans are still strong. However, hiring plans are beginning to edge downward (see next chart). Wage hike intentions may also be starting to hook lower, albeit from a very high starting point (see subsequent chart).

Hiring enthusiasm of U.S. businesses beginning to wane

As of May 2022. Shaded area represents recession. Source: NFIB Small Business Economic Survey, Macrobond, RBC GAM

U.S. wage hike intentions could be peaking

Six-month moving average of intention to raise wages in next 3 months (May 2022) in 6-month lead. Wages and salaries as of Q1 2022. Source: NFIB Small Business Economic Survey, Bureau of Labor Statistics (BLS), Haver Analytics, RBC GAM

In short, consumers are feeling stressed but have mostly kept spending so far. Businesses are also under pressure, with their activities seemingly responding, albeit only tentatively so far. The clear risk on both fronts is that the combination of rising rates, rising gas prices, high inflation, supply chain problems and a Chinese slowdown combine to encourage consumers and businesses to become still more cautious not just in their attitudes but in their actions.

Rising recession risk

The risk of recession remains front of mind. A recent poll by the Financial Times finds that 70% of a poll of leading academic economists anticipate a U.S. recession next year. This isn’t quite the same as claiming that the likelihood of a recession is 70% -- after all, those 70% of the economists could have a recession as their base case scenario, but with a mere 51% probability, while the other 30% of the economists might assign a 0% chance to a recession. That would yield a mere 36% chance of a recession! Of course, that’s a silly extreme – it is probably safe to conclude that the implied probability is well above 50%.

There are a significant number of rules of thumb that suggest a recession is more likely than not over the coming two years. Rate hiking cycles have a strong association with subsequent recessions, as discussed in our last note. A spike in oil prices, as recently occurred, is also associated with subsequent recessions. Lastly, past bouts of inflation this high have all resolved via recession. Yield curve indicators have been more mixed, with most segments of the yield curve not yet inverted. But that could be about to change, as surging short-term yields are rapidly winnowing the gap with longer-dated bonds.

Historically, when central banks around the world are hiking rates in synchronized fashion, economic activity has weakened significantly with a lag of 10 months (see next chart). The intensity of the tightening is now consistent with recession.

U.S. economic activity set to slow as central banks tighten policy

As of data available on 06/10/2022. Source: Various global central banks, Macrobond, RBC GAM

All of this is to say that we continue to think the recession risk for the world is quite high, and even actively rising as inflation and central bank expectations increased over the past few weeks.

To be sure, soft landing outcomes are also possible thanks to the considerable economic momentum that economies enjoyed coming into this episode. But, at this juncture, it would take some good luck to achieve – a snappy improvement in supply chains, a faster-than-expected rebound in China, a sharp drop in energy costs, and/or for inflation to begin declining in the very near future.

Fortunately, recessions are merely temporary events, usually followed by a period of brisk growth as the economic damage is undone. Further, we posit that this could be a “useful” recession by successfully wrangling high inflation down to more tolerable levels and thereby setting up the economy for a long period of rising prosperity unbowed by the corrosive effects of inflation.

Rising central bank expectations

Central banks are already undertaking an unusually aggressive tightening cycle, moving at roughly four times the usual speed. It now appears that they could even accelerate from here.

In the U.S., another 50 basis point rate increase appears set to be delivered imminently, with a further 50 basis point increase expected at the July meeting. What has changed is that the market now assumes a further 50 basis point increase for September, and then another in November. The 2022 year-end implied policy rate has increased from 2.4% two months ago, to 2.7% one month ago, to a whopping 3.4% today.

The story is similar in Canada. Bank of Canada Governor Tiff Macklem indicated that rate increases could be even larger than the current 50 basis point pattern. Markets responded to that signal by pricing in the majority of a 75 basis point increase for July. The central bank had previously talked of a policy rate that peaked somewhere in the realm of 2% to 3%. Today, it talks about policy rates exceeding 3%, with markets assuming a lofty 3.5% overnight rate for the end of 2022.

This extra tightening further reduces the likelihood that the economic expansion can survive the experience.

Interest rates over the long run

Although interest rates are clearly rising, we believe this to be a story of greater cyclical than structural relevance. That is to say, we do not believe interest rates will need to be greatly higher after inflation has been vanquished than they were before the pandemic. It will probably still be an era of fairly low interest rates, driven by the same aging population and high debt load dynamics that prevailed before the pandemic.

To the extent inflation might be inclined to run slightly higher than previously, one could argue that nominal yields should be a little bit higher than before as well. Further, it is important to recognize that the ultra-low bond yields that prevailed across most of 2020 and 2021 were in response to an economic crisis, not normal conditions. But the point is that a “normal” interest rate is unlikely to revive to 2000s levels, let alone those of the 1990s, 1980s or 1970s.

When do rate cuts begin?

At the risk of getting well ahead of ourselves, to the extent that central banks appear set to venture beyond what might be described as a neutral rate, we should expect rate cutting at a later date. One could certainly imagine a recession arriving, inflation falling sharply and central banks eventually becoming sufficiently comfortable to take their foot off the brakes.

It is impossible to speak with much precision about eventual rate cuts when we still know so little about the end point of the tightening cycle still underway, or of the precise economic and inflationary consequences.

Normally, central banks cut interest rates when they detect economic weakness. That signal could well begin to chime shortly. But central banks are unlikely to cut rates so early this time. They need inflation to significantly fade, and to be confident that it will not revive as soon as the pressure is removed. That seems unlikely to happen before 2023, and could well be a 2024 proposition.

Providing some perspective, the U.S. Federal Reserve’s dot plots project a policy rate that rises in 2023 and is then flat in 2024. Rate cuts implicitly happen at some later date, as the Fed does believe the neutral policy rate is lower than the end point of monetary tightening this cycle.

Financial markets think 2024 will see lower rates than 2023 for the U.S., Canada, the U.K. and Australia, but not the Eurozone (lower rates are not expected until 2025 there).

We flag the possibility that inflation could fall sufficiently by the middle of 2023 that rate cuts occur as early as the latter half of the year – but not with a high level of conviction.

Slightly improving supply chains

Supply chains are getting slightly better. Prominently, the ports of Southern California report less of a backlog (see next chart).

Container ships at anchor or loitering improve (Port of Los Angeles & Long Beach)

As of 06/09/2022. Source: American Shipper, Marine Exchange of Southern California, RBC GAM

But this improvement is mostly illusory. Some of the backlog of ships simply migrated to the U.S. east coast, and much migrated (or at least manifested for other reasons) in China and Europe (see next chart).

Port congestion has migrated (China, U.S. and the North Sea)

As of 05/24/2022. Percentage of global container ship cargo capacity tied up due to port congestion. Ports included: Georgia, Guangdong, Hong Kong, North Sea, Shanghai, Southern California, Southern Carolina, Zheijang. Source: Kiel Institute, Macrobond, RBC GAM

At the global level, then, port congestion is still problematic (see next chart). But it does appear to be significantly less intense than last fall, and is perhaps beginning to improve again.

Port congestion may be easing (China, U.S. and North Sea)

As of 05/24/2022. Sum of the percentage of global container ship cargo capacity tied up due to port congestion. Ports include Georgia, Guangdong, Hong Kong, North Sea, Shanghai, Southern California, Southern Carolina, Zheijang. Source: Kiel Institute, Macrobond, RBC GAM

Amid this to-ing and fro-ing, it is promising that the cost of shipping a container around the world has been declining fairly steadily for many months (see next chart). Surely this is the ultimate arbiter of the health of the container shipping industry, and it is definitely improving, if not yet normal.

Shipping costs abate further

As of the week ended 06/09/2022. Source: Drewry Supply Chain Advisors, RBC GAM

Another sign of subtle supply chain improvement is that several District Fed surveys report a sharp improvement in supplier delivery times, and the expectation of further improvements in the future (see next chart).

Current and expected supplier delivery times improving

As of 05/2022. Equal weighted average of current and expected supplier lead times. Source: Federal Reserve Bank of Dallas, Kansas, New York, Philadelphia, Richmond, Macrobond, RBC GAM

One twist is that seasonal factors should become more challenging in the coming months. Hard as it is to believe, the holiday shopping season is rounding into view from a logistical perspective for manufacturers and retailers, and supply chains could clog into the fall.

Still, as the appetite for services revives – it is now nearing its prior trend – and goods spending accordingly edges lower, we still think it is likely that supply chains become less problematic over the coming months and years (see next chart).

U.S. consumer spending shift to services from goods underway

1. As of Apr 2022. PCE is the Personal Consumption Expenditures price index. Source: BEA, Macrobond, RBC GAM

It is initially concerning to observe that the pandemic-era surge in durable goods spending has merely revived the level of appetite for such goods back toward its historical norm (see next chart). One is tempted to conclude that durable goods spending won’t have to ease from here, and so supply chains might remain problematic. But that would be a misinterpretation of the historical trend, as durable goods have constituted a gradually declining share of spending for many decades as services such as health, education and tourism capture a larger fraction of spending. As such, it isn’t fair to suggest that what was normal a decade ago should be normal today.

U.S. consumer spending on durable goods outpaced services, but the tide is turning

As of Q1 2022. Shaded area represents recession. Source: BEA, Macrobond, RBC GAM

COVID-19 whiplash in China

The story over the past few weeks was one of a beleaguered Chinese economy beginning to re-open as COVID-19 faded in Shanghai and failed to make a lasting mark in Beijing. Real-time economic activity was accordingly beginning to revive (see next chart).

Subway traffic in major Chinese cities starts to revive

As of 06/08/2022. Index is the weighted 7-day rolling sum of subway trips in Beijing, Guangzhou, Nanjing, Suzho and Zhengzhou. Source: Chinese metro agencies, Macrobond, RBC GAM

But that has changed abruptly. Just weeks after reopening, a significant swath of Shanghai has now been shuttered again in response to a rising infection count. Simultaneously, Beijing has reported an outbreak of 200 infections from just one bar, and is returning to intensive testing protocols.

Regardless of whether these particular episodes are quickly resolved, it appears that China’s zero-tolerance policy toward the pandemic is just barely manageable given the highly infectious variants now circulating. There will likely be outbreaks in other cities, people will behave more cautiously than normal even when their cities are open, and occasional lockdowns will be necessary. China’s economy will accordingly be constricted for some time.

U.K. stagflation

The U.K. is suffering more than most developed countries from the pairing of high inflation and negative economic shocks. Indeed, it now reports among the highest rates of inflation in the world, at +9.0% YoY. Home energy bills alone rose by a huge 54% in April. From a growth perspective, the country has just reported a second consecutive month of declining economic output, and the Bank of England predicts a recession for the country. Central banks are usually coy about such matters during difficult periods for fear of creating a self-fulfilling prophecy, so it is quite something (and quite refreshing) that the Bank of England deems it necessary to explicitly forecast this.

The U.K. is subject to a familiar set of negative forces. These include supply chain problems, inflationary pressures, rate hikes, the war in Ukraine and so on. But several other factors are also at work:

• The U.K. is more exposed to Russia than most by virtue of its trading ties and proximity to the conflict.
• Supply chain problems are intensified by the country’s island geography.
• Brexit is further hurting the economy and increasing the cost of products.
• The U.K. has engaged in some fiscal belt tightening including a cut to welfare payments and an increase in the tax rate.

It could be that, much as the U.K. was reliably early in encountering new virus variants, it may also be early in encountering the economic and inflationary repercussions of recent headwinds. As such, it bears close watching.

Growing cryptocurrency challenges

Cryptocurrencies have suffered recently, falling sharply from all-time highs last fall. Bitcoin, the most prominent of the crypto assets, is down by more than 60% since November. Some so-called “stablecoins” have proven not to be very stable at all. This is not to say that traditional investment products have been great shakes themselves: bonds and equities have also suffered lately, though not nearly to the same extent.

It remains to be seen where cryptocurrencies end up over the long run. The underlying technology of the blockchain is quite promising for creating distributed ledgers and, in turn, disintermediating and reducing record-keeping and transaction costs over time.

But, for the moment, cryptocurrencies are not living up to their early billing.

Cryptocurrencies certainly aren’t acting like currencies yet:

• Cryptocurrencies lack sufficient liquidity: they can be hard to buy, sell and store. Furthermore, the theoretical Bitcoin transaction limit is a paltry 7 global transactions per second, in comparison to Visa’s capacity to handle 56,000 transactions per second. The cost of transacting in Bitcoin is currently US$1.25 per transaction – not bad, but not massively cheaper than existing technologies. And the cost of transactions can vary wildly, briefly rising to a startling $63 per transaction just over a year ago.
• Cryptocurrencies still aren’t very fungible – there isn’t all that much one can practically buy with them. This is a pre-requisite for acting as a proper unit of exchange.
• Cryptocurrencies also aren’t sufficiently stable to be a currency. To the contrary, they experience truly astonishing volatility and the stablecoins theoretically designed to be stable appear to destabilize at precisely the moment that stability would be most prized. As an aside, these stablecoins also present some risk to credit markets to the extent that defending the stablecoins from depreciation can require administrators to liquidate reserve assets held in traditional credit vehicles.

Cryptocurrencies also have other problems:

• The risk of theft is considerable, as demonstrated by repeated and widespread reports of exchanges being hacked and other incidences of theft. Recourse is limited given the anonymity of the system.
• The energy intensity of Bitcoin is incredible. Although the asset handles only a minute fraction of the world’s financial transactions, it gobbles 0.55% of the world’s electricity – as much as a mid-sized developed nation. This is not a trivial matter during a climate change emergency.
• Regulators don’t like cryptocurrencies because they enable tax avoidance, the evasion of capital controls, money laundering and the financing of any number of illegal activities. This is a significant reason why China has all but banned cryptocurrencies. We continue to believe that if cryptocurrencies do eventually become central to the global financial system, it is more likely to be in the form of central bank-created cryptocurrencies rather than the existing products, despite their head start.

Cryptocurrencies are interesting as investment solutions and could yet provide value in a diversified portfolio. They have appreciated astonishingly from their inception, even if a fraction of those gains were recently reversed. But that doesn’t guarantee further appreciation in the future. And, even if they are still an interesting option for speculators, they can’t be said to be doing what they were supposed to do for investors:

• Inflation hedge: Cryptocurrencies were purported to be hedges against high inflation due to the fact that their supply is strictly limited, in contrast to the traditional money supply. But cryptocurrency valuations have collapsed at precisely the moment that inflation is surging to heights not seen in decades. 
• Safe-haven asset: Alternately, some have described cryptocurrencies as safe-haven assets – capable of outperforming when investors are frightened of other asset classes, or when economic conditions are souring. But that describes the present situation -- and cryptocurrencies have performed horribly in this environment.
• Uncorrelated investment: Some have argued that cryptocurrency valuations should be uncorrelated with other asset classes, meaning that they could reduce the volatility of a well-constructed portfolio. But, so far, they not only appear to be highly volatile, but to have a high covariance with the most risky investments: unprofitable tech companies, meme stocks and non-fungible tokens.

Reflecting all of this, U.S. Treasury Secretary Janet Yellen recently opined that cryptocurrencies are quite risky investments from the perspective of people saving for retirement. The criticisms levelled here could just be growing pains, but many improvements need to occur in how cryptocurrencies function before they are an obvious fit for most investors.

-With contributions from Vivien Lee, Andrew Maleki and Aaron Ma