Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question comes from Ryan.

“I would love to run by a thesis I have and would love to hear your opinion on the matter.  

I have recently been reading all of Ray Dalios ”Changing World Order’ publications on LinkedIn and some of Raoul Pal’s information and Jesse Felder’s.”

I remember Jesse releasing his advice to start buying Gold back in late 2018 and since then gold has done really well. Additionally Raoul’s thinking is along the line of at some point the government’s continual persistence of printing money to attempt to keep the market prices inflated will eventually lead to the millennial’s to start investing in alternative assets that could potentially have value and increase in high percentages over the medium term. 

My thinking has been shaped by these people predominantly in that although the share market may be continually propped up by the central banks- at some point all the fiat currency printing and devaluing of currency (savings) and associated debts (bonds) will have to be dealt with in a debt jubilee type scenario. Especially if the economy (goods and services) can’t soak up these debts.

From this point of view I am thinking that bitcoin or cryptocurrencies that can’t be ‘printed’ as such out of thin air and gold to a certain extent will continually rise in the future until something occurs along the lines of;

– asset prices fall to valuations that make them attractive to purchase again

– the government contravenes and makes policies that forbid people to hold gold or cryptocurrencies (this happened in the past with gold)

As a millennial I understand that the government has to do their best to keep the ageing baby boomer asset prices (predominantly US share market and Australia property) high so they don’t have to fund them in retirement through pension- though I am not sure I am that interested in paying top dollars for these assets in which puts me right out there in the risk curve for not a high enough potential return.

Do you have any thoughts on this as I would love to hear other point of views to pick apart my thesis and form a better knowledge before committing too much in any direction?

Good points – number to go through –– brings up a number of good points – to cover properly going to take a few episodes – this episode will be some summaries now

  1. Been reading Ray dalios posts on ”Changing World Order’ – First few chapters of his book is out – rest comes out in September-
    1. The premise Reminds me of another book a read a few years ago called ‘why nations fail’ by a few economists
    2. Three major points to cover to break this down
    3. The economy and debt jubilees
    4. Policies that governments and CBs have implemented that affect asset values –
    5. Alternative assets

On the debt jubilee – My thinking has been shaped by these people predominantly in that although the share market may be continually propped up by the central banks- at some point all the fiat currency printing and devaluing of currency (savings) and associated debts (bonds) will have to be dealt with in a debt jubilee type scenario. Especially if the economy (goods and services) can’t soak up these debts.

  1. A debt jubilee is a clearance of debt from public records across a wide sector or a nation. Such a jubilee was proposed as a solution to debt incurred or anticipated during the 2020 in the Government measures around the world
    1. Demand side thinking – Calls to reduce debts to help consumers consume more –
    2. Student loans is a big one that is brought up – reduce debts and they have more money to consume
    3. Debts that may be done away with would be at the nation level – has occurred before –
  2. An outright cancelation of sovereign debt shouldn’t be ruled out. During the Great Depression, France and Greece had about half of their national debts written off completely. In 1953, the London Debt Agreement between Germany and 20 creditors wrote off 46% of its pre-war debt and 52% of its post-war debt. The country only had to repay debt if it ran a trade surplus, thus encouraging Germany’s creditors to invest in its exports, which fuelled its post-war boom. As we pointed out, in 2000, $100 billion worth of debts owed by developing countries were wiped off the books.
  3. Again, this is not as far-fetched as it sounds. Because we live in a fiat monetary system, currencies are not backed by anything physical; the reserve currency, the US dollar, was de-coupled from the gold standard in the early 1970s. It’s not like a raid on vaults full of gold, which have an inherent, physical store of value.
  4. In reality there is nothing preventing central bankers from doing a complete global reset, putting all debt back to zero.
    1. going further to get rid of them at the individual level is a different thing together –

As a millennial I understand that the government has to do their best to keep the ageing baby boomer asset prices (predominantly US share market and Australia property) high so they don’t have to fund them in retirement through pension- though I am not sure I am that interested in paying top dollars for these assets in which puts me right out there in the risk curve for not a high enough potential return.

  1. Not sure about the government not wanting fund pension –
    1. They aren’t funding them – we are with tax money – there is no asset sitting there to fund it –
  2. They are trying to keep asset prices high for the wealth effect – spending effects due to confidence
    1. Also politically expedient for the larger chunk of the population – keeping the largest group of the voting public happy – or those why pay them the most in the way of lobbying
    2. Property – most people live in this and cant fund their retirement off it –
      1. land restrictions and taxes haven’t helped
    3. I think high property prices is a by-product – inflation targets and demand side theory = lowering interest rates an easing of credit
  3. Some governments are happy to do pension payments – Labor right now is calling for additional stimulus to continue being paid going forward
  4. Strategy in places of cant beat them, join them

From this point of view I am thinking that bitcoin or cryptocurrencies that can’t be ‘printed’ as such out of thin air and gold to a certain extent will continually rise in the future until something occurs along the lines of;

– asset prices fall to valuations that make them attractive to purchase again

– the government contravenes and makes policies that forbid people to hold gold or cryptocurrencies (this happened in the past with gold)

  1. True that Gold cannot be printed out of thin air – but synthetic versions of it can based around futures contracts – also the price of gold can be set by monetary authorities –
    1. Example – to be a money base $10k as a price level is what some like Jim Rickards suggest
  2. Each crypto can be capped in supply – but they are exactly printed out of thin air with 1s and 0s –
    1. According to crypto market capitalization aggregators, there are more than 5,000 cryptocurrencies in existence today and over 20,000 different types of markets
    2. Long term – what if Governments get their hands on this as a form of MMT –
  3. When it comes to asset prices falling – depends on the type of asset
    1. Property and shares –
    2. Crypto – looks like it became correlated with shares based on confidence – in the share market crash BTC also dropped by 47% – and had a rebound
  4. This will be its own episode – lots to unpack in this as well – with values and alternative assets to traditional investments

In short – real assets that people will have confidence in and will use –

  1. Property in a lot of places is overvalued – im looking at good usable land at the moment – mainly for myself
  2. Shares – ones that people have confidence in
  3. Gold – Own gold as well

Three episodes – to look at the overall thesis –

  1. Debt jubilees – what this means to an economy and the chances of it occurring
  2. Alternative assets – Gold v Crypto – are these a way to avoid this situation
  3. Assets that can be propped up by governments

Thank you for listening to today’s episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

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