Jeff Booth, Lyn Alden, Luke Gromen, The Investor's Podcast

Macro Mastermind Discussion Q3 with Lyn Alden, Luke Gromen, & Jeff Booth – The Investor’s Podcast

Check out The Investor’s Podcast Episode Page & Show Notes

Key Takeaways

  • Technology exponentially drives deflation, while debt underlying currencies has to exponentially inflate to combat that deflationary pressure
    • This leads to the destruction of currency value in regards to goods and services
  • Multiple regional reserve currencies are likely to emerge, in addition to Gold as an asset with no counterparty risk
  • Digital currencies enable enforcing negative interest rates without people withdrawing their money
    • This is bullish for Bitcoin due to its scarce quantity
  • “We are way too far past the point of rescue of the existing system, and if we are going to where Bitcoin is and everything else, I believe that’s why Bitcoin is kind of a once in a lifetime asset type of value creation” – Jeff Booth
  • Companies are starting to put Bitcoin on their balance sheets in response to QE and money printing
    • “My expectation is that in 6 months from now, the Apples, the Amazons, the Googles, they are going to have Bitcoin on their balance sheets” – Preston Pysh
  • Capital controls have historically locked people in against their will, Bitcoin fixes this

Intro

A Return of USD Liquidity Crisis?

  • Another USD liquidity crisis is a probable outcome of more extended business shutdowns
    • Internationally, the Fed has provided swap lines to mitigate the effects of dollar shortages, and countries are repaying their dollar loans
  • Countries are in a race to devalue their currencies in order to become more competitive, COVID only accelerated this path
    • For instance, fiscal stimulus in the US causes labor to be cheap relative to the world
  • Jeff expects the dollar to get stronger before it gets weaker, and governments to keep printing money and driving inequality higher
    •  “The endgame to me is extremely clear, which is the US is going to have to print more than anybody because of the way the system is setup” – Luke Gromen
  • US has 5 trillion Treasury bills outstanding which will have to get refinanced, either from the Fed or banking system, or from the private sector, or it could cause a liquidity problem

Exponential Inflation

  • The Federal Reserve can only fix liquidity events, whereas solvency events are fixed by fiscal authority driving free money at things
    • That said, this comes with moral hazards and currency devaluations
  • In the current environment, going a couple of quarters without multi-trillion-dollar handouts will lead to solvency events
    • In the long term, removal of stimulus will initiate a repricing of everything, an inevitable outcome
  • The graph of money being added into the system is parabolic, not linear, here is why:
    • In “The Price of Tomorrow”, Jeff explains how technology exponentially drives deflation, while debt underlying currencies has to exponentially inflate to combat that deflationary pressure
      • This leads to the destruction of currency value in regards to goods and services

China’s Tech Industry

  • US companies can’t have access to China, but we expect Chinese companies to have access to US where they collect information into a big AI
    • As a result, expect more trade barriers and shutting down industries

Oil Exporting Countries

  • The policy of 2008 pushed oil prices up in real terms, empowering oil-exporting governments
  • An undervalued Ruble increases Russia’s market share in markets like arms, energy, and wheat, and this is combined with a transition out of the US Dollar system
    • As a result, Russia’s foreign currency reserves went up oil prices went down, a divergence not seen in decades
      • It’s  a different situation for Saudi Arabia which excessively relies on oil and has a currency pegged to US Dollar

The Future Role of Special Drawing Rights (SDRs)

  • Because it’s subject to geo-politics, SDRs’ power as a neutral asset is waning
    • Gold broke out against SDRs earlier this year, a signal of its impending rise against USD
  • Multiple regional reserve currencies are likely to emerge, in addition to Gold as an asset with no counterparty risk
    • “We are seeing in real-time the commodity producers of the world saying we are not going to sell our finite resources for that fiat money”
      • “I think where the system is going is it will be pegged to oil, and that peg will be decided and managed by either the biggest producers and/or the biggest users” – Luke Gromen
        • For instance, selling Russian gas in exchange for Euros or Rubles
  • In recent years, gold has been gaining share in FX reserves, whereas USD has seen no growth to a slight decline in USD share in FX reserves
    • This is driven by a multi-currency energy pricing

Technology is Deflationary

  • Governments are unlikely to implement austerity measures, nor go back to a gold standard
  • Left to its own devices, technology will enable machines to do everything, with 2 possible outcomes:
    • Technology consolidates all the money and power into a few hands who live in gated communities
    • The government gets involved at a much greater level with MMT and UBI
      • That said, money printing and handouts would initiate hyperinflation and destroy the reserve currency status along with trust in fiat currencies
    • “I think that’s why we are way closer to the endgame than people realize, because this is happening at light speed all around the world” – Jeff Booth

Central Bank Digital Currencies vs Bitcoin

  • Under the current currency system, interest rates have to go lower, digital currencies enable negative interest rates without people withdrawing their money
    • Additionally, it gives finer control over issuing stimulus packages, like having an expiry date for spending or that it can only be spent in a specific jurisdiction
      • On the darker side, digital currencies allow governments to shut off people with low social credit score
  • “At the end of the day, if technology is deflationary and its advancing everywhere, the existing system won’t work no matter what”
    • “We are way too far past the point of rescue of the existing system, and if we are going to where Bitcoin is and everything else, I believe that’s why Bitcoin is kind of a once in a lifetime asset type of value creation” – Jeff Booth
  • Contrary to initial reactions, digital currencies are bullish for Bitcoin due to its scarce quantity

Bitcoin Game Theory

  • One government banning bitcoin usage incentivizes others to allow it, this opens up a game theory situation between countries and jurisdictions
    • Capital controls historically locked people in against their will, Bitcoin fixes this

Companies Adopting Bitcoin as a Reserve Asset

  • MicroStrategy recently announced adopting Bitcoin as a primary reserve asset, citing fiscal stimulus and debt monetization as specific reasons for the move from cash
    • This is an increasingly common conversation in board rooms
      • “I think there a lot more Michael Saylor out there than people realize” – Preston Pysh
  • Bitcoin market cap is 0.2% of global assets, investors are increasingly viewing it as a hedge against revolutions, wars, and hyperinflation
    • This drives Bitcoin network effects and more instability into the other system
    • Negative interest rates disincentivize CEOs from holding cash on their balance sheets, and creates a structural imbalance that grows with every economic surprise
  • “My expectation is that in 6 months from now, the Apples, the Amazons, the Googles, they are going to have Bitcoin on their balance sheets” – Preston Pysh
    • Tech companies will move first because they understand network effects, whereas older value investors like Berkshire Hathaway may gravitate towards Gold
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Notes By Mostafa Khaled

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