Dalio throws the towel https://www.coindesk.com/bridgewate...oin-says-it-has-place-in-investors-portfolios "In a Reddit Ask Me Anything (AMA) on Tuesday, Dalio said he thought bitcoin (BTC, -5.13%) and other cryptocurrencies had “established themselves” over the last 10 years and were interesting “gold-like asset alternatives.” The billionaire hedge-fund manager also noted that cryptocurrencies share similarities and differences to gold and various “limited-supply, mobile (unlike real estate) storeholds of wealth.” Bitcoin “could serve as a diversifier to gold and other such storehold of wealth assets,” said Dalio. “The main thing is to have some of these type of assets … including stocks, in one’s portfolio and to diversify among them.” lmao
Here is an interesting fact I learned running some statistics on bitcoin data: BTC has had 144 "large up days", days where it went up by 10% or more. It had 104 large down days, days where it went down by 10% or more. The kurtosis of the large up days is 5.94 whereas of down days is 3.27. That is, the tails are twice as fat to the upside versus to the downside. So when people look at the volatility and think its risky, yeah, its risky. But its twice as risky to the upside as it is to the downside, and who doesnt like upside risk?. That's what Gen Zs and Millenials got it and most old people don't
Here is a good FAQ on monetary policy https://www.themoneyillusion.com/faqs-2/ This part is particularly relevant right now " 9. Won’t your policies lead to high inflation in the long run? No, but not doing my policies might. Countries that follow conservative “hard money” policies during deflation (the US in the early 1930s, Argentina 1998-02) end up seeing the government taken over by left-wingers. And if massive deficits are incurred because of a long recession, that makes higher inflation more likely in the future. Monetary stimulus reduces the need for fiscal stimulus, and thus reduces the risk that debts will be monetized in the future."
I remembered today about what I called "The Peter Thiel Rule" What have you learned about Venture Capital now that you have been doing for so long? There are a lot of different lessons, one is that when something works, people often underestimate it and when things arent working, they underestimate how much in trouble they are in. In most areas of investing, momentum is not that good of a way to invest, when a stock has gone up, you don't necessarily want to chase it. When I did the backtest on our portfolio I have found that when a company has had a big upround, lead by a smart investor, it was always a good idea to take your pro-rata (investment from investors from earlier rounds designed in a way that prevents them from decreasing their % ownership in the business). Flat rounds or down rounds, it was almost always a bad idea. In addition, the steeper the upround, the cheaper it was. The biggest miss we had over the last decade was not doing the pro-rata or full series B on Facebook. It was a 12x upround from the previous round 8 months earlier. It was the steepest upround in that amount of time in any company that we had been involved in and in retrospect, it was also the cheapest. I think one of the reasons it was so underpriced is that investors don't want to step up that much but even the people on the inside often underestimate how much things change once things start working and you have that sort of momentum. It was still 8-9 people at the company, it was this horrible office with graffitti on the wall. On the inside it didn't feel like things were changing that much. So people underestimated it. You had these subtle but very important points when the leverage shifts, or dynamics shift very powerfully but they tend to get very underestimated I think this applies to BTC after the Paypal/PTJ/Druckermiller/Dalio news. BTC had an 'up round' in terms of increased valuation, but it also can be cheap because networks dont tend to be priced efficiently when they start to work out. Even when they are priced by pros as in the case of VCs. When it comes to a marketable technology like BTC, I expect this mispricing to be even more significant
But also the Thiel Rule highlights how in different markets there are different strategies. In stocks it doesnt make sense to "chase". In bonds the same thing. In technology it DOES make sense. It does not make sense to add to what's not working. Warren Buffet likes to buy what is dropping but Thiel says in VC that doesn't work. Different markets, requires different strategies which then requires different MINDSETs. So its important to not use the same toolbox/thinking one uses in stocks/bonds/commodities. Its a different game here
I suspect Mohammed El-Erian used the same MINDSET he uses in traditional financial markets to sell his BTC at $19,000. He thinks he is being smart because in stocks, when people throw out crazy targets out there and the stock is up a lot, its probably time to sell. But in tech its DIFFERENT. Its not his expertise so I believe he is making a mistake
https://www.zerohedge.com/economics/greece-setting-itself-another-financial-crisis Greece going from bad to worse. I was optimistic on Greece, then covid hit, at this point given that they are stuck in the EUR standard (that works similarly to the gold standard) they can't stimulate their economy through monetary policy (and the ECB thinks about the EUR zone, not just Greece) and fiscal policy at some point will run into a limit. At some point markets are going to balk at Greece debt to GDP ratio. I wonder if I should short GREK, I just dont see a way out of this for them, other than default and/or leaving the EUR zone
The whole EUR zone is madness to me. I like what they do on trade, regulatory matters, freedom of capital flow and people. I dont like what they do on currency. Everyone having the same currency and being a hostage to the ECB. Greece needs looser monetary policy than Germany right now, so what do they do? Nothing, well they do fiscal policy in Greece. This leads to debt accumulation and large deficits. But these debts/deficit policies need to be reversed in the future, that means higher taxes less social programs less infrastructure, etc. Every election is a roll of the dice in whether a leftist guy will win and say they will not pay these debts. At some point this is going to happen because they have had no growth for 10 years. How long will they accept to be stuck in a depression? Its not like they are getting much out of it. If they default and leave the EUR, the next day they will be out of this mess as they will have their own central bank monetary policy. This is similar to countries in the 30's all having huge bounces in growth/inflation and stock prices after they left the gold standard (including the US). I have been surprised at their patience but covid might be the last straw...
Good piece on inflation https://www.economist.com/briefing/2020/12/12/a-surge-in-inflation-looks-unlikely I agree that a surge in inflation looks unlikely in Europe and Japan. But I don't in the US. The fact that they have now an 'average inflation' target speaks volumes. They are commited into not allowing inflation to be stuck at 0-1% like incompetent central banks do. They will print as many rounds of QE as needed to ensure that. This will boost broad money even more, like the chart shows And velocity will be picking up once people are vaccinated. But once the US has 3-4% inflation the Fed is likely to get cold feet and then they will start to panic and start reversing policies. But the next phase I think is inflationary and should last 1-2 years before the Fed panics
Just found a interesting article from Milton Friedman talking about the Gold Standard https://miltonfriedman.hoover.org/friedman_images/Collections/2016c21/SundayTimes_1976_3.pdf The whole thing is worth a read. In it he had this quote "A valid question is this: If you view gold solely as a commodity, what is a reasonable price for it? One of the arguments that is made for gold as a store of value is that it is a hedge against inflation. Over the past fifty years, that has not been the case. Gold has not in fact proved a very good hedge. I once made the calculation that if somebody had bought gold in 1929, and had simply held it until today, paying something like 3 per cent per year for both carrying costs and loss of interest – after all a very modest allowance – he would today have something like a total purchasing power equal to about one-fifth of the amount he started out with. Anybody who held it only from 1929 to 1934 could have done pretty well, thanks to the U.S. rise in the price of gold to $35 an ounce. Anybody who held it from 1968 to 1974 would have done very well; but throughout the rest of that period anybody who held it continuously would have done very badly. Historically, gold has not proved a very effective hedge against inflation" What is interesting to me is that his observation came a few years after Bretton Woods ended (It ended in 1971, and the article is from 1976) The world started, what Friedman called, an "international paper money standard" with free floating exchange rates. Yet, in real time, Friedman could not see the value of gold. He was looking at the past (when the gold price as mostly fixed) in order to judge its role during a REGIME CHANGE (namely, the international paper money standard at the time) Indeed, if you look at the gold returns from the year of the speech to today, they were a 6% nominal return or a 2.44% real return a year. Pretty good for this supposed bad store of value Which leads to the following realization/hypothesis, what if the corona crisis is one of these types of regime changes? That is, the point in which QE programs get expanded in such a way that it can drive down the value of paper currencies in a way that is more significant than previous periods of the international paper money standard. Given the accumulated debts from goverments, deficits and accumulated base money in the central bank balance sheets, its not possible to look at the recent past as a guide (which is the mistake Friedman made), because something changed. Friedman talks about how the gold standard instituted a certain level of discipline in governments, and also governments didnt want to play a big role in terms of spending back then. That discipline will not be present and governments do want to play a huge role in the economy today. So the elements for an inflation crisis are there I guess the true test will be how many central banks turn a blind eye when inflation starts to be above their stated targets. How do they react when velocity picks up after the mass vaccination. How quickly they talk about asset sales, etc