Prices, Inflation/Deflation, Interest Rates & The Fed

Arado

Pelican
Gold Member
Have to disagree with those who provided the last/chart table.... simply not true. Stocks consistently outperform inflation or at least keep up with it over last 90 years - over a long term, they have short drawdowns. Gold is declining and is not keeping up with inflation over a long term. (inflation in USD), except during relatively short runs up in price.
I'd be very careful about anyone making statements such as "In Gold we trust" aka affiliated/in business of precious metals sales or simply trying to prop up the asset they bought during previous high and suffered real losses on. These particular people disclaim about their numerous affiliations with gold-related businesses/conflict of interest.

Tax rate is also a factor in performance against inflation, and US max fixed long-term capital gains tax rate of 28% applied to precious metals is a serious factor - one can have much lower rate on other investments, in fact can have 0% rate if they have moderate total income.

As to Safedean, he starts off saying all the right things but then goes into pretty scammy-sounding pitch: "Only with bitcoin can you plan for the future. Only with bitcoin can you repel the fiat vampires draining your lifeblood. ".

Mark Moss responded to him:

- actually, all these 'brain surgeons'' 401K did quite well and kept up with inflation in 2020 so far, and they hardly spent any time managing them.

These "death of fiat" proclamations just can not be serious... Inflation is nothing new, and panic brings all kinds of scammers out of the woodwork. Nothing new, business as usual, US had high inflation in the 70s and survived just fine, same about other countries that have/had much worse inflation. Inflation spikes/money devaluation actually existed before fiat, during gold/silver money times, due to mass gold importation. The governments can put the foot down any time, ban crypto, and gone overnight will be high BTC valuations, one can just secretly trade zillion of crapcoins then (or play online poker). Ponzi schemes and all kinds of "safe haven" pushers always flourish during increased inflation times, nothing new here too. They really hate the word diversification, and every one of them has the one and only solution.

As to destroying the system and fiat...as evil as the system is, it'll outlive anyone betting against it now, I'm pretty sure of that one. They just locked up entire world population in pens, put dog muzzles on them and injecting them with unkown poisons (there will be no traveling between countries soon without poison injection, most likely)...these folks are a lot more than a one trick pony and will deal with anything that threatens their system. Means if crypto starts to pose a real treat (rather than being online trading game and potential tax-producing cow that it is now), they'll deal with it overnight.

It really boils down to: what percent of their savings one can invest into risky/very volatile speculative assets, with understanding they might need to exit that timely. Generally 1-3%, I believe, same as day trading risk management rule.
They may be biased, but specifically regarding the period of rising interest rates like in the 70's, stocks didn't do well. The other period of high inflation was the 40's, and that was just after a World War and we were still on the gold standard (technically) so whether that's an appropriate analogy is questionable. Considering that now we're at a record high valuation of market cap to GDP, is someone who is buying the index now going to keep up with the coming inflation? That's up for debate. But either way, no one says to put everything in one asset class - it's about having a mix of assets to hedge for different scenarios. With low, predictable inflation sure stocks probably outperform gold. But in a scenario where there are serious questions about the future of fiat, having exposure to hard assets starts to make sense. Will FAANG cashflow be keeping up with inflation AND all the growth expectations built in when people are more worried about putting food on the table than virtue signaling on social media?

The point about taxes is very valid and definetely a factor to consider, I'm sure there are various loopholes out there with a creative accountant, and there are supposedly some metals funds to invest in that allow you to avoid the collectibles tax. Many metals stackers are prepper types who are preparing for the death of fiat and so don't view capital gains taxes as relevant.

We had inflation in the 70's and the dollar only survived because we had the political will to take the pain of high interest rates with Volker. Could you imagine that happening now? Highly doubtful given the extreme debt and insolvency, or at least they will wait until fiat looses 75% of its value, and only then raise interest rates once debt level shrink to a more manageable ratio to GDP. This is what Luke Gromen thinks will happen.

The brain surgeon's 401K is doing fine in 2020, sure, because the big tech firms that make up a huge proportion of the index benefitted the most from the lockdown. Are we sure that this is going to continue in the future if there is a shift from disinflation to inflation? And is it healthy that just to hold onto their purchasing power savers are forced to put their money in the index and deal with the stomach churning volatility while zombie corporations get loans far below what a non-manipulated market will give them? Additionally, Michael Burry has warned about passive investing causing price distortions in the economy. Obviously as an hedge fund guy he's biased but we won't really know until it's too late.

Would suggest checking the Bitcoin thread and other political threads if you are so confident in the system and the power of the elite. We're having an ongoing conversation on this forum about civil war and secession in the US and the need to rebel against the evil globalists - under those conditions having 100% faith in fiat seems a bit strange. The Bitcoiners are extreme as well, but any major change requires its fanatical vanguard. The fact that people are saying 'government will ban it' is a tacit admission that Bitcoin is superior to fiat and that in a free system people don't want to save in depreciating currency and don't want financial repression.

I think we both believe in diversification though, and the generalist investor shouldn't be a fanatic and go al-in on any one asset class.
 

Those grossly negative repo rates overnight and 20m still on unemployment benefits after a year suggests that there isn't any real inflation and what we're seeing is just logistics disruptions and businesses trying to jack up prices for "incoming inflation" (any second now...really, we mean it this time) even as their customer bases have collapsed.

These overnight rates lead me to believe we're in for something the world has never seen.

Edit: also, contrary to the financial media there has been no serious moves in upward interest rates. Rather the contrary is going on.
 

zoom

Kingfisher
Gold Member
This is an interesting tweet thread by Raoul Pal admitting that currency is debasing, but 'hard assets' like gold and real estate aren't keeping up while BTC and big tech are, creating a weird mix of deflation and inflation.

People aren't buying BTC as an inflation hedge, they're buying it because they think it will go up in price. Buying BTC is similar to buying an overpriced tech stock. It's a huge bubble.
 

Blade Runner

Pelican
People aren't buying BTC as an inflation hedge, they're buying it because they think it will go up in price. Buying BTC is similar to buying an overpriced tech stock. It's a huge bubble.
They are buying it because of virtuous characteristics like sound money, avoiding abuse by governments and fiat, portability, etc - all of which include inflation hedging, increase in price, and any other reason why anyone would be interested in a legitimate store of value that is proven, yet nascent.
 
They are buying it because of virtuous characteristics like sound money, avoiding abuse by governments and fiat, portability, etc - all of which include inflation hedging, increase in price, and any other reason why anyone would be interested in a legitimate store of value that is proven, yet nascent.

The only asset impervious to nefarious crony manipulation! It's a festivitus miracle!

Or maybe the government had a hand in getting it going, so they could use it to run the inflation narrative and test digital currencies.


No way, probably just bored kids playing at being cyberpunks. That's usually how revolutionary things work their way to the top, right?

RIGHT?
 

zoom

Kingfisher
Gold Member
They are buying it because of virtuous characteristics like sound money, avoiding abuse by governments and fiat, portability, etc - all of which include inflation hedging, increase in price, and any other reason why anyone would be interested in a legitimate store of value that is proven, yet nascent.

1. It's not proven at all. It's only around 13 years old.

2. It's not sound money, it doesn't even function as money. Have you ever actually tried to use it as money? The fees are high and Bitcoin can only handle around 7 transactions per second.

There are several cryrocurrencies out there that have actual use cases. Bitcoin isn't one of them. It's a useless, speculative and volatile asset.
 

Blade Runner

Pelican
2. It's not sound money, it doesn't even function as money. Have you ever actually tried to use it as money? The fees are high and Bitcoin can only handle around 7 transactions per second.
That's currency you are referring to. There is a difference and I agree. BTC currently is not an efficient medium of exchange, I admit, which makes it a relatively poor currency. But it is a phenomenal store of value, which is what money actually is.
 

zoom

Kingfisher
Gold Member
That's currency you are referring to. There is a difference and I agree. BTC currently is not an efficient medium of exchange, I admit, which makes it a relatively poor currency. But it is a phenomenal store of value, which is what money actually is.

If it's not an efficient medium of exchange then it has no use case and thus no real value. What can you do with Bitcoin besides sell it for fiat?

In order for something to be a store of value then it needs to have a secondary use case. People buy gold as a store of value because gold has secondary use cases (jewelry, ornaments, dentistry, etc).
 

Blade Runner

Pelican
If it's not an efficient medium of exchange then it has no use case and thus no real value. What can you do with Bitcoin besides sell it for fiat?

In order for something to be a store of value then it needs to have a secondary use case. People buy gold as a store of value because gold has secondary use cases (jewelry, ornaments, dentistry, etc).
Relatively, it is inefficient - but that's just because there are structures built on top of USD that are collateralizers (Visa etc) - which is the whole point, it'll happen with BTC too. It's much more efficient as a means of exchange than gold ever has been, and that's your prime, historical money.

What can you do with gold that is meaningful when the properties that make gold solid money are improved on nearly every level with BTC? Wear it? LOL.

The use case here is trust by not needing trust. It is instant value transmission around the world for minimal cost. It is a way to keep overlords honest, or pay the price. All of these things are unbelievably valuable to nearly every common man in the entire world right now.
 

NoMoreTO

Ostrich
FIAT by definition can not be a store of value. It's value is dependent upon it's acceptance by two parties. But it does not "store value", as it does not "have value". It is driven solely by demand / perception / acceptance of the FIAT.

All FIATs in history eventually have been abused and disappeared.

Gold by contrast, is still a store of value. Gold from the ancient roman era is likely still floating around, whether in the Vatican coffers or somewhere else. People don't throw gold out, unless by accident, ever.

Eventually paper money gets chucked, or replaced, and crypto currency will likely be the same.

All that said: Kudos to all who made a ton on crypto. But if you had a family and you wanted to ensure their provision after your death, would you leave them crypto? I would say no, ideally you would leave them land, real estate, precious metals, and other physical assets.
 

Eusebius Erasmus

Woodpecker
Silver and gold are offline and, if you’re smart, untraceable.

The globalists started Bitcoin for their own purposes. Notice how you don’t know who Satoshi Nakomoto is.

Also, crypto is being pushed hard by globalists, and now even Visa endorses it. The blockchain tech is great, but buying crypto is risky at this point.

My suspicion is that BTC will be indirectly manipulated to wipe out people’s wealth.

None of this is financial advice, but my money is on silver and gold.
 
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tothepoint

Woodpecker
I think the idea behind BTC is that in the future you should be able exchange it for goods by decoupling from fiat. Something like 1 loaf of bread would be worth 1 BTC, like how an ounce of gold buys you a nice suit. This type of value exchange has remained consistent.
One argument in favor of gold is that you don't need an entire infrastructure behind it. You don't need electricity or internet access to buy goods and services with it. Governments can cut utilities anytime. A bar of gold may help you in that situation to get the hell out of the country.
 
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