Happy holidays and happy new year! Bitcoin is on the move!
I don’t know about you, but I’m pumped up for 2023. I have no clue what’s going to happen and a lot of people are nervous…
…but I’m excited about it. It will certainly give me something to write about!
I asked my buddies recently what I should write about because I was lacking ideas and some motivation (I hate January). They gave me some ideas and made some cheeky comments per usual, but it was the Damar Hamlin incident that really inspired me to write. His survival in some ways brought me back to life from the winter doldrums! I’m fired up and the Bills are back in the playoffs! Let’s go!
I’m also happy to report and am beaming with pride that my friends at UC Medical Center where I trained for EM residency were the ones that saved Damar’s life on the field and took care of him in the ICU. Talk about epic…your boys saving the life of a Buffalo Bills football player as a diehard Bills fan. It doesn’t get much better than that! Seeing your good friend on your Buffalo Bills Twitter/Instagram feed will never get old. Way to go!
I once again was reminded just how precious life is with Damar’s sudden cardiac arrest despite seeing it nearly every day at my job. I shouldn’t take anything for granted, including my love and passion for bitcoin and writing this newsletter, so let’s get after it!
Since the new year is all about hope and predictions I’ll do exactly that.
I’ll discuss (with a lot of charts and memes)…
WHY bitcoin is so important and why you’re HODL’ing through this pain
2023 predictions (this ought to be funny come next year). My overall TLDR prediction? Disinflation/deflation and a lot of sideways chop in the markets, but UP for bitcoin (yay!)
Start with the WHY (Bitcoin)
My favorite thing about bitcoin is that it’s already won, just like Damar. Bold claim? Absolutely. But for the reasons discussed below, I’m quite confident. Now, it’s just about “pressure and time” (on the fiat system). “Well, that and a big goddamn poster.”
1. Demographics
In life I always trust my gut and it has served me well, but what’s easier to trust is math.
2+2 = 4 forever and it will always take 25 years to make a 25-year-old.
Seems silly and obvious, but it’s important when we talk about demographics. You can’t escape what’s already baked into the cake, and the world isn’t having enough babies – a problem for the inflationary fiat monetary system that requires growth.
Over the next 50 years, the entire world is going to face a conundrum of a large and growing geriatric population cohort that is equal to or larger than younger generations – that’s not normal. It looks like a top-heavy Jenga game.
This is due to advances in many things (medicine, access to energy/food, etc.) that allow people to live much longer as well as secular lower birth rate trends in younger generations. Unfortunately, as people are having fewer children you can’t suddenly make a 25-year-old when you need one who is working and paying taxes and spending money which is what the fiat system needs to survive (immigration as a solution is not something most are in favor of). It takes 25 years, and the US (along with the rest of the world) is not doing what it has historically done – have a lot of kids. Thus, the labor pool is shrinking and GDP growth potential is along with it.
Lower real GDP = more debt needed to stimulate growth/pay for expenditures
Elderly individuals (god love them) are not consuming as much as when they were younger and paying sales tax/property tax, etc., they aren’t working and paying as much in income taxes, and they require more public program spending for their needs (SS, Medicare). That’s a bad recipe for the US government and is like a household budget that spends more than they make annually – eventually, they’re bankrupt. The government needs lots of working-age citizens to spend money and pay their taxes to pay the government’s bills and fund all the things they want to do and spend money on. In addition, if the stock market doesn’t consistently go up that equals less capital gains taxes.
Fewer taxes collected = must issue more debt.
The entire fiat system is predicated on the fact that the population/stock market keeps growing/rising and there will always be more young people to support and pay for fewer elderly people. That assumption is going to be challenged over the next few decades. The die is already cast from a demographics standpoint. It’s past time to start planning for the repercussions, and we haven’t even started yet.
The reason for this demographic trend? Obviously it’s super complicated and multifactorial, but a huge part of it is the cost of living due to fiat-driven inflation!
I am living this with one child and one on the way, and they are freaking expensive! If you’re a middle-class family you really have to think about having kids from an economic vantage point given the inflation in everything from food to homes to cars to vacations and school. Now tack on some school debt, credit card bills, utility bills, and wage growth that isn’t keeping up with inflation…
…and suddenly having a big family just isn’t economically feasible like it was 50 years ago. Instead of 4 kids you have 2 or fewer, and given changes in societal norms (have kids later or not at all) in addition to global issues with fertility, many people have 1 or none. In China, there was a “one child” policy for ~40 years to make matters worse. This is a massive problem that you can't see if you focus on the day-to-day and don’t zoom out. I advise you to zoom out. Demographics dramatically influence the macroeconomy and cannot be easily fixed/changed. We will know EXACTLY the maximum number of 25-year-olds there will be in the world in the year 2048 by the end of this year, and I can tell you now it’s unlikely to be enough to keep the party going and grow the economy naturally out of this mess (our current debt) without massive stimulus to generate growth.
The only real viable solution to this demographic nightmare is technology, and I do hope that happens for the sake of the world. But it also simultaneously could be a problem! Technology is a beautiful thing and is supposed to make our lives easier, cheaper, and better – which it mostly does. It makes humans more productive as well which increases GDP even with fewer workers, a good thing. The problem is that we’ve crossed the rubicon this year with AI/ML and robotics and it’s about to change everything…it’s coming for many of our jobs, and soon. This may negate the technology productivity gains since it removes jobs/workers from the economy. Importantly for government debt purposes, robots and computer code don’t pay income taxes…ouch.
Given that the labor workforce is shrinking and the elderly population is growing…
…technology must advance quickly to fill the gap. Automation and AI are necessary to keep businesses running and at the same time, help businesses make a larger profit as human labor costs are usually one of the largest costs to employers. Why pay someone $15 an hour when a robot works for free 24/7/365 with no benefits? The technology isn’t quite ready for prime time at scale, but it’s coming in the next 10-20 years. Think I’m joking?
That’s why I believe the 2020s will have inflationary periods as technology tries to scale to meet demand (and energy is in shorter supply), and when it does (not if) deflation will eventually take over with a vengeance to offset the shrinking labor workforce and demographic issues we face.
Technology will send the costs of most things to near zero. An inflationary fiat system’s worst nightmare.
How does bitcoin fix this? By not requiring inflation to work.
As Jeff Booth states in his book, The Price of Tomorrow, the solution cannot come from within the system because the system is irreparably broken. An impending demographics nightmare + rapidly advancing technology that brings costs down exponentially = a profoundly deflationary force. The solution needs to come from outside the system. The only viable solution currently is bitcoin. A disinflationary/deflationary decentralized open monetary network allowing instant near-free settlement that is simply math and code and cannot be manipulated by humans.
The transition over the next 50-100 years to a bitcoin standard (bitcoin as base money and the supreme store of value) will be volatile. The world isn’t ready for hyperbitcoinization yet, and bitcoin itself isn’t ready for that yet either. It is growing/evolving and readying itself for the day it can support the global economy. It is the best money humans have ever known and to do that it needs to be a store of value (SOV) first. That is the stage we are at. A real-time monetization of a novel digital asset as a SOV from zero. It’s going to be volatile on the way up by definition. Zoom out and understand that you can’t fight demographic shifts easily nor stop exponential technological progress. These are massive waves coming to shore. I like to think bitcoin allows us to ride the wave instead of getting crushed by it in a fiat world fixated on inflation, credit, and growth at all costs.
2. Debt:
The United States government is addicted to spending money it doesn’t have. Already nearly 31 trillion in debt, the President just signed another 1.7 trillion dollar omnibus bill for 2023.
The original “Build Back Better” bill was too expensive and inflationary a year ago so it got shot down. Trimming off 300 billion dollars was enough to do the trick I guess! These numbers are just ludicrous. It’s now just monopoly money and fugazi it’s so outrageous.
The US government doesn’t collect enough in taxes or have enough buyers of its US bonds to fund these expenditures. The federal reserve will ultimately be putting it on its balance sheet and adding it to the debt totals, but now at higher interest rates. Sounds promising!
The US national debt isn’t a problem until it is. That day is not today, but IMO it will become problematic in the next 10-50 years, which really isn’t that far away.
~31 trillion dollars with no end in sight and a demographic situation along with structurally limited supplies of energy and other commodities does not bode well for the debt to decrease in the future. And that’s just the US debt. Much of the world like Japan and other countries are in far worse shape, and given our globally connected economies there is likely to be a domino effect when one falls.
The Federal Reserve can talk all the tough policy they want and temporarily raise interest rates to try and tamp down inflation and kill demand, but higher for longer rates are really just a pipedream. Sure they can hold rates near 4-5% for a year (doubtful though), but at some point, everyone has to pay the piper, including the US government. 31 trillion dollars of debt refinanced with higher and higher rates over time (if rates stay high) brings the annual payments to well over a trillion dollars in interest alone (surpassing budget defense spending).
If the majority of your paycheck goes to the interest payments on your credit card bill you are in DEEP do-do. That is what is facing every country across the world including the US over the next few decades. America in particular is facing a dire situation with social security and Medicare that will be insolvent sometime during the 2030s.
With a smaller workforce and a larger elderly population, there is not enough to fund these programs without severe cuts…or a bazooka of printed money to make up the difference. To add fuel to the fire, SS recipients just got a massive cost of living adjustment! Might be insolvent by 2030 at this rate.
High levels of growing debt will necessitate high-interest rates on US bonds for people to be interested in buying them given the fear of debasement/inflation. People/countries/companies don’t want bonds that are worth less in inflation adjusted terms when they mature compared to when they were bought. Therein lies the problem. Higher interest rate bonds lead to higher debt, and the debt spiral accelerates.
The only way out is for the Federal Reserve to implement yield curve control (YCC) and suppress interest rates while inflation runs hot for like a decade or so, thereby inflating away their debt to more “normal” levels. Japan is actively doing this now and it’s starting to fail…
and Australia recently tried it and it failed spectacularly.
Of note, the Federal Reserve was able to do YCC in the 1940s (not 1970s) when public debt was at a similar precarious level to where it is now.
But there are differences today, most importantly to me, bitcoin exists. There was no alternative back then. You had to take it on the chin as a US dollar and bond holder as inflation ravaged your purchasing power and the government capped bond yields. Now you have a choice if you prefer not to partake in that. You can opt-out and buy bitcoin instead of buying poor yielding government debt. The internet and Twitter also didn’t exist then and I’d bet most people had ZERO clue what was happening as the government could easily control/manipulate the narrative through the media. In today’s digital and hyperfinancialized world, I’ll be here screaming from the rooftops if that happens and so will many others. They will struggle to implement such drastic, hurtful policies in the present day as the world is hyperconnected. The debt spiral is confirmed, it’s just math.
3. Store of Value
The world needs a simpler way to store value. It seems really odd but the whole reason asset prices like your house, land, vintage wine bottle, boat, painting, or stocks have gone up so dramatically in the past 50 years is that the currency is so terrible at storing value everyone stores it in other things! It’s quite honestly absurd. If the currency is losing value, of course you’re going to buy the house that is going up in value over time.
If the money isn’t scarce, everything else of value is.
You should be able to store your savings in the currency of your choice though without being forced into these other speculative assets that now carry a monetary premium when they really shouldn’t. Your house should be for living in, not storing your family’s wealth. Because of weak currencies, now most people can’t even afford a house (and higher rates make it worse). It’s messed up.
Bitcoin (regardless if it becomes a true currency that people transact with on a day-to-day basis) is the ultimate SOV for every single human on this earth. Every individual who has access to the internet or a mobile phone (basically everyone) can save in bitcoin.
It is a cyberspace bank account for everyone on the planet, and that is of profound importance.
Not everyone in Africa can buy Apple stock. Not everyone in the US can buy a home. Not everyone in Vietnam can buy a vintage car or piece of land. Not everyone in Chile has access to a bank. Not everyone down your street is an accredited investor with exclusive access to Wall Street shenanigans that make the rich only richer. Bitcoin is just a fair and honest way for everyone (rich or poor) to store their hard-earned money.
A fixed supply, decentralized, natively digital asset that is infinitely divisible for the whole world to use is a concept most humans can’t wrap their heads around.
That literally means you are investing in humanity itself, not a company, collectible, land, home, etc.
Anytime anyone on Earth is productive and is paid for their work, they can save some portion in bitcoin. For example, I worked last month, and a portion of my check went into bitcoin savings. If you own bitcoin you are benefiting from my hard work because I am buying a portion of a fixed supply asset that you also hold. Given supply-demand principles, if demand continues the Number must Go Up (NGU technology). Stop and think about that.
Imagine if 8 billion people saved in bitcoin (which they can and will someday). If you own bitcoin you are benefiting from a 20 yo kid in South Africa who works as a safari tour guide and saves in bitcoin, and he’s benefiting from you. The world becomes linked in a positively reinforcing way that aligns everyone’s incentives to work hard and produce/do valuable things to earn money and save in bitcoin. The flywheel effect is breathtaking.
Will other assets like homes and stocks and land still have some monetary premium and value? Of course they will. But not near what they are today because they can’t compete with the network effects of Bitcoin described above, and they’re so much more of a hassle and complicated. Most importantly, those things aren’t money, and a main use for money should be saving. Bitcoin’s best property.
4. Best money
We’ve talked at nauseum in earlier articles about “what is money”. If you don’t start with first principles of money, you’ll never “get” bitcoin. It’s just sound money, and the best money that has ever existed. Humans gravitate to the single best money over time, and I’m betting that will be bitcoin.
Gold was great money for thousands of years, but its time is up. Just like Rand McNally maps were great, but then Google came along. Sorry Rand.
The whole reason the world came off the gold standard was that gold couldn’t cut it any longer as technology and society advanced. Gold is scarce, but it’s a physical thing and is hard to move across space. It’s great at preserving purchasing power over time, but it sucks at transacting value across space. Try sending some gold across the world to someone in Australia from the US to pay for something.
This is the whole reason fiat exists in the first place, because we needed a way to transact value across space, and governments created fiat (IOUs) for gold bars because moving gold was impractical.
Eventually, even settling up with gold between two parties was impossible, expensive, and governments couldn’t stop themselves from printing excessive IOUs and so the gold standard ended in 1971. Gold couldn’t keep up.
Fiat served a purpose and does a great job transmitting value over space, but not time, as it is continuously debased due to inflation. Enter bitcoin.
The solution to transmitting value over both time and space. A digitally native asset that allows near instant transactions at low cost across space via the internet, and retains its value over time given its fixed supply.
Yes, it’s magic internet money, and I’m NOT joking.
As I mentioned in a prior article, it’s literally streaming money. Just like you stream music and movies, bitcoin allows for streaming sound money, and it’s going to change everything.
Bitcoin is an absolutely scarce digital commodity (gold is only relatively scarce) that is portable, divisible, decentralized, fungible, and easily transactable. It doesn’t have the durability of gold (yet) given how new it is, but I’m betting that it eventually will. The total addressable market for base money is hundreds of trillions of dollars, if not more. Bitcoin currently has a market cap of 300 billion. It has a wide moat given it is the only legit digital commodity using proof of work now that Ethereum is proof of stake. Ethereum can eventually be many things, but it’s not money. Bitcoin’s competition is gold and every other asset people store their wealth in. It will swallow each of them like a black hole.
5. Energy revolution
I wrote a prior article about bitcoin and energy, but in summary, it’s going to usher in an energy revolution that will benefit all of humanity.
Bitcoin miners are buyers of energy anywhere and at the cheapest price.
Try to forget everything you’ve ever read for once about bitcoin using too much energy and bitcoin’s environmental impact. It is the exact opposite of that and you get to be in the exclusive club as the first to realize it.
The world needs more energy to grow and support the billions of people in this world. When humans have access to energy their quality of life and longevity drastically increase. Imagine not having energy during this latest cold spell…
The world also needs to find and develop new energy sources. I’m not sure where I stand on climate change, but regardless, more diverse energy sources are good for everyone. That keeps energy costs low so OPEC and Russia can’t have a monopoly on the energy markets.
The problem with wind and solar and other greener energy solutions is that they are often in isolated locations (wind farms not near a city), intermittent (no solar at night), and it’s nearly impossible to store energy in batteries for long periods of time and it’s expensive to build transmission lines to transport the renewable energy if you can actually capture it. Take west Texas for example, they had so much extra wind energy that pricing was negative!!! They were paying for someone to take the energy because it’s hard to store/transmit it. Enter bitcoin miners.
Bitcoin miners want all the cheap/excess energy you can give them to mine more bitcoin, and it’s a beautiful synergy with energy producers looking for someone to help share costs with them as they build out energy infrastructure to capture it. Nobody wants to pay to capture wind, solar, or geothermal energy in the middle of nowhere when they can’t send it back to the grid right away to get paid for their costs of harnessing the energy, but bitcoin miners will gladly pay for that cheap energy and will gladly locate to the middle of nowhere to get it! This incentivizes energy producers as bitcoin miners will subsidize their costs and when infrastructure eventually gets built for transmission purposes, bitcoin miners can then help stabilize their grid. A win-win. The result is more energy solutions come online because it makes economic sense for all involved, and energy prices go down given a higher supply of energy sources. When energy is abundant, everyone wins.
Bitcoin miners primarily consume excess/cheap energy. You can’t mine bitcoin profitably if you use expensive energy (usually fossil fuels). Miners always want the cheapest energy (usually renewables) to keep electricity costs low and profits higher. Remember, Bitcoin mining is a BUSINESS. A business that provides jobs. What’s there to complain about?
Energy is expensive in some areas and insanely cheap in others. Miners seek out cheap energy that nobody wants or can use. They aren’t draining power from the grid and freezing people in the winter and raising people’s energy bills. They’re doing the exact opposite by stabilizing energy grids and powering OFF when people’s demands are high. When demand from the people is low, miners consume the excess energy power companies have to produce to be ready for the occasional surges in demand that come. It’s freaking amazing!
Bitcoin isn’t going to boil the oceans or any of that nonsense you hear.
It’s going to consume a lot of renewable, cheap, wasted energy and ultimately provide MORE energy for everyone at cheaper prices. You got a problem with that? For the cherry on top, bitcoin isn’t just going to be carbon neutral in the future when basically the entire network runs on renewable energy because it makes the most economical sense to do so, but it will become carbon NEGATIVE. Yup. An ESG dream.
Bitcoin miners are starting to pair up with energy companies like Shell and Exxon to capture the flare gas from the oil wells that otherwise contribute to global warming. They use this wasted energy to mine bitcoin while preventing it from being flared into the atmosphere. Some miners are starting to capture wasted methane emissions from landfills while others are using wasted tires in landfills to create energy and mine bitcoin. The opportunities for clean bitcoin mining that harmonizes and synergizes with the environment are endless. I won’t even get into nuclear, nuclear fusion, and deep sea geothermal projects. Seriously, why would you want to shut something like this down?
All I ask is that you take all the negative press you hear about bitcoin mining and toss it out the window. Go deeper and really learn what these companies are doing and how they truly operate and what their incentive structure is. It will blow your mind. Proof of work and bitcoin mining will be akin to the invention of the airplane or maybe the wheel or the printing press. I don’t know where you want to put it on the spectrum but it’s just massive and will change the world. Nobody thought these inventions were important at the time but now you can’t imagine a world without them.
Summary
At the end of the day, I have no clue what the future holds for bitcoin, but I personally see a very bright future. As a US citizen and a proponent of democracy and capitalism, choosing to hold bitcoin means you choose to promote freedom and people’s right to property and choice.
You choose to support everyone in the world regardless of their status. You choose not to go to war unnecessarily because there are real costs. I just see it as a vastly undervalued ethical investment in humanity that will ultimately benefit the world and (selfishly because this is America and I love capitalism) me and my family for generations to come if I’m right. I’m cool with that. It checks all the boxes for me. I get zero enjoyment out of giving money to Tesla, Meta, Google, J&J, Boeing, or Apple although I do it every month in my Roth 403b. This is just different. It’s a bet on myself that I’m right and it’s a bet on a better, more fair world. That does bring me joy, so sign me up for that all day. If I’m right, the payoff is generational wealth. If I’m wrong, I’ll lose some money, go drink a beer, work til I’m 60-65, and be sad for a bit. I’ll take that bet.
If your biggest fear is that the government will shut it down I don’t know what to tell you. It’s being adopted by countries, it creates jobs, and is big business in America (Fidelity, Blackrock, BNY Mellon, etc.), active members of congress own it and support it, and you can only really stop it if you shut down the internet. Sure it will be regulated and that’s fine. Bitcoin isn’t trying to be shady. That will just bring MORE investment when institutions are confident they won’t get in trouble. That’s coming this decade. A rare opportunity to front-run the big boys. Otherwise, have fun with this:
2023 predictions:
NOT FINANCIAL ADVICE. I literally have no clue, nor does anyone, especially in times of uncertainty like this. Just me having fun. We used to do this on Christmas with my family so I’m starting up the tradition again with a few new categories!
BTC: ranges between 13k-30k. EOY: $20,300 whoohoo!
SPX EOY: 3800
FF rate: 4.23%
10Y Treasury EOY: 3.0%
CPI EOY: -0.3% (yes, negative)
That’s for you Damar!
These predictions seem like a big nothing burger, but to get to these points I think there is going to be a lot of chop throughout the year. Here’s how I see it playing out…
The overall consensus is that we’re going to enter a recession in the first half of 2023 and that is going to cause the Fed to pivot and cut rates.
I do think a recession is on the horizon but I just think it will be delayed until late into the 2023 calendar year rather than the first half. Maybe it doesn’t even come at all (wishful thinking with the inverted yield curves I know) or hits in 2024 more likely. I think the first half of the year could be higher for the markets as inflation cools.
I also think the labor market is far too strong with the workforce shortage giving employees the upper hand.
Everyone is desperate for workers, you see it all around you. You can’t go anywhere without a “help wanted” sign and when you don’t see that you feel it in the service you get because everyone is short-staffed. There aren’t enough teachers, doctors, nurses, waitresses, bus drivers, etc., etc. Absolutely every industry needs people and that prevents the unemployment rate from skyrocketing and it’s already at historic lows.
If you get fired there are plenty of jobs available for you, and now you don’t even have to move! Work from home changed everything. Even the quit rate reflects this. If there is a recession coming would you quit your job? Hell no. But people are like never before still.
That means people will get decent wages and have a job. If everyone has a job it’s hard to be in a deep recession.
Futhermore, starting soon I think we are going to see some serious disinflationary CPI prints. It’s just math.
Costs of goods (high inventories, low shipping rates), energy, cars, lumber, and housing are all rolling over/plummeting.
YOY comps will also come into play. Comparing 2023 inflation to 2022 inflation is going to look like a walk in the park. Especially now that they’re changing the methodology yet again!
If you don’t like the data (high CPI), change the methodology! Easy, duh! I think markets are going to salivate at these CPI prints coming down and the war on inflation declared “dead”. This will likely force the fed to ease up on interest rate hikes as well and could be good for markets despite some brewing real economic data that is worrisome. Remember, the stock market is NOT the same as the real economy.
China reopening could also throw some good news on the fire for a bit. Baby boomers have literally trillions of dollars tucked away and can keep spending. People are still sitting on tons of excess cash with solid wages.
Europe is surviving an unseasonably mild winter and energy reserves are full, and the dollar index (DXY) is falling given other countries are finally raising interest rates to match the US. This is all positive news for the US equity markets. Not to mention a nearly 2 trillion dollar spending bill!! But as Lee Corso always says…
One of the reasons prices/CPI are falling is that we are heading into a recession. Celebrating lower CPI prints is like getting excited it’s hot outside in the middle of winter as a nuclear bomb goes off.
The Federal Reserve seems like the Wile Coyote to me right now. They’ve run the economy off the cliff with interest rate hikes and are still somehow running. I’m staring at them and waving from the ledge.
Gravity will eventually take hold, it always does. Rate hikes hit with a sizeable lag, as they always have. Late 2023 into 2024 is when I think sparks may fly.
They’re hiking rates far beyond what the economy can take and the damage is coming. The question is when.
Let’s look at the data.
1. Personal excess savings in my estimation will start to run out towards the 2nd half of the year at this rate if you project a line on the prior chart. That’s when the gig is up. It’s been all fun and games living off stimmy checks and other loans and not having to pay bills, but the bill always eventually comes due. As a student loan payer, I’m being told payments will restart in likely spring/summer of 2023. With inflation elevating the costs of everything and loan repayments starting for many, excess savings will drop like a rock and the savings rate is already near 2008 lows.
That’s when people start defaulting on loans and start cashing out of the stock market to pay bills. Company profits tank due to discretionary consumer spending going down. It’s also when companies start laying people off (they’re already starting to) in mass to cut costs as their stock price falls. 401K contributions go down and boomers take mandatory IRA withdrawals. The HOPE cycle plays out.
Importantly, just because I think CPI is going well under 2% doesn’t mean prices are going to go down. It just means they aren’t going up anymore! Big difference.
Food, cars, services, etc. will still be WAY more expensive than in 2019. Those prices are gone forever. This is the new norm (for the most part). Just like a candy bar isn’t worth 10 cents anymore like it used to be, your Snickers bar cost is staying higher. To keep up, your wages have to go up because I can tell you that these companies aren’t going to cut prices. They need to maintain their margins and make stock shareholders happy. If their costs are up they pass it on to you and me. Simple. That’s the problem with inflation, it’s like this slow burn that just kind of eats at you and your purchasing power like a cancer without really delivering that quick knockout punch. Over time though it’s absolutely maddening and devastating. You can’t get off the hamster wheel.
You just work harder and harder but end up with the same standard of living. Eventually, people give up and quit or revolt and protest.
2. Quantitative tightening is ongoing and along with some other 2nd half of the year liquidity dynamics that could be a double whammy for markets. The stock market is basically a liquidity junkie at this point and is nearly entirely dependent on the federal reserve doing QE.
With tax revenue coming in during April and QT ongoing in the second half of the year that might spell problems from a liquidity standpoint.
3. China is a quagmire. It could be bullish similar to when the US economy reopened, but it also could be bearish if commodity/oil prices spike and that hurts the US and the rest of the world. Hard to read this one. Might be bearish after the initial reopening euphoria.
4. Throughout 2023 and certainly into 2024 debt starts to roll over. Both public and private. Government public debt as discussed prior is problematic, but the Federal Reserve can always just print the money so it’s not AS big of a deal until the levels just get so absurd everyone runs for the exits. We aren’t there yet – again, give it 10-30 years.
Private debt is a problem though. Private corporations don’t have a money printer and when their bills come due, it’s time to pay up or refinance. There is a lot of debt that will need to be refinanced over the next few years at higher rates. Big problem.
Problems may start to surface near the end of the year and into 2024 if the fed funds rate stays in the 4-5% range. Companies took on massive debt and leverage when rates were low and never envisioned these types of interest rates today. As I drive around St. Louis and see hundreds of buildings vacant or begging for new leasers my personal belief is that the commercial real estate industry is in peril and that private equity (not public corporations or banks) will likely be a big problem.
The debt loads are monstrous and Covid completely changed travel and business models practically overnight. Interest rates have gone vertical. There is no way private equity companies can escape this, especially if rates remain high. I think late 2023 into 2024 “something” breaks, and that’s private equity.
To wrap it up, I just don’t see how the world can go from max money printer “on” to max money printer “off” in rapid fashion without something breaking. If bitcoin can survive this…watch out.
There is no harder test for a nascent monetary asset, and bitcoin will survive because it’s like a cockroach, you can’t kill it.
Just like how the crypto bubble burst when no one thought the GBTC arbitrage trade would dry up and when it did 3AC, Celcius, FTX, Genesis, and others went bankrupt, the same will be said for the biggest bond bubble in history that popped in 2022 that no one expected. There are so many over-leveraged companies out there with massive portfolio losses scrambling as we speak – the dead bodies just haven’t floated by yet as they have in crypto where there is no lender of last resort.
My advice for 2023…stay patient and stay alive, live to fight another day. Be smart, stay humble, stack sats, put them in cold storage, and don’t get wrecked with margin or leverage. Better days are ahead.
Play the long game and zoom out. This is literally the longest bitcoin bear market in history and also bitcoin’s first “real world” bear market (none since 2009). 2022 was one of the worst years on record for everything, bitcoin included – just absolutely brutal.
And yet, bitcoin is still here chugging along producing a block every 10 minutes transmitting more value across the world like nothing happened, just like it’s supposed to.
It’s a beautiful thing. When the Fed pivots in 2023, 2024, or 2025 and needs to go back to QE/rate cuts to save the economy the explosive move up in bitcoin’s price will be breathtaking.
That’s NOT the time you want to be buying. The time is now in the dead of winter if you have the belief and you deeply understand the situation governments around the world face. The debt spiral is confirmed. It’s checkmate. Board the bitcoin lifeboat by choice if you see the inevitable, ignore the noise/FUD/haters…
…and know that you’ve already won despite the chaos.
Thanks for reading, until next time!
THIS is Crypto Pulse
@cryptofordocs
Fellow EM doc here and always look forward to your posts! Educational and entertaining ... just wanted to say thanks Chris and Noah for all you are doing for this community. Keep up the great work!