Bitcoin Is a Big Opportunity for Investors in the Debt-Fueled Roaring Twenties
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Please consider using a different web browser for better experience. Please enable JavaScript in your browser for a better site experience. Bitcoin Is a Big Opportunity for Investors in the Debt-Fueled Roaring Twenties Jun 1, 2020 at 15:16 UTC opinion David G. Leibowitz Bitcoin Is a Big Opportunity for Investors in the Debt-Fueled Roaring Twenties David G Leibowitz is Global Macro Portfolio Manager, CIO Lebo Capital Management, and co-founder of LeboBTC Ledger Group . I started my 39-year career as a Wall Street trader in the summer of 1981, watching the end (or the beginning, depending on your point of view) of the debt super-cycle, as Fed Chair Paul Volker raised the Federal Funds rate to 20% to cripple the 1970s energy-led inflationary spiral. Central bank actions – the raising and lowering of interest rates to fuel lagging economies or tame overly strong ones – were the backbone of my ability to identify trends, articulate value and manage risk. That invaluable input is now dead, crushed by the “too big to fail” policies of former Fed Chairman Ben Bernanke’s response to the Great Recession, decimated by The European Central Bank’s (ECB) Mario Draghi’s 2012 “ whatever it takes ” framework, and finally buried by current Fed Chairman Jerome Powell’s March, 2020 suggestion that the Fed would provide essentially unlimited lending to support the economy ravaged by the COVID-19 pandemic. See also: As This Crisis Worsens, Bitcoin Will Become a Safe Haven Again Today’s global Central Bank policy is understood as Modern Monetary Theory, an accommodation of fiat governments’ financial demands met by simply moving a decimal point on an infinite balance sheet of government debt. The global debt load has now exceeded a tipping point: interest rates will not be allowed to rise from near zero as the governments of the world can never afford to pay higher interest on their debt, let alone the debt itself . It’s official: the emperor has no clothes. Unlike the V-shaped recovery of the 2008 Great Recession, the COVID-19 pandemic will likely prove to be the biggest shock the global economy has ever seen. The world’s foremost economists are expecting the recovery to take an L-shape, elapsing over a multi-year time frame, regardless of the unlimited money printing of the central banks. Unemployment is likely to stay high for an extended period of time, and in the coming “new normal”, many jobs aren’t coming back. All of that said, I am not despondent. Taking Chairman Powell at his word, government actions addressing this pandemic are likely to be unlimited. It’s reasonable to envision FDR-type projects involving infrastructure spending and reorganization of supply chains, regardless of the results of the November 2020 U.S. election. And, as desperate times call for desperate measures, one policy response, adopted by the Bank of Japan in 2010, was to allow the Central Bank to buy ETFs.
With the destruction of the fixed income markets, the search for investable alpha has already begun On April 6, Janet Yellen, former Chairman of the Fed, said in an interview that perhaps, “Congress should reconsider the powers that the Fed has with respect to assets it can own.” If the American government steps in and supports the stock market through direct purchases of stocks or ETFs, the crisis may not be solved, but a floor would be put under the equity market. With global interest rates for government “guaranteed” debt near zero (or negative), the asset class that was fixed income has disappeared. The implications are staggering. Investment portfolios, which have historically held a split of fixed income and equity investments with a balance based on risk orientation and horizon, are now scrambling to replace lost yield. With the bond markets of the world fully priced, fixed income assets that still have a modicum of yield (such as high yield and emerging market debt) have a risk profile more like that of a stock than a cash flow consistent with secure fixed income returns. Where will capital find returns in the 2020s? Portfolio Reallocations Certain investment implications seem obvious. The stock market, once it finds a floor, should mount a rally like it did coming out of the Great Recession. In today’s case, there are potentially three pillars of equity support: the fiat printing presses that are working overtime; monies coming out of fully priced fixed income assets; and the potential of government-sanctioned equity purchases. Should this prove accurate, historical highs in stock P/E ratios will likely get dwarfed in the coming equity investment rush. What of alternative assets? Real estate, the historical ‘first’ of alternatives, is getting disrupted by an evolving work-at-home cultural shift, and by the new demands of social distancing which will reshape commercial capacity in store fronts, restaurants, hotels, theaters, stadiums, etc. That said, ultra-low interest rates should benefit the real estate sector over time. Gold, a 5,000...