I think that if you’re a short-term macro trader you’re thinking in terms of hours or days or even weeks. You’re really concerned, but I think that if you have a time frame of four to ten years. I think there’s a different question which is why are the interest rates going up: what is the macroeconomic environment? I would say you probably shouldn’t even buy Bitcoin, if your time horizon is less than four years because you’re a trader and if you’re a trader, you’re probably not going to care about anything. I have to say, you’re just looking at whether it’s correlated or uncorrelated and throwing lots of money around without thinking about it.
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I think if you’re really a deep thinker or a macroeconomic investor the bigger issue is we have monetary inflation, the money supply or the currency supply is expanding crypto markets. They are getting smashed all across the border with Bitcoin hitting new lows falling into the mid 20 thousand and Ethereum plus many other old coins down 35 or more with investors everywhere beginning to panic. One investor feeling, perhaps, the most pain of all is a notorious Bitcoin bull Michael Saylor who is now down billions of dollars on his massive Bitcoin position. In his latest interview Sailor reacts to the market collapse and explains what his strategy is moving forward as well as Sailor explaining the only scenario he would be forced to sell in.
I think the news today in Turkey was 70 percent inflation in Turkish lira. We probably got something in the range of 15 to 20 currency inflation in the US dollar in the euro. We’ve got 40 percent inflation, like an Argentine peso or more. What do you have in an inflationary environment? We know the CPI which is a manipulated measure of inflation. It’s actually the lowest inflation that one could reasonably measure. I think it’s like seven and a half percent six and a half seven-eight percent in the U.S and Europe and these are 40-year highs. The CPI is eight percent but the actual asset inflation rate is double to triple that so the reason that interest rates are going up is that there’s pressure on the central banks to get inflation under control and their one tool to do. It is raise interest rates, but they’re not going to stop the inflation because the inflation is caused by excessive money printing, budget deficits and the wars, and political policies domestic and foreign policies.
These policies continue, so given the fact that we have an expansive currency environment and what you can see is the price of food, energy and scarce resources, keeps going up. The question really is if I have some money, what should I invest in? The answer is you don’t want a whole currency because the currency is collapsing in value. The US dollar lost 99.7% of its value over 90 years, I mean and that’s the winner. The losers are losing 99.9 of their value over 100 years. The currencies are all collapsing, so I don’t want to hold the currency, I don’t want to hold bonds because bonds are currency derivatives. Basically, you’re going to give me a million dollars and I’m going to give you interest on the million dollars at 3 for 30 years and I’ll give you the million dollars back in 30 years. The dollars will buy 10 percent of what they buy right now, so that’s even worse you don’t want to hold a value stock that generates value on cash flows because if the stock is valued on cash flows without growth it looks just like a bond right it might be slightly better than a bond.
But, if the currency is losing 10% of its value a year and you can’t raise your cash flows or raise your prices you have to increase your cash flows 10% a year to offset a 10 percent currency collapse right so when the currency is collapsing at 70% a year like Turkey the company. You own has to raise its prices in the Turkish lira to 70 or you have to raise your prices by an amount such that your cash flows would increase by 70 so that you hold parity in value so equities are currency derivatives partial currency derivatives. Bonds are almost complete currency derivatives, commercial real estate is a partial currency derivative, the currency is currency derivative right, it’s a full currency derivative. So, what do I own? The answer is I want to own scarce property and scarce desirable property. What is it? That you own that an affluent intelligent person will want to buy from you. In a decade that’s the question, you have to ask yourself, so if you’re owning things that will last a decade right. I mean if you buy a car that’s not going to last a decade, it’s not really an asset it’s depreciating but maybe you’re on a sports team or a Picasso painting. I don’t know well, people will want to buy gold from you in a decade. Well, they want to own the building that you own in a decade right. Well, they want to own the intellectual property rights. It all depends on Bitcoin being a scarce desirable asset because it represents digital property. If I own a million dollars, the value of buildings in Moscow in a decade? Who’s going to want to buy them from me? Presumably affluent intelligent Russians but an affluent intelligent British person or Chinese business person, or American want to own that asset. The same is true you own a million dollars worth of buildings in Nigeria? Who’s going to want to buy them in 10 years? Who’s going to want to buy it? What do you own, if you own a million dollars’ worth of Argentine pesos for the next 10 years? They’re going to be worth ten thousand dollars. So, you’re not going to want to own that but owning a million dollars’ worth of buildings.
Bonus errors are only going to appeal to someone that wants to live and work or use that real estate in bonus errors and you’re going to pay the tax. The maintenance cost in between now and then so interest rates are going up because there are macroeconomic headwinds blowing. The real problem is inflation. If inflation runs at twenty percent and the interest rates go to two percent. They’re not going to stop the problem of currency collapse, they’re just going to create near-term turbulence. If you’re a trader you may get caught in that turbulence, but ultimately, if you are an investor and you’re concerned about preserving your wealth to give to your children or your grandchildren. Then, whenever you’re in an inflationary environment – your strategy is simple. I have to convert my weak currency into a strong currency ideally convert my weak property into a strong property. That strong property I want to move out of the country, I want to move it out of the jurisdiction of a politician that may confiscate it or tax it away right. That’s why you are converting a million pesos, a million dollars of pesos into a million dollars of dollars. Bonus errors won’t help you because, eventually, the politicians will freeze your bank accounts, convert it back into pesos and devalue it. Twenty to one that won’t help right converting a million dollars of pesos and a million dollars of dollars.
Then buying a million dollars’ worth of big tech stocks in the US may be a better idea. If the big tech stocks are monopolies, they’ll be able to raise their prices, hold their cash flows in whole value monopolies – will be fine right. What is a monopoly? it’s scarce desirable property if I offered you a monopoly with unfettered ability to change the price of something like oxygen to sell oxygen to New York City. You’re probably going to do the problem with even monopolies though over time. Monopolies get regulated right in theory the richest person ought to be the person that sells water in New York City. But, they’re not the richest person because the new yorkers get together and decide that they don’t want the water company to raise the price of water to a hundred dollars a gallon. Even though, you’d pay it if you’re thirsty. So, what can I buy? That’s going to hold its value over time that represents scarce desirable property not just scarce because there are a lot of things that are scarce that aren’t desirable right scarce desirable property. I think one of the obvious things is a digital property right, if I created a city in cyberspace with 21 million blocks and nobody could make any more. It was going to last for a thousand years and it was the dominant city and everyone wanted to live there. Would you want to own one of those blocks? I think the answer is yes and that city is called Bitcoin.
Let’s say you have a billion dollars on your treasury as a company or a country. If you store that money in U.S sovereign debt and you’re holding a billion dollars of bills and if the U.S currency is inflating at 18 a year that means every four years you lose half your money. So, another way to say it is it’s costing you 180 million dollars a year or it’s costing your citizens 180 million dollars a year to use that as your reserve asset and it will cost them 500 million in four years. It will cost them 750 million in the 10 years or in the eight years. So, it’s very expensive to use a depreciating currency as a reserve asset right.
It’s so expensive that in essence, it impoverishes. You for example my company had 500 million dollars of cash and we were generating 100 million dollars in cash flow a year. Well, when the inflation rate gets to 15 percent then you’re losing 75 million dollars in wealth in your treasury in the same year that you’re generating 100 million in cash flow. If you have to pay tax on that cash flow you have 75 million after-tax and you have a 75-million-dollar loss. So, that means that a profitable company is working as hard as they can doing a hundred thousand things right. Every year makes no progress when the inflation rate doubles to thirty percent or twenty five percent. You’re actually getting poorer working as hard as you can. Another way to say this is the road to serfdom is working exponentially harder for a currency growing exponentially weaker. You want to take the extreme idea of yourself working as hard as you can in Argentina while the currency is losing 40 percent of its value a year. What you can see is it’s utterly hopeless and impossible no matter how hard you work.
This article is a transcription of a video made by Jamie Tree
Original video: https://youtu.be/PzA2VZK0lKg