Thriller Insider - S3EP22: The Great Monetary Inflation


As Quantitative Easing approaches infinity, it simply has to have an impact on things whose quantity can’t be eased.

Quantitative easing is a tool that central banks, like us, can use to inject money directly into the economy.

Money is either physical, like banknotes, or digital, like the money in your bank account. Quantitative easing involves us creating digital money. We then use it to buy things like government debt in the form of bonds. You may also hear it called ‘QE’ or ‘asset purchase’ – these are the same thing.

The aim of QE is simple: by creating this ‘new’ money, we aim to boost spending and investment in the economy.

But Why Quantitative Easing Infinity?

When governments increase the quantity of paper money, it takes more pieces of paper money to buy things that have fixed quantities, like stocks and real estate. They settle above where they would absent an increase in the amount of money.

The policy is already achieving its goal: the S&P500 is actually above its May 31, 2019 level. There is no chance that would be true without trillions of new dollars. Like hydrostatic pressure, that flood of new money will float all boats — inflating the price of other fixed-quantity assets like gold, bitcoin, and other cryptocurrencies.

Bitcoin has its inflation curve transparently laid out for 100 years in advance. Nobody knows how many dollars will be printed this year or the next. If you plot inflation curves for Bitcoin and USD on a chart, Bitcoin’s curve will be going down, and dollar’s will be going up.

Moreover, the rate of increase of USD supply changes abruptly: every ten years there’s a crisis and new dollars are printed. The main problem with dollars and other traditional currencies is that the inflation surges aren’t coordinated with the people who use the money.

At the time of writing, more than $6Trillion has already been injected into the monetary and financial system that the Fed has decided to save whatever it costs to the American people.

A Lone Wolf Speaks…

Economists and analysts are paid and incentivized to operate within the existing Keynesian system of government based inflationary economics. To a certain degree we all are incentivized to support the current system since we all need to pay our rent (or mortgage) and our other bills. That is until the system breaks down, which when it does, the game of musical chairs will be over, and someone will be left with no chair to sit in. Paul Tudor Jones, the famous hedge fund manager, recently came to this conclusion in a very public way.

Seeking Refuge from the Great Monetary Inflation

- according to Paul Tudor Jones

So with this type of monetary growth as a backdrop, here is one way to navigate these extraordinary times and policy actions.

At the end of the day, the best profit-maximizing strategy is to own the fastest horse. Just own the best performer and not get wed to an intellectual side that might leave you weeping in the performance dust because you thought you were smarter than the market. If I am forced to forecast, my bet is it will be Bitcoin.

A store of value is anything that holds its purchasing power in the future. It is completely a function of people’s perception of its worth.

Bitcoin reminds me of gold when I first got in the business in 1976. Gold had just been productized as a futures instrument (like Bitcoin recently) and had enjoyed a heck of a bull market, almost tripling in price. It then corrected almost 50% in nearly two years similar to Bitcoin’s 28-month 80% correction! You can see the similarities in the two charts below.

Investor Letter, Paul Tudor Jones, May 2020 DelphiDigital RealClearPolitics Pantera Capital Lyn Alden Bill Barhydt

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