Weekly Paid Newsletter 02/13/2022
A Fiat Money Hack Only the Rich Know
What an end to the week, the growing geopolitical risks with Ukraine have sent the gold price up +1.5% and the major indices to the opposite side.
Investors have rushed like crazy to buy U.S. Treasuries as a low-risk asset to take shelter from these geopolitical risks. This is a mistake because inflation will persist and even intensify if Russia invades Ukraine.
If this invasion occurs, bonds will deteriorate further, but less than equities will. What is certain is that gold, if this happens, will continue to act as insurance.
This Tuesday, we also got the new inflation data. A +7.5%, as we have been announcing for more than six months that this was going to happen.
In parallel, it seems inevitable that we will see a rate hike soon. But the Fed is wrong if it believes that sending the economy into recession will lower inflation, in fact, the problem would be even worse. If this situation occurs, it seems that gold and an asymmetric portfolio are the only safes.
Our portfolio has performed on Friday as expected, and we are already 10% ahead of the Nasdaq this year.
Now we share with you a reflection on FIAT money and how little value it has:
With the growth of new technologies, we are experiencing how increasingly, the stock market is a much more complex place and where the perception of money as we have always known it has lost value.
The concept of money today is much more abstract. We have gone from the exchange of goods to seashells, gold, and money as we know it today. This much more complex system where the money owned by everyone passes through a number in the bank ledger. We must believe that this process is so that the bank does not have any computer failure and maintains at least the minimum of regulated reserves.
Although physical money indeed exists (worth, in reality, no more than the paper it is printed on) and some coins, most of the money we spend moves from buyer to seller through the writing checks that order the banks to debit one account on their books and to credit another.
Therefore, most of our money has no real value and is not tangible: we cannot see it nor touch it. This has been exploited by the central banks controlling their currency to make it much more difficult to regulate.
Most intelligent people know that money in the bank has no value and that to keep "accumulating zeros" in the bank is to lose purchasing power. However, as complex as our current system is, the links to gold have always persisted. For over 2,000 years, gold has been a precious commodity, and because of the Lindy effect that Taleb describes so well, it will remain so.
Gold has shown its incredible vitality over the years and has always been a symbol of wealth and, more importantly, money. Real money, not like the money on the banks' balance sheets. This may be curious because gold has no cash flows, and unlike other metals, its usefulness may seem nil.
Many say that the moment you see a pile of gold bricks or gold coins, you will never forget the sense of awe it inspires. In addition, it has some physical properties that make it unique, such as its high density and its enormous resistance to oxygen. Perhaps it is because of the latter that it has always been seen as the best alternative to FIAT money.
Another of its main characteristics is that no matter how hard you try to extract it, its extraction would never exceed 5% per year (inflation today is over 6%). There are currently 40,000 tons of gold in the world. American industry pours 40,000 tons of any metal in less than an hour. This scarcity also makes it much more appreciated, as is the case with Bitcoin.
Nature controls the amount of gold in existence, and rich men who see how real barbarities are done with their money prefer to give value to these limited assets than to leave it in the bank account.
During Covid, there has been an environment in which unemployment has skyrocketed and has left citizens without money to buy products. The central banks have done to curb this is to make the most significant injection of liquidity seen in history.
This liquidity has caused just the opposite situation, a spiral of inflation not seen for more than 40 years. People in this period have seen how they have been able to buy more than what was produced, and this has caused shortages on the one hand and price increases on the other.
In these situations, those who suffer the most are the ones who are destined to be the losers: those who are the most conservative, who do not take risks, and who like to keep their money under the bed.
One of our most significant positions in the S&P 500 leveraged x3. It is an asset that you have to know how to manage, but it can be an excellent opportunity in an environment where all kinds of aberrations are being committed.
We know that sooner or later, one of the biggest crises ever seen will arrive, and we will lose a large part of this position, but we have others that will be able to compensate for this and even have stratospheric returns. As long as the S&P 500 keeps marking ATH, we will monetize it.
On the other hand, we also have some Bitcoin as it fulfills everything that central banks should be fulfilling with FIAT money. It also assures us that no bank is going to misuse our money.