Many investment advisors such as James Rickards, Quoth the Raven, and Doug Casey have been advising people to accumulate gold and Bitcoin. The reasoning is simple. Governments everywhere are printing fiat currency with abandon. Throughout history, it has led to chaos every time this has been done. Here is my review of "This time is different – eight centuries of financial folly" from a decade ago by very mainstream economists Kenneth Rogoff and Carmen Reinhart. Among many others among my reviews that address finance.
It begs the question of how much there is? How much fiat currency is in the world? How much debt? How much gold? How much Bitcoin? What would happen to the value of gold if we returned to the gold standard and required 100% gold backing of paper money?
It is hard to find the figures all in one place, and hard to make sense of them when you do assemble them. Some more than others. I'm going to use T for trillion – all of the figures are in trillions of dollars. Here are the easiest ones:
The total amount of Bitcoin amounts to $1T. The total of all altcoins comes to another $1T. The total gold in the world is worth about $15T at today's prices. A lot of it is in jewelry; some in industrial uses. The total held by central banks and investors is about $6T.
There are many sources of information on US debt. One of the most popular is the debt clock. The total debt in the United States is said to be about $100T. Here is most of it:
US Federal debt $34.
US State and local debt $4T.
US household debt $25T.
US corporate debt $9T.
M0, M1, and M2 money supply measures are just about equivalent. There are $20T dollars outstanding, mostly issued since Covid.
Even with all the gold in the world, the US could not return to the gold standard at $2,000/oz. Nor with cryptocurrency. The total value of all fiat currencies in the world is 2,840,672,998 BTC, OR $142 trillion. Bitcoin's market cap is just about exactly $1T. The total value of all other precious metals is far less than gold alone, and all altcoins less than Bitcoin alone. If people choose to dump fiat currencies for hard assets, there will be a vast scarcity.
The Federal Reserve's money management model has always assumed inflation. It is a question of how much. Government figures show approximately 13-fold inflation since my college days.
John Williams of Shadow Government Statistics says that the government has long been fudging the figures downward to make things look better than they are. Just by comparison, my tuition at UC Berkeley was about $1000 per year. Cigarettes cost 20¢/pack. My new VW cost $1800 in 1967. A house I bought for $54,000 in 1976 is now listed at $920,000.
Most of the sixty years over which this inflation occurred were stable. As the huge jumps in the money supply above show, these are not normal times. The federal deficit is $1.9T, $6,000 per person. That's 15% of the $40,000 per capita income. Total debt is $100K per person, $265K per taxpayer. The government is wholly unable to balance the budget through taxes. They have no choice but to print money, inevitably increasing inflation.
It is a matter of simple arithmetic. When the government doubles the amount of available money and credit, but the amount of stuff to be bought stays about the same, supply and demand force prices to double. Government has a lot of sleight-of-hand and fancy rhetoric to try to prevent it, but that is simply what happens. A to Z. Argentina to Zimbabwe.
The common man already feels the squeeze, but often cannot articulate why, and cannot figure out what to do. He is uncomfortable with the thought that his home, his castle, might be overvalued. No buyer can afford to pay what he thinks it is worth. The purchasing power of his Social Security and private pensions has been shrinking. It will shrink more, and more quickly. Where can he put his money where it will not lose value? What can he buy that the government cannot screw up by increasing the quantity? It comes down to land, gold and cryptocurrency. Each has its downsides, but they are safer than the sure bet of losing to inflation.
Corporate stocks are hard to figure. Investor fear makes them crash at the beginning of every recession or depression. They may lose customers. They may be unable to service debt. Leisure time and luxury goods are more vulnerable than groceries, gas and toilet paper. At the end of the day, their physical plants usually remain in place. My guess – one I'm not investing on yet – is that the best play will be to hold hard assets early in the coming depression and later exchange them for stock. It will take patience. Investor sentiment moves slowly. It took the market three years to hit bottom in the great depression.
On the bright side, human productivity will not diminish. Participants in society will still be just about as productive, albeit their numbers will shrink as they age and the number of births diminishes. The total amount of material goods like land and housing will remain. It will be redistributed, but it won't be lost. Markets and institutions may fail, but physical stuff will remain. That's the challenge for an investor. To figure out how stuff will redistribute itself in chaotic times, and what services people will be paying for.
That's a background to my research into the question of where we should invest.
I realized 40 years ago that all investment advisors make money by talking and selling articles and books. If I could manage my own investments well, I wouldn't sell my know-how to the general public. If they could make a living through investment, there would be no need for them to speak to the masses and sell their writing.
Since then, I have refined my methods through trial and error.As a result, I now believe that my financial life is much easier than that of people who have lived solely on salary. Below is my way of thinking about the market.
①Today's market price is determined by the future predictions of a very large number of people today. Today's Price=∫ (Today's thoughts of many people) dp ≠ Tomorrow's Price
②When the price starts to move in a certain direction, it moves in that direction for a certain period of time, repeating ups and downs. In mathematics, this means that finding the point of inflection is important. However, prices fluctuate throughout the year, so it takes some getting used to. In terms of getting used to it, there are some people who have made money by repeatedly taking advantage of the ups and downs of a single stock for decades. There is an old Japanese proverb that says, ``Rumors about other people also last 75 days.'' In the past, Japan did not have a seven-day system, so if we use the current seven-day system, it would be about 90 days. In other words, the short duration of popularity is about 90 days.
③ Depending on the person, trading may be done on a daily basis (buying in the AM and selling in the PM, etc.), trading over several months, trading over a year or more, etc., depending on the individual's personality and likes and dislikes. However, it seems that day-to-day traders will soon disappear.
④First of all, make a graph of the price movement and look at it so closely that you get tired of it.
At that time, if you don't keep the aspect ratio of price and time axis constant, your sense will go awry. Since price is usually on the vertical axis, all units on the vertical axis should be constant. Therefore, the height will vary depending on the brand.
I used to draw graphs by hand, but now I transform the images myself so that they have a certain aspect ratio.
⑤Chart has a way of drawing called candlestick.
This is a graph that someone started using in the rice market in Japan about 200 years ago. I add one candle a month.
Once you get used to seeing many graphs drawn in this way, you will soon notice some habits around the inflection point.
However, it is interesting that even though they are similar in some way, they are absolutely not similar or congruent.
⑥ Stocks have a lower limit unless they go bankrupt, but the upper limit is unlimited, and the higher up you go, the more difficult it is to understand the movements. On the other hand, if the grain and copper prices go up, supply will come out and the prices will be suppressed.
⑥ Don't be greedy. If you get too greedy, you won't be able to see the price movements in a cool manner and will most likely fail.
Another calculation. Total world debt is $235T, or about $30K per world citizen. Of that $100T is sovereign debt. Curious that the US owes a third of all of the world's sovereign debt That likewise cannot be repaid. How long will the fantasy persist? It has been going strong for 50 years.