The meteoric rise of Bitcoin in 2017 is by almost everyone dismissed as a bubble. But it is not the only one. In a world where stocks, bonds, objects of art, classic cars and real estate are also at record highs, an investor should ask himself a very important question. Why? Why we have this bubble across all asset classes simultaneously? Could it be that this is just a sign? But a sign of what? One answer is "The most worrying sign of the implosion of the current monetary system awash with debt and credit creation". As dramatic as it may sound – and likely be – there are lots of signs for the attentive investor to notice.
Investing with a medium- to long-term horizon is all about looking at the big picture, at geopolitical shifts which slowly but irreversibly change consolidated equilibriums and move money around the world in and out of different asset classes. Recently, Macrovoices.com published an interview titled "Anatomy of the US dollar end-game" with Jeffrey Snider (Alhambra Partners), Mark Yusko (Morgan Creek Capital) and Luke Gromen (The Forest for the Trees). By the way, Mark Yusko and Luke Gromen were also among the very few money managers who were right in making the call for a depreciating US dollar in 2017. This is a summary of the conclusions drawn, for an understanding of the arguments behind it, listen to the full interview.
The Crisis of the Euro-dollar Market
According to Jeffrey Snider, Head of Global Investment Research at Alhambra Partners, the Euro-dollar market – a short-term money market facilitating banks' borrowing and lending of U.S. dollars outside the US – does not function properly since 2007 and it has essentially morphed into a US dollar "short squeeze" generated by a scarcity of dollars. Even if this mechanically means tides of "a rising dollar or a falling counterpart currency" in the short term, it is not a net positive-bullish for the US dollar as a reserve currency. What happened in 2014 could happen again and would trigger another dangerous liquidity crisis at a moments notice.
The US Debt Problem
The US debt and unbalances have never been a problem. Up until the world economy runs with US dollars and world central banks keep buying treasuries and the world energy markets are priced in dollars, then there is no problem. But now, because of geopolitical shifts out of the US dollar and US treasuries, this debt starts to matter. And the most likely way to deal with the debt problem for the US will be to ultimately devalue its currency, through inflation.