To investors,
We are living through a very important shift in macro investing. You can see it clearly with a brand new development that hasn’t happened in the last 30 years. Three decades!
So what is this development?
Macro analyst Tavi Costa points out “Foreign central banks now officially hold more gold than US Treasuries — for the first time since 1996. Let that sink in. If you think this buying streak is ending, just look at what happened in the 1970s. This is likely the beginning of one of the most significant global rebalancings we've experienced in recent history.”
Now there are a few different reasons for this outcome. First, the United States is debasing the dollar at an accelerated pace over the last half-decade. The dollar has lost nearly 30% of its purchasing power since 2000. Second, the United States has aggressively used sanctions against Russia, Venezuela, and other adversaries. This abrasive decision highlighted the risk foreign countries have when they hold US treasuries as their main reserve asset.
And maybe most importantly, the rise of bitcoin, which has coincided with an epic run for gold, has solidified the belief that sound money principles never go out of style when trying to transport value through time.
Central banks are waking up to the idea that holding paper probably isn’t the best strategy. Paper and treasuries can be printed at will, while hard assets are outside the control of anyone and can’t be printed. What would you rather hold? The answer is obvious.
But then there is an even more interesting way to think through this problem — holding US treasuries may bring a negative real rate of return. Although the Fed continues to parrot a 2% inflation number, the real rate of debasement is 4% since 1971. This means that a treasury that is paying you less than 4% is actually losing you money on a real return basis.
So now you have central banks who say “Wait! You mean I was holding an asset that could be created out of thin air, confiscated by the US government at any time, and was essentially guaranteed to lose me money?!” Makes sense why they have been dumping treasuries in exchange for gold.
And eventually they will add bitcoin to their reserves as well. We live in a world where everything is fake. The money is fake. The bonds are fake. The photos on Instagram are fake. And the food is even becoming fake.
This means real things — things that have objective value through finite supplies or sound money principles — will become even more valuable over time. Fake is a fad. Hard assets are timeless. And central banks realize it.
So I wouldn’t want to fade the central banks. They are some of the most powerful institutions globally. They have a money printer and one day I believe they will accelerate their printing to buy more gold and bitcoin.
Upgrade your portfolio. Fortify it with the hard assets. Sound money is the only money that ultimately matters.
Have a great day. I’ll talk to everyone tomorrow.
- Anthony Pompliano
Founder & CEO, Professional Capital Management
Why Is Bitcoin’s Price Going Down?
John and Anthony Pompliano discuss bitcoin, why the price is going down, what’s going on with the Federal Reserve, Lisa Cook and the pressure from the White House, prediction for the next 10 years of the US economy, and will Powell cut interest rates?
Enjoy!
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