2023.43 - Propaganda

IMHO

"Time to buy bonds" says Barron's

And indeed, many in the market seem to be doing just that (TLT is a long-term bond ETF). Is Barron's right?

Before diving into a closer look at the current dynamics of the US Bond market, I recommend reading this (long) post on propaganda —I provide a summary below if you don't want to read it. It's widely applicable to the current state of affairs.

Breaking news is brainwashing you by forcing you to “remain on the surface of the event” as presented by the echo chamber of your group.

As "one thought drives away another” old facts are chased by new ones and you are not given a chance to stop and reflect. Life is reduced to a series of unconnected moments, clear thoughts are replaced by vague feelings

Reading is not the same as thinking, the authority of the printed word convinces without opposition when intelligence is not exercised.

Once someone begins acting on propaganda they are obliged to believe in it, as it gives them plausible deniability to justify actions they'd otherwise deem unjust or absurd.

Propaganda relies heavily on a group’s fundamental myths, beliefs and symbols, using them as levers to trigger behaviors and works best when it’s indirect. “You can’t tell people what to think, but you can tell them what to think about”.

Lonely, depressed people facing uncertainty are the ripest targets for propaganda.

So, what does propaganda have to do with the bond market?

What the recent record inflows to TLT suggest is that the market believes the strategy that worked for the past 40 years will keep on working indefinitely (this cycle will play out like other cycles). They are failing to take into account the objectively weaker economic health of the US currently vs previous cycles.

"The US is the strongest" may or may not be relatively true (other economies might well be more fragile, which is like having the least bad house in a bad neighborhood), but it is absolutely not in good shape.

You may recall last week's statement from Secretary Yellen saying the US could "certainly afford two wars" lol, no it can't.

The stronger "GDP growth" the US has shown, seems to be coming from rapidly rising deficits, which are now unsustainable. The debt has overtaken the GDP "with authority" and The Fed has not yet digested all the bad debt its had to absorb starting with the 2008 crisis.

In fact, some —including Mr. Market— argue the US economy is starting to look like an emerging market.

The above is one of those "good news / bad news" scenarios.

The good news is this will probably increase much-needed appetite for US debt —why would I buy 3rd world debt if they offer the same returns as US debt?

The bad news is that US debt has not only entered emerging market status, it's also deteriorating rapidly towards a debt spiral crisis, a phenomenon Emerging Markets are well acquainted with, but is very foreign (for many, literally unthinkable) phenomenon for US investors —witness them piling on to TLT.

If this path doesn't change —and at the moment there's no indication it will— the math can get bad enough the market could refuse to buy any more US debt at any price, according to American financial policy expert Charles Calomiris:

"…current planned deficits based on entitlements and other planned expenditures are already putting us in an unsustainable situation, which means that there’s no interest rate at which we can sustain those deficits going forward.

So it’s really not a question of what the interest rate’s going to be, but at some point people will recognize that at no interest rate will they be willing to accept further government debt issues."
—Charles Calomiris on CNBC, 10/23/23

To add insult to injury, these dynamics (like higher rates) weaken other currencies against the USD, forcing other nations to defend their currency, like the Yen, which hit JPY150 for USD1 and was promptly smacked lower.

How did they stop the devaluation? By using USD proceeds from the sales of US Debt and USD-denominated assets, same as China.

Both Japan and China have considerable reserves of USD denominated assets, forced sales of these would mean unwanted heavy competition for all the new debt the US needs to issue.

Where do people escape to when bonds are doing poorly?, historically gold (today gold and Bitcoin).

To summarize

You can believe the government and its mouthpieces (all is well in 'Murica) or you can believe your lying eyes (and basic math). The dynamics at play are very complex, most of the sources I read agree on the final outcome: massive printing of new money and massive inflation. The one thing pretty much no one agrees on is the timing for this to play out.

Trying to time the market is the surest way to outsmart yourself. Ask Isaac Newton:

If you are willing to be wrong for the next two years in order to be right for the next twenty, Bitcoin still looks like the best bet.

Bitcoin News

Sold

Cathie Wood's ARK sold all of their Grayscale shares. This is interesting because we know Cathie is a massive Bitcoin bull, and there's a reasonable chance Grayscale wins its appeal to become an ETF. So why did she sell?

Was it to seed their own ETF or perhaps to create some distance between ARK and Barry Silbert's DCG —which seems to be in serious legal trouble as mentioned in last week's Newsletter. Perhaps it's something else altogether but if I were a betting man, I'd bet it's to distance her fund from a ship heading into a storm.

Coming?

"Institutions are coming" has been a long-standing meme in Bitcoin since at least 2017. During the 2020 cycle we got the first taste of that with one institution (Microstrategy) and one government (El Salvador) betting big and a number of others dabbling and testing the waters.

I don't think JPMorgan is right about this one —I certainly wouldn't trust anything Jamie Dimon has to say as a general principle— but also, in my experience institutional investors don't move the price. They spread their buys steadily and stealthily. The pump comes after their purchase makes the news.

Regardless of the players behind this modest little rally, I do believe the institutions are coming this next cycle. Not all of them (or even most of them) by any stretch, but enough of them.

Seen Worse

Bitcoin is complicated, it's true. But —price volatility aside—it's remarkably sturdy and stable in its operation.

As last week's Lightning exploit revealed. trying to improve on some of its features with Layer 2 solutions, is a mixture of delighted awe (it's beautiful when it works) and hair-pulling frustration (who knew it would be complicated to make instant, trustless, decentralized money work properly).

But in reality, money in general is complicated and fiat —not to mention the financial apparatus it needs to function— is horribly, mind-numbingly complex. You just haven't felt the need to understand it

ETF YO-YO

Last week IBTC —the ticker for Blackrock's Bitcoin ETF— appeared, disappeared and reappeared in the system of the Depository Trust & Clearing Corporation.

Stop trying to guess the nanosecond the ETFs will be approved, it's coming maybe next week, more likely next year. Stack accordingly.

Speaking of the ETF, this is your reminder NOT to buy the ETF, which is "paper Bitcoin". If history has taught us anything about "paper bitcoin" it's that it ends very badly. I'd be surprised if they don't do their best to silently create fractional reserve Bitcoin which will eventually require pushback.

Don't take a dumb risk, buy Bitcoin and move it to a wallet where you control the keys.

Slow Down

Coinbase has set a $5k per week limit on withdrawals. We will bang the drum again: Get your coins off exchanges!

Means Pump

I'm not a trader, have no intentions of becoming one nor recommend trading Bitcoin. But for those of you that "understand greek" (I don't) here's a trader's explanation for why Bitcoin was primed to pump to the upside.

and here's a more human-readable version of a similar analysis. TLDR: Hodlers set the floor, Bears (betting BTC would drop) got squeezed.

"Crypto" News

The jokes often write themselves

VERY

As the FTX circus continues, little question remains about the intent behind the fraudulent casino, we already know they were bad. The question is really "just HOW bad was it?

One bit of good news is that customers might receive a good chunk of their money back. Given that ONE of their investments is going well (Anthropic) they may not get completely fleeced.

Hexxd

Hex —and pretty much anything Richard Heart touches— is an egregious scam. The problem is, Richard is smart and actually understands Bitcoin. In fact he understands it well enough to know most people don't, so he has silver tongued his way into launching "better alternatives", to his Room-Temperature-IQ Army of followers (which he's probably dumping on right now). On alternating days I find this sad and hilarious.

Fiat News

Housing

The dream of house ownership keeps receding for young americans

and credit card debt delinquencies are mooning

and Google searches for "give car back" are at an all-time high.

Market Down

I find it unsurprising the SP500 —which is essentially being held up by only 7 companies — fell below its 200 day Moving Average,

NASDAQ also entered correction territory (plenty of room below, IMO).

How are banks doing?

Not great. Makes it all the more heartening to see BTC outperforming.

Dumping

Like I mentioned in the IMHO section, China recently dumped some of its USD assets to defend the Yuan, but that was not all.

Unusual activity in China —like approval for a new 1 Trillion Yuan bond issuance and Uncle Xi's first-ever visit to the central bank— suggests they closer to a recession than they let on

None of this however, has stopped the from moving forward with their digital Yuan

Dystopian News

Missed the Barn

Last week the Wall Street Journal published an article claiming Hamas had received up to $90 million in funding through Bitcoin. That number turned out to be 99% wrong.

Current estimates of illicit activity in Bitcoin are somewhere around 0.25% but I'm sure that won't stop Elizabeth Warren from rallying her "Crypto Army" against Bitcoin.

Coming Soon

What does rampant inflation feel like? It's impossible to describe but the picture below speaks volumes.

Poison

How long before the detrimental effects of the vaccine are admitted publicly and the WEF and WHO are held accountable?

Price News

BTC Surfing

Bitcoin jumped hard last week and managed to peek its nose above the Sand ($33.7k), will it manage to stay above?

Dip Fishing

Bitcoin managed to hold most of the pump from the beginning of the week. Holding in the $34k to $35k range, I had to go back a bit and found some support between $32k and $33k, but not a ton.

Calm Chart

Pumptober looking to close green