Thirsty days in Europe

Make the economy like TV's

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Like TV

I have never seen the economic mission so simply explained. 

Nothing has changed since our last update on this chart though. Wherever the government involves itself, prices are dramatically higher. Whatever is tech-heavy has seen prices collapse. 

Once again. Prices should always fall.

When people question the rise in bitcoin’s price, this particular graph is intensely relevant. Bitcoin does not go up in value. 1 Bitcoin = 1 Bitcoin. It is fiat currency that is in permanent decline around it. 

This chart from Deutsche Bank maps the S&P 500 performance in terms of gold. For 25 years, it has gone nowhere, it's hard to believe. Check it if you doubt it. A precisely zero return against a hard asset. Imagine the UK FTSE over the last 25 years, it would be down substantially (I will do the maths at some point for UK readers). 

The assessment should really be how quickly fiat money going down.

How was it during Covid that we could suddenly just pay everyone from the government wallet no questions asked? How is it that America can summon up dollars at will for whatever it is this week? 

Deutsche were kind enough to point that out too. What happens is they borrow it. Then at some point along the line commercial banks get a bit distressed. The Central Banks step in and buy their bonds, essentially monetising the debt. It’s a good scam, because the buyer of last resort always has the money. Government bonds never actually find their true value because when they wobble the CB buys them to protect “retail”. What’s even better is that the population actually demands it. 

They only do this in a crisis though. Looking at these charts, it's been a big crisis since about 2008. 

Experts claim otherwise though. They explain “ the growth in central bank balance sheets is a necessary stabilising function resolving intertemporal anomalies in the banking system and economy which we are getting better at solving for the benefit of all”.

Where now?

We can perhaps turn our gaze to what the trends of the next four years might be and how they might impact our investments. 

Energy

Earlier in the campaign Trump was emphatic about the need to expand America’s energy footprint. “energy is the base cost of everything”. So, we are likely to see a massive expansion in American fracking, oil drilling and build out of modular nuclear capability. Last month Google announced their partnership with Kairos Power, a modular nuclear company. Microsoft is paying for the re-opening of Three Mile Island. Amazon made their own announcement about modular not three weeks ago.   

Those announcements all preceded the election. I expect there will now be many more because the regulatory barriers to accelerated progress (rightly or wrongly) will now be removed. Things might go far more quickly than we currently imagine. 

All of this points back to a podcast in April that Mark Zuckerberg gave. He was quite clear that the expansion of AI and the digital world is no longer constrained by chips. Nvidia is not the bottleneck, the lack of power is. 

Expect bitcoin to play a significant role in this energy expansion because you don’t turn on and off nuclear reactors like a kettle. There are going to be massive periodic surpluses of energy which the bitcoin miners will be positioning themselves to use. Why only bitcoin? Well there are limited alternatives that are mobile and quick to build.  

Strategic Bitcoin Positions (state level)

This event was held back in June. MSNBC was not so generous at the time: “The meeting marked the first time the former president and presumptive Republican presidential nominee — recently convicted of 34 felonies in New York — had taken a meeting with the technologists securing the $1.3 trillion bitcoin network.” 

There are several ways now in which America can take a strategic position in Bitcoin. Firstly, they can dominate mining. To a large extent they already do this but expect baseload power management, delivered by the bitcoin miners, to spread beyond Texas. Another is the US Treasury acquiring a strategic reserve of bitcoin. I view this as highly unlikely because of Trump's real preference for the United States Dollar. Naturally, there is a Polymarket for this outcome which considers it a 30% chance, I don’t personally think so:

Nonetheless, all of this forces other large nations to consider their own positions with regard to Bitcoin strategy. I believe it will force China back into bitcoin mining and might well encourage many of the gulf states, where energy is abundant, to do the same. This global hash war has long been predicted but it plays out faster if America enters the game at scale. 

ETF 

ETFs in the US continue to perform well and take in money. It took 209 days for the Bitcoin ETFs to reach $30 billion in AUM. Something that took over three and half years for gold (which itself was a very successful ETF). Without doubt the Bitcoin ETFs are now amongst the most resoundingly successful Wall Street products ever launched. All the more extraordinary given the blockers that were thrown in the way along the journey. It took 10 years from the first application to the SEC to launch. 

Gold itself has a market cap. of about $17.5 trillion. Some 10x that of bitcoin currently. Still, I consistently make the point that there is always more gold. Production never ends; search never ends. There are 170 gold-related miners listed on the ASX alone. Some will strike gold, some will lose investor money but we know for sure that more gold is coming, and it will keep coming. 

Elsewhere in the precious metals market we have poorer brother silver. Market cap $1.7 trillion. This week, with the price advancement, bitcoin went past silver. 

My main argument against silver is this: all the world's silver weighs 1.5 million metric tons. How do you store it, how do you pass it to another person in a useful way? It is not divisible either; if you get a bar of silver there isn’t much you can do with it. 

You could store (and send) all the bitcoin in the world for free instantly. Try to transport 1.5 million metric tons of silver from A to B. To save you the trouble, below is the MSC Irina, the world’s largest cargo ship. It has a weight capacity of 240,739 tonnes, meaning you only need 6.2 of them to complete the task. 

Value needs to be scarce and useful. Gold is the former but not so much the latter, silver is neither. Bitcoin is both. 

The AI Effect

As a general rule I find people to be underwhelmed by AI. It’s just google, but better.

I disagree. I think it is accelerationist, additive to economic growth in a way that is not well understood. This recent study has shown since the inclusion of AI to materials researchers AI-assisted materials discovery boosted the number of newly discovered materials by 44%, pushed up patent filings by 39%, and increased the number of new prototypes by 17%.

The report had more to say. This uplift in output was massively centred on researchers that were already the most productive and embraced the technology. 

“However, the technology has strikingly disparate effects across the productivity distribution: while the bottom third of scientists see little benefit, the output of top researchers nearly doubles.”

The message is a simple one. Tool up, use all the AI’s you can because the very best people around you probably are doing it and the lesser mortals still use google. 

Euro-Trash

What, you might ask, is this man doing? He is in fact enjoying a new Euro-beverage courtesy of the EU’s latest regulation. Plastic drink bottles must now have the lid permanently attached to the bottle. You cannot unscrew and remove them. The latest insanity is designed to cut plastic waste but of course has the unfortunate side effect that Europeans can no longer enjoy a bottled beverage. 

When I first came across this I assumed it was a joke, but no. The complete insanity of it all is laid bare here. The idea is that people will be less likely to throw the bottle away because the lid is still attached. I’m not sure of the logic there, how does that work? Once the bottle is empty, what is the difference? 

The European Union and its delegates have been working on this for five years. Even the description is insane: “harmonised standard for test methods and requirements to demonstrate that plastic caps and lids remain attached beverage containers”. 

Bottling plants across Europe have been reconfigured to produce bottles that nobody can use or enjoy. It is legally binding and if you don’t follow the rules the fines are huge. 

Yet, the EU genuinely wonders why they are no longer competitive on a global scale.

Further information

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