Something for Nothing – Fat Tail Daily | Australian Markets

US family internet price is up practically $60 trillion in simply over 5 years, in response to information from the Fed. Nearly half that increase is due to the rise stocks.

On CNBC, an analyst, Anthony Pompliano, advised listeners that bitcoin is turning into a main source of income for Wall Street. People can’t wait to get into the bitcoin growth. Wall Street is developing more and more bitcoin-flavored merchandise for them to buy.

“Over the last five years, the US dollar has lost 30% of its value,” he defined. “And the S&P, denominated in bitcoin, is down 85% since 2020. Bitcoin is a much better store of value.”

Say what? A store of worth whose price goes up like a rocket? What form of store is that? Bitcoin is trading like the most important speculative asset since tulip bulbs, not like a protected place to store your wealth.

But let’s start with probably the most fundamental query. Why…how…do sane, wise people…people who put on their pants one leg at a time…trade their homes and vehicles for one thing that’s as close to nothing as you will get?

And why…how…comes it to be that you could now get more than 3 times as many homes as you might final yr…for the identical quantity of nothing? Twelve months in the past, you’ll have needed about 9 bitcoins to buy a home. Today, you solely need three of them.

But wait. ‘Bitcoin is not nothing,’ you say? ‘It’s important info. It tells you how a lot money you’ve. And it protects your wealth from inflation.’

Maybe. But final week, we puzzled how a lot of the stock market is ‘ghost wealth?’ A companion query: how a lot ‘wealth’ will go away when the shades back off?

The complete worth of all bitcoins recognized to exist is now about $2.3 trillion. But just like the currency wherein it’s calibrated, bitcoin wealth is ghostly…spectral…unreal…and a bit scary. It appeared out of nowhere. No manufacturing unit produced it. No one sweated to make it. It has no materials existence of its own…and there was no increase in the actual economic system to keep up with it.

At immediately’s costs, there may be enough bitcoin wealth to buy three million homes…or 30 million F-150 decide-ups. These are actual issues, made by actual people, working with actual instruments and actual assets in the actual economic system. But they don’t exist.

If traders all offered out of bitcoin to be able to buy decide-ups or homes, costs of the previous would go method down and costs for the latter, drawing on present stocks, would go method up. What form of ‘asset’ is it that loses worth if you attempt to use it?

The worth of a pick-up truck doesn’t go down if you begin the engine. ‘Ghost wealth,’ alternatively, drives away on its own.

Suppose bitcoin rose to be price $1,000,000…with the full market cap edging up to $20 trillion. Does that indicate that there are more F-150s to buy? More homes obtainable?

Of course not. It solely means that there’s an extra (theoretical) $20 trillion price of buying energy — more bitcoin ‘wealth’ that got here out of nowhere and isn’t supported by actual output.

And it competes with the ghost wealth in stocks — now estimated, by us, at about $30 trillion. Stock costs have gone up far more than the worth of the actual items and providers their firms produce. This ‘ghost wealth’ can’t be became actual wealth as a result of, as with bitcoin, there may be no equal in items and providers.

Even within the darkest days of 1929, actual wealth — the Model T Fords, raccoon coats, and ‘carpenter vernacular’ homes — nonetheless had worth.

But the ghost wealth in stocks, bid up within the Roaring Twenties, disappeared. From a low round 67 in 1921, the Dow rose to 333 in 1929. But then it collapsed by 89% over the subsequent three years…and didn’t return to 333 again till Eisenhower was president twenty two years later.

And, within the Nineties, there was the ghost wealth in dot.com stocks, concentrated within the Nasdaq. Like bitcoin, the dot.coms regarded unstoppable. The Nasdaq rose from 1,500 in August of 1998 to over 4,600 in March of 2000.

Then, the shades break up city…and took their money with them. The complete gain from the earlier twenty months was worn out…with the index falling to 1,300. It took fourteen years to completely get better.

Will the identical factor occur again?

Most seemingly.

Regards,

Bill Bonner,
For The Daily Reckoning Australia

All advice is normal advice and has not taken under consideration your personal circumstances.

Please search unbiased financial advice relating to your own scenario, or if doubtful concerning the suitability of an investment.