Thread by @APompliano

0/ There are a lot of Wall Street investors that are going on television to share their opinions about what is happening in the markets.

There is one black swan they are not thinking about.

Time for a thread to propose a few ideas & solicit feedback 👇🏽👇🏽👇🏽

1/ Most investors are aware that the COVID-19 issue has created an economic slowdown, which in turn is causing fear, uncertainty, and panic in the markets.

This is presenting itself in the form of a liquidity crisis.

2/ In a modern day liquidity crisis, investors will sell any asset that has a liquid market so that they can gain access to US dollars.

This is why you are seeing every asset sell off. You see it in equities, gold, Treasuries, Bitcoin, etc.

No asset is immune.

3/ Another way to think of a liquidity crisis is that the dollar is strengthening against every other asset (equities, commodities, etc).

This means that dollars are more valuable. It takes less of them to buy the same asset.

4/ When the dollar strengthens, the asset prices of equities/commodities/etc all goes down. This is what we are seeing in the market today.

In order to stabilize asset prices, the dollar has to be weakened.

@DTAPCAP has been all over this. You should follow him to learn more

5/ The United States is going to have to weaken the dollar at some point. This is only way to stop the bleeding.

They will have to flood the market with trillions of US dollars in order to accomplish this.

My guess is that it will require at least $5 trillion.

6/ When the US floods the market with dollars, they are essentially devaluing the dollar.

The current environment is a deflationary one (dollars get more valuable), but once they make a move we will move to an inflationary environment (dollars get less valuable).

7/ The transition from the current deflationary environment to an inflationary one brings two possible scenarios that people should watch for:

a) Asset prices exploding
b) Potential failure of fiat system

Keep reading to understand both.

8/ When the US goes to weaken the dollar, this means that it will take more dollars to buy the same amount of equities, commodities, etc.

Almost every asset price should rise, but the inflation hedges are likely to rise the most (gold, Bitcoin, etc).

Example: gold in 2009-2011.

9/ The most dangerous outcome is that we see the failure of the fiat currency experiment.

We are only 49 years into this experiment. There is no guarantee that it will survive.

While probably less than a 5% chance it happens today, it is definitely a non-zero possibility.

10/ The fiat currency experiment is most vulnerable to failure when an economy gets addicted to monetary stimulus.

That stimulus is merely the long term devaluation of a currency. You can't devalue a currency forever.

The US economy is a stimulus addict today.

11/ If we see the US flood the market with dollars to weaken the dollar, it wouldn't surprise me to see someone take a run at a massive short against the dollar too.

Soros broke the pound on Black Wednesday.

If we see high inflation, the incentive is too big for no one to try.

12/ I don't share these thoughts to suggest that (a) the US dollar will fail or (b) to try to predict timing of any events in the thread.

Instead, I'm surprised that no investor has suggested we could be seeing the failure of fiat experiment.

I'm looking for feedback/critiques

13/ The world operated on sound money for thousands of years.

We have only operated on fiat currencies for about 50 years.

Fiat currency drives an addiction to stimulus, which is the devaluation of a currency.

We have seen how that ends throughout history.

14/ The United States has been the leader of the free world for a long time.

That doesn't make us immune to mistakes or missteps.

We have seen other countries weaken their currency to the point of hyperinflation (Zimbabwe, Venezuela, etc).

We have to be careful right now.

15/ There are many people much smarter than me who have (a) taught me about these concepts, (b) been incredibly kind with sharing their thought process publicly, and (c) are no-brainer follows if you want to learn more.

@RaoulGMI and @DTAPCAP are the two that I'll mention here.

16/16 There are many people hurting in the world right now. Even more will get hurt if we don't respond with stimulus quickly & decisively.

The stimulus implementation is really important.

Any slip in execution could put us in previously unthinkable place. Be kind to others🙏🏽