Raoul Pal Profile picture
Mar 3, 2021 18 tweets 5 min read Read on X
Im doing a lot of thinking around currency debasement and how to measure it. You see, I think everyone looking for it to appear in CPI inflation is likely to be frustrated due to the lack of wage inflation, debt, demographics, technology and globalisation.
We know there is asset price inflation, cause by the printing of money. Here is MSCI World Equity Index. +263% since QE started in 2008. Image
But when we change the denominator to the G4 Central Bank Balance sheets, we can see that equities have traded sideways since 2008, basically counteracting the balance sheet expansion (and are probably cheap currently as 0.15 appears to be the mean) Image
The S&P shows similar versus the Fed Balance Sheet but are roughly at fair value and essentially just counteract the Fed Balance Sheet growth (and suggests Non-US equities are cheaper). Image
But how do you measure the actual drop in value of global currencies?

Everyone makes the mistake of looking at the dollar index, but ALL fiat is being debased. The DXY has essentially traded sideways with a slight upward bias since 2008. It is NOT a dollar story. Image
When I look at a basket of 27 currencies versus the dollar (equally weighted). They have underperformed in the dollar bull market, but only by a bit since 2008. Image
But when I look at gold vs a basket of 27 currencies (thus stripping out the dollar denominator), it shows that they have declined by 60% versus the longest-used store of value in history. This IS debasement. Image
When we look at that basket of currencies versus the balance sheet, they also show an even larger decline (dollar outperformance + debasement) Image
But gold itself has not really help preserve wealth as well as it should have done. Im not sure why that is, but versus the G4 BS (applicable short hand in this case!) it has fallen significantly -60% in BS terms... Image
Even Real Estate, which is another traditional store of value, has also failed to offset the devaluation of Fiat. Image
Bitcoin has obviously massive outperformed the G4 BS and is not only a store of value, but a huge wealth generator too and should continue to do so even taking into account the negative side of the halving cycles. Image
The only other key asset that has generated wealth are technology stocks. In this secular super cycle of technology, they have outperformed the Fed BS by 220% Image
That makes total sense considering we are in the Technology Age and the pace of innovation and disruption of old industries is blistering and exponential.
So, what does this all mean?

We are looking at the wrong denominator for assets, as I have suggested before.

Broad based equities and Real Estate have trodden water since 2008, which makes total sense. To me it confirms the truthiness of this much used chart of Fed BS v SPX. Image
Equities will climb as the balance sheet climbs.

They will continue to offset currency debasement.

Tech will outperform over time. EM too, most likely.

Fiscal + YCC will increase the BS, so equities over time will likely rise in dollar terms (but not BS terms).
It suggests Real Estate has not been a great store of value overall.

Gold is suffering a similar fate, which is frustrating a lot of people, but my guess it will mean revert in due course and stabilise in SoV terms.
But It really suggests that technology investments and above all, Bitcoin (and my guess ALL digital assets) are going to continue to suck in all the worlds capital, over time, as people realise it is the most efficient way to generate wealth over and above their store of value.
Im just thinking out loud but I think that we are looking at the wrong denominator and when we look at it in central bank balance sheet terms, the world makes a lot more sense and gives us clues how to allocate capital to create and preserve wealth.

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More from @RaoulGMI

Aug 31
Crypto is still being adopted at twice the speed on the internet from 5m IP addresses vs 5m wallets (very like for like). 1/ Image
And its on its way to 4 billion by 2030... Image
And that will take it from $4trn in market cap today to $100trn by 2032/2034 Image
Read 7 tweets
Aug 29
Let's talk about the Crypto Waiting Room... many key part of the crypto ecosystem are in the waiting room ready to launch. Let's look at a few (you will have yours too...)

Total3 - Ex- BTC and ETH...ready to launch from the waiting room. 1/ ... Image
OTHERS (Outside of Top 10... purest form of Alts season where all shit rises). Still in the waiting room but longer to launch... Image
ETH... Full Port. Image
Read 14 tweets
Mar 10
This too shall pass...

Crypto is still feeling the tightening in liquidity from the stronger dollar and higher rates in Q4 2024. That is almost done and financial conditions are easing fast and M2 is headed back to new highs. This is just a regular correction... 1/ Image
We had the exact same correction in 2017 caused by the same reaction to Trump policies (higher dollar and higher rates which then reversed). 2/ Image
Over time, we just keep climbing the log regression channel. Whether we stay at the man (red) or climb above it by another standard deviation or two remains to be seen as the cycle develops. Image
Read 4 tweets
Nov 10, 2024
We are very close to being in the Last Chance to Add Zone in crypto. The next step should be the memes breaking out and after that there is nothing to do but wait to take lifestyle chips off the table.

Here is $DOGE leading the breakout... 1/ Image
Here is $WIF about to break out... Image
And Smoking Chicken Fish will follow suit.. $SCF Image
Read 4 tweets
Nov 5, 2024
These are the three most important charts in Global Macro, along with Crypto - from this months Global Macro Investor publication:

1. Demographics are destiny. GDP slows over time as size of labour force shrinks. Image
2. Government Debt to GDP ratio is just a function of the working population. It offsets the weak growth and pays for the compunding interests on the debts. This is THE most important chart in macro. Image
3. That debt is serviced via debasement via liquidity increases over time. Image
Read 4 tweets
Oct 29, 2024
With $BTC well over $70k... Im looking for the final confirmations from some others. $SOL over $185... 1/ Image
$SUI is breaking its consolidation now and should be headed to new ATH's Image
And $DOGE is within sniffing distance... the dog can smell the ripening fruit. Image
Read 4 tweets

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