Bubble or revolution?

Welcome to the new normal.

No, what I mean by this has to do with much more than life in a pandemic, if it ever ends.

A new reality where you have seen the never seen. An inverted yield curve, a negative price of the Crude Oil Futures Contract (NYMEX: QMF22) for the first time in history, the US at the edge of facing its first default in history, the Baltic Dry Index plummeting close to 50% over the last month – once again. 

The latter usually is a strong indicator of an economic contraction. 

But I don’t think you care about it as you are living all-time highs on the main financial markets – including crypto. A 4.6% US unemployment in October and on its way back to the 3.5% recorded in 2019 just before the pandemic. Both are very close to historic lows and full employment.

A new normal with cheap money to promote short-term economic growth. US interest rates hover close to all-time lows, and very far from all-time highs recorded at the beginning of the 80s which were close to 20%.

This was the result of the energy crisis and poor economic policy of the 70s which boosted the economy, but truthfully it created the first period of stagflation seen in the US. Unemployment and inflation rates reached double digits, something that nowadays and for some generations is unthinkable. Well, let’s set aside those cases in the developing countries with employment and hyperinflation issues. 

This is what should concern you. Jack Dorsey, CEO and founder of Twitter (NYSE: TWTR) and Square (NYSE: SQ) who additionally is a crypto advocate tweeted on his account: “Hyperinflation is going to change everything. It’s happening”. His comment comes right before the 6.2% inflation recorded in the US in October, the highest in the last 30 years.

Meanwhile, the Chair of the Federal Reserve, Jerome Powell – who hasn’t defined yet what he means when he refers to inflation as something “transitory” – finally announced the beginning of the end of its quantitative easing monetary policy starting by the end of November. This means that the Fed is winding down the bond purchase program which expanded the money supply to fight the economic downturn caused by the pandemic.

Finally! The Fed is feeling the impacts of inflation in its pocket which led them to unplug the printer. Probably they freaked out when they looked at their hydro bill. 

As the saying goes, it is better late than never. But how late it is? You may think that it might be too late when you look at the global supply-chain shock that the world is experiencing. Without going too far, if you know where to find a PS5 with which I can enjoy the upcoming holidays, please let me know.

Does J-Pow has anything to do with the fact that you are paying higher blockchain network fees? Don’t know, but some countries are experiencing all-time high gas prices… if that tells you something.  

It is quite difficult to answer these types of questions. Nonetheless, it is clear how cheap money has become and with it living on debt or having an excess of money thanks to expansionary monetary policy and devaluation of fiat currencies. Thank Nixon for introducing the fiat-based system implemented in the 70s which we continue to use. The negative effects of these types of policies have been observed in the past, and as George Santayana said, “those who cannot remember the past are condemned to repeat it”. Imagine if you had to pay almost an annual 20% mortgage rate if you ever have one.

It is also unclear the impact that this new normal will have on the financial markets in the long run. What you can be certain of is that the Dow Jones Industrial Average started in 800 at the beginning of the 70s and ended up in 839 by the end of the decade. Just a 5% increase in 10 years.

But wait, there’s a new variable in this equation, crypto. Bubble or revolution? Who knows, what you do know is that crypto is changing various aspects of the economy as you read this. Many investors – just ask George Soros what he thinks about Bitcoin – have seen them with good eyes and as a perfect shelter for this storm that is building up in this new normal.