What the South Americans are telling us

Friday, 23 August 2019
Adelaide, Australia
By Bernd Struben

  • The case against…and for…inflation
  • A 21st Century safe haven
  • In the mailbag

Do you think Jerome Powell is getting a good night’s sleep?

It’s quiet enough in Jackson Hole, Wyoming after dark.

But surely the US Fed chairman is aware that investors across the world — not to mention bossman Trump — will be hanging on his every word  in his speech today (overnight our time).

He’ll be addressing top central bankers from the US and across the world, including RBA governor Philip Lowe. And his words will have an outsized impact on global stock markets.

As Bloomberg notes:

Stocks in Asia were mixed Friday as traders adopted a cautious stance before Federal Reserve Chair Jerome Powell’s address at the Jackson Hole summit.

If Powell indicates the Fed may hold off on further interest rate rises and any quantitative easing (QE) due to a strong US economy, you can expect stocks to selloff.

If he goes the other way and points to an accommodative policy, maybe even ‘doing whatever it takes’, then markets should enjoy big gains.

More likely he’ll try to steer a middle ground. For now…

But the uncomfortable reality is that billions — nay, hundreds of billions — of dollars are riding on Powell’s presentation.

You can see how that could go to someone’s head.

It’s why we looked at the growing hubris of the world’s central bankers in yesterday’s Port Phillip Insider.

One of the dangers we pointed out is that their misplaced self-confidence could unleash the inflation they so desire…only to discover they can’t control it.

Yesterday we also looked at how gold should only become more attractive if inflation takes off.

But gold isn’t the only asset that looks to benefit in an uncertain, high inflation environment.

We’ll get back to that, after the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 49.51 points, or 0.19%.

The S&P 500 closed down 1.48 points, or 0.05%.

In Europe the Euro Stoxx 50 index finished down 21.22 points, or 0.63%. Meanwhile, the FTSE 100 lost 1.05% and Germany’s DAX closed down 55.81 points, or 0.47%.

In Asian markets Japan’s Nikkei 225 is up 61.51 points, or 0.30%. China’s CSI 300 is up 0.65%.

In Australia, the S&P/ASX 200 is up 10.39 points, or 0.16%.

West Texas Intermediate crude oil is US$55.52 per barrel. Brent crude is US$60.17 per barrel.

Turning to gold, the yellow metal is trading for US$1,496.23 (AU$2,213.36) per troy ounce. Silver is US$17.02 (AU$25.18) per troy ounce.

One bitcoin is worth US$10,073.12.

The Aussie dollar is worth 67.60 US cents.

The case against…and for…inflation

I’ve never bought into the central banks’ inflation game.

In Australia, the RBA has an official inflation target of 2–3%. In my not so humble opinion that target should be 0%. That way the dollar in your pocket today is worth that same dollar next year. And in 50 years.

If inflation drops below zero to, say, -1% (Gasp! Deflation!) the RBA could fiddle with its levers to bring it up to zero. Likewise, if it rises to 1% the RBA can manipulate away to bring it down to zero.

Ask any mainstream economist why 3% inflation is desirable and they’ll tell you it’s the ‘optimal’ level. The level that’s not disruptive to government fiat currency while driving investment and consumer spending.

I have another theory. It’s spelled out for you in the screen shot below:



chart image
Source: Australian Debt Clock
Click to enlarge

Australia’s total government debt — state, national and local — is fast approaching $1 trillion.

Now governments have a long time horizon. And while 3% inflation may not sound like much, it is. In fact, with a 3% inflation rate the value of the cash under your mattress is cut in half every 24 years.

On the flip side, the cost of your debt obligations is also cut in half every 24 years. Meaning in 72 years the real value of your dollar denominated debts would be worth only 12.5 cents on the dollar.

OK, I’ll admit if I’d wracked up a trillion dollars in debt, I’d be on the inflation bandwagon too. As for the rest of us…we deserve better.

A 21st Century safe haven

Now we know one of the primary drivers behind central banks’ inflation obsession. And we know that — despite your editor’s distaste — a 2–3% inflation rate isn’t disruptive to everyday transactions.

But pity the poor souls in Argentina and Venezuela. They must be scratching their heads over all the lamenting about our ‘stubbornly low’ inflation.

As I mentioned yesterday, inflation in Venezuela topped 160,000% last year. Venezuelans have the inept policies of disputed President Nicolas Maduro to thank for that. With US sanctions pouring salt on the wounds.

Over the past year, Maduro has been stealthily selling off his nation’s remaining gold reserves to keep his military fed and clothed. At the same time, a lot of his citizens have been turning to cryptos.

As CoinDesk tells us, ‘A period of hyperinflation and lack of liquidity has seen many Venezuelans adopt cryptocurrency as a store of value and payment option.’

And the free market is listening:

Venezuela’s largest department store will install blockchain-enabled cash registers in its 49 retail outlets.

The megastore operator Traki announced August 22, it will integrate Singapore-based Pundi X’s point-of-sale device, XPOS, to offer a cryptocurrency payment rail for shoppers.

Already available in 30 countries, Pundi aims to sell 100,000 XPOS devices by 2021. This is part of the firm’s plan to introduce cryptocurrencies for everyday use...’

The new cash registers support a range of cryptocurrencies including bitcoin and ether. They may still accept the bolivar, too. But with a currency that can lose more than 80% of its value in a day, why would they want to?

Argentina’s peso has done comparatively well. From June 2018 to June 2019 it lost a mere 55.8%, according to the National Institute of Statistics and Censuses. And the rate had been steadily coming down since then…until last week that is. Following an election upset that will see left-wing candidate Alberto Fernández likely take office, the peso plummeted 30% in one day.

Ouch.

Add in the growing reality of negative interest rates in the developed world and, as crypto analyst Ryan Dinse puts it, ‘The attractiveness of bitcoin in such a wacky world becomes a lot clearer.’

Ryan continues:

For one, you don’t need to pay anyone interest to store your bitcoin. Suddenly, it becomes a rival to cash in one way.

There’s still the price volatility of bitcoin to account for, of course.

But if economic turmoil continues, folks in countries like Argentina will start to see bitcoin as a viable and more desirable alternative store of value than their own currency. A less volatile currency.

Bitcoin priced in pesos is actually at record highs already.’

Here’s the chart Ryan shows to prove it:



chart image
Sources: xe.com / Extreme Crypto Trader
Click to enlarge

Have a close look at this chart. It’s compelling argument to support a long and happy life for bitcoin and select other cryptos.

As you likely know, the same chart in Aussie dollars (and most currently ‘stable’ fiat currencies) has bitcoin topping out in late December 2017. Then its mostly downhill in 2018 before a remarkable recovery in 2019. Yet even today, bitcoin is still down almost 50% from its peak.

But in Argentina and other nations suffering runaway inflation, it’s a completely different story.

And if inflation gets away from the world’s top central bankers and we return to 1970 levels of 15–20% in the West, a similar story could start to play out here.

To stay atop of one of the fastest developing investment trends today, check out the latest from Ryan Dinse and Sam Volkering over at Secret Crypto Network. And set some time aside to read Sam’s comprehensive book, Crypto Revolution, from cover to cover.

You’ll be glad you did. Get all the details here.

In the mailbag

On Monday, editor Phil Anderson formally announced that he was parting ways with Port Phillip Publishing.

While that news may have seemed abrupt, it was something he’d been considering for some time. He gave the company management notice almost four months ago.

Phil’s departure was amicable. We wish him well in his continuing research into the ‘time element’ of markets and trading. As well as his ambitious plan to reshape government into a sliver of its current bureaucratic mass.

Understandably, though, Phil’s departure surprised a lot of readers. And we received a number of mails in the Port Phillip Insider inbox.

Like this one, from reader Khanh:

Dear Bernd,

I have just read your email today. While I am sad to see Phil departing from your team as he is quite unique, I’ve watched the short introduction video on Catherine and felt quite comfortable to see her taking on the role Phil left.

I am looking forward to hearing more about the complimentary extension of the subscription term that you mentioned in your email.

Rest assured, your complimentary extension is coming! You should receive an email notifying you of a three month extension to your current subscription term inside the next two weeks.

By the way, the video Khanh refers to is a short interview Greg Canavan conducted with Catherine Cashmore.

Catherine’s written numerous feature pieces for Cycles, Trends & Forecasts over the past years. She has a thorough knowledge of the 18-year Grand Cycle. And she knows the Aussie property market like few…or no…others.

To watch the interview, just click on the image below:



chart image
Greg Canavan and Catherine Cashmore

That’s a wrap for the week.

Be sure to tune in Monday for a special edition from technology analyst Ryan Clarkson-Ledward. He’s got some exciting news to share with you from his work with Sam Volkering at Revolutionary Tech Investor.

I’ll be back with you on Tuesday.

Cheers,
Bernd