Inflation ≠ Wealth

Imagine sitting down at a poker game with 9 other players, each with $100. You all receive $100 in chips.

5 minutes into the game one player goes bust…but is given another $100 in chips without adding $100 to the bank. You now have a chip pool of $1,100 but only $1,000 in the bank.

This is what happens to us every time the Federal Reserve prints more money. One quip that has stuck with me “Inflation is not wealth” is particularly meaningful in the current cycle we see ourselves in today.

Everyone wants to see his/her investment portfolio increase in value. While the absolute returns are very important, so too are the relative returns.

• Relative to inflation?

• Relative to the risks being taken?

• Relative to my illiquidity premium?

It’s an important framework to keep in mind as we navigate through 2024…

Finally, here is what’s on my radar:

lending & credit

Famed short seller Carson Block has a dire prediction for Blackstone Mortgage Trust: It’s going to have a really hard time refinancing its borrowers over the next 12-24 months..

macro

The US now has $34 trillion in debt, with an enormous amount created in the last 60 months.

How does our government get itself out of this mess when interest expense is currently outpacing our own defense spending?

The government can A: cut spending, B: raise taxes or C: print more money

As the treasury issuance resumes in 2024, it will be interesting to see how the USG must price its bonds in order to entice investors who are retreating from the market.

bitcoin

Financial industry thought leaders and bitcoin enthusiasts have growing optimism of a Spot Bitcoin ETF being approved in 2024. This would allow investors to own pure bitcoin exposure directly in a brokerage or retirement account. The big question is when these new buyers enter the market, “who will be selling?” Nearly 70% of bitcoin in circulation has not moved in a year, and the amount that has not moved in 2 & 5 years has also seen its % increase.

What could transpire is a stark supply/demand imbalance….many believe this could lead to higher Bitcoin prices. Their argument is largely evidenced by what happened with the price of gold when the GLD spot price ETF was launched.

Clark Gaines focuses on alternative investment strategies at Almanack Investment Partners, an investment firm located near Philadelphia, PA. He is based in Charleston, SC.

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