Is It Really Different This Time?

Well, sort of – and that makes all the difference.

Interest rates are at zero, and worldwide markets assume that will change little for some time to come. Global coordinated monetary and fiscal policy are spiraling interest rates to this flattened level with little prospect of upward movement. The combination of monetary, fiscal, and interest-rate policy coordinated in this manner is unprecedented and is being pushed to its limits.

Has Something Gone Horribly Wrong?

A subliminal fear may be permeating the markets, generating extreme movements, causing both substantial profits and losses from massive capital flows magnifying price movements within compressed time frames. How do we explain this, and more importantly, how do we predict and profit from it?

Bitcoin Explains Everything – Read That Twice If You Need To

Bitcoin represents more than an investment curiosity, speculative bubble, or a new way to store and transfer value seamlessly while apparently cloaked as some sort of new currency. It is not a currency, but more importantly, it may be the vanguard of a new investment approach representing an essential component of a new investment and risk strategy paradigm.

Bitcoin is volatile, and that volatility is more compressed and extreme than almost any other comparable investment. For example, Bitcoin rose more than 15% Monday, and hit a new 52-week high Tuesday morning at more than $48,000. Year to date, Bitcoin is up almost 60%. That seems ridiculous, but perhaps not. The latest volatile move came after Elon Musk announced Monday that Tesla bought $1.5 billion in Bitcoin., allocating a significant amount of its cash to an alternative investment – and that’s the point.

Alternatives Created. New Strategies Required

More such allocations to this and other alternative investments will become an essential component of successful investing. Unique investment strategies that capture these new forms of value creation can represent a superior investment portfolio considering massive and irreversible changes in the global investment environment.

Specifically, the global investment environment now consists of the following convergence of unprecedented events:

  • Zero interest rates
  • Coordinated monetary and fiscal policy globally
  • A proliferation of alternative investments (such as Bitcoin, new derivative strategies, and algorithmic trading)
  • An even greater proliferation of investors and “traders” with a trading floor in their pocket (e.g., Robinhood) driving greater volatility via less trading friction and extreme mass reactions driven by unpredictable and nebulous “analysis” and social media publicity

The Really New Normal

Successful investing in this environment demands innovative risk strategies, and new ways to think about allocating among investment alternatives. It is a new paradigm, it’s the “really new normal.”

Bitcoin’s rally comes as the yield for high yield bonds fell below 4% for the first time ever. When risky bonds yield that little, perhaps Bitcoin looks like a legitimate alternative.

More importantly, a portfolio that combines alternative investments that understand these global economic forces and captures value that has either been mispriced or ignored in an environment of greater and more compressed volatility will outperform more traditional investment strategies.

Bitcoin explains everything, but it is only one component of the answer.

 

 

 

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