The Trade Of Our Generation

To investors,

The US national debt crossed over $34 trillion yesterday, which is the highest it has been in history. This all-time high milestone is not one to celebrate.

Charlie Bilello points out that the $12 trillion increase in the debt over the last 5 years signals a 55% increase during that time. The growth is hard to comprehend. Potentially more concerning, the US national debt as a percent of GDP has been increasing an alarming rate as well:

1980: 31%

1985: 40%

1990: 52%

1995: 65%

2000: 58%

2005: 61%

2010: 87%

2015: 101%

Today: 123%

There has been a 50% increase since 2010, which highlights how much faster debt is growing than the economy. Simply, we are a nation addicted to printing money and there is no end in sight.

This has caused catastrophic issues with interest rates high. The US is now spending materially more money on the national interest payment compared to our defense budget.

That is quite a feat considering we are handing out weapons and equipment around the world like it is candy, so our allies can fight our proxy wars.

The three data points — the national debt, debt-to-GDP ratio, and the US interest payment — highlight the need for the United States to continue debasing the currency. They literally have no other choice. There will be short periods of time where the government and the Fed can slow the rate of debasement, but the macro tailwind is for an accelerated debasement over the long run.

Why is this important?

The trade of our generation is to be long assets that benefit from currency debasement.

Thankfully, most investment assets priced in US dollars will benefit from this trend. One of the biggest winners will naturally be bitcoin, specifically because of the finite supply and sound money principles. Gold will do well also, yet I believe that most of the asymmetric upside in the asset was captured by previous generations.

Stocks are a forgotten asset class when it comes to currency debasement. Let’s use the MSCI World Equity Index as an example. Since the Global Financial Crisis, the index appeared to have gone on an epic run of appreciation.

When you evaluate the same index priced in units of gold, instead of US dollars, you can clearly see that most, if not all, of the growth that was experienced in the 2010s was from currency debasement.

Another asset class that will always do well in currency debasement periods is real estate. There is a reason why it is estimated that the industry produces 90% of millionaires in the United States. These investors have simply bought properties and had the patience to let the government debase the currency.

It is not rocket science.

So the trade of our generation is to simply get long investment assets that benefit from debasement and avoid cash and cash-like equivalents such as bonds. I truly believe it is that simple.

Here is how that has played out in the last 15 years:

And the compound annual growth rates are even more impressive:

There is a lot of over intellectualization of investing in financial markets. If you try to optimize for the absolute best return, it can be very difficult. If you want to merely do well, then you can buy various investment assets and chill. Time in the market is more valuable than timing the market.

It is almost like the boring, timeless investing advice is timeless for a reason :)

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

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Dave Collum is a Professor of Chemistry at Cornell University.

In this conversation we discuss his year in review of 2023, which includes financial markets, bitcoin, digital totalitarianism, political landscape, climate change, biological males, and more.

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