Gold, Bitcoin and the tide going out.

Macro Perspectives

The inflation report came in hotter than expected; yet, both the monthly and twelve-month change came in lower than the March report's blow out numbers.

So, has inflation indeed peaked, as the media, the administration and the Fed have suggested throughout the past month?

Unlikely. The 8.3% twelve-month change in prices for April (in this yesterday’s report), was indeed cooler (slightly) than the 8.5% inflation in the March report - oil had a lot to do with the cooler number.

If we look at the change in price of crude from Feb to March, it was 18%. From March to April, crude prices were down 6%. Not so coincidentally, Biden announced a record release of oil from the U.S. Strategic Petroleum Reserve (SPR), on March 31. Oil prices were manipulated lower…but now, prices have returned to pre-SPR announcement levels.

Bottom line: This oil price driver of inflation isn't going anywhere, and with the strong ex-food-and-energy inflation number this morning, we should expect higher inflation prints from here (i.e. we haven't seen "peak").

With all of this, yesterday we talked about the dynamic between bitcoin and gold. With the bursting of the tech bubble, bitcoin has technically broken down, and we suspected that a hot inflation number might reveal a return of the real inflation hedge (i.e. gold).

We might be seeing it. As I write, bitcoin is down 10% on the day, Gold is up better than half a percent. One is bouncing (gold), technically, the other has broken down (bitcoin)...

As Warren Buffett has said, "only when the tide goes out, do you discover who's been swimming naked." The "tide" in this case, is the easy money, low inflation era. The tide has gone out, and the mal-investment is being exposed.  That includes high valuation, no earnings tech companies ... SPACs ... and crypto currencies.

Those "no eps" tech companies that have relied on endless streams of capital to burn have been exposed as uninvestable (without easy money terms).

The stablecoin universe is beginning to break. This is a couple of hundred billion dollars that were traded for private digital currencies, with the promise of remaining pegged to a currency (like the dollar) or asset (like gold). These pegs started to break over the weekend (i.e. those initial dollars invested will not be returned).

This may be (likely is) the beginning of the end of private crypto currencies - at the very least, it's a major shakeout. We should expect this reckoning in crypto to create continued selling in the tech sector (tech stocks)...and a bursting of the crypto bubble will likely create some waves in the financial system.