Cryptos Rebound Amid Economic Uncertainty
by Marvin Dumont
Early Monday, cryptos’ total market cap exceeded $222 billion which represented an 87% gain since March 13. What’s going on?
Traders saw Bitcoin and other coins/tokens as significantly undervalued despite the extreme volatility in the financial markets. As Warren Buffett says, investors should be greedy when others are scared (and vice versa).
Scared they are.
Last week, Goldman Sachs said the coronavirus recession will be four times worse than 2008 but also expects the U.S. economy to recover in the second half of 2020. (See CNBC article) A projected recovery offers little comfort given that 23 million Americans have filed for unemployment since March. The Wall Street bank also expects the highest unemployment rate since the Great Depression.
Cash is trash. — Ray Dalio
A big consideration is the extreme expansion of fiat cash supply in the U.S., Europe and globally. Economists believe the Federal Reserve will print between $6-$10 trillion to stimulate the U.S. economy, as well as, monetize America’s burgeoning debt.
(As Robert Kiyosaki says, why should employees work for fiat dollars when central bankers can just print it? He says the dollar has become “fake money.”)
The Fed’s extreme quantitative easing (QE) is prompting Ray Dalio (who manages $160 billion in hedge fund capital) to say “cash is trash:” a new paradigm that is gaining wide acceptance. Cash is trash means investors are being forced to seek assets that hedge risk and avoid the diminishing value of fiat: assets like gold, commodities, real estate, bonds, etc. And perhaps even Bitcoin.
In a recent talk, Dalio presented an all-weather portfolio that is meant to perform reasonably well under any market condition:
- 7.5% gold
- 7.5% commodities
- 30% stocks (in ETFs)
- 40% in long-term bonds
- 15% intermediate bonds
So how will this pandemic economy turn out? People should ask Beijing.
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