> We're just at a point in the economy where it doesn't make sense to hold on to cash.
We're not at that point, and I'm speaking as someone that supports a gold standard or equivalent to prevent rampant fiat debasement. I take it you didn't live through the 1970s. There have been numerous times in the past century where currency in major economies was prominently debased far worse, far faster than what we're seeing today. Sutained QE has done far less damage to the USD as one example, than what the 1970s did to it or the extreme destruction we saw during the George W Bush years (go to Google, type in "Belgium GDP", Netherlands GDP, Czech GDP, or Brazil GDP, almost any nation; you'll see a comical liftoff in their GDP chart, far beyond any real growth rates, that's the dollar getting massacred thanks to the idiotic fiscal policies during the GWB years).
Gold went from around $250 to $1900 over a little more than a decade from ~2000-2011, before sustained QE became a thing. In the 1970s it basically went up 1,000%. Not much has actually changed about how governments destroy currencies, it's the same old same old. Perma QE didn't change much, it's not a new tool, and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
You're better off holding cash than Tesla shares at $800 or $900. I'd rather take a 3% average debasement per year than sit in the S&P 500 at these levels (especially given what the US economy is going to look like in the coming decade). From these heights I'll bide my time for the next inevitable crash or significant decline, that's when the serious returns are generated, not chasing mania ever higher in markets at late stages. The big money was already made in Bitcoin, from $0 to $50,000; the upside from here is a joke by comparison to the risk. So it goes to $150,000 (maybe). That isn't a crazy return vs the outsized risk, that's the kind of return you could have gotten in any cloud stock after IPO. Yet it takes an extraordinary move of adding ~$2 trillion in market cap for Bitcoin to get there. The risk vs reward in Bitcoin at these levels is like a lot of absurdly overvalued stocks presently. And of course everyone becomes certain that something is fundamentally different today - it's not, this mania won't endure either (to be clear, we're not just in an asset bubble, this is a mania, the 8th or 9th inning of a bubble phase).
Significant inflation isn't coming back anytime soon (not until or unless they start devaluing the USD directly, but that isn't for at least 20 years yet), the US is in a heat-death stage of economic erosion. Ever greater sums of capital are being put into the freezer in the form of very low yielding debt, that process will continue to rob the US of dynamism and growth, trending growth toward zero as it goes. This is the exact same process Japan went through, and it's why they were unable to spark traditional inflation with their crazy spending and QE-like programs, they tried everything in the Keynesian book and it all failed (for the same reason the US didn't drown in inflation from 2010-2020 despite the rather insanely low interest rates over that time). We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
> Yet it takes an extraordinary move of adding ~$2 trillion in market cap for Bitcoin to get there. The risk vs reward in Bitcoin at these levels is like a lot of absurdly overvalued stocks presently.
Bitcoin is not a stock, it's a deflationary asset. There are not just a limited amount of bitcoin, but a constantly decreasing amount and a constantly increasing amount of people wishing to use them. People sounded very much like you at every step of the way, including in the rise to $1,000. "The risk isn't worth it."
> Significant inflation isn't coming back anytime soon
I mean except in the commodities markets, the housing market, the price of ammo, of course. Unless you believe those are just "bubbles" as well.
> We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
We are seeing inflation, it's just occurring in hard asset classes like real estate.
> and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
Yeah, people call it the everything bubble, when the obvious explanation is the money is being massively debased to pay debt that can't be serviced otherwise.
In all historical episodes of hyperinflation, at the start, everyone holding assets just thinks they are getting rich.
No I don't think gold would be up 1,000% if Bitcoin didn't exist.
Bitcoin is a more of a speculative investment than a store of value at this stage, because it has been producing such extraordinary returns (whereas gold is the opposite, on average far more of a store of value than a speculative investment (with some rare bursts of euphoria)). Bitcoin still isn't very widely/greatly (immense sums) held by the rich or the elite institutions, they're only beginning to dip their toes into it. Will Bitcoin end up primarily as a store of value over time (and less of a speculative frenzy)? Sure, that appears to be the likelihood at this point.
Gold moves, across time, in line with the destruction of the US Dollar (it'll see occasional temporary bursts due to fear / panic / commodity bubbles etc). Gold is overwhelmingly priced in dollars. Most commodities are. If gold would be up 1,000% as representative of enormous inflation / destruction in the USD, we'd be seeing that in an epic commodity bubble of the sort we saw in the 2000s. You'd see it in everything from copper to oil to silver. While those commodities are clearly seeing some inflationary push-up from the dollar losing value (and bets on future dollar destruction), it's not remotely close to a 1,000% gold move type debasement.
Low interest rates over a very long period of time, is indeed inflating assets, exactly as it helped cause the 2003-2007 real-estate bubble previously. I wasn't disputing any of that in what I said. Those low interest rates are causing housing values to rest far beyond where they otherwise would be (people buying more house than they otherwise could, due to artificially low mortgage rates). Those low interest rates are driving speculative money into most asset classes, from art & collectible cards to stocks and real-estate and most everything inbetween. It took a while but the high asset prices became a bubble which then became a mania, which will then either crash or otherwise be forced to stagnate across a very long period of time (think: Nasdaq from 2000 to 2015). This market doesn't have to crash, it may just decline or swing in tantrums, while inflation erodes its value and brings the valuations back in line with the mediocre US (and global) growth rates. The China boom phase is well over and there is no next China-like outcome coming soon, so global growth will largely disappoint this decade. This current market is a rather extreme case of future returns - distant future returns - being pulled forward. How many decades will it take for Tesla or Snowflake or Shopify to grow into their valuations? Tesla needs to become as profitable as 2 to 4 Toyotas to justify its present valuation, that should only take about 40 years of perfect execution and world conquering dominance. When you pull returns forward from so far into the future, the penalty you pay is stagnation as you eventually pass through that future time. And if this market does crash spectacularly, they'll pump and pump and pump and reinflate the valuations again at some point, most likely, even if it takes the better part of a decade to do it (which isn't to say those valuations will reach present mania levels again, maybe that doesn't happen but once every several decades; but to get back to abnormally elevated valuations, they can certainly drive us back to that after a crash with QE and low interest rates plus 5-10 years).
My strategy is to pay as far below what I consider to be fair value as I can for high quality assets. It ends up being taking advantage of the fact that very few investors are capable of objectivity, capable of controlling themselves, capable of controlling their greed or emotions. Markets always go too high and sell down too low; you sell into the froth and buy the panic (Buffett's mantra of being greedy when others are fearful, and fearful when others are greedy, it is that simple; then repeat it with discipline across a lifetime). The disciplined win over time. I generated enormous returns from both the run up to the present, and the March quick crash. You don't need to do that very often to make a lot of money over time, as returns compound, you only need a few giant hits rarely; as such you can afford to be very strategic and very patient about it; this is one of the points that amateur investors most often fail to learn, they think you must always have your money at work, you must always be doing something, it's entirely wrong. Understanding there are many times when you should do nothing, when you should be patient, is very important. There are critical times to act, where you can strike and generate the extreme bulk of max potential returns, and that doesn't happen constantly (although people think it does during mania phases, a lot of those people will ride the mania back down the other direction though; see: Dave Portnoy as a microcosm of a typical bubble amateur routinely losing playing with a mania he doesn't understand). One of the most important rules is to first do no harm, first don't lose money, and if you can do that compounding returns will generate an extraordinary outcome over time. The people that ride this mania back down (which will be most investors), may see their progress reset by a decade (or worse), as happened with the dotcom bubble crash or real-estate bubble crash. It can take a very long time of average returns to climb back out of a 40% or 70% drop in your portfolio (eg playing with speculative fire in a stock like Tesla that could drop by 90% and still be overvalued).
I don't know whether we'll see sustained damage to the economy from whatever the next crash-type event is, such that stocks stay down for a long time, or if we'll see something more like micro crashes more frequently (with QE & low interest rates bouncing valuations back up faster). Either way, my strategy is to take advantage of any event where I can buy value cheaply or cheapish. I don't need that to happen very often, I only need to make sure I get a nice hit when that pitch arrives, and I can safely stay out of the mania while others take all that risk (I seek to unload my previously purchased assets to buyers during the mania, rather than be buy-heavy at that time, in other words; then I'll reload later at a cheaper value). The only way this fails is if values never - literally never - become cheap, or reasonably priced, ever again. I don't believe that's going to be the case. If you generate a huge return from doing this, you can afford to sit out the volatile ending mania stage, even if it lasts multiple years, you become free to disregard all of it, the risk gets assumed by everyone playing in the fire and they're ultimately the desperate sellers I'll buy from later on.
As a side note, this isn't timing markets (which is a common misconception). This is calculating value and making a determination about what one considers a good price to pay for an asset. When Buffett sits out the insanity, as in 1999, he isn't timing anything, he's deciding not to overpay based on his personal judgment about price vs value (price is what you pay, value is what you get). We all make such value judgments, consciously or subconsciously; you have a choice as to whether it's conscious & deliberate or abdicated, you can be calculated about it or you can throw dice or play follow the leader in a mania (eg they're all buying GME on Reddit, so I should too; shit it crashed from $500 to $40). You can train yourself to get good at judging price vs value, or you can offload to someone else's opinion of that. Those are the only choices.
I don't generally recommend the Intelligent Investor. I think it's almost always a mistake for ... 99% of new investors to bother with Benjamin Graham. His material is far too dense and often advanced for anyone that isn't quite an experienced investor. I'm sure there are exceptions, however I've found it's a huge turn-off for most new or newish investors, it delays / stunts their learning process, it's an obnoxious book to try digest if you're starting out. It'll make you hate investing or think that value investing is difficult (it's not, it's simultaneously the best approach for generating consistently high returns over time and very easy to learn).
Here is what I point new investors to:
- Buffett: The Making of an American Capitalist, by Roger Lowenstein.
- Margin of Safety, by Seth Klarman
- The Little Book That Still Beats the Market, by Joel Greenblatt
- Common Stocks and Uncommon Profits, by Philip Fisher
- Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks
- Peter Lynch also has a couple of optional books that are decent and very easy to digest for a new investor, very common sense oriented.
- Also optionally, Buffett's various writings are often excellent, however they're all over the place in focus, so it's hard to pick one. His annual letters for example can be acquired on the Kindle or from Berkshire's website and many are worth reading (if somewhat boring for most people I suspect).
The single most important thought in investing, in my opinion, is to always be cognizant of price vs value. What you're paying, what you're getting in return. Then always be aware of, always estimate as best you can, what your moat is for the investment at the price you're paying (what Klarman and others have called a margin of safety). How much can go wrong with your investment before you drown? How much room for error is there in the price that you paid? I like the Buffett book I reference above, because it pounds home that concept while introducing how Buffett came up, how he thinks (I don't particularly like his book, The Snowball, for that).
Also, Margin of Safety is out of print. However, there is a certain Archive site with a time machine, that if you were to put this url into it:
You'll find an archived copy of the book in PDF format. Alternatively you can put that file name into Google and find some other copies of it floating about still (Klarman refuses to put it back into print and had been having the PDF copies taken down).
Bless your dear soul for the Margin of Safety link. I've been meaning to read it for quite awhile, but you can guess why not. All your other commentary is top notch, although I still think the SP500 is fairly valued (won't have great 8% returns going forward, but won't be 0% stagnant).
Some if it is time and experience. Seeing markets come and go, seeing valuations come and go. You could perhaps study historical markets to gain some of that, but there is no better teacher than going through it (including taking some beatings along the way, along the process of learning and instilling discipline).
The absolute easiest things to look for (things most anybody can do), is growth vs valuation, along with having enough of an understanding of the business you're buying part of, to know whether they have an enduring position in their market, whether they have a moat or edge that isn't going to easily vanish. It's important to understand the context of the business you're buying into. Ultimately if you're going to self-manage, you have to decide what kind of ratio on growth vs valuation you're willing to accept, what's too high. These are largely subjective decisions, there is no right or wrong answer in most cases, only answers that entail more or less risk (the worse the ratio (eg high valuation + negative growth), the closer you get to it being an objectively wrong, dangerous answer though). Personally I prefer a balance on that equation. I'm a value investor, and it's commonly thought that value investing is a conservative, low return approach, however that's not inherently the case, that's up to the investor's approach (Benjamin Graham was a cigar butt value investor, looking for a last puff on cheap stocks, and his approach produces far lower returns over time than Buffett's approach to value investing). If a stock has a medium or high valuation, it can be a great value proposition if the necessary growth is there as a proper offset.
For example, if you go back to December 2018, Facebook was trading for around a $370 billion market cap, around 14.8 times operating income for that year. Why didn't more investors see that opportunity? It should take only a few minutes at most to run a basic extrapolation of a modest growth rate and see how that Facebook value proposition would end up a few years into the future. And yet, sentiment on the stock was irrationally bearish. That's nothing more than emotion, herd behavior, and it's extremely common. It's investors listening to other low-value opinions, it's Wall Street money being the typical followers that they are. People are generally terrified to stand apart on any decision, much less an investment. Many of those investors end up being the desperate sellers you want to buy from as they sell you FB at $137. They have no idea what they're doing, they have no idea when to buy or sell. And that's true of most of the professionals on Wall Street, they're almost all clowns (very highly paid clowns, because they're operating in a protected cartel). Was Facebook's social monopoly - their moat, their edge - going to vanish soon circa December 2018? That was an absurd, silly, borderline stupid premise, and yet it was a commonly floated notion; there was wildly bearish sentiment going around at the time - and yet back in objective land, where you always want to remain, their business was still firing soundly. So if an investor could brush away the irrational people spewing their emotional bias about FB, you could focus on the actual business and what it was actually doing, and run some very straight-forward projections into the future (even being conservative about it).
I'll give you another obvious example from my perspective. In March I posted here about which stocks I thought were interesting during the crash. I argued about Square and why I liked it. For that stock I looked at a few things. They did $4.7b in sales in 2019 and their market cap was down to like $17-$19 billion during the crash, so it was trading for around four times trailing sales with a solid growth profile (and, in theory, a lot of growth ahead of them, as they were still relatively early into their growth phase). Their operating profit/loss picture had persistently improved as well, they weren't at any risk of bleeding to death. Now, that's a laughably obvious value opportunity, that's dirt cheap value. That's a margin of safety or moat of safety that is massive, a lot of things would have to go wrong for Square to not be a great buy at that price. The calculation when you input all of that, including its business context (putting in risk for the pandemic), is that they could probably see their sales fall by a lot during the pandemic and their growth rate plunge and it'd still be fairly valued at near a $18b market cap with maybe some further downside risk of 1/3 from there if the damage were really bad. And then you'd have to believe they weren't going to resume growth, that they'd never get back up, to think the position would be really dire. That easily goes into the low risk camp.
Most stocks and situations aren't so obvious, so easy. The principle is the same though, it just takes more effort, thought, measurement, well considered projection, to reach a conclusion about the price you're paying vs the value you're getting. Start by asking: what value am I getting for my money? What value is represented behind that price. That includes the business comprehensively, its prospects, its growth near-term, its potential or likely growth longer term, its risks; and often it can include externals, depending on the business (is this business depending on a trend sustaining, on a commodity price remaining high/low, on politics in China, on hurricanes in Florida, and so on).
Getting really good at rapidly extrapolating with multiple outcomes is a great skill to acquire. Take a stock, absorb its P&L statements from the last 3-5 years or so, learn some about its business, and run some scenarios in your head (or write it down, whatever works). It's a training exercise, and over years you get to mentally compare your projections vs reality, and you can adjust your mental models if you're missing by too great of a margin about how you gauge such things, how you extrapolate forward. Over time you learn some things - risks, potential upsides - to look out for in businesses, to put into the calculations, that you maybe didn't know in the beginning. Did you include a variable and apply a discount for the potential that corporate income taxes might increase (and is this corporation's earnings primarily domestic, like an airline or bank)? Etc etc. Eventually you can look at the profile of a company, its valuation and P&Ls, and get a great sense almost immediately whether it's in your risk wheelhouse, on what value its presenting at the current price.
Run a value calculation on a bubble stock. What value is Snowflake presenting to me at a $82 billion market cap? That when it finally gets around to $3 billion in profit, it'll have a 27 PE ratio and probably low growth to match, all just to get it to where it's already at. What do I think its growth will look like in the century it finally gets there? Why should I pull returns so far forward for that stock, what extraordinary value am I getting to make up for the hyper price I'm paying? When Salesforce had a $82 billion market cap back in 2017, they were set to do $8 billion in sales that year. Snowflake presents something around a 20x worse value proposition than 2017 CRM (when you include their horrible burn rate and dramatically lower sales). Who the hell in their right mind would go anywhere near that? It has disaster written all over it (or at best, extended mediocre returns). And 2017 CRM wasn't a steal, that was a rich valuation. Snowflake requires that you pay an extreme price for growth. That's where an investor has to decide what ratios they think are acceptable; place those settings in the wrong place and you increase the odds of getting crushed, getting trapped in a lost decade, or taking a haircut you have to potentially spend years to recover from. Do I think I can buy Snowflake in the future at a steep discount to the $429 highs it previously hit? I wouldn't be surprised if it can be picked up in the future below $100, possibly far below that. Do I think this market's hyper valuations will persist forever? No. And you can go from there. Inevitably something will crash the stock, something won't go right, growth will be weak for a year or multiple quarters, any number of a thousand things, and it'll tank the stock hard, and they're priced for perfection. Snowflake has to execute to perfection for the next decade, non-stop, to prevent that stock from tanking at some point, and even then the market may kick their feet out from under them regardless. Do I think it's likely they can execute like that for a decade? No, hell no. They'll have their Qwikster moment too, and if they're lucky they won't go out of business (classic dotcom bubble scenario, high burn rate, market crashes, economy tanks, business vanishes; the supposedly impossible happens).
Why are people buying Tesla at $780 when they could have had it for under $180 a year ago? Where were these people a year ago? It's a great buy at four times the price and wasn't back then? Wild irrationality, a complete failure to understand anything about Tesla, a failure of due diligence, people generally buying things having no idea what they're doing. The market is always filled full of investors looking to buy your high priced stock at the wrong time, and later they'll be begging you to buy it from them at 10% or 20% the price. Rinse and repeat, it never stops happening, it will never stop happening, it's standard issue human behavior, and you can generate consistently great returns taking advantage of that fact, so long as you can control yourself and maintain discipline about your behavior during times of manic greed or intense panic (because the other people sure can't).
Thanks for all the detailed responses. Very much appreciated food for thought.
I have a specific question about the calculation of the fair value. My understanding is that there are two steps:
1. Project the future earning (that is the difficult part)
2. Discount the earnings and get the NPV - the fair value of the company
Currently the interest rates are so low that the NPV will be quite high and not that far from the current valuations. Indeed, this seems to be the rationalization by many for the sky high valuations of today. But this seems wrong to me. What would you advice? Pick some other interest rate, maybe an aspirational rate of return for ones investing? Or don't try to compute the NPV and think in terms of multiples like P/E and P/S?
When I say fair value, it's what I consider to be fair value. As an investor you always have to ultimately make those decisions for yourself, or you have to defer to another person's judgment on the matter (whether a talking head on TV, or pump & dumpers on Reddit, or newsletters, etc). I'm not basing that on something some guy put into a book 70 years ago about how to value a stock, even if some textbook'ish knowledge can be worth learning to use as you go about coming up with your own valuing formulation (as in the case of Ben Graham). It's based on my past ~26 years of experience with stocks and what I look for in investments. You'll find with experience as an investor, if you're self-educating and or managing some or all of your own investing, you'll come up with your own tests for investments, your own way of valuing what you're buying & selling (or you should anyway). You can take pieces here and there from others and assemble it based on how you like to invest, inevitably over a lifetime it no doubt becomes an amalgam from what you learn.
So for example if I think the fair value for Coca Cola (KO) is 30% to 50% lower than where it's at today, that's not based on a textbook valuation approach. I base it on what I'm willing to pay for growth, and Coca Cola is a pathetic non-growth machine (not to mention a giant sugar liability). I look at Coke's financials and, with some understanding of their business, I ask: what am I willing to pay for zero or negative growth across time? China's boom has come and gone and Coke's growth - as a global business - has recently been stagnant, mediocre, so what are their prospects going forward? I don't like that picture at all. I might be willing to pay somewhere between 8 to 15 times earnings for zero growth (depending on context; I might pay less for a financial firm than a tech firm, and so on), if there is something I like about a company. Coke's multiple is closer to 27-33 lately. Why would anybody ever pay 30 times earnings for zero growth and bad prospects for growth? Coke is a very easy fair value calculation as far as my personal judgment is concerned, their persistent growth problems make that a super fast decision. I'll look elsewhere. McDonald's is in a similar boat as Coke, it's a horrific value proposition, 30+ times earnings for a business with very little (or negative) growth. I might pay 12-15 times for MCD or KO, maybe. Personally I tend to really dislike companies with no growth or weak growth prospects going forward, it's a giant negative in the margin of safety calculation (growth is a first-aid kit for problems that inevitably crop up in a business over time, random messes, it applies a bit of a balm, helps as an offset in the value calculation; if you don't even have growth, inevitable problems are that much worse when they happen).
Fair value means I've looked at the stock in a way that I prefer to approach a stock and I've made a determination for myself, for my investment purposes, as to how much I think it should be worth. And I may come up with a few versions of that, one for an average market (with typical multiples), one for a slightly bubbly market; typically I disregard trying to come up with a value based on a mania, I'm not a buyer at that time in most cases. Those variations, models, are meant to inform myself as to the flex in my investment. If valuations merely go back to where they were in 2012 or 2016, how might my investment perform if its multiple is reset 1/3 lower? Will I get killed on the price I paid? It's modeling.
Interest rates will absolutely distort the context of deciding what something is worth, that falls into the variations, models, you build for different scenarios. The point of doing that is to check / prepare your position against a bad outcome. People claim that low interest rates will keep stocks inflated, so there's nothing to worry about; I like to point out that multiples were far lower at numerous points in the past decade when interest rates were at zero and we also had QE going on. How about if we just roll back to where multiples were in 2014 when rates were zero (and our economy was better positioned in 2014 than it is now, although our headline unemployment rate was similar)? If I were a buyer today I'd absolutely be running that simulation for myself whenever I buy.
Yeah they don't tend to talk very openly about who is doing the buying for what. Occasionally in the last few years Buffett will indicate if it was him specifically buying something, usually outsized positions.
I think either Ted or Todd is likely is doing the buying on Snowflake (at least instigated the premise), perhaps with Buffett's sign-off (given it's an increasingly large position). I also think one of the other buyers is likely responsible for Berkshire's position in VRSN.
There's a high risk that Snowflake position will humiliate Berkshire Hathaway. I think it's a mistake. It wouldn't be Berkshire's first mistake in dabbling in tech but it looks like it could be the biggest.
I have great respect for Buffett's historical performance, however I consider him mostly done at this point. He's conservatively managing the end game of his career now, he seems to be intentionally avoiding doing anything that might stretch beyond his lifetime now (I don't think he wants to do anything that might need a decade to manage that he might have to offload onto the next person). I think he should have taken advantage of KHC's weakness for example, to strip Heinz back out of the conglomerate and break it up and sell off the rest of Kraft, the stock was so cheap at times you could have almost gotten Heinz for free in the process. Instead Buffett is sitting on a hundred plus billion dollars yielding squat (KHC was down to near half the market cap it currently sports, which was the general time to grab it to try to get the Heinz business, and then sell off the lesser pieces, either after you repair what was ailing KHC or immediately depending).
If the bull case was only $150k, I might agree with you. The bull case is $5 million. But bitcoin has always been risky and can always go to 0 rather quickly.
Anyway, there is no point at looking at nominal values given inflation, population growth, general progress. I like to look at everything as a ratio against total global numbers (global wealth, global debt, global population, global equality etc.). Unfortunately it’s hard to find reliable global numbers.
The IIF only gives its numbers to a few hundred global banks and similar sized institutions.
Once the bullish case is set at $5 million you might as well set it at $5 trillion.
At $5 million it's approaching the value of all stocks on the planet. I don't have to elaborate on the economy those stocks represent, the annual profit generation.
$100 trillion is nearly all household assets in the US, and nearly double all household assets in China.
I like Bitcoin, it's simply not a believable bullish case at all.
Total wealth 500 trillion. Frequently Recommended institutional allocation 30-50% bonds. Bitcoin replaces the bulk of cash equivalents. Not impossible.
Getting nearly everyone on the planet to do that, including all governments to allow it, is impossible. As one very prominent example, the odds are dramatically higher that China will banish Bitcoin from being legal inside of their country than that they'll allow everyone to switch to using Bitcoin instead of the currency system they directly control (and can manipulate as it fits their aims). All nations generally feel the same way about controlling their own currency, they more than overwhelmingly prefer to retain that power in their political system. If Bitcoin actually threatens that they have all the guns that matter and will act accordingly legislatively. They might be willing to allow Bitcoin to be a store of value competitor to gold however, but that's all they're going to allow.
We don't have gold backed currencies for the same reason we're not going to see Bitcoin overtake all national currency systems. The guys in power with the guns determine how your currency system works and they all universally say no: you may not have your fiat currency backed by gold (or in the future, swapped out for Bitcoin).
At $5 million, at current mining rates, it would cost $1.7 trillion dollars per year in energy and equipment costs to run the network. That is fresh capital that needs to be shovelled in and burned each and every year.
Not to increase the price, just to maintain the network. What is the network doing that would justify that investment?
After halving the cost would drop to $850 billion a year but still.
It doesn't really make sense to measure this in USD if one of the major hypothesis driving Bitcoin is that USD is being hyper inflated. Yeah, it might cost $1.7 trillion dollars but at that point a 3bd house might cost $5M. If you're going to pin BTC to USD, you need to use inflation adjusted numbers.
> It doesn't really make sense to measure this in USD if one of the major hypothesis driving Bitcoin is that USD is being hyper inflated
“USD is being hyperinflated” is an easily falsiable (and obviously false) statement, so basing anything on it is nonsense.
(That it is imminently going to slide into hyperinflation is less easily falsified, which is why that is actually the perennial cry of cryptobugs, as it was for goldbugs—sometimes, the exact same people—before then.)
Isn’t it easy to verify? How much did a house cost 20 years ago? A 4 year college degree? How much were you paying per month for health insurance in the 90s? Salaries have not kept up. They’ve been amazingly static my entire life.
You've mentioned three items that have experienced specific inflation at higher than the general rate of inflation (but even then mostly not at rates anywhere in the remote neighborhood that would qualify as hyperinflation [> +50%/month] even if they were the rate of general inflation.)
So,yeah, when even the rapidly inflating segments aren't anywhere close to hyperinflation, it's pretty clearly not general hyperinflation.
And stagnant wages are a completely unrelated issue to hyperinflation, though obviously wage increases mitigate and wage stagnation or decline exacerbates the effect of whatever inflation there is on wage earners.
> They also just listed the set of the largest expenses for a vast majority of our society
Buying a house is an asset acquisition, not an expense. Housing is an expense (and typically the single greatest household expenses), but that expense has increased in price less than home prices.
The next greatest expenses are food and transportation.
We're not at that point, and I'm speaking as someone that supports a gold standard or equivalent to prevent rampant fiat debasement. I take it you didn't live through the 1970s. There have been numerous times in the past century where currency in major economies was prominently debased far worse, far faster than what we're seeing today. Sutained QE has done far less damage to the USD as one example, than what the 1970s did to it or the extreme destruction we saw during the George W Bush years (go to Google, type in "Belgium GDP", Netherlands GDP, Czech GDP, or Brazil GDP, almost any nation; you'll see a comical liftoff in their GDP chart, far beyond any real growth rates, that's the dollar getting massacred thanks to the idiotic fiscal policies during the GWB years).
Gold went from around $250 to $1900 over a little more than a decade from ~2000-2011, before sustained QE became a thing. In the 1970s it basically went up 1,000%. Not much has actually changed about how governments destroy currencies, it's the same old same old. Perma QE didn't change much, it's not a new tool, and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
You're better off holding cash than Tesla shares at $800 or $900. I'd rather take a 3% average debasement per year than sit in the S&P 500 at these levels (especially given what the US economy is going to look like in the coming decade). From these heights I'll bide my time for the next inevitable crash or significant decline, that's when the serious returns are generated, not chasing mania ever higher in markets at late stages. The big money was already made in Bitcoin, from $0 to $50,000; the upside from here is a joke by comparison to the risk. So it goes to $150,000 (maybe). That isn't a crazy return vs the outsized risk, that's the kind of return you could have gotten in any cloud stock after IPO. Yet it takes an extraordinary move of adding ~$2 trillion in market cap for Bitcoin to get there. The risk vs reward in Bitcoin at these levels is like a lot of absurdly overvalued stocks presently. And of course everyone becomes certain that something is fundamentally different today - it's not, this mania won't endure either (to be clear, we're not just in an asset bubble, this is a mania, the 8th or 9th inning of a bubble phase).
Significant inflation isn't coming back anytime soon (not until or unless they start devaluing the USD directly, but that isn't for at least 20 years yet), the US is in a heat-death stage of economic erosion. Ever greater sums of capital are being put into the freezer in the form of very low yielding debt, that process will continue to rob the US of dynamism and growth, trending growth toward zero as it goes. This is the exact same process Japan went through, and it's why they were unable to spark traditional inflation with their crazy spending and QE-like programs, they tried everything in the Keynesian book and it all failed (for the same reason the US didn't drown in inflation from 2010-2020 despite the rather insanely low interest rates over that time). We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.