Dogs bark in the night

Why does a dog bark in the night?

Wait.

Don’t answer that.

Why does every dog in town bark in the night? All at once. As if they’ve all heard something you haven’t.

Oh, and every cat goes crazy too. And every fox. And rabbit. And mouse. And every animal you can think of that lives in an urban area and can make a racket. They all – at precisely the same time – go mad.

It’s loud.

You wake up. And think…

What is going on?

That’s an honest question. What would you think in that scenario? My mind would go instantly to some sort of natural disaster. An earthquake. A storm. A tsunami. Something animals can sense, but humans can’t. We see what’s happening. It’s worrying. But we don’t know the why.

This is precisely what happens before an earthquake. At least, some of the time it does. The animals know it’s coming. Their behavior changes. They act strange. Picking up on that could save your life.

I bring that up because that’s what’s happening right now in the markets. The dogs – and every other creature with a set of lungs – are making an almighty noise. You can choose to roll over and go to sleep. Or you can hear the noise and wonder what it means.

Your choice.

Right now, it’s not an animal making the racket. It’s three markets that are rising. Three markets that almost never rise together. Three markets that aren’t supposed to rise together, like every dog in town isn’t supposed to wake you up with a symphony of panicked barking.

Unless something is wrong.

I’m talking about the US bond market, gold and bitcoin.

A quick explanation. I’m going to horribly simplify this, but for the purposes of my argument this will work. People buy US government bonds when they’re worried. In particular, big institutions. Banks. Governments. Anyone with a lot of money. They think the best place for their money is with the mightiest government on the planet, in the world’s reserve currency.

They might do that because they think a recession is coming. Or they think a wider market panic is coming. Or because the financial system feels fragile and they crave safety. I don’t know precisely why. But if they bond US bonds (Treasuries), they’re worried. If enough people buy, the price of US bonds goes up. That’s happening right now.

People buy gold for much the same reasons. Except they don’t trust even the US government or the dollar to keep their money safe. They want to own something no government can affect or manipulate. God’s currency: gold.

Bitcoin… well, that rises for a million different reasons, depending on who you ask. It’s a kind of digital gold in the sense that it’s finite and not controlled by a government. But it’s more portable that gold. Yet without gold’s “hold in your hand, stuff in your sock” security. People buy it when they want escape one financial system and quickly migrate to another.

US bonds, gold and bitcoin rarely all rise together.

Just like most dogs don’t all bark in the night together.

When US bonds (and the US dollar) rise, gold tends to fall. Ditto bitcoin.

But they’re all rising now. Bitcoin has doubled this year. US bond prices are soaring (usually expressed as falling yields). Gold is on a tear, at all-time highs in multiple currencies. Why?

My theory is three reasons. All connected.

Think of it like a money ladder. Or rather, a liquidity ladder.

At the top you have the big money. Big banks. Big insurance houses. Big players. They’re worried and they’re buying US government bonds. It’s the biggest safe haven they can find in a risky world. They’re dumping billions, trillions, into US bonds. They have nowhere else to go and a recession is coming. Maybe worse. Who knows?

Next rung: smaller players are buying gold. People in Britain who’re worried about the pound falling. People in Europe worried their currency is next. European Central Bank insiders who know their central bank is about to trash their currency to bail Germany out of a recession. Japanese, Australians and Kiwis who know it won’t be long until they’re in the firing line.

Who’s buying bitcoin? Even smaller players who can’t, or won’t, park their money in US bonds or gold. A particular shout-out to the Chinese elite. It’s no good owning gold if you want to run away from the mainland. How much can you stuff in a suitcase or in the boot of your car or up your… no, gold won’t work. By bitcoin. Get out. Cash the bitcoin in for whatever currency you need in the next place you live.

US bonds. Gold. Bitcoin. All rising.

All because people – rich and poor – are sensing something is up and getting out of one place… and into another. It’s more important to understand what they’re escaping than what they’re running to.

By the way, if you want to own gold but don’t know how, here’s everything you need.

And if you don’t own bitcoin but want in, you should follow this link now.

On Monday, more on this theme. I’ll go into detail as to what’s happening and why that might be. For now, remember the dogs that barked in the night. Ask yourself why.

Until Monday,

Nick O’Connor
Publisher, Exponential Investor

PS A final bitcoin-related point. Did you see the New Zealand government will soon allow people to “get paid” in bitcoin?

By get paid, I mean pay taxes in the same currency everyone else uses… and then convert what’s left into bitcoin. So not quite the monetary breakthrough the crypto community was hoping for.

That said, Sam Volkering had this to say…

Just the start – NZ has always been reasonably progressive with things like this to differentiate itself from Aus. Like its referendum on legal weed next year too.

Countries are realising that demand is there and if they can figure out how to withhold taxes, then they don’t really care how people get paid. And in a world where currencies are as volatile as crypto, then what’s the difference. 

Also for a point of comparison, the AUD has lost 35% of its value against the USD in the last seven years. Bitcoin has appreciated 94,000% against the USD in the last seven years. And they say that fiat currency is safe and stable?

China is also on the brink of releasing its own digital currency – you watch the US scramble to figure out what to do then. Europe might be the next place, maybe even the UK to say, that it’s perfectly fine to pay employees in crypto, albeit HMRC are **REDACTED** as it is so who knows there…

Category: Commodities

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