5 Heuristics For Investing in the Post-COVID World
While Central Banks Duplicated the Money Supply, Bitcoin is Halving.
Stefan Zweig and Isaac Asimov are the driving catalysts for my obsession with the future. The latter of which taught me that the present is the representation of a great problem, it is a great tension between many forces whose scale we cannot imagine. The future is the solution. The biggest challenge is often the ability to first identify the problem that humanity must solve.
Pandemics, wars, technological disruptions, revolutions and financial crises are the solutions to this tension. Very rarely can people imagine the exact outcome that will come to fruition in the changed world.
Some believe that COVID-19 was a black swan, or an uncertain event that nobody could have predicted, but that is not the case. This pandemic shows a clear failure of many western societies. There were no therapies or vaccines for a bat-borne coronavirus that many scientists had warned about. Bill Gates warned about how ill-prepared we were for something like this and there have been countless movies made about a pandemic rise.
However, there is good news about the Post-COVID era: capitalism is reinventing itself. The black swan from my perspective was the government's response.
We had a post about how failure is the most important driver for capitalism:
Here we wrote about the problems inside globalization and how to play them
Here, in the middle of the crash, we wrote that it’s not about FAANGS, but the Old Economy
Rule 1 - The Winner Takes All
The one with the most dominant reserve currency has an extreme competitive advantage. The S&P 500 has outperformed the MSCI World Index.
Source: stockcharts.com
Another way to see that is by comparing tech stocks with larger capitalization versus the small cap index.
Source: Tradingview
Rule 2 - Software is Eating the World
The largest tech companies combined amount to more than 8 trillion dollars.
Data in billion USD. Source: Bloomberg.
The big risk of the FAANGS is antitrust laws and the loss of former monopolies. What seems interesting for us is more companies related to hardware and the 5G development.
Rule 3 - The Reset Will Be Geopolitical and Social
We see the main risks to the current developed markets monetary policy as follows:
Inequality: People with access to financial markets will do well while many will need more social assistance. That could trigger important political changes in the US and Europe.
Social Turmoil in Emerging Markets: Emerging Markets are trapped in the middle of a sanitary crisis with a crash in commodity prices. Money printing, consolidation of authoritarian power and geopolitical escalations are going to be important risk factors.
Source: yardeni.com
The current international monetary system is not represented proportionally. Every time the Fed duplicates its monetary base, emerging markets get diluted.
As the Marshall Plan did, the opportunity is there for the US Dollar to be the dominant reserve currency. China could use the crisis in emerging markets to project financial support by supporting distressed assets. China is playing GO (the asian strategy game) in Africa, Asia and Latin America.
Source: macrotrends.com
Rule 4 - While Central Banks Duplicated the Money Supply, Bitcoin is Halving
The most interesting emerging market for me is the internet nation. Yes, there is no state behind it, but there is a multipolar structure of power. The native internet currency is Bitcoin, with about 130 billion USD in market capitalization. Before COVID-19, Bitcoin was a mere promise to escape the normal financial system and protect against inflation, but there wasn’t an inflationary case for it to go up against. Now, thanks in large part to the massive monetary stimuluses being pumped into the global economy and steep devaluations in emerging markets, inflation is a much greater possibility. This makes the case for Bitcoin even more interesting moving forward. We were living in a world driven by the deflationary forces. The Post-COVID world is totally different and inflation could very well be our new reality.
What is the real value of the Fed stimulus since 2008?
2014 → 4.38 Trillion USD → 20 million BTC (Maximum Supply of 21 million).
2020→ 6.7 Trillion USD → only 899 thousand BTC .
Source: St. Louis Federal Reserve
You Can Debase the USD, but Not Bitcoin
For emerging market citizens, Bitcoin is a way to escape either socialistic authoritarianism or crony capitalism. It is the divorce of a bad social contract. Here is a graphic of the BTC performance against the Brazilian Real and Turkish Lira.
Source: tradingview
Rule 5 - The Future Will be About Localism, Hardware, 5G and Nuclear Energy.
Source: Westworld HBO Series.
This is a big topic we will cover in our second conversation with one of the greatest global macro investors, James Leitner, who is the other co-founder at Macrowise.
Guillermo Valencia A.
Macrowise Co-founder
Florianopolis, Brazil.
May 8, 2020.