Mark Jeftovic: Three Emerging Themes for 2024

Written by Mark E. Jeftovic, Publisher at Dollarcollapse.com:

The following excerpted from the New Year edition of TheBitcoinCapitalist Letter:

CBS Investigative Reporter Catherine Herridge predicted an “unpredictable” Black Swan event in 2024 during a Face The Nation roundtable:

“2024 may be the year of a black swan event. This is a national security event with high impact that’s very hard to predict.“

For some reason this spread like wildfire. Herridge’s husband is a US Air Force Lieutenant Colonel, so the remark took on a “what does she know?” conspiratorial timbre.

The funny thing is, what she actually said was… nothing. That famous journalistic trope, “may or may not have” comes to mind. You can use it anywhere and it sounds deeply analytical, but it’s meaningless.

“Something crazy that nobody expects might happen next year” is basically it. Find me a year when it doesn’t.

What I do feel more confident offering up ahead of the New Year are themes that I think will emerge, and if we’re in the ballpark on some of these themes, it’ll be possible to express it through our investments, business activities and personal preparedness.

Theme 1: Fiat alternatives

De-dollarization, whatever you want to call it. More people are coming to understand that the current global monetary system is past its “sell by” date, so while policy makers will continue to press into CBDCs and digital ID initiatives, private citizens, corporations and other allocators will continue to move into anti-fiat vehicles: Bitcoin, cryptos, precious metals, stonks, and private businesses.

In November, Moody’s downgraded the US debt outlook; more recently they also downgraded China from “stable” to “negative”, with some speculation that they will be adding Japan to the list at some point over 2024.

The WSJ, citing a softening US job market and cooling inflation (supposedly), penned an op-ed saying the Fed has to pivot, lest they get “rear-ended” by a recession in the new year (the current Fed funds rate is 5.5% and there’s little chance it’ll go higher. Somewhere around here I have finance textbooks from the mid-90s saying the “risk free” rate on US debt is something like 6%; those days are likely gone for the remainder of the current USD-denominated system).

Here in Canada, the Karadza brothers, big real estate guys, also big on Bitcoin, compiled official StatsCan numbers on M2 money supply growth vs the 2% inflation target since the 1970s, it wasn’t even close:

So while the short term gyrations in M2 supply came off a bit since the end of the Covid bazookas, the long term, secular trends are clear. Here’s the US chart over the same time period:

That vertical climb and ascent through the pandemic and thereafter marked an acceleration in the dynamic. It made the wealth disparity that inflation causes undeniable, as “financial nihilism” became the theme of the day.

Whether a return to QE and overt money expansion occurs or not in 2024, comes down to whether “something crazy” happens.

Technically we’re still doing that “Fed taper”, trying to inch back to pre-pandemic levels. Even that is a “permanently higher plateau” from where it was before the Global Financial Crisis in 2008.

Ten years after that GFC, the Fed finally tries to taper, only the banking system nearly shits itself as a result, with the reverse repos blowing out into the trillions in late 2019, the Fed famously declares its own policy error, starts cutting rates and M2 starts increasing again, something is amiss – and, as we’ve discussed last edition, the pandemic then breaks out, “saving” the banking system.

The Fed balance sheet follows M2, straight up; this time the attempt is made to taper much sooner, but it’s telling how fast that attempt was thrown over when the regional banking crisis hit in Q1 2023.

Granted they’re tapering again, but at the current rate (call it just under $60B / month) – that’ll take five and a half years. Can the global financial system lurch forward for that long without another crisis, or multiple rolling ones, forcing the Fed to reverse course again?

I doubt it, especially when you consider what higher interest rates are doing to the Fed’s own P&L.

The graph below shows the precipitous cliff dive higher interest rates have wrought; $130B in losses in 2023 alone. Normally the Fed sends its excess funds (the profits on the interest rate it charges on printed money) to the US Treasury.

That means there was an additional $130B shortfall in the national treasury that had to have been backfilled with… guess?

Even more debt.

Add to that more talk about giving seized Russian foreign currency reserves (US T-Bills, basically) to the Ukraine and it sends a message that could end USD hegemony. We’ve been saying that here since those Russian reserves were seized; this month Nobel Laureate Robert Shiller concurred. In an interview with Italian L’Republica (reported via Zerohedge), Shiller said that doing so…

“…will destroy the halo of security that surrounds the dollar and will be the first step towards de-dollarization, which many are increasingly confidently leaning toward, from China to developing countries, not to mention Russia itself” (emphasis in orig.)

 

I would argue that the US doesn’t even have to follow through with this threat for the above to happen: even the suggestion that this is within the realm of possibilities has irreversibly changed the calculus with regard to the USD as world reserve currency.

It was a true “Emperor is naked” moment – one that makes all stakeholders realize that the global financial system has to be underpinned by a trustless “money for enemies”, one wherein no single entity can act arbitrarily to deprive another nation of its assets.

“TINA” is the Bitcoiners’ expression for this: “There Is No Alternative”.

Theme 2: The Great Bifurcation

I’m intentionally leaving real estate out of the first bucket because, frankly, I’m having a hard time reading it – always have. There is a lot of debt overhang in the RE market, with a wave of fixed rate mortgage resets coming here in Canada.

In the US, commercial RE is tanking, but the residential market is being hoovered up by private equity firms; one figure I saw was that 44% of single-family homes were bought by hedge funds, but I actually haven’t found the corroborating data on that claim. The activity is definitely there: a MetLife report says 40% of all SFH will be owned by institutional investors by 2030.

If we’re not in a recession now, we probably will be by mid-2024, officially and undeniably, so I don’t see real estate rocketing higher like it did under COVID, but I can make the case for a floor under it as said investors pick off the distressed assets.

In other words, the foundational bedrock of the middle class – home ownership – is under attack from multiple sides. That’s not all:

We spent last edition talking about David Webb’s “The Great Taking” and how it dovetails with our own Great Bifurcation scenario.

Whether it’s deliberate malevolence or the outcome of perverse incentives, the middle class is being hollowed out; this has been going on for decades – arguably beginning in earnest with the commencement of the fiat era itself in 1971.

It feels like this may come to a head over the next few years, and with 2024 being an election year in the US, and ’25 here in Canada (with an outside shot of it occurring sooner, if the Liberal/NDP coalition were to come apart), the tension around this will inevitably ratchet higher.

According to data from the Fed, the top 1% of US earners now hold a higher percentage of total wealth than the entire middle class.

via @Barchart

That’s a visual representation of the Cantillon Effect right there.

Even the hurdle rate to get into the top 1% has been going up – effectively doubling since 2000:

Ask a politician in any of these countries about the role of small businesses in the economy, and they’ll unfailingly feed you some platitudes about “they’re the backbone of the economy” – even though they unflinchingly shut them down by edict during Covid.

Now, increasing regulatory burdens will make it even harder for small and medium-sized businesses to compete. For US small businesses, the new year will bring in a whole new regimen of “corporate transparency” reporting requirements pursuant to the “Corporate Transparency Act”, which was passed in 2021 as part of that year’s Defense Authorization Bill (vetoed by Trump, then overturned by both houses).

It will require all eligible businesses to file full ownership disclosures on beneficial owners and company applicants – and to maintain the accuracy of that data in the new federal database.

Penalties for non-compliance include fines up to $10,000 and two years in prison.

Here’s the best part: there is a list of criteria for companies that will be exempted from these requirements, among them:

• Over 20 full time employees
• Revenues over $5 million / year
• Publicly traded companies
• Banks, credit unions, trading firms

Basically sounds like anybody who isn’t a small business will be exempt. The full requirements guidelines were sent to me by a reader – mind boggling, it was over 100 pages.

Theme 3: Continued Collapse of ESG & DEI

Though I’ve been predicting this one for a while (I believe I called the “War on Woke Capitalism” on the heels witnessing the Peter Thiel keynote at Bitcoin 2022 in Miami), we started to see real momentum in this direction over the back half of 2023.

Once the fastest rate hike cycle in history punctured The Everything Bubble and vestiges of economy reality began to set in, ESG, DEI et al began to be regarded as their true selves: extravagances that can only be indulged in an “up only” monetary expansion ($30 trillion USD worldwide in just eighteen months).

It was the flip side of financial nihilism; where the former simply threw in with the “all one trade” mantra, the hyper-normality made for aggressive cynicism or performative virtue mongering – either way, it was just monetizing unreality.

Now that economic reality is re-emerging as a thing, the entire edifice of woke capitalism is being thrown overboard. In some places faster, others more slowly, but sooner or later everybody is going to figure out that nobody has time for it.

In fact I think this will be such a defining theme over the next few years that I added the “Wokeness Fallen” section to the newsletter format last month, so we’ll get into it there – but for now I was genuinely intrigued that The Economist, of all publications, ran an article comparing the sale of carbon credits to Medieval indulgences.

“As soon as a coin in the coffer rings, the soul from purgatory springs”

The piece is a scathing indictment of the “voluntary” carbon credit market – where well heeled climate alarmists can pay for offsetting their own carbon footprints, rather than actually ratcheting down their own consumption. It claims most renewable projects are “viable on their own”, so providing funding to them won’t actually lower emissions. I don’t know about those viability claims (I’m under the impression that most of these projects can’t function without subsidies), but the price of carbon offsets has definitely crashed:

If we needed further proof that ESG was in large part an ephemeral luxury fad fuelled by easy money, just look at where the crash starts in the above chart compared with the Fed rate hikes:

The Economist goes on to call out the numerous scandals coming to light in the space:

‘many leading “nature-based” offsets, which usually attempt to restore forests, are junk.’

You don’t say?

I guess it’s no surprise that ousted WeWork founder Adam Neumann’s next venture is, you guessed it, a carbon offsets platform (a carbon-crypto offsets platform):

Flowcarbon purports to “tokenize” carbon credits, making it a snap for an organization, be it an airline, oil & gas, automotive, etc to “achieve their carbon goals”, by bringing “transparency, efficiency and liquidity to the fragmented voluntary carbon market”.

All you have to do is buy tokenized carbon credits from Flowcarbon — and Bingo. Climate crisis averted.

Last I heard, he’d already raised $70 million for it from the likes of Samsung and Andreessen Horowitz. Yes, really.

While there’s no market price for Flowcarbon tokens yet, around the same time Neumann did his capital raise (summer ’22) a few other projects launched, much to the chagrin of “climate experts”, like the Carbon Credit token (CCT) and a DAO called “Klima” who launched a Base Carbon Tonne Price token, BCT. All of these projects have similar looking charts:

It is telling, and in keeping with this theme, that the Carbon Climate Crypto Protocols (CCCP?) have completely sat out the new bull market. Not surprising.

Meanwhile, as the affluent, not to mention well capitalized jet setters and corporate polluters who still buy into this stuff will be able to simply pay-to-play for keeping their carbon emissions the same, the rest of the plebs are supposed to just make do with less, having their travels and carbon footprints limited by carbon passports.

We covered that “Future of Travel” report a couple issues back, but it’s becoming more widely reported; the Telegraph ran their piece on it recently.

In other words, the elites will participate in the “voluntary carbon offsets” market, leaving the rest of us increasingly expressing disapproval at the prospect involuntary caps in our own futures.

Is it any wonder that tweets expressing climate skepticism (sorry, uh, “misinformation”, my bad), are skyrocketing:

Via @MatthewWielicki

That’s the closest I’ll get to predictions for ’24, although I was recently on the Canadian Bitcoiners Podcast again, and Joey Tweets pressed me for a prediction for my top tick on Bitcoin for the year: I relented and said $250,000. It’ll probably be wrong (“Bitcoin may or may not print $250,000”).

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