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Dear Readers,

Well now, it’s been less than a week after I introduced you to my “Dodgymeter” and by the looks of things I’m going to need to run it out again.

Because the news stories I read today seem to just get weirder.

Apparently, there’s a fight going on between the US and Europe. Sure, you say. They are disagreeing on plenty right now. From the conflicts in Ukraine and Gaza, to the ongoing trade war and tariffs between the two.

But no, that’s not the reason for this week’s newsletter. Apparently, it’s a select group of central bankers who are about to put the boxing gloves on and enter the ring. And what are they about to fight about? Look at the following headline: US and Eurozone bankers divided over stablecoins.
Source – Financial Times

 

From the article above:

US and European central bankers on Monday set out rival arguments on stablecoins as Federal Reserve governor Christopher Waller endorsed the private sector cryptocurrencies while Bundesbank president Joachim Nagel warned against supporting “innovation for innovation’s sake alone.”

Oh boy. I kid you not when I tell you the first thing that pops into my mind whenever I see the word stablecoins is a solution looking madly for a problem to solve.

Mind you, I can’t proclaim to be an expert in either stablecoins or cryptos in general. However, their increasing popularity has meant I’ve been spending years now researching and studying them. And one singular truth stands above all others.

Not a single stablecoin or crypto ever created has experienced the full effects of a land-price led recession. And that’s a fact. Fun thing about facts: they don’t care what you or I think of them.

This is important when you consider where we are in the current 18.6-year Real Estate Cycle. And that same timing is why I need to write to you about this topic.

These stablecoins are an amalgam of what the current global financial credit system is today, what the key stakeholders want it to be in the future, and a bit of land market timing.

It will be my contention today that this same timing is what will ultimately spell the doom for every stablecoin. And, by extension, this will show you a glimpse into what possibly lies ahead for cryptocurrency trading too.

It can also give you some perspective on just how chaotic the unwinding of all things credit-related will be too.

Forewarned is forearmed, so let’s get started.

Tyson vs Paul has got nothing on this!

 

So, just what is all the fuss about these central bankers anyway? Frankly, it all kicked off after the recent passing of the Genius Act in the US. Without going into the details of this Act, which I encourage you to review yourself, one of the main points concerned the use of stablecoins.

US President Donald Trump’s Administration wants the Act to be a springboard for the widespread adoption of mostly dollar-backed stablecoins from private sector issuers.

This, it is hoped, will increasingly raise demand for US government debt using dollar-backed stablecoins.

This is our first red flag. But also, the crux of the problem here.

Both sides had a chance to present their views at the recent Sibos banking and financial conference in Frankfurt. Federal Reserve governor Christopher Waller endorsed the use of private sector cryptocurrencies while Bundesbank president Joachim Nagel warned against supporting “innovation for innovation’s sake alone.”

“If stablecoins present a lower-cost alternative to consumers and businesses, I am all for it,” said Waller. “You don’t want the government to decide what technologies are in or out.”

Nagel focused on “previously unknown risks” stemming from stablecoins. “Many things could go wrong,” he warned. “We, as central banks, will not accept any developments that weaken our ability to implement monetary policy effectively,” adding that the “anchor role of central bank money must not be weakened.”

I told you, the most riveting fistfight since Mike Tyson and Jake Paul.

The heart of the matter is who should be more important in setting policy in this area: the traditional seemingly omnipotent central bank bureaucrats or the supposedly nimble private sector via the widespread adoption of stablecoins backed by national currencies and debt instruments.

The ECB wants control; the Genius Act calls for US and overseas private investment.

But there is an even more important point here, one that is directly related to where we are in the real estate cycle.

Look at the following headline.
Source – Financial Times

 

You don’t often hear from Nobel-prize winning economists talking about cryptocurrencies. From the above article.

Nobel Prize-winning economist Jean Tirole has warned about “insufficient supervision” of stablecoins and the possibility that governments will be forced into multibillion-dollar bailouts should the tokens unravel in a future financial crisis.

He warned that the practice of backing stablecoins with US government bonds could become unpopular because of the underlying assets’ relatively low yields, citing previous instances when the returns of Treasury debt were “negative for a number of years” and payouts after inflation were even lower.

Higher risks increased the odds of a scenario in which a stablecoin’s reserve asset lost value, triggering a run on the asset. I don’t know, can you think of a possible scenario that may be, say, a year or so away?
Where illusions go to die.

 

Take stock now of where we are in the cycle. We are deep into the second more speculative half of the cycle. Where new and innovative forms of credit creation are introduced to the masses.

Considering a near-term future of an accommodative US Federal Reserve, is it any wonder we have witnessed the US Treasury strongly pushing short-term US government deficit debt in the form of T-bills or Treasuries onto US investment banks?

These US banks love this type of short duration debt, as it allows them to borrow short at a lower rate and lend long at a higher rate. And as previously stated, they see the upcoming US tax cuts plus falling interest rates as manna from heaven.

Perfect conditions for fat margins created via brand new credit. It makes perfect sense then to create yet another alternate market for those same T-bills. A private market using bank created stablecoins in return for even more short-term debt as collateral.

As stated above, history shows us this is indeed the time for such exuberance – with little regard for what comes next. And it’s the ‘what comes next’ part that Jean Tirole really warned about (the bold text is my own):

“If it is held by retail or institutional depositors who thought it was a perfectly safe deposit, then the government will be under a lot of pressure to rescue the depositors, so they don’t lose their money…”

Such risks could be managed if global supervisors were “incentivised to be very careful.” However, Tirole warned this was a “big if,” in particular because “some key members of the [US] administration have a personal financial interest in [cryptocurrency]. And beyond the personal interest, there’s ideology.”

Vested interests, anyone?

Can I just say, I can’t understand just how much time, energy, human and commodity resources have been poured into things like cryptos and stablecoins. And for what, really? I can think of hundreds more deserving endeavours such resources should be diverted to than this.

China, it seems, agrees.
Source – The Guardian

 

Very soon, history will pass judgement on who exactly got this investment into their respective futures correct. And I must agree with the headline “There is only one player”.

With the destruction of the Consumer Financial Protection Bureau (CFPB) and the removal of the head of the Securities Exchange Commission (SEC), Gary Gensler, the US has gone all-in on making the umbilical cord between cryptos and the US economy permanent.

Meanwhile China has created debt to invest in something more tangible.

The question for me comes into sharp focus.

With the current US real estate cycle about to peak, with a Trump administration busy pardoning crypto convicts, Trump’s own sons hard at work mining bitcoins and launching their own tokens, ask yourself: just how much trust do you have that the US government will handle what’s about to come?

You must not get caught up in this hype, you need to get ready and prepare. When this thing unwinds it will come down hard.

You need to be ready. You need to understand the timing.

And a membership of the Boom Bust Bulletin (BBB) is the best way to start to understand this.

Obtain the knowledge that even a sitting US president doesn’t know by learning the hidden order of the economy and uncover the incredible timing that drives it. By researching the history of the18.6-year Real Estate Cycle, you’d know that same history suggests inflation will continue to rise from here until the peak.

It will ultimately force US interest rates up, thereby eroding the real value of debt instruments like Treasury bills. And this will then damage the value of those same stablecoins pegged to them. Currently, the global financial system is one enormous, collateralised debt refinancing machine.

If your collateral is good, you can refinance your debt anywhere. But when your collateral isn’t good? For the banking system, there does exists a lender of last resort, who in an emergency can underwrite your debts.

Unfortunately, in crypto land there is currently no lender of last resort. Thus, as an owner, you are literally left to your own devices to survive. Well, not quite.

You could have the BBB by your side, guiding you on the most appropriate time to get out.

So, sign up now.
Best wishes,

Darren J Wilson
and your Property Sharemarket Economics Team

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This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.