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To investors,
A lion stalks its prey by racing to find an area with high opportunity of finding food. The lion slows down as it arrives in the area and starts to sneak closer and closer. During this process, the lion will crouch down and continue inching forward at an undetectable pace to remain out of sight.
Once the lion believes the risk-reward is in their favor, they explode out of the crouched position and run full speed to secure their prey.
We can learn a lot from nature when trying to understand financial markets. I believe assets have been following this exact lion approach over the last four years.
Let me explain.
The asset price boom we saw in 2020 and 2021 was akin to the lion running fast from some far-away land to get close to the prey. During 2022 and 2023, asset prices then crouched down and started to inch closer to the intended target.
While most people thought there was a significant asset crash, we have had the exact opposite. Single family home prices in the US have been increasing every month for the last 9 months even though interest rates are at 5%+ and the 30-year fixed mortgage crossed over 8% during that time period.
Home prices were crouched down and inching forward without being noticed.
Stocks followed a similar pattern. Both the S&P 500 and the Nasdaq 100 are sitting at, or near, all-time highs right now.
Remember, high interest rates are supposed to destroy demand, but these stock indexes simply crouched down and inched closer while staying out of sight.
If real estate and stocks are following a lion’s lead on their crouched approach, then it is safe to assume that bitcoin and cryptocurrencies are doing the exact same. Different assets but same story. You can see that although bitcoin has not returned to the previous all-time high, the digital currency has been sneaking up on people too.
So what does this mean for 2024 and beyond?
My expectation is for the Fed to cut interest rates in the first half of the year, followed by a full return to quantitative easing by year end. The impact of interest rate cuts will heavily depend on the severity of the cuts, but it wouldn’t surprise me to see rates back in the 2-3.5% range within the next 12-18 months.
That type of tailwind should get investors even more excited about pouring capital into financial markets. As the United States returns to printing money, we are all likely underestimating how much they will need to print — there are proxy wars to fund, local governments begging the national government for financial support, a southern border that has become invisible, and national debt interest payments that have eclipsed the national defense budget.
The government needs more money, so there will be more money in the system. This is an unwritten rule of the game. When more money is chasing the same amount of financial assets, the asset prices have to explode higher.
Just as the lion pounces on their prey at the perfect moment, asset prices are poised to do the same thing in 2024.
This leads me to areas that I anticipate the highest returns to be captured. Here is a list in no particular order:
Bitcoin should appreciate hundreds of percent from here, but I would be cautious about the 10x predictions that some are making.
Altcoins should be the biggest winner across all financial markets — the further out you go on the risk curve of the “riskiest” asset class (crypto), the more you should be paid for the risk you take.
Proxy bitcoin exposure, like bitcoin mining stocks and Microstrategy, will continue to perform well and likely outperform pure bitcoin exposure on the way up. You will need to be careful on the other side of this bull market because the opposite is true too on the drawdown.
The major tech stocks will do well during this period, but the real area of opportunity is found in companies that have confused the market. Take Tesla as an example, the market believes they are a car manufacturer but they are more akin to the most advanced artificial intelligence and robotics company in the world.
While it is not my game, there will be big money made by people betting against the weakest fiat currencies globally. The dollar milkshake theory is real and probably has only just begun.
If you’re looking for a random opportunity to evaluate, I would point you to Brad Jacob’s new company that is going to roll up companies in the home manufacturing products industry. Jacobs’ track record is one of the best in the world and the market he is going after is very large, so with some good execution and fortune there is a solid chance he can build another multi-billion dollar company.
I believe the mid-sized media companies, such as Buzzfeed and VICE, are going to continue to struggle over the next 1-2 years and their financial performance will reflect it.
Lastly, bonds are going to continue to be your favorite intellectual’s choice for “safe investing” but they will ultimately be big money losers. Buying bonds over the long term usually means you failed the intelligence test.
It is important that I remind each of you that investing is hard and I am often wrong. I spend hours a day trying to understand financial markets, so I can better allocate my capital into various opportunities. You shouldn’t take any of this as financial advice, but rather thought starters to go off and do your own research.
The mainstream narrative over the last 24 months has been about a big market crash that was induced by the Fed. But just as the lion’s prey is distracted and doesn’t see the crouching lion inching closer, many market participants are picking their heads up now and realized that the lion is upon them.
The next 24 months should be fun. I wish all of you the best and hope you each accomplish whatever your goals are. Have a strong end to the year and I’ll talk to everyone tomorrow.
-Anthony Pompliano
Eric Jorgenson is the author of, “Almanack of Naval Ravikant” and “Anthology of Balaji.” He also serves as CEO of Scribe Media, and General Partner at Rolling Fund writing checks to high-tech startups.
In this conversation, we talk about his books, the process, Scribe Media, and then we dig deep into the ideas and takeaways of Balaji Srinivasan.
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Asset Prices Are The Crouched Lion Approaching Their Prey