This week former Federal Reserve Chairman Alan Greenspan — AKA “The Maestro” — talked with CNBC. It was a fascinating discussion, and I highly recommend watching. Here are some excerpts.
“My overall view is that the inflation outlook is unfortunately negative and that’s essentially the result of entitlements crowding out private investment and productivity growth.”
“…All in all my major concern is inflation. It obviously hasn’t emerged in any significant way as yet, but I think that’s the area where our problems lie.”
“We’ve got to resolve the budget deficits that are getting out of hand…”
It’s nice to see these concerns finally getting mainstream attention. After all the U.S. budget deficit in August was a massive $3 trillion. While some of that can be attributed to the early COVID-19 stimulus package, that’s still three times higher than the entire 2019 deficit.
Needless to say, the fundamental case for bitcoin (and gold) has never been stronger. However, there are near-term risks. As we discussed in Crypto Monitor last week, the primary risk that crypto faces right now is the stock market.
The wild rally we’ve seen in stocks over the last few months — especially the tech sector — is worrying. Valuations have gotten to a very bubbly stage. Shopify, for example, currently trades at 53x sales (revenue). Shopify is a great company, but that’s a crazy high valuation.
If stocks sell off hard sometime over the next few months, it’s likely that crypto will too. And as I’ve discussed many times, the government and Fed’s likely reaction to such a move would be to print a bunch more money and send deficits even higher. Ultimately this is all good for bitcoin, but it also involves a lot of short-term uncertainty.
This is why it continues to be important to keep a long-term perspective. And I continue to recommend diversifying your inflation hedges by adding gold, silver, and miners to the mix. Bitcoin has the most profit potential — but it’s also the most volatile. Having some exposure to precious metals will help smooth out returns.