November 17, 2020 Financial Planning 0 comment

3Q 2020 Commentary

3Q 2020 Commentary


The Monetary Endgame


The title the Endgame is meant to help focus the reader on the endpoint for some of the current trends as we see them. It is title stolen from some of the more prominent interviews and papers we have read or listened to over the last several years. We believe that the current monetary system is nearing the end of it’s life-cycle. It was born at Bretton Woods in a series of post-World War II agreements. It placed the US dollar at it’s center. This system is breaking down and will eventually be replaced. If you have lived most of your life with this agreement in place this may be very hard to believe this can happen. It has many times in the past and it will happen again.


We are fans of Neill Howe’s Fourth Turning. It is worth understanding his view of generations in order to grasp what is currently happening in society. We are in what he describes as the 4th turning. This is the season of winter using the seasons as an analogy. It is the season when all of the old institutions and status quo dies and make room for whatever is going to blossom in the next Spring. These cycles are natural and repeating throughout time.


The monetary impact of this will be the replacement of the dollar as the world’s reserve currency. The central banks around the world are consolidating power inside their walls. Richard Werner is an economist who has written and produce insightful work in this regard. His lectures and videos can be found online.  He is best known for his book, Princes of the Yen. Richard focuses on how the banking system legally works and details steps that are leading us to a centrally planned banking system. One of the more timely aspects of his thesis is the idea of Central Bank Digital Currencies (CBDC’s). He believes this is a step central banks will take on their path to a total take over of the banking system. Unlike what we and many others believed, Werner believes the central banks will compete and eventually destroy the commercial banks. We are now inline with Werner on this issue.


Bitcoin. We view this as a central piece to protect your monetary well-being. I first became aware of Bitcoin in 2010 when it was around $90 pre coin. I reviewed it, thought it was interesting but did not fully understand it and decided it was a very high risk with likely high reward asset. I passed on doing anything with it because I was convinced gold would act similarly had much lower risk. For about five years, Bitcoin left my consciousness. Enter Marc Schumacher and Horizon Kinetics. Marc educated me on Bitcoin and the firm’s founder’s (Murray Stahl) belief that Bitcoin would be successfully adopted. Murray had a background in cryptography and understood the power of the structure and security of Bitcoin and the blockchain underlying the currency.


Initially I viewed bitcoins adoption being driven by the individual being able to use the coin the way we use cash, credit cards or checks. I had a difficult time resolving the delay in transaction confirmation with the speed with which consumers would demand. My view has evolved in two ways. The first is that although the transaction confirmation speed may speed it, it will always be an issue. The delay is necessary to preserve the confidence in the transactions. Companies will develop additional layers which will sit on top of the Bitcoin blockchain for those that desire the speed consumers currently enjoy in doing transactions. The second evolution is that the larger use for Bitcoin will be it’s role as a monetary asset similar to gold. In other words, large amounts of money that transact slowly will be an ideal role for Bitcoin. An individual, a company and a government all of working capital needs and savings. The working capital has access speed as key variable. The savings is much more about principal security and preservation of purchasing power. I believe this will be Bitcoin’s next widely adopted role. A small global allocation shift into Bitcoin will likely cause a massive increase in the price per coin.


In summation, we believe a monetary reset is coming as part of a larger societal rest. Like an approaching storm you can feel it as much as see it coming. It will likely remove the US dollar as the world’s single reserve currency. It is hard to know exactly what will replace it. The use of digital currencies (that do not include a cash option) will drive people to own gold and Bitcoin as a means of getting outside of that ecosystem in our opinion.




Fourth Turning


Richard Werner


Horizon Kinetics



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