#734 The Economy Is Worse Than You Think w/ Preston Pysh
11/29/2021 · 40 min · transcript via mlx
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Key topics
— Inflation is significantly understated at the official 6.2% rate; Preston estimates true inflation between 10-15% based on M2 growth, with acceleration expected in coming years.
— Central banks are forcing all asset classes into negative real yields, compelling institutional investors to take on excessive leverage and move further out the risk curve into riskier assets.
— El Salvador's Bitcoin adoption at the nation-state level represents a watershed moment; other sovereign nations will likely follow once they recognize the competitive advantage, particularly those with remittance economies and natural resources.
— Pension funds like CalPERS are now taking on leverage and alternative assets as fixed income becomes uninvestable; this reflects systemic desperation rather than prudent portfolio management.
— Bitcoin is the only unmanipulated market remaining; its volatility is normal for an asset transitioning from $1 trillion to potentially $100 trillion in valuation.
— The next major market crash will likely trigger unprecedented money printing (3-4x larger than COVID stimulus), which could accelerate Bitcoin adoption as trust in traditional finance erodes.
Market & price signals
— Bitcoin is trading near $54,000 following a 20-25% selloff described as a "Black Friday fire sale." Preston views the decline as normal volatility given the macro backdrop and the asset's long-term trajectory. He argues Bitcoin reaching $10 trillion market cap (gold parity) would force institutional recognition; currently at $1 trillion. Real yields across all major asset classes are deeply negative—fixed income yields are 300-400 basis points below reported inflation, and European long-duration bonds are breaking a 30-40 year downtrend. US Treasuries remain underwater on the trend but creeping higher. Equity valuations are priced on artificially suppressed interest rates (PE multiples of 35-45); if rates normalize, equities would reprice to PE 10 multiples, implying 70-80% downside.
Actionable insights
— Avoid long-duration bonds and fixed income entirely; real returns are guaranteed negative and nominal yields may turn negative next, creating a scenario where investors contractually guarantee purchasing power losses.
— Bitcoin should represent a meaningful portfolio allocation not as speculation but as insurance against monetary debasement; volatility is a feature, not a flaw, and 30% swings are normal for an asset on a multi-decade adoption S-curve.
— If forced to hold equities (20% Bitcoin limit), focus only on companies with durable competitive advantages in essentials (food, energy, communications) that will generate free cash flows regardless of deflationary or inflationary macro outcomes; avoid PE-dependent equities.
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