Weimar of the West
Friday August 30th, 2024 - Issue # 79
(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
While everyone and their financial advisors were perched on the edge of their seats or at a bar watch party (fun) awaiting one of Wall Street's most anticipated moments—Nvidia's earnings report…
…my attention was captured elsewhere on Wednesday afternoon.
A seemingly innocuous tweet I stumbled upon on X sent me spiraling down a rabbit hole, leading me on a voracious side quest through history, from the Weimar Republic (Germany) era of 1919-1933 to the present day.
While we’re not going through hyperinflation (yet), the hyperinflation of the Weimar Republic is, at least to me, a striking historical example of how severe economic mismanagement can lead to profound societal and political consequences. As Mark Twain once said, history doesn't repeat itself, but it often rhymes…
Economic Instability and Inequality:
Weimar: As the value of the Mark collapsed, those with fixed incomes or savings in the bank saw their purchasing power destroyed, while those with tangible assets or debts saw their values soar or obligations erased. This created massive economic disparities. Imagine having a $1M mortgage on a home, and overtime, the value of $1M became equivalent to what $100K used to buy, you would be in an advantageous position.
Today: While obviously not to the extremes of Weimar, current monetary policies in many Western nations have similarly inflated asset prices, benefiting the wealthy who own these assets, while wage stagnation and rising living costs have disproportionately impacted the middle and lower classes, exacerbating wealth gaps.
Political Polarization:
Weimar: The economic hardships fueled extreme political movements, from communists to fascists, as desperate populations sought radical solutions to their disenfranchisement.
Today: Economic instability and glaring disparities in wealth are only intensifying political divisions and heightening partisan conflicts. This has fueled a surge in populist and nationalist sentiments, pushing more people away from globalization and towards building the highest of walls.
Erosion of Trust in Institutions:
Weimar: Rampant inflation and economic mismanagement led to a complete loss of faith in government institutions, as citizens felt betrayed and abandoned by their leaders' inability to stabilize the economy.
Today: There’s a mounting wave of skepticism and distrust toward government and financial bodies—many see them as bumbling giants, stumbling through economic issues with misguided policies that end up driving wealth away, rather than fostering it where it’s needed most.
Cultural and Social Change:
Weimar: The Weimar era was marked by a cultural explosion in Berlin, where traditional social norms were openly challenged and redefined. The city became renowned for its vibrant arts scene, characterized by a notable degree of promiscuity and hedonism. This period was also a time when artistic expression and personal liberties expanded rapidly, pushing the boundaries of conventional morality and social expectations.
Today: Similar trends are observable in the cultural and artistic expressions that challenge traditional norms and values. Recent events, like the opening of the Olympics in France, showcase a continuation of this trend, where modern cultural movements, including various LGBTQ+ advocacies, play a prominent role in reshaping societal norms. These movements are part of a broader dialogue about diversity and inclusion, reflecting a global reevaluation of what is deemed important in cultural representation.
Rise of Authoritarianism:
Weimar: Economic chaos and social unrest created fertile ground for populist leaders who capitalized on public discontent. They promised order and revival, appealing to widespread desires for immediate and sweeping changes, often at the expense of established democratic norms.
Today: There’s a noticeable global trend toward populism, as leaders in several countries have garnered support by promising to restore stability and national pride in response to real or perceived crises. These leaders often frame their rhetoric against elite establishments, positioning themselves as the voice of the 'common people'.
Social Discontent and Radicalization:
Weimar: The public's desperation led to increased susceptibility to radical ideologies, culminating in violent clashes and societal divisions.
Today: Modern economic and social pressures are similarly radicalizing segments of the population, manifesting in increased civil unrest, extremism, and at times, violence.
As I ventured down this rabbit hole, naturally, the thought came to mind “so…what assets performed best”…I know, as concerning as all the similarities were, my mind went to “how would I have outperformed if I was an investor back then?”
Without looking into it, it was obvious to me that if you held your wealth in any other currency (especially the US Dollar, British Pound, and Swiss Franc) you would’ve done extremely well. Pretty much, any assets that were tangible or finite sky rocketed against the Mark — real estate, art, stocks in certain industries, commodities, and especially gold.
Today, consider the scenario where the global reserve currency—the US dollar—is on the verge of a weakening cycle, triggered by rate cuts and quantitative easing. In such a situation, where every major currency follows the dollar, where do you go to protect your wealth? Traditionally, gold would be the answer as the go-to asset in times of monetary devaluation. But in our digital age, Bitcoin has emerged and has strong global notoriety as a formidable challenger. I’ve said it a bunch of times and I stand by it completely — Bitcoin is better than gold in virtually every aspect an investor should care about. As you all know, Bitcoin has a fixed supply, seamless portability, no need for physical storage, and independence from governmental control. This positions Bitcoin not merely as an alternative but as a revolutionary redefinition of what it means to secure assets in the 21st century. As we navigate the coming dollar bear cycle, I believe Bitcoin continues to play catch up to gold’s $16 Trillion lead in market cap.
Have a great long-weekend!
Before I get to posting a few podcasts I listened to this week, here’s a bitcoin-related fictional book that I read which I really enjoyed (and surprised I’d never heard of it before). Shout out to my girlfriends parents for the great recommendation!
Weekly podcast recommendations