Source: Yes, I give a fig… thoughts on markets from Michael Green
So, in summary:
- The basket of goods and services used to calculate CPI consists of Food (~14%), Energy (~7%), and Core (all items less food and energy, ~79%).
- Policy makers, such as the Fed, prefer to look at measures of “Core” inflation, as food and energy prices are deemed to be volatile and not easily influenced by monetary policy.
- Core CPI consists of Core Services (~58%) and non-Core Services (goods and products, ~42%).
- Non-Core Services inflation has already fallen to pre-pandemic levels of about 1%.
- Core Services inflation remains stubbornly high at ~5.5%, but measures of 1) rent and 2) motor vehicle insurance, maintenance and repair, which both lag real-time price measures by about a year, are likely to come down.
- Rent, accounting for 58% of Core Services, is especially likely to act as a headwind to headline CPI for the remainder of 2024.
What’s Old Is New Again: Zimbabwe Launches Gold-Linked Currency
In its latest bid to attempt to arrest hyperinflation that has plagued the nation since 2008, the Zimbabwe central bank has launched a brand new fiat currency linked to gold called ZiG, short for Zimbabwe Gold.
The new currency was announced on April 5th and electronic transacting in the new currency unit began three days later on April 8th. Notes were put into circulation on April 29th. The entire Zimbabwe stock exchange was redenominated in ZiG as well as part of the transition. The exchange rate was 13.56 to the US dollar at launch, and is now being quoted at 13.41 to the dollar, having strengthened slightly.
The official currency of Zimbabwe before the transition was the Zimbabwean dollar, although much of the economy had already switched to using US dollars as the Zimbabwean dollar had lost 80% of it’s value against the USD in just the first 3 months of 2024. All holders of Zimbabwean dollar accounts had their balances converted to the new currency. The US dollar is still being allowed to circulate and is being accepted as payment.
The new currency is backed by $185 million in gold and $100 in cash reserves, so it is not backed by gold 1:1. To spur demand, the government is going to require that at least 50% of tax obligations be settled in ZiG.
While seemingly so far away from the day-to-day experience of much of the developed world, reflecting on the whole episode of dealing with hyperinflation, needing to adopt another country’s currency out of necessity, and introducing a new currency to an economy on the fly in the year 2024 is a chance to at least attempt to consider a different perspective from your own while trying to understand money, financial freedom, and, in turn, bitcoin.
Much of the world’s population is unbanked, even more deal with an unstable local currency, and even more could only dream of access to the S&P 500. They are forced to save in physical cash or illiquid and depreciating store-of-value assets like cars or houses. For them, bitcoin is much more than a “speculative asset” — it might be the only liquid, durable, functional savings technology accessible to them.
Wisconsin Gets Off Zero
The State of Wisconsin Investment Board (SWIB) revealed in a filing that as of March 15 they have purchased shares of BlackRock’s IBIT and Grayscale’s GBTC bitcoin ETFs worth about $164 million.
In total, SWIB manages about $156 billion in assets on behalf of Wisconsin state retirees and the State Investment Fund, meaning their initial bitcoin allocation amounts to about 10 basis points or 0.10% of assets.
While they’re certainly not betting the farm as of yet, according to my research Wisconsin becomes just the fourth public pension fund, and first state pension fund, to reveal an investment in bitcoin and the first through the ETF vehicle. The Fairfax County Police Officers Retirement System and the Fairfax County Employees’ Retirement System began investing in bitcoin in 2019, and the Houston Firefighters’ Relief and Retirement Fund made an investment in bitcoin in 2021.
As institutional investment in the asset becomes normalized and adoption and education spreads, expect more states to follow in Wisconsin’s footsteps. Their investment is a piece of evidence refuting the claim that “everyone who wants to allocate to bitcoin has already had ample opportunity to do so,” and shows that, despite significant trade-offs relative to Multi-Institution Custody, the ETF wrapper, over time, is likely to unlock a wave of institutional investment capital to come into bitcoin.
Chart & Quote of the Week
