Time Signature

(Any views expressed here 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.)

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The most exalted form of praise humanity bestows on the universe is its happiness derived from dancing. Most religions incorporate some sort of music and dance into their worship. My organized religion, house music, “jacks your body” not at church on Sunday morning but at a similar time at Club Space.

In university, I praised the beat by joining the ballroom dancing club. Each ballroom dance is very prescriptive (e.g., in ballroom rumba, you cannot step onto a bent leg), and for beginners, the hardest part is performing the basic step to the beat. A large part of the struggle is determining the time signature of a song and then where each count falls.

Jive music, my favorite ballroom dance, is in 4/4 time, while waltz music is in 3/4 time. Once you know the time signature, your ear must then detect which instrument accents the first beat and counts the rest of a bar. If every piece of music were just a kick drum thumping out ONE, two, Three, four, it would be very monotonous and boring. What makes music engaging is how composers and producers’ layer on other instruments and sounds to add depth and richness to a song. But while dancing, listening to all these secondary sounds is superfluous to the act of placing your feet in the right places at the right times.

Just like music, a price chart is a wave of human emotion to which our portfolios dance. And just like a ballroom dance, our decisions to buy and sell different types of assets must adhere to the time signature and the count of a particular market. If we are out of time, we lose money. Losing money, like out-of-time dancers, is ugly. The question then becomes: if we are to remain beautiful and prosperous, to which instrument within the financial markets must we tune our ears?

If there is one axiomatic idea that underpins my philosophy toward investing, it is that the most important variable to profitably trading is understanding how the supply of fiat changes. When it comes to crypto, this is even more important because, at least for Bitcoin, it is a fixed supply asset. Therefore, the pace of fiat supply expansion determines the pace of Bitcoin price Ascension. Due to the gargantuan creation of fiat since early 2009 bidding for a relatively minuscule supply of Bitcoin, Bitcoin became the best-performing fiat-denominated asset in human history.

Currently, the cacophony of sounds produced by current financial and political events is tritone. The markets keep grinding higher, but there are some very serious, and what would seem to be negative, catalysts producing dissonance. Should you be sheltering in place due to tariffs and/or war? Or are these just non-essential instruments? If so, then can we hear the guiding force of the kick drum, a.k.a. credit creation?

Tariffs and wars are important because a singular instrument or sound can destroy a piece of music. But these two issues are interrelated and ultimately irrelevant to Bitcoin continuing to creep higher. U.S. President Trump cannot apply meaningful tariffs against China because China will cut off the supply of rare earths to Pax Americana and her vassals. Without rare earths, the U.S. cannot build weapons to sell to Ukrainian President Voldemort “The Slavic Slayer” Zelensky, nor to Israeli Prime Minister Benjamin “The Bedouin Butcher” Netanyahu. And so, the U.S. and China are engaged in a fatal tango where each side trades just enough with each other not to rock the boat too much economically or geopolitically. This is why the status quo, while sad and deadly for humans in both of these theatres of war, will not materially impact the global financial markets…for now.

All the while, the credit kick drum continues to demarcate time and tempo. The U.S. needs industrial policy, which is a euphemism for state-sponsored capitalism, technically called that dirty word: fascism. The U.S. needs to migrate from a semi-capitalistic to a fascist economic system because its champions of industry, of their own accord, do not produce the means of war in quantities sufficient for the current geopolitical environment. The Israel-Iran war lasted only twelve days, because Israel ran out of U.S.-supplied missiles to operate its air defenses flawlessly. Russian President Vladimir Putin is unfazed by the U.S. and NATO’s continued threats to become more deeply involved in supporting Ukraine because they cannot produce armaments in the same quantity, at the same pace, nor for the same low price as Russia can.

The U.S. also needs a more fascist economic arrangement to boost employment and corporate profits. Wars are great for economies viewed through a Keynesian lens. Sluggish organic demand from the population is replaced with insatiable demand from the government to produce weapons. Finally, the banking system is willing to extend credit to businesses because they are guaranteed profits by producing what the government desires. Wartime presidents are very popular, at least at first, because everyone appears to become wealthier. If we took a more wholesome approach to counting economic growth, it would be very apparent that war is extremely destructive on a net basis. But that sort of thinking doesn’t win elections, and every politician’s number one goal is re-election, if not for themselves, then for their party members. Trump is a wartime president, just like the majority of his U.S. presidential predecessors, and as such, he is placing the U.S. economy on a wartime footing. It then becomes easy to find the beat; we must look for the ways in which credit is pumped into the economy.

I explained how government-guaranteed profits for “critical” industries lead to the extension of bank credit in my essay “Black or White.” I called this policy “QE 4 Poor People,” and it creates a credit geyser.^[1] I predicted this would be the method by which Team Trump pumped up the US economy, and the MP Materials deal is our first real-world example at scale. The first part of this essay will walk through how this deal expands the supply of dollar credit and will be the template the Trump administration follows in their attempt to produce the critical goods needed in a 21st-century war: semiconductors, rare earths, industrial metals, etc.

War also requires the government to continue borrowing gargantuan sums. Even if capital gains tax receipts rise as rich folks’ assets pump due to an increase in the supply of credit, the government will still post ever-increasing fiscal deficits. Who will buy the debt? Stablecoin issuers.

As the total market cap of crypto rises, a portion of that is stored in stablecoins. The vast majority of these stablecoin assets under custody (AUC) are invested in US Treasury bills. Therefore, if the Trump administration can provide a favorable regulatory landscape for TradFi to participate and invest in crypto, its total market cap will surge. Then the stablecoin AUC rises automatically, which creates more buying power for Treasury bills. US Treasury Secretary Bessent will continue to issue vastly more T-bills than Treasury notes or bonds to be purchased by stablecoin issuers.

Let’s dance the credit waltz, and I will instruct readers on how to perform the serpentine flawlessly.

And One,

QE 4 Poor People

Central bank money printing does not produce a strong wartime economy. Financial replaces rocket engineering. To rectify this wartime production failure, the banking system is encouraged to provide credit instead to industries deemed critical by the government instead of corporate raiders.

The US private companies are profit-maximizing. From the 1970s to now, it has been more profitable to do “knowledge” work inside the US while pushing production offshore. The Chinese government was perfectly happy to upgrade its manufacturing skills by becoming the world’s low-cost and, over time, high-quality workshop. However, producing $1 Nikes isn’t what threatens the Pax Americana elite. It is that the empire cannot produce the means of war at the very time its hegemony is seriously threatened. Hence all the noise about rare earths.

Rare earths are not rare, but very difficult to process in large part due to enormous environmental externalities and huge CAPEX requirements. Chinese President Deng Xiaoping, over thirty years ago, decided China would dominate the production of rare earths, and now that farsightedness can be exploited by Chinese President Xi Jinping. Currently, all modern weapons systems require rare earths; therefore, Xi decides how long wars last, not Trump. To rectify this situation, Trump is borrowing the economic system of China to ensure rare earth production ramps up in the US so the empire can continue its belligerency.

From Reuters here are the bullet points of the MP Materials deal:

● US Defense Dept to become MP Materials' biggest shareholder

● Deal will boost US output of rare earths, loosen China's dominance

● Defense Dept will also guarantee a floor price for key rare earths

● Floor price will be twice current Chinese market price

● MP Materials' shares surge nearly 50% on news of the deal

All this is great and good, but where will the money come from to build the facility?

JP Morgan and Goldman Sachs are backing a $1 billion loan to build the 10X facility, MP said.

Why all of a sudden do banks want to lend to the real industry? Because the US government guarantees the boondoggle will be profitable for the borrower. The T-table below explains how this deal causes ex nihilo credit creation that creates economic growth.

1. MP Materials (MP) needs to build a rare earths processing facility and gets a loan of $1,000 from JP Morgan (JPM). The act of lending creates $1,000 of new fiat wampum, which is deposited at JP Morgan.

2. MP then builds the facility to process rare earths. To do so, it needs to hire people, the Plebes. In this simplified example, I assume all costs consist of labor. MP must pay its workers, which results in a debit of $1,000 from MP’s account and a credit of $1,000 to the Plebes’ account at JPM.

3. The Department of Defense (DoD) needs to pay for these rare earths. The money is provided by the Treasury, which must issue debt to fund the DoD. JPM converts its MP corporate loan asset into reserves held at the Fed by accessing the discount window. These reserves are used to purchase the debt, which results in a credit to the Treasury's General Account (TGA). The DoD then purchases the rare earths, which becomes revenue for MP that ends up as a deposit at JPM.

The Ending Balance of fiat (EB) is $1,000 higher than the initial JPM loan amount. This expansion is due to the money multiplier effect.

This is how a government procurement guarantee creates the construction of a new facility that employs people financed by commercial banking credit. I didn’t include it in this example, but JPM will now lend to the Plebes to buy assets and goods (houses, cars, iPhones, etc.) because they have a good stable job. This is another example of new credit creation, which ends up in the hands of other US companies that deposit this revenue back into the banking system. As you can see, the money multiplier is >1, and this wartime production leads to an increase in economic activity, which is accounted for as “growth.”

The money supply, economic activity, and the government debt pile all grow. Everyone is happy. The Plebes have jobs, and the financiers/industrialists have government-guaranteed profits. If these fascist economic policies provide goodies for everyone out of thin air, why isn’t this already the global economic policy of every nation-state? Because it creates inflation.

The supply of human bodies and raw materials required to produce goods is finite. The government, by encouraging the creation of money out of thin air via the commercial banking system, is crowding out the financing and ultimately the production of other goods. Eventually, this creates shortages of raw materials and labor. However, there is no shortage of fiat money. Therefore, wage and goods inflation will follow, which ultimately creates misery for anyone or any entity not directly connected to the government or banking system. If you don’t believe me, read the quotidian histories of the World Wars.

The MP Materials deal is the first major deal that exemplifies the QE 4 Poor People policy. The best part about this policy is that it doesn’t require congressional approval. The DoD, under the direction of Trump and whoever follows him in 2028, can hand out guaranteed procurement orders under its normal course of business. Profit-motivated banks will follow and do their patriotic duty funding enterprises that suckle at the government teet. In fact, elected representatives from all political parties will be falling over themselves to argue why companies based in their district deserve to receive DoD procurement orders.

If we know that this form of credit creation is immune from political pushback, how do we protect our portfolios from the inflation that is sure to follow?

Blowing Bubbles

It is not lost on politicians that ramping up credit growth to spur on “critical” industries creates inflation. The challenge is to use the excess credit to blow a bubble in an asset that won’t destabilize society. If the price of wheat went up as fast as Bitcoin did over the past 15 years, most governments would have fallen to popular revolution. Instead, the government encourages the population, who intrinsically feels themselves getting poorer and poorer in real terms, to put skin in the credit game by profiting from the rise in the state-sanctioned inflation hedge.

To see a real-world non-crypto example, let’s turn to Choyna. China is the best example of a fascist economic system. Their banking system created the largest amount of credit in the shortest period of time in civilized human history from the late 1980s to the present and handed it out predominantly to state-owned businesses. They successfully became the low-cost, high-quality workshop of the world; currently, one-third of all manufactured goods are produced in China. If you still think Chinese companies produce subpar quality goods, go test drive BYD and then a Tesla.

The Chinese money supply (M2) grew 5,000% from 1996 to the present. Plebes who wished to escape this credit-fueled inflation faced very low banking deposit rates. As a result, they piled into apartments, which the government encouraged as part of its urbanization drive. The ever-increasing housing prices, at least until 2020, helped dampen the desire for comrades to hoard other real goods. House prices in tier-1 Chinese cities (Beijing, Shanghai, Shenzhen, and Guangzhou) became the most expensive in the world on an affordability basis.

Land prices are up 80x in 19 years for a 26% CAGR.

This home price inflation didn’t destabilize society as your average middle-class comrade was able to borrow money and purchase at least one apartment. Therefore, everyone was in on it. An extremely important second-order effect is that local governments primarily fund social services by selling land to developers who build apartments to sell to plebes. As house prices went up, land prices and sales rose alongside tax revenue. This allowed the central government in Beijing to lessen revenue raised from direct taxation. Taxes are never popular, and in some respects, the Chinese Communist Party is the ultimate populist government.

The recent Chinese example shows us that if the Trump administration is serious about going fully economically fascist, the excess credit growth must blow a bubble that allows the average person to make money while simultaneously funding the government. The bubble that the Trump administration will blow will be centered in crypto. Before I delve into how a crypto bubble accomplishes various policy goals of the Trump administration, let me first illustrate why Bitcoin and crypto will zoom higher as the US becomes a fascist economy.

I created a custom index (white) called <.BANKUS U Index> on Bloomie. This is the sum of bank reserves held at the US Federal Reserve and of the banking system’s other deposits and liabilities, which is a proxy for loan growth. Bitcoin is in gold, and both lines are indexed at 100 as of January 2020. Credit growth doubled, and Bitcoin increased 15 times in response. Bitcoin’s fiat price is highly leveraged to credit growth. By this point, no retail or institutional investor can deny that Bitcoin is the best horse to ride if you believe there will be more units of fiat created in the future.

Trump and Bessent have been orange-pilled as well. From their perspective, the great thing about Bitcoin and crypto in general is that a larger percentage of traditionally non-stock-owning cohorts (the young, the poor, and non-white) own crypto than in the wealthy white boomer population.^[2] So if crypto booms, it creates a broader, more diverse set of people who are pleased with the ruling party’s economic platform. Furthermore, in a bid to encourage all types of savings to invest in crypto, per a recent executive order, 401(k) retirement plans are now explicitly allowed to invest in crypto assets. These plans hold approximately $8.7 trillion in assets. Boom Shak-A-Laka!

The coup de grâce is a proposal by Emperor Trump to eliminate capital gains taxes on crypto. Trump is providing insane war-driven credit growth, regulatory permission for retirement funds to plow cash into crypto, and no fucking taxes. Huzzah!

All of this is well and good, but there is one problem. The government must issue more and more debt to fund the procurement guarantees the DoD and other agencies extend to private businesses. Who is going to buy the debt? Crypto for the win again.

Once capital enters the crypto capital markets, it usually doesn’t leave. If a punter wants to chill on the sidelines, they can hang out in USD-pegged stablecoins like Tether. Tether, in order to earn yield on its AUC, invests in the safest TradFi yield-bearing instrument there is: T-bills. T-bills have a maturity of under one year, thus reducing interest rate risk to near zero, and are as liquid as cash. The US government can print an infinite amount of dollars for free and therefore will never default in nominal terms. T-bills currently yield 4.25-4.50% depending on the maturity. Therefore, the higher the total crypto market cap rises, the more funds stablecoin issuers will accumulate. And finally, most of this AUC will invest in T-bills.

On average, for every $1.00 the total crypto market cap increases, $0.09 finds its way into stablecoins. Let’s assume that Trump does his part, propelling the total crypto market cap to $100 trillion by the time he leaves office in 2028. That’s about a 25x rise from current levels; if you don’t think that is possible, you haven’t been around crypto long enough. That would create roughly $9 trillion in T-bill purchasing power from stablecoin issuers due to global inflows.

For historical context, when the Fed and Treasury needed to finance America’s WWII escapade, they resorted to issuing way more bills than bonds.

Now Trump and Bessent have squared the circle:

1. They copied China and created an American fascist economic system to produce the wartime goods needed to continue dropping bombs indiscriminately.

2. The credit growth-inspired financial asset inflationary impulse is directed at crypto, which dutifully screams higher, and a wide swath of the population feels wealthier due to their sick gains. They will be voting Republican in 2026 and 2028 … unless they have a teenage daughter … or maybe plebes always vote with their wallets.

3. A rising crypto market creates massive inflows into stablecoins pegged to the USD. These issuers invest their AUC in newly minted T-bills, which finance the ever-expanding federal deficit.

The kick drum is thumping. The credit is pumping. Why are you not fully invested in crypto? Don’t be scurred of tariffs, of war, or of random social issues.

Trading Tactics

It’s pretty simple: Maelstrom is fully invested. Because we are degens, the shitcoin space offers amazing opportunities to outperform Bitcoin, the crypto reserve asset.

The coming Ether bull run is about to tear the market a new asshole. Ever since Solana rose from the FTX ashes from $7 to $280, Ether has been the most hated large-cap crypto. No more; the Western institutional investor class, whose chief cheerleader is Tom Lee, loves Ether. Buy first, ask questions later. Or don’t and be that sourpuss in the corner sippin’ on a piss-like tasting light beer at the clerb while a gaggle of humans you rate as less than intelligent burn their money on bubbly water at the table over yonder. This ain’t financial advice, so do you. Maelstrom is doing all things Ethereum, all things DeFi, all things degen powered by ERC-20 shitcoins.

My year-end targets:

Bitcoin = $250,000

Ether = $10,000

Yachtzee, Motherfuckers!

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^[1] QE stands for Quantitative Easing

^[2] Here are some sources: Business Wire, NFT Evening