The long-awaited moment came late last week when Bitcoin crossed $100k. Being a volatile asset, it’s already crossed that level multiple times in the few days since giving anyone who missed the first crossing ample opportunity to celebrate. Despite being wrong by 100x (10,000%!!!), Peter Schiff @PeterSchiff comes up with a novel excuse for why he wasn’t really wrong. Lyn Alden @LynAldenContact corrects Peter with her usual incisive humor. Tony Nash @TonyNashNerd contributes a guest “Thing” predicting an even stronger dollar against the euro and the yen. Check him out on the video version this week. DKI brings a game theory concept into the discussion to describe the interaction between the Fed and Congress right now. We get another week of earnings misses and downward guidance illustrating the weakness in the consumer. Savings are down; credit usage and delinquencies are spiking, and full-priced retailers are struggling. Yet, Washington DC continues to tell us the economy is fine. Finally, we discuss some of the risks to be aware of when investing in international markets.

This week, we’ll address the following topics:

• Bitcoin crosses $100k! Peter Schiff finds a new excuse for why he wasn’t wrong.
• Guest, Tony Nash, predicts a stronger dollar. DKI notes the difference between being a Fx trader and a consumer.
• The Fed vs Congress explained as a prisoner’s dilemma. DKI game theory.
• More retail earnings revised down. The consumer isn’t doing great.
• The risks of international investing. We’re not against it. We just think you should understand your exposure.

Interns Andrew and Alex do their usual great work this week. Alex, who was an early(ish) Bitcoin adopter, and who regularly annoys his professors by pointing out the deficits involved in the combination of fiat currency and modern monetary theory, will be joining us for the video version this week. I guarantee you that his point of view will be more welcome with us than in his classes!

Ready for a week of $100k Bitcoin!? Let’s dive in:

1) Bitcoin Breaks 100k!!!!!:

On November 8, 2019, with Bitcoin lounging at $7,000, Peter Schiff @PeterSchiff, the gold bug who never misses a chance to knock Bitcoin, scoffed on Twitter: “Keep dreaming. Bitcoin is never going to hit $100,000!” Fast forward to this week, and Bitcoin has shattered the $100,000 milestone, leaving Schiff’s tweet to age like unrefrigerated milk. Naturally, Schiff doubled down, tweeting: “It’s ironic that #Bitcoin only hit $100k by buying off politicians and getting in bed with government. Without expected government intervention, this milestone never would have been hit. What couldn’t be done in a free market was achieved through the coercive power of the state.” Lyn Alden @LynAldenContact, sharp as ever, was quick to respond, pointing out the irony: governments hold a far larger percentage of the world’s refined gold than they do Bitcoin. Meanwhile, Bitcoin’s ascent is rewriting the financial landscape. With a $2 trillion market cap, it’s now the 12th largest currency globally, outranking the Taiwanese dollar and closing in on the Australian dollar. Even Federal Reserve Chair Jerome Powell admitted, “It’s just like gold, only it’s virtual… it’s not a competitor for the dollar; it’s really a competitor for gold.” We wonder if Powell accidentally maligned the dollar and all fiat. Either way, someone please check on Peter. I like his work on gold.

It ok to be wrong. But if you’re going to be wrong and troll, we’re going to notice.

DKI Takeaway: The timing couldn’t be more fitting. President-Elect Trump has appointed Paul Atkins, a pro-crypto advocate and blockchain lobbyist, to replace Gary Gensler at the SEC. With Gensler out, the crypto space might catch a regulatory break. Gold’s market cap still stands tall at $18 trillion, but Bitcoiners are eyeing that gap with laser-focused ambition. (Alex wrote that very clever line!) Just 9X away, the digital gold revolution feels within reach. While Bitcoin quickly dipped below the $100,000 mark and may do so multiple times in the future, this is just the beginning. Bitcoin critics point to its volatility. We respond that the dollar is guaranteed to lose purchasing power consistently. DKI subscribers have owned Bitcoin since it was trading at $15k and gold since before it hit $2k. We’re happy to make money on both side of the anti-fiat debate. Congratulations to the Bitcoin community for holding through volatility, adverse regulatory decisions, and insults. This is a win, but not the last one.

2) Tony Nash on Dollar Resilience and Central Bank Policies:

Guest “Thing” from Tony Nash @TonyNashNerd. The U.S. dollar is poised to face a complex interplay of factors in the coming months, with implications for both its trajectory and cross-asset relationships. The forecast for the 10-year U.S.  Treasury yield suggests a market expectation of marginally tighter monetary conditions and then stabilization as the Federal Reserve shifts to a more accommodative stance. The anticipated 25bps Fed rate cut in December signals a recognition of cooling inflation and softer labor markets, which could initially weigh on the dollar by narrowing rate differentials. However, the dollar’s resilience is underpinned by contrasting global dynamics. The forecasted decline in EUR/USD aligns with Europe’s growing political and economic fragility. Germany’s struggles with industrial stagnation and France’s domestic unrest have amplified downside risks to the euro. Meanwhile, the European Central Bank’s anticipated 25bps rate cut reinforces a dovish divergence that should continue to pressure EUR/USD lower, despite the eurozone’s improving trade balance.

Complete Intelligence is forecasting a weaker Euro.

Complete Intelligence is forecasting continued weakness in the yen.

DKI Takeaway: Guest “Thing” from Tony Nash. The USD/JPY outlook suggests a different story. The yen’s forecasted weakness reflects the Bank of Japan’s commitment to ultra-loose policy, as reaffirmed by recent comments emphasizing the need to support a fragile domestic economy. While the U.S. yield curve may steepen in the short term, Japanese investors are likely to maintain outflows into higher-yielding U.S. assets, providing structural support for USD/JPY. Overlaying these trends is the incoming Trump administration, which could add a layer of uncertainty to global markets. Heightened geopolitical tensions arising from Russia-Ukraine and the Middle East could bolster the dollar as a safe-haven asset, particularly if the administration adopts aggressive trade or economic policies. We expect the dollar’s strength to persist, buoyed by diverging central bank policies, European political instability, and yen weakness. While the Fed’s dovish tilt may moderate gains, the broader macroeconomic landscape remains dollar-supportive into Q1 2025. (DKI note: The dollar can both appreciate against foreign currencies and lose purchasing power at home. A “strong” dollar doesn’t necessarily mean lower grocery bills.)

3) Fed vs. Congress as a Prisoner’s Dilemma:

A prisoner’s dilemma refers to game theory where two criminals are interrogated separately by the police. If the prisoners, who can not communicate with each other, cooperate with each other and refuse to speak to the police, they get the best outcome. Because the worst outcome for a prisoner comes when his partner cooperates, but he doesn’t, both criminals have a perverse incentive to turn on each other and cooperate with the police instead of each other. That leads to the worst collective outcome. We’re seeing a similar situation playing out in Washington DC right now. Congress is engaging in massive amounts of wasteful stimulus spending AND begging the Federal Reserve for more stimulus in the form of lower interest rates. That leads to high inflation, the worst outcome. For years, the Fed held firm and we saw disinflation. In recent months, the Fed decided to cooperate with Congress leaving the rest of us with the worst possible outcome.

The red box is where we’re headed. You still have options to profit from bad policy.

DKI Takeaway: Inflation is known as a hidden tax, but even worse, it encourages people to sacrifice the long-term gains that come from saving, investing, creating, and building in favor of short-term consumption. After all, if your money will lose spending power tomorrow, you might as well enjoy today. We’ve written often about our current Potemkin economy where employment gains and GDP growth are coming entirely from debt-financed wasteful government spending. DKI continues to believe the real culprit for inflation is Congress constantly spending us into debt. If the Fed chooses to cooperate and lower rates, we’ll be looking at rising inflation in the coming years. While we don’t like that option, there are places you can invest to take advantage of inflation instead of seeing your savings evaporate.

4) The Consumer Keeps Struggling:

Over the past two weeks, we’ve highlighted weakness in consumer spending. This week, we received additional insights into consumer trends. American Eagle $AEO, Foot Locker $FL, and Dollar Tree $DLTR all reported earnings on Wednesday. American Eagle reported flat revenue, a 14% decline in EPS, and weak guidance which caused analysts to lower 4Q estimates. Foot Locker missed earnings estimates, guided to sales declines, and analysts reduced EPS estimates. In contrast, discounter, Dollar Tree beat earnings estimates and tightened its sales growth range from 4.7% – 5.3% to 4.8% – 5.1%. That 5% projected growth for the discounter far exceeds what we’re seeing at the full price mall-retailers and came with warnings to the consumer about future price increases.

Full-priced retail is providing weak 4Q guidance.

DKI Takeaway: Consumers have been shifting toward lower-priced stores over the past year, and these earnings reports reflect that trend. The most significant takeaway is that Dollar Tree is maintaining or raising its guidance, while American Eagle and Foot Locker are cutting theirs. Based on recent trends, this shift makes sense. Consumers have reduced spending on discretionary goods at retailers like Target $TGT, American Eagle $AEO, and Foot Locker $FL, and luxury brands are seeing shoppers tighten their budgets and downgrade their shopping habits. The root cause of this shift is inflation. Excessive government money printing has led to higher prices, leaving consumers to bear the cost of fiscal and monetary incompetence. As DKI has been saying for the past three years:  You’re going to pay for your “free” stimmies.

5) Factors to Consider When Investing Internationally:

Investing internationally presents a wide range of opportunities for investors, including greater diversification and potentially higher returns from emerging markets. One of the easier ways to invest internationally is through an American Depositary Receipts (ADR). Here’s how it works: a domestic financial institution purchases shares of a foreign stock, converts the shares’ currency into U.S. dollars, and holds them as inventory. The stock then operates like a typical stock on a U.S. exchange. However, one important consideration is that currency risk still applies as the ADR’s value depends on the exchange rate between the US dollar and that of the home country’s currency. One of the largest ADRs in the U.S. is Taiwan Semiconductor $TSM, which operates as an ADR since the company is based in Taiwan.

We’re not against international investment – just want you to know the risks.

DKI Takeaway: At DKI, we focus primarily on U.S. equities for several reasons. First, currency risk can significantly impact your returns when investing abroad. While emerging markets may offer the potential for higher returns, there are sometimes concerns about fraud in some markets. In the U.S., the SEC enforces a wide range of laws intended to protect investors from fraud. Internationally, however, regulatory systems are often less stringent. China is one example as it prevents its companies from complying with US audit regulations. A critical component of U.S. regulations is the accounting requirements for companies reporting earnings. In contrast, international policies may vary, making it more difficult for investors to ensure they are basing their decisions on accurate information. Right now, money is flowing into US markets partly because of exposure to high-growth companies and partly due to reporting transparency. If you’re interested in learning more about our positions, we encourage you to subscribe to a DKI premium membership.

Here’s the video version: https://youtu.be/9dTylXBpqUM

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