He appears frequently on television, writes a column for Bloomberg Opinion and is active on Twitter, where he has over 113,000 followers.
Bianco argues we’re at inflection points in inflation, stock and bond markets, and crypto currencies.
The U.S.economy is widely expected by analysts to boom this year, with Goldman Sachs researchers expecting a 7.2% increase in 2021 gross domestic product.The benchmark 10-year Treasury’s yield has already tripled from a low last year on expectations of faster inflation as states loosened coronavirus restrictions.Stock market investors, meanwhile, have rotated into value stocks, cyclically sensitive companies and financials, selling pandemic winners such as software, renewable energy and the big tech giants known as the FAANGs, which have been spectacular performers for years.
An edited version of our Q&A follows.
Jim Bianco.Inflation hit its zenith around 1980.But it wasn’t really until the mid-1990’s that it essentially went away.There are three drivers of low and steady inflation — demographics, globalization and technology.
When you get older, you’ve already got a house, you’ve already got a car, you don’t need to spend as much.So that helps to depress inflation.Globalization means you can search the world to find the lowest price.And technology has been hugely deflationary.Technology really kicked in around the mid-1990s, because that’s when the internet took off.So it’s been about 25 years that we’ve had very low, very stable inflation.
We’ve got 100 million [checks] that are supposed to go out, each one for $1,400.So, we’re stuffing people full of money, and this is the third set of checks that we’ve had, and we’re not done.
Between the CARES Act, the $900 billion that we did in December, and the $1.9 trillion [under President Biden], we are at around $6 trillion.
That doesn’t include monetary policy [or] whatever else may come for the rest of this year.
That has blown up the deficit to $3.6 trillion, or 16% of GDP.There have only been three years in American history that the deficit as a percentage of GDP has been that high — 1943, 1944 and 1945.
So I think the stock market has a problem.Technology stocks have struggled, because higher rates put most growth companies in a bad place.It is a relative benefit for the value companies, so that’s why we had all this talk about the rotation from growth to value.
A lot of the big FAANG stocks [Facebook FB, +2.12% , Amazon AMZN, +1.73% , Apple AAPL, +2.62% , Netflix NFLX, +1.83% and Google holding company Alphabet GOOG, +1.32% ] had peaked back in September.
They’re now going on six months where they haven’t really gone anywhere.The financial stocks have been benefiting from higher rates, because it widens the yield curve, and it gives them better interest margins [at which] they can lend and make money.
So if I can quote my old friend, Dennis Gartman, “If you can drop it on your toe, you should buy it.” Because that seems to be a very good investment in the last couple of years, and I think it’s going to continue to be.
If you dig into the crypto universe, and you understand the phrase “decentralized finance,” or “defi,” you will find that they are recreating the entire financial system in a decentralized way, complete with borrowing, lending, derivatives trading, insurance, lotteries, automatic market making as well, too.
When Mark Cuban in the mid-1990s started looking at streaming video, you had to download and configure the browser, download and configure an application, download special files and run them on this application.They were grainy, and you could only do about five minutes at a time.
And then he concluded, “This is going to change everything.” You could have said, “Are you kidding me? This is hard.This is not very efficient.” But he said, “Look, they’re going to solve all those problems.
And we’re going to get something that’s going to be useful,” and that’s what he turned into broadcast.com, which he sold to Yahoo and became a billionaire.
I see crypto the same way.It is difficult to use.It is fraught with fraud and potential for being hacked.It’s not ready for prime time.But beyond that is a complete remaking of the financial system from the ground, up, in a decentralized, digital way.I would be very worried if I was at a traditional commercial bank.You would be somewhere between where a traditional newspaper is, traditional nightly news and a yellow taxi.They still exist, but they’re a shell of what they used to be, because we’ve gone to a new digital world.
The biggest problem that I see with the crypto space is the American regulations of anti-money laundering and know your customer.
Because of those rules, you can run afoul of American regulations.Now, the way you get around that is you can transfer your money to an unregulated wallet, and you can connect to these decentralized exchanges, but that’s really hard.And there’s risk that you do it wrong and you lose your money.I’ve already lost some money, because I’ve done it wrong, too.
But you’re left with a “holy s–t” moment: “This is going to change everything once they get it solved.”
It’s kind of like it’s 1997 and you correctly said, “Oh, I think search engines on the internet are going to be the next great big thing,” and you bought Lycos, and it went to zero, and you bought Alta Vista, and it went to zero.You bought Yahoo, and you were kind of successful at it.And then you gave up, and then Google was created.
But what I think is going to happen if you’re not careful is Asia, the Third World, and the Middle East are going to adopt some form of a decentralized exchange, some form of a decentralized token, and they’re going to adopt that as their reserve currency.And we’re going to have no say in the transition to the next reserve currency.
Go back to my Mark Cuban example.When he looked at the beginnings of streaming video, you and I didn’t do it.
It was just too damn hard.But he figured out that it would become what YouTube is today: You just push one button and watch.He saw that that’s what it was going to become.That’s what I think a lot of people in the digital space see — a whole new banking system, a whole new financial system, as well.
Howard Gold is a MarketWatch columnist.His Q&As appear monthly.
Follow him on Twitter @howardrgold.
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