The explosion of Fartcoin, a sign of the failure of the Fed

Western investor sentiment towards gold is at an all-time low, while we have literally seen a gold rush in Asian countries for the past two years.

ETF assets are experiencing persistent outflows, particularly in Europe, while India and China are intensifying their purchases of gold.

Why are the Chinese and Indians buying physical gold, while financial institutions in Western countries are reducing their exposure to the precious metal? What are the reasons that explain these diametrically opposed behaviors?

The rush towards cryptocurrencies in the West appears to be one of the main reasons for the lack of interest in gold. Defensive investments, which have traditionally gone to gold, are now turning to Bitcoin and other cryptocurrencies.

This phenomenon mainly concerns younger investors, notably generation Z, for whom traditional investing, such as active management and hedge fundsbelongs to the past. Today they favor strategies with high potential, with asymmetric risk (limited loss, exponential gains).

These young investors reject old standards like oil, raw materials and contemporary art from the 1990s-2000s. They value the memes and digital culture.

In a few days, the capitalization of Fartcoin, nicknamed “the fart currency”, reached $800 million. This cryptocurrency is based on the slogan “hot air rises”, suggesting that Fartcoin is destined to soar.

The fact that a memecoinborn from a simple joke between “degenerates”, exceeds the valuation of more than 40% of companies listed in the United States shows the extent of the phenomenon. Generation Z in developed countries takes advantage of the prevailing fiscal and monetary indiscipline, as well as the abundance of liquidity, to speculate on unregulated markets. Meanwhile, the Chinese and Indians are massively taking refuge in physical gold to protect themselves against the devaluation of fiat currencies.

Between 2020 and 2022, liquidity in the United States increased recklessly. The Fed refused to remove these excesses from the system. Therefore, this influx is flowing into stocks and cryptocurrencies, driving them higher regardless of fundamentals. We are now in a phase of euphoria characteristic of a skyrocketing market and this abundant liquidity is also at the origin of the emergence of this type of memecoins.

The Fed continues its accommodative policy, although financial conditions in the United States are currently loose and favorable, which should instead require a restrictive policy.

How can we not perceive this picture as a major failure of the monetary policies implemented since 2008?

From the point of view of Generation Z, the Fed has only succeeded in one thing: artificially enriching boomers by inflating asset prices via a zero interest rate policy. This illusory enrichment has come about to the detriment of young people. Never have 15-35 year olds been so disadvantaged compared to older generations, a trend observable in all Western countries. This phenomenon is particularly marked in nations where demographic imbalance is pronounced: young people, increasingly poor and fewer and fewer in number, support a standard of living artificially maintained by inflation fueled by spending that baby boomers do not. They didn’t know how to manage. Today, the bill for this monetary policy falls to the new generation.

How can we not see in the rush of Generation Z towards Fartcoin a real middle finger to this monetary policy, a cynical and provocative response to a system which has sacrificed their purchasing power for the benefit of inflated assets for boomers ?

This type of behavior is increasingly reminiscent of a pre-Weimar situation, where only the smartest managed to get ahead thanks to financial coups, while fiat currency gradually devalued.

The value of the currency continues to collapse: the latest PPI inflation figures (prices paid by producers) confirm the resumption of inflation in the United States.

The U.S. Bureau of Labor Statistics revised PPI inflation for the month of October, raising it from 2.4% to 2.6%.

Core PPI inflation for the month of October was also revised upwards, from 3.1% to 3.4%.

This represents the 6th upward revision out of the last 7 PPI reports.

With PPI inflation of 3% announced this Thursday, we have now reached the highest level since February 2023.

Among the components of the PPI, some increases are particularly spectacular, notably fresh fruits and vegetables, whose prices jumped by more than 20%:

The resumption of the rise in the PPI index is now following an acceleration rate similar to that of the first inflationary shock. The break observed at the end of 2022 now seems to be over:

In an October 2023 tweet, Paul Krugman claimed that inflation had been defeated, perfectly illustrating the gap between the vision of many economists and reality:

As a reminder, the PPI index is a key indicator of inflation, because it measures the prices paid by producers. These prices then define those paid by consumers. Consequently, any increase in the PPI logically leads to an increase in the CPI in the following months.

The Fed recently revised its inflation forecasts for the coming years, as indicated in its latest press release published this Wednesday:

In other words, the Fed has just admitted that inflation at 2% was no longer within its mandate.

The 0.25% reduction in the Fed’s key rates was expected, but the abandonment of the historic inflation target constitutes a real failure.

The monetization of debt through inflation may continue.

And we wonder why the Chinese and Indians are rushing into physical gold…