The elephant in the room
This week, I attended a conference hosted by a major asset manager, gathering sovereign wealth funds, central banks, and other heavy-hitting asset allocators. The presentations across various asset classes and strategies were polished, the quality of content was high — and yet, there was an elephant in the room.
Allow me to explain.
Nearly every presenter, whether it was a specialist for equities, real estate, private equity or fixed income wanted to be bullish about their asset class, after all that’s what they were selling. But you could tell they were also uneasy about their case.
- Equities: A lot of money on the sidelines, BUT valuations are already extended and the risk free rate has started moving in the wrong direction.
- Fixed income: More capital is ready to enter, BUT credit spreads are already tight and the risk-free rate isn’t cooperating.
- Illiquid assets like PE or real estate: Once again, there’s idle money waiting to be deployed, but supply and demand haven’t found balance.
We’re facing a situation where substantial capital is sitting in money market funds, waiting to be deployed. However, valuations across all major asset classes remain unappealing, especially with the looming threat of bond vigilantes driving the risk-free rate higher. Despite central banks’ efforts to lower policy rates, long-term government bond yields are climbing, indicating a market pushback that complicates the investment landscape further.
I promised you an elephant. The elephant in the room is that unless our economies manage to produce miraculous levels of broad economic growth (pray for AI), there is no solution to the cognitive dissonance investors are plagued with.
Everyone needs long end treasury yields to go lower for their assets to make sense, but for that to happen we need more, not less demand for US treasuries. And the most discerning investors (cf. Paul Tudor Jones and Stanley Druckenmiller) are telling everyone to avoid US treasuries like the plague.
Against this backdrop of economic uncertainty, where traditional asset classes are caught between extended valuations and a high-interest-rate environment, there is one asset that operates outside of these constraints: Bitcoin. Unlike equities, fixed income, or real estate, Bitcoin’s value proposition is based on scarcity, decentralization, and independence from monetary policy.
In a world where central banks are trapped between the need for lower rates to stimulate asset returns and the fiscal impossibility of sustaining those rates, Bitcoin stands out as a self-contained store of value. It may well be the only asset that doesn’t require interest rate miracles to hold its ground.
May the elephant in the room, Ganesha — the god of wisdom and discernment — guide you forward.
