It’s not a debasement trade, it’s a war preparation trade

Recently, the rise in raw material prices excluding crude oil has been unusual. In this regard, the term “debasing trade” has spread, saying, “The demand for real assets explodes because the value of money x as it goes by.” The background behind the debasing trade is that the governments of advanced countries such as the United States and Europe cannot afford the debt, so it is inevitable to monetize the debt, and there were many rumors that it will eventually lead to QE (quantitative easing). The basis of this narrative is the prospect that “inflation is temporary.”

However, the situation was strange. If Korea wants to monetize its debt in an environment of continuous fiscal deficit + temporary inflation, it can be done by the central bank to purchase government bonds with money. However, the government is urging the central bank to quickly push ahead with legislation of stablecoins to bolster demand for government bonds, and to provide huge amounts of funds to its East Asian allies in the name of investment in the U.S. They are claiming to be a difficult path, while being criticized for everything, leaving an easy and peaceful path for all investors to cheer for.

The provocative title of war preparation trade is for fishing, but if you fit it in, it’s like this.

• Gold and Rare Earth Prices Rise Exceptionally
• China’s stance to focus only on fostering high-tech industries, defying expectations that it will increase domestic demand by loosening liquidity
• The U.S. demands a huge amount of investment in the U.S. from its allies (discussing security issues at the same time, and in reality, pinging military funds needed to fight China)

under a war scenario

• Inflation is not a temporary problem (QE difficulty)
• Stock markets are generally good, but valuation adjustments are needed as expectations of “debasing trade & U.S.-China tariff agreement” were high until recently

Bonds are bad and stocks are worth buying the dip after some adjustments. (The sector in which the U.S. and China compete receives full support from the state. In the process, bonds are continuously printed. Whether the source of the funds is the U.S., Korea, Japan, and Taiwan, etc. It’s like helping stocks with bonds. Stocks rather than bonds for investors.)

Of course, Trump will cry politically, “It’s all because of the Fed that we’re having a hard time,” but the real power is Bessent, a worn-out master. While the U.S. is making an absolute effort to keep high interest rates, the enemy (China) collects gold and somehow tries not to expose its weaknesses so that there is no bubble (real estate) in the private sector. (Study of Plaza Accord has been completed) Both are fighting each other to endure pain. In the meantime, what is the difference between taking the path of currency collapse and declaring, “Hehe, I’m going to fail first?”

Some cite cases in which the prices of real estate and stocks naturally soared as the value of currencies such as Argentina and Turkey plunged, and it is unreasonable to assume that ‘the same will be true of advanced countries’. There is a reason why Argentina and Turkey’s national credit ratings are in the shape and the level of developed countries is different. It means that ‘properly’ is an advanced country. In the past, Japan was a period of peace and deflation, so low-interest rates and quantitative easing were possible. If inflation concerns grow, it is reasonable to expect the direction of suffering even if it is late. Developed countries and developing countries should not be viewed with the same standard. The logic of the currency crisis implies that ‘they will eventually go to low interest rates’, and money will not go to waste as long as high interest rates are maintained. QE is a way to relax if the war is over, but now it seems that it is not a time to relax.

Is Warren Buffett the most stupid?

If the debasement trade is true, Warren Buffett, who has increased the proportion of cash equivalents (short-term U.S. bonds), will become the most stupid. Is Buffett a fool or are those who say that? Considering his position, either Buffett or debasement trade is wrong. Of course, most institutional investors do not have the same choice as Warren Buffett. There is a liquidity festival like a currency crisis, but if you don’t participate, beneficiaries will whisper “yes, no.” However, there is no need for individual investors to panic. Between Buffett’s path and that of various institutional investors, you can choose a path that suits your personality. As was the case in the past, there will be a day when people say, “The Buffett was not wrong” with a time difference.

As in the past, Seoul’s real estate market is much more frightening than supply or government measures. (US$350 billion, security… all considerable destabilizing factors in exchange rates and interest rates.)

P.S. On October 1st, I had a macro chat with CEO Prouting Lee Sun-chul. I couldn’t use the term “war (provocation) preparation trade” because I was afraid of who would be in my company, so I made it a policy mix. It is viewed as a policy mix (fiscal deficit & high interest rate) phase rather than a currency crisis, wary of the public’s solidification of “money crash.”

After filming, we talked about stocks as much as we wanted, and CEO Lee Sun-chul said that he was so uncomfortable with FOMO that he sold almost all of the Chinese tech stocks that day. Looking back, he organized it at the highest point