Enders Game

For context, the following research piece was written just before the Fed began to unwind its balance sheet (October 2017) and it hasn’t been revised or altered since. At the time, I had set out to better understand the financial crisis and the impact of quantitative easing (QE) in an effort to then forecast what to reasonably expect when the Fed began to subsequently unwind QE. I was working independently at the time and crafted the ending to be a recommendation for traditional macro investors of how best to hedge based on my research.

I have not updated the paper since but my fundamental views also have not changed. Separately, I believe there is value in it being a static piece; anyone reading today has the benefit of more history and knowledge than I had based on the subsequent 18-24 months from the time of writing. During this period, the Fed pursued an initial unwind of its balance sheet only to signal a reversal in March 2019. I generally have a dislike for research that constantly shifts the narrative to fit new data points which often results in revisionist history and also why I have chosen to leave this piece static, though I will write on the subject as part of a new weekly series that I just began to publish (Gradually, Then Suddenly).

We’ll see if my views stand the test of time; I don’t believe I will be right on everything but on the core thesis, I think I’m on track. I make the point in the paper that the Fed would shift course more quickly than most people think (or thought) but if I could re-write the ending, I’d incorporate bitcoin because really, where this story ends, bitcoin begins. One of the takeaways and principal conclusions that can be drawn is that future QE (by the Fed and globally) is a certainty and that’s really why bitcoin exists.

I recently appeared on Marty Bent’s Tales from the Crypt podcast and we discussed this piece which I had previously shared with him privately. Many listeners requested to read it which is why I’m only now making it public. It took me a few months but I finally got around to it. Despite being written in the Fall of 2017, it remains very topical both as the President actively jawbones Chairman Powell concerning the Fed’s balance sheet policy and as the Fed figures out what to do about its Catch 22. I hope it provides readers with a better understanding of the financial crisis, the operations of the Fed, the impact of QE and what comes next.