For Marc Friedrich, Bitcoin is not just a yield driver, but a replacement for a currency system that is on its last legs, as he says in the Cash interview presented in this article. The bestselling author also has his own way with stocks.
cash.ch: In a few days, elections will be held in Germany. As an asset manager, book author and social media personality, how much are you concerned about what the future German government will look like?
Marc Friedrich: I’m more concerned this time than ever before. It is indeed a decisive election this time, an ‘election of the century’. However, my expectations are not great: we have a kind of ‘scrap heap’, i.e. a choice between plague, cholera and other unpleasant diseases. Those who have put themselves forward as top candidates have not shined with competence in recent years. Why should they do any better now?
cash.ch: That’s quite a harsh criticism. How do you think it will turn out?
Marc Friedrich: We can only hope that we don’t tip over in the direction of socialism and a planned economy. That would be the case if the SPD were to form a coalition with the Greens and the Left. In any case, I have been certain for some time that Olaf Scholz of the SPD would be the next German chancellor.
cash.ch: But you also once saw the Green Party’s Annalena Baerbock as the favorite.
Marc Friedrich: Yes, I did. But I dropped her after seeing two interviews with her, and this was even before she disgraced herself in front of the whole world with a ‘tuned’ CV.
cash.ch: A question for the wealth manager: why is it a directional election?
Marc Friedrich: The election will have huge influences on money and assets. Scholz, the Left and the Greens have hinted at where things are headed: Top tax rate high, higher inheritance tax, wealth levy. The consequences of the Corona crisis and a whole series of wrong decisions in German politics in recent years have to be paid for. This is also the case in other countries: In Great Britain, a tax increase has just been passed because of the Corona consequences.
cash.ch: This fall, the financial markets are focusing not only on governments, but issues like tapering and inflation: what do you think about that?
Inflation is theft, and inflation is coming—I predicted that last year. And there will be no tapering. Banks and markets are far too dependent on cheap money for that. In the existing system, bond purchases will not be scaled back and interest rates will not be able to be raised.
cash.ch: No tapering? Really?
Marc Friedrich: The European Central Bank (ECB) is not talking about stopping the bond-buying programs or raising interest rates. How could there be? Otherwise, the whole system would collapse. And inflation is not temporary. It will be with us for a long time. A year ago, true inflation was higher than advertised at 13.7 percent, not 0.4 percent.
cash.ch: How do you come up with 13.7 percent?
Marc Friedrich: As we were taught at university: M3 money supply growth minus economic output. In Germany, M3 money supply grew by 8.7 percent, and growth was ─5 percent.
cash.ch: There is a lot of argument about the impact of money supply expansion on inflation. On the other hand: Inflation is good for real estate investors, and if, as you say, only cosmetic tapering is coming, then everybody who is invested in stocks should be happy.
Yes. Fund managers, asset managers and family offices that I know are completely relaxed. They all don’t believe that words will be followed by deeds at the Fed or the ECB. We will see volatile markets, and of course the Fed’s Federal Open Market Committee (FOMC) will announce something about bond purchases at its meeting next week. But we have to judge central banks by their actions, and there won’t be much happening on a grand scale.
cash.ch: In their publications, and now also here in this interview, they criticize governments and central banks eloquently and vehemently. As a financial professional, why do you take such a stand against the system? Why are you a critic of the establishment?
Marc Friedrich: The system is corrupt. And the system is in its end game. I have realized that something has gone off the rails. I also want to protect my fellow human beings from harm. This system is one of injustice. And the establishment that I’m railing against doesn’t serve the people, it only serves itself.
cash.ch: You predict a crash. What would such a crash look like?
Marc Friedrich: We are at the end of the debt cycle and the end of the money cycle. Because the money cycle is ending, central banks are trying hard to digitize the fiat money system. But this means major upheavals, social unrest or a change in the political system. Chaos or wars are also possible. But we will definitely see a new monetary system.
cash.ch: Asked directly, do you believe there will be a moment when no more money comes out of the ATM?
Marc Friedrich: Yes, I think the probability is very high. We will see the end of fiat money in this decade.
cash.ch: But you’ve probably also heard what they say about crash prophets: If you predict a crash ten times, you’ll be right that one time when it really does come to a severe crisis.
Marc Friedrich: The term crash prophet is given to me by critics and people who have no counterarguments. I merely point out dangers, like a navigation system that indicates when another car is getting too close. I never predicted multiple crashes, only one crash – the final one. I expect this one in this decade, and the euro will probably no longer exist in this form by 2023 at the latest. If I am wrong, I will stand by that. But I have already been right about the euro debt crisis surrounding Greece, about Brexit, about the election of Donald Trump as U.S. president or about the zero interest rate phase.
cash.ch: Why should the Eurosystem change in 2023 of all years?
Marc Friedrich: That, too, is a probability. But I see a number of parameters. Italy will need large sums to refinance its debt in the next few years. The euro has been kept artificially alive for years with gigantic buy-up programs and bailout measures, as well as a historically low interest rate of zero percent. The central bank’s clout is diminishing. The impact of the measures is diminishing and confidence in the institution and in the euro is eroding at the same time. Baby boomers are now retiring and destabilizing the pension system—demography is the ‘elephant in the room’ that no one wants to talk about. Confidence in the euro will fall, while rising inflation will drive people out of money. And 2023 will bring us such a crunch in that regard.
cash.ch: I’d bet against it outright: The Italian government will definitely be able to refinance itself, possibly with outside help. Central banks have shown for ten years that they can stabilize the system, and they will find the means to do so for another ten years. The central banks’ toolkit is considerable.
Marc Friedrich: Well, we’ll have to talk again in 2031! But the mere fact that ex-ECB chief Mario Draghi has been installed—unelected—as head of Italy’s government shows how far the system is willing to go.
cash.ch: You are strongly in favor of cryptocurrencies: Because the potential returns are so enticing, or because you want cryptos to complement or even replace mainstream currencies?
Marc Friedrich: I buy various cryptocurrencies, but I see myself primarily as a Bitcoin investor. That’s the only decentralized currency—the other is centralized coins. Bitcoin is the first, decentralized, limited, and democratic digital asset that people have created and that is not in the custody of central banks or of states and governments that are demonstrably not good with money. Central banks function like hedge funds. With Bitcoin, on the other hand, we can trust the math: One and one is always two, and not like central banks, where one and one suddenly adds up to eight.
cash.ch: Is there really any democratic legitimacy to Bitcoin?
Marc Friedrich: Bitcoin would not be at around $40,000 today if that were not the case. In the last twelve years, many people have put Bitcoin in their portfolios as a store of value and as a protection against inflation. The euro has lost 87 percent of its purchasing power since its introduction. After all, the Bitcoin price is just one indicator of how much our money is devaluing. With Bitcoin, many have defended themselves against this form of expropriation.
cash.ch: Nevertheless, such a clash of freedom-loving protagonists of a new system with powerful states and monetary institutions may work in a Netflix series like ‘House of Money’, but not in reality.
Marc Friedrich: The central banking system will fight to the last. Central banks will not voluntarily give up their privilege of money creation and let Bitcoin take over. However, in the past, when someone lost power in favor of others, it was never peaceful.
cash.ch: Many may have bought Bitcoin and other cryptocurrencies this year simply to gamble with a very volatile asset class. What do you say about the risks of crypto assets?
Marc Friedrich: Bitcoin has arrived in the financial world, but it is also still in a discovery phase. After every crash with Bitcoin, it has gone back up. However, with a minimum holding period of 3.8 years, one has always made a profit. Bitcoin is volatile, but of all things it is volatile upward, while fiat money continues to devalue.
cash.ch: Does this make the frequently made prediction that Bitcoin will reach $100,000 by the end of the year realistic?
Marc Friedrich: I’m anti-cyclical and get more ‘bearish’ when everyone is talking about the same thing. But in this decade, six- to seven-figure prices are realistic for Bitcoin. And that’s because central banks keep printing more money and governments keep adding more debt.
cash.ch: The introduction of Bitcoin as a means of payment in El Salvador has not done Bitcoin any good—if you look at the price.
Marc Friedrich: This is just an example of ‘Sell on Good News’: many have cashed out after the price increases of the past weeks. After all, we see this kind of thing all the time.
cash.ch: El Salvador was the first country in the world to officially introduce Bitcoin. Will industrialized countries also take such a risk?
Marc Friedrich: Of course, the external pressure could be too much for El Salvador. Let’s see if it follows through. However, multi-billionaire Peter Thiel is also suggesting that the US adopt Bitcoin. The first major country to adopt Bitcoin as a reserve currency will also be able to use Bitcoin as a ‘geopolitical weapon’. The U.S. will have to hurry to avoid losing out to China.
cash.ch: It is just as possible that the U.S. may not abolish Bitcoin through regulation, but will largely neutralize it.
Marc Friedrich: Controlling a decentralized system is, de facto, impossible. Sure, they will try to regulate and tax Bitcoin. Bitcoin is seen as the enemy, but that’s where control has already slipped away from the central banks. Bitcoin is already too big. And I highly doubt that the community of nations would muster the unity to ban Bitcoin worldwide.
cash.ch: When it comes to cryptocurrencies as an asset class, there is a lot of debate about fundamental value. How do you see this?
Marc Friedrich: The question is what financial self-sufficiency is worth. With Bitcoin, I am my own bank. That’s already worth a lot. I can participate in the value chain from the beginning.
cash.ch: This sounds very idealistic now. Where are the more resilient fundamentals?
Marc Friedrich: The value that can be attributed to Bitcoin is the combination of power and time. These are brought together in a decentralized way to create value. The result is a globally usable, portable store of value that is also limited. Gold and silver are limited by nature, Bitcoin by mathematics.
cash.ch: You have set up a real assets fund and are also advising it. There, too, you focus on the aspect of limited value. The fund invests heavily in gold, commodities or mining shares. Isn’t that a bit much old economy next to the future technology blockchain?
Marc Friedrich: For me, the age of tangible assets is beginning. There is a renaissance of values limited by nature or by mathematics, such as gold, silver, bitcoin. These will also perform better in the future than Apple or Tesla, for example.
cash.ch: The fund’s three-year performance is 31 percent. Tech stocks would have generated more return over that period.
Marc Friedrich: You never find the perfect timing. The fund is designed for the scenario that is just unfolding, such as persistent inflation. The harvest will be reaped in the next few years. What’s more, digitalization, blockchain, artificial intelligence or renewable energies are mega-trend topics. But without raw materials, these don’t work: without copper, no memory chips; without silver, no solar panels. I don’t want to be the gold digger; I want to be the one who provides shovels for the digging.
cash.ch: So do you advise against tech stocks or consciously future technologies?
Marc Friedrich: I think there’s a bubble here. Valuations are out of control. The exaggeration phase can continue for a long time, and you can definitely continue to invest in tech stocks. I too had Tesla and Apple, but I would rather take profits there. These stocks will not double or triple again. I myself invest counter-cyclically in sectors that have not yet done so well. That’s why I prefer to reallocate: In uranium and silver mines, platinum, agricultural commodities. These still have potential.
cash.ch: And what if the climate debate gets in the way of commodity investments?
Marc Friedrich: Renewable energies won’t work without raw materials. We need all the raw materials. And nuclear power is the only base-load capable and at the same time emission-free energy source we have. We’re going to see a big renaissance in uranium and uranium mining stocks. Uranium is undervalued and hated, but unfairly disregarded by investors. One exception is Bill Gates, he’s invested big.
cash.ch: You often say that your forecasts have come true. Have you ever been completely wrong?
Marc Friedrich: After an argument I had, someone calculated that 76 percent of my predictions had come true. But of course, I’m also wrong sometimes. For example, I bet on Trump’s re-election as U.S. president. I have also not yet been confirmed in my prediction of a switch from growth to value stocks as early as this year. Value stocks did better in the first quarter, but then this changed again. But the year is not quite over yet.
The content of this article was translated from the German original: https://www.friedrich-partner.de/blog-post/cash-interview-mit-marc-friedrich loaded 06.12.2021