The Case for Bitcoin and Gold: A Coming Credit Implosion?

The charts below are as solid a case for bitcoin (BTC) and gold as you are likely to see. Renowned analyst Alasdair Macleod believes we are on the cusp of a credit implosion, and the evidence for that is detailed in the charts below. Japanese 30-year bond yields have shot from almost zero in 2020 to above 3%.

Japanese 30-Year Bond Yields

The chart below shows a similar trend in the 30-year UK gilt (bond) yields.

UK 30-Year Gilt Yields

As billionaire Ray Dalio points out, you need to pay attention to the bond markets because this is where people put their money for a risk-free return (risk-free because the debt is backed by government, which also has the ability to print money). When it goes south, it means trouble for the entire market.

Central banks in the West are essentially bankrupt. They have been engaged in a multi-year programme of quantitative easing, meaning the issuance of new fiat currency. All of this was done in an effort to keep bond yields as low as possible. Why would they do that? To keep borrowing costs down in the hopes of averting a recession.

The central banks then used this newly minted money to buy bonds which are now deeply under water. As yields go up, bond prices come down – so rising yields such as we are currently seeing is a bear market for bonds, but on this occasion is symptomatic of a credit bubble about to burst.

If central bankers were held to the same standard as private companies, the architects of this credit bubble would be in jail.

When did we last see a bursting of the credit bubble and the introduction of higher trade tariffs occurring at the same time?
The answer, says Macleod, is 1929.

Equities Dead Cat Bounce

We are also in what is beginning to look like a dead cat bounce in equities. There was a sell-off in equities when Donald Trump launched his tariff war against all and sundry, but prices have since started to recover as countries implemented new trade arrangements with the US.

S&P 500 Dead Cat Bounce?

What’s This Got to Do with 1929?

Today’s market setup is eerily similar to 1929: rising credit yields, the bursting of the credit bubble, and the raising of US trade tariffs.

Dow Jones Industrial Average (DJIA) from January 1920 to December 1955

The chart below shows the 1929 stock market crash, with prices bottoming in 1932. The 1929 peak was only hit in 1955 – 26 years later. In other words, if you bought stocks at the peak, you had to wait 26 years to recover your money.

Source: Statista

In 1930, the US introduced the Smoot-Hawley Tariff Act which increased average trade tariffs to 40–59%, up from around 38.5% previously. This was signed into law by then President Herbert Hoover, against the advice of many economists. The act triggered retaliatory tariffs from countries like Canada, Britain, and European nations, which imposed their own trade barriers. For example, Canada raised tariffs on US goods, redirecting trade toward the British Empire.

It was intended to protect domestic industries, but ended up deepening the Great Depression which gutted the US economy over the next five years.

Trump’s higher tariffs, combined with spiking interest rates (signalling a bursting in the credit bubble), looks like a replay of 1929.

Macleod says if you go back in history, the last phase of the equity bull market occurs at the same time as bond yields start rising. There may be a pause in rising bond yields, but the second move in bond yields is when equities tank.

The answer is to get out of debt and move to sound money: Gold or BTC.