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The Pause…

I have frequently described “Project Zimbabwe” as a highly inflationary cycle where both fiscal and monetary stimulus go into insanity mode. While I sincerely hope we don’t go hyperinflationary like Zimbabwe, I certainly think we see an elongated period of substantial and debilitating inflation. When this cycle finally ends, society and our financial system will have been irreparably changed. For those who are aware of where we’re heading, this is going to be the golden age of inflection and Event-Driven investing. For everyone else, it will be absolutely miserable.

One point that I made last year, was that “Project Zimbabwe” will be a process. It will not be linear. Look back at old charts of Weimar Germany, they all look like parabolas, however that is quite deceptive—there was actually a whole lot of volatility. There were multiple deep pullbacks that bankrupted speculators who knew what was coming on the inflationary side but got over-levered or overstayed their welcome in the various rolling bubbles of the period. Looking into the weeds and ignoring the parabolas; there were frequent sector rotations, speculative bubbles that crested and collapsed, and multiple 50% or greater pullbacks. As I have said many times, the trick to managing “Project Zimbabwe” is to be as long as possible, without getting taken out during one of these pullbacks—especially as the increased level of stimulus warps the market’s ability to price securities, leading to violent and often arbitrary movements.

Let’s go back a century to Weimar. Most speculators knew that the government had lost control and that the only path forward was to print money. However, occasionally the politicians would try and arrest the inflation—as inflation crushes voters. Sometimes, it was an offhand quote from a government official, sometimes it was concrete action…

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