A Brief History

The term "kamikaze" is most commonly associated with the suicide pilots of the Japanese Imperial Navy during World War II, but its origins and implications extend both into Japan's ancient past and its cultural psyche.

The term "kamikaze" translates to "divine wind" and originally referred to legendary typhoons that are said to have protected Japan from two Mongolian invasion fleets under Kublai Khan in 1274 and 1281. According to historical accounts and folklore, these storms destroyed a significant portion of the invading fleets, thereby saving Japan from foreign conquest. These events imbued the term "kamikaze" with a sense of divine intervention to protect Japan.

Fast forward to World War II, "kamikaze" took on a new and more direct military significance. As the war turned against Japan, the Imperial Navy began organizing special attack units—pilots who would deliberately crash their aircraft loaded with explosives into enemy ships to inflict maximum damage. This tactic was seen as a last-ditch effort to balance the increasingly overwhelming technological and numerical superiority of the Allied forces, particularly the United States Navy in the Pacific Theater.

The first official kamikaze mission took place on October 25, 1944, during the Battle of Leyte Gulf, one of the largest naval battles in history. The desperation of the Japanese military command and the pilots' willingness to sacrifice themselves stemmed from a deep-rooted sense of duty, the Bushido code, and the belief that such sacrifices were necessary for the protection of their homeland.

Kamikaze attacks created a significant psychological impact on Allied sailors and significantly damaged or sank dozens of ships. However, while they were deadly and demoralizing, these attacks did not alter the overall course of the war. The strategy highlighted Japan's dire situation rather than turning the tide in their favor.

Today

Today the ATR published a story highlighting a direct quote from Biden’s FY 2025 budget proposal which got me thinking about the Japanese in 1944, and I couldn't; help drawing a parallel to their desperation and the democaractic party here in the States. The only difference is, the Japanese did what they did out of honor and the Biden Admin is doing what they’re doing because they have no understanding of economics or history, and they are greedy. This makes for a dangerous combo.

The quote reads:

“Together, the proposals would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6 percent.”

Yes, you read that correctly: A Biden top capital gains and dividends tax rate of 44.6%.

Under this new Biden proposal, the combined federal-state capital gains tax exceeds 50% in many states. California will face a combined federal-state rate of 59%, New Jersey 55.3%, Oregon at 54.5%, Minnesota at 54.4%, and New York state at 53.4%.

Worse, capital gains are not indexed to inflation. So Americans already get stuck paying tax on some “gains” that are not real. It is a tax on inflation, something created by Washington and then taxed by Washington. Biden’s high inflation makes this especially painful, evident in polling.

If Democrats would wake up and just do:

1. No new taxes (or no more than a 1% tax increase per year for people over $1m a year in income — people hate the rich, so this sells)

2. We’re closing the border — no exceptions

3. We’re going to wind down our support of these two wars and force a settlement by the parties or walk away (or even one of the two)

4. All arms provided to Israel and Ukraine are loans and must be paid back (some/most are!)

5. We’re going to fight like hell to give women the right to choose again, but we will respect Individual states to have their sovereignty

6. When we win, we will pardon Trump and let him build a golf course called “45” on some choice, decommission the military base.

They could easily take this. I’m puzzled by the strategy here, are they actually this retarded? Or are they playing some higher game of chess that I can’t possibly calculate?

No, me thinks they retardio. Here’s why.

Economic Perspective

Some of you think you are Arthur Hayes right now because you bought Doo Doo coin at a $1mm market cap and turned $6k into a 7 figures. Bravo, you’re probably going to lose it all but play your game cowboy.

Others did the smart thing and sold fiat for crypto during the 2021 to 2023 bear market but lightened up as prices surged in the first quarter of this year. You’re chilling right now in spot, smoking cigars, banging baddies, and starting to fine-tune your golf game. If you sold shitcoins for Bitcoin, you get a pass. Bitcoin is the hardest money ever created. If you sold shitcoins for fiat that you don’t immediately need for living expenses, you are fucking up. Fiat will continue to be printed ad infinitum until the system resets.

I sometimes catch myself thinking like a beta cuck loser. “Should I sell?”

And when I do, I must remind myself of the overarching macro theme that the entire retail and institutional investing world is starting to believe:

The US Dollar and US Bonds are complete dogshit.

TradFi has a direct way to profit from our crypto treasure chest via US Hong Kong spot Bitcoin ETFs, so they are pushing their clients to preserve the energy purchasing power of their wealth using these crypto-derivative products which will further cause US bonds to unravel.

Right now crypto is experiencing choppy price action due to April 15th US tax payments and the Bitcoin halving. Liquidity exited the system and is now poised to reenter causing a surge in pricing. This happens more often than not, yet we always seem to forget while we watch out bags go down and red lines look scary.

Nominal Gross Domestic Product (GDP)

Firewalk with me. Let's take a broader look at how a nation's economy functions at the macro level.

The economic growth rate of a country is indicated by its nominal GDP, which includes both inflation and real growth. When a government opts to run budget deficits to boost nominal GDP growth, it's natural for investors to expect a yield that matches this growth rate.

However, often politicians prefer to pay lower yields on government debt. By ensuring that the yield on government debt remains below the nominal GDP growth rate, the government can finance more spending without raising taxes—a strategy somewhat reminiscent of lavish spending at high-profile charity events.

So, how do politicians manage to maintain such a financial environment? They engage in what's called financial repression, with the traditional financial (TradFi) banking system playing a pivotal role. One common tactic is for the central bank to print money and purchase government bonds, which artificially suppresses the yields on these bonds. Additionally, regulations may steer banks to deem government bonds as the most "suitable" investments for the public, effectively directing private savings into these low-yielding government securities.

However, this strategy of keeping bond yields artificially low can lead to malinvestment. Initially, investment projects might be sound and justified, but as the pressure to stimulate economic growth intensifies—often driven by political motives to secure re-election—the quality of funded projects may decline. This results in an increase in government debt that outpaces nominal GDP growth.

Faced with this burgeoning debt and declining project quality, politicians must choose between immediate recognition of losses through a sharp financial crisis or deferred recognition through prolonged economic stagnation. Typically, the choice falls on the latter, allowing the current administration to avoid immediate fallout, as the repercussions of economic stagnation are likely to be dealt with by future administrations.

If you want a good example of malinvestment, take a deep dive into what is happening to all these green initiative projects the government tried to kickstart. Spoiler: for most, it ain’t pretty.

During the bad times, bond yields become even more distorted as the central bank taps the Brrrr button harder than Hunter Biden taps his mistress. Government bond yields are kept below the nominal GDP growth rate so that the government’s debt load is inflated away.

The crucial task for investors is to understand when government bonds are a good investment or not. The simplest way to do that is to look at the nominal YoY GDP growth rate compared to a 10-year government bond’s yield. The 10-year bond yield is supposed to be a market signal that informs us about the future expectation for nominal growth.

Real Yield = 10-year Government Bond Yield — Nominal GDP Growth Rate

When the real yield is positive, government bonds are a good investment. The government is usually the most creditworthy borrower because it has a monopoly on violence. When citizens refuse to pay their taxes, a bullet in the head or a prison stint is on the table.

When the real yield is negative, government bonds are terrible investments. The trick is for the investor to find assets outside of the banking system that can grow faster than inflation.

Crypto Tradors Under Siege

Everyone wants free shit and politicians know that, that’s why they promise so much free shit. Economically, it's a scenario that rarely pans out without consequences.

Support for politicians, whether through direct voting in democracies or implicit backing in more authoritarian regimes, largely depends on their ability to foster economic growth. When straightforward growth-facilitating policies are exhausted, leaders may resort to less orthodox measures, such as increasing the money supply, to sustain or stimulate economic expansion. This often involves prioritizing spending toward specific groups, which can be seen as benefiting at the expense of the broader population.

In systems where government bonds are issued at negative real yields, there's a financial lever to support such spending without immediate fiscal repercussions. This approach can become particularly pronounced in highly partisan and polarized environments, where the incumbent government feels intense pressure to secure re-election by ramping up fiscal spending.

Looking ahead to 2024, a pivotal year with significant global implications, many major nations, including the U.S., will hold presidential elections. Historical data suggests that incumbents face much steeper odds of re-election during economic downturns. Therefore, managing the economy through government spending becomes a strategic priority. In the U.S., for instance, government expenditure represents a significant portion of nominal GDP, giving the ruling party substantial influence over economic growth metrics.

In this context, it’s expected that the current U.S. administration will utilize all available tools to stimulate economic activity and avoid recession. This could involve maintaining low yields on government bonds relative to nominal GDP growth, a strategy facilitated by the Federal Reserve and the Treasury. Such financial engineering is intended to foster an environment conducive to economic stability or growth, thereby improving re-election prospects.

The political situation in the US gives me extreme confidence that the money printer will go Brrrr and therefore, our cryptos will continue to print. If you thought it was absurd what the US monetary and political elite did to “solve” the 2008 GFC and COVID, you ain’t seen nothing yet.

The wars on the Pax Americana periphery continue to chug along primarily in the Ukraine / Russia and Israel / Iran theatres. As expected, the warmongers from both political parties are content to continue funding their proxies with borrowed billions of cash money. The cost will only increase as the conflicts escalate and more countries are drawn into the melee.

So fellow degens, hold your coins, let your winners ride, and prepare for a storm because it’s coming. Time to violently catch some upside.