Forget Bitcoin, LEGO is a better bet
Since 2008, central banks have bought $22.3trn of bonds
IF you missed out on the GameStop rally or failed to bite as Bitcoin surged 400pc in the year, don’t worry – there are plenty of alternative investments out there, thanks to the magic of central banking.
In the past 12 months alone, the world’s four major central banks – the US Federal Reserve, European Central Bank, Bank of Japan and the Bank of England – have printed a whopping $7.8trn (€6.5trn) of cash to offset the coronavirus economic shock.
Since the Fed implemented its first quantitative easing programme in December of 2008 during the global financial crisis, the ‘Big Four’ of the central banking world have bought a cool $22.3trn of bonds, a figure equal to the size of the entire US economy.
Zero and and negative interest rates have caused a boom in the value of financial and other assets from surging stock markets to commercial real estate, as well as some more exotic corners of the investment universe that seem to indicate a frenzy of Tulipmania-sized proportions.
That brings us to Bitcoin – which has been touted as an inflation hedge thanks to its finite supply in an era of massive money printing.
But you could have gone one better than Bitcoin by investing in LEGO, which gives you just as much in terms of finite supply and is a superior portfolio diversification tool.
When it was launched in 2007, the Star Wars LEGO Ultimate Collectors Millennium Falcon model sold for $499.99. If you look on eBay today, prices range around the $6,000 mark for one listed as brand new.
That gives you a return on investment of 1,100pc, or 19.3pc if you want to annualise it over roughly the same period that the world’s central banks have been flooding markets with money.
That performance hammers the 250pc return from the S&P 500 over the same period.
“We find that LEGO investments outperform large stocks, bonds, gold and other alternative investments, yielding the average return of at least 11pc in the sample period 1987-2015,” Russian economists Victoria Dobrynskaya and Julia Kishilova wrote in a 2018 academic paper.
LEGO returns are not exposed to market, value, momentum and volatility risk factors, they noted.
Safe as houses then? We found out in 2008 that houses were anything but safe and we’ve been nursing a €200bn debt pile since – amid a cycle of central bank money creation.
The effects are playing out in record debt issuance by governments and companies, blank cheque companies called SPACs – some of which are backed by celebrities like Shaquille O’Neal – as well as Bitcoin itself, which was boosted recently by Elon Musk.
In the wake of the financial crisis, the Central Bank of Ireland put in place mortgage restrictions to prevent a re-run of the housing bubble. What seems to have happened is that where regulations have popped one speculative asset, others have inflated.
The music, in the words of former Citibank chief Chuck Prince, is still playing.
Of course, if the LEGO bricks market goes bust, that isn’t going to have the same impact as the real bricks and mortar collapse of 2008. Bitcoin, however, is entering the financial mainstream and there have also been warnings for almost a decade about frothiness in commercial real estate.
Central bankers say it is not the job of monetary policy to prick bubbles. The problem is that the taxpayer may have to clean up the mess and use our real euros to bail out damage caused in financial markets by a cryptocurrency implosion or SPAC insolvencies.
Keep that in mind the next time your bare foot is impaled upon a piece of the kids’ LEGO Hogwarts Castle.
SPACs, or blank cheque firms, are backed by celebs like Shaquille O’Neal