Welcome we will be reviewing macro events from this past week from The Post I made at the beginning of this week on 4/10//22.
I have added a Definitions page which will include all of the terms and abbreviations that I use from now on and will be referred to on every post.
Substack has launched an iOS app for those of you using apple devices. I am an android peasant and can’t tell you if its good or not, but check it out if you have an iPhone or some other such trappings of royalty.
Please feel free to skip around or ignore certain sections if it does not apply to you. The Table of Contents is made to preserve your time in this manner. You can always simply read the conclusion if you are in a hurry.
Table of Contents
Interest Rate Decisions
New Zealand
Canada
Europe
US Inflation
Import/Export Prices
Bank of Japan
Crypto Macro
Conclusion
1. Interest Rate Decisions
From the countries that we expected to raise interest rates, both went heavy on the rate hikes, which is a solid sign from both central banks that they are taking this seriously and willing to put their own positions at risk with the boomers as they seek to send the ladder back down so the next generation can also have a chance. I commend both central banks for doing this and hope they stay on the path. Interest rates have to rise. Property and asset values have to fall. Work and personal income has to have value for a society to thrive.
And of course, Europe is the opposite, we’ll cover that.
New Zealand
Projections were for a 0.25% rate hike, but we got a 0.50% rate hike instead.
Despite this being bullish for the New Zealand Dollar, the narrative still among the markets is that the US will be following suit in the same manner, and so you can see that the New Zealand Dollar is falling against the US dollar, despite presenting a 100 basis point carry trade with the recent rate hike. I suspect this will continue and expect to see the New Zealand dollar continuing to put in lower lows and lower highs alongside the broader investment thesis of all assets being flat or down against the US dollar until the Federal Reserve capitulates. If you trade Forex and have access to a broker, I view the NZD as a sufficient counter-asset to go long against the USD once the crash occurs from the problems within the US treasury bond markets. Potential bottoms could emerge next month alongside the crash for an entry at 0.66 or 0.645 depending on how deep the spike goes.
Canada
Canada also went about a rather mature and responsible policy position that they can reasonably afford with the current budget deficit their government is running. The Bank of Canada has also raised interest rates by 0.50%, creating an overnight lending rate of 1%. You will note that their statement also mentions that Quantitative tightening will begin on April 25th. Their version of quantitative tightening is far more reasonable and responsible than what some Federal Reserve Officials have been talking about lately. Government debt that the Canadian central bank has bought will simply not be replaced when it reaches maturity. Meaning that the Canadian federal government will pay the interest on that debt, and not borrow additional money to cover the expense. The Canadian government has cut their budget deficit by 6.6% and so has the ability to reasonably pay back this debt as it matures. Their debt to GDP ratio is in the teens, and relatively safe. This will result in no significant stress being put on the treasury markets, and also requires the government themselves to be the sole responsible party. This is sustainable. This can work, the retirement of debt is one of the few tools governments have to fight inflation. Yes, it’s that simple, pay off your debt, and don’t replace it with new debt. That’s literally all these governments have to do if they want to alleviate inflation. Stop spending money, pay off the credit cards. It’s very clear to me which governments will survive this and manage to preserve their economies, and which will necessarily collapse.
The Canadian government may be full of authoritarians and Xi Jinping simps, but where the money is concerned, they are acting responsibly.
Europe
Here is a quote from me at the beginning of this week.
Europe is in indefinite QE, and they have been for years. But they believe that they’re just about quit, soon, right around the corner, they swear. The European Central Bank talks to us like a heroin addict talks to his parents about borrowing money. You know how this story ends. They will keep printing.
And now, here is some coverage from the European Central Banks interest rate decision this week where they decided not to raise rates.
The head of the European Central Bank reiterated Thursday that the bank would raise interest rates “some time after” ending its pandemic stimulus efforts later this year,
Lagarde can’t even give people a tentative date for when they will stop printing money. There is a great TV show on Netflix that I thoroughly enjoyed, “The Haunting of Hill House.” It’s a horror story, and a few of the characters in it are addicted to heroin, and one of the hard lessons learned in the show (this isn’t a spoiler) is that you can’t just take an addict at their word when they are talking to you about their addiction. At the beginning of the week I covered the abusive relationship that the EU members are in with each other, and how it feeds into an addiction for money printing as that allows them to avoid the hard conversation and potential break up that would occur otherwise. They will never stop printing. They will ride the currency into an early grave the way that most drug addicts will ride their body down until one day in their late 20’s they go to sleep next to a bus stop and never wake up again.
This is the fate that is in store for the Euro. Japan has fallen on their sword. Europe is going trainspotting. By the end of this decade, I expect the European Union to look vastly different than it does now, if it even exists. They’re choosing heroin.
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