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All times given in this update are in US Central time (UTC-6 clock).
Song of the Week - Jay Rock - OSOM ft. J. Cole
Table of Contents
Stagflation Survival Guide
Economic Calendar
Australian Interest Rates
Central Bank Speeches
Powell
Australia
Canadian Interest Rates
European Interest Rates
Crypto Macro
BTC
ETH
Conclusion
1. Stagflation Survival Guide
Q4 of 2022 and Q1 of 2023 are probably going to be pretty rough for the west. The western central banks have essentially two choices ahead of them as has been outlined many times here. They either allow for western economies to slide into stagflation and to stay there while they pay back the largesse of previous generations that thought they could have something for nothing. Or when the pain gets too great, they decide that we aren’t ready to pay any of it back and that we’re going to live off of the back of some future generation that is stronger than us. The general thesis of this substack is that the latter is going to happen, and so we’ll be discussing some of the facets of the coming storm.
I’ve already alluded to this last week, but as stagflation drives up the living expenses of average people, they will be forced to sell the very assets that make up wealth, which is the last thing you want to do in an inflationary environment. It’s why the most important thing for everyone to be doing is to maximizing your recurring monthly income, and minimizing your recurring monthly expenses. Unfortunately, one thing that most people do (even smart people, especially in the west) is to try to signal status through consumer spending, and they will typically do this to the very extent of what they can afford. So for someone who has only 5% of their take-home income left as savings, a 10% inflation rate will wipe them out in a year unless they can keep increasing their income. All of these people in the west are in general going to be facing a very harsh winter, whether they are in Europe, or North America. Once the US midterm elections have passed and the American Federal Government stops selling their strategic petroleum reserve to keep prices down, we’ll be seeing transport costs for most goods, especially goods shipped over long distances begin to spike. Buy Christmas presents now. On the plus side, despite a terrible planting season this spring, and elevated fertilizer costs/diminished supply, US and Canadian farmers managed to outdo themselves this year when it comes to Wheat and Corn planting. Corn (US) is only down 5% from last year (which was a record year), and Wheat (worldwide) is only down 1% from last year due to significant additional production from Canadian farmers.
Several other factors are in our favor, for instance, right now the costs for global shipping is as low as its been in a long time. Buy Christmas Presents Now.
But it still doesn’t matter. As the US and European treasury markets continue to absorb liquidity out of the markets, and as consumer costs remain elevated, people are going to find themselves squeezed by the market. Not to mention the expectation we have that layoffs will continue to close out the year as we get further into this recession. There will be quite a few people who are struggling to make ends meet, to pay their bills, and maintain their quality of life. At the very least, these people will not be investing money, at the worst, these people will be selling their investments in order to make their credit card payments, car note, or to pay their energy bills.
A lot of things are going to be on sale, while at the same time a lot of people aren’t going to be able to afford them. Worse, people’s mindset about this will not be looking at it as an opportunity. You’ll hear doom and gloom from a lot of people. You’re probably already hearing it, it will get worse. Remember, we’re playing chicken with the western central banks.
Anyone in the passenger seat with you as you’re playing chicken, will by definition be freaking out and telling you to pull over, to stop, to swerve, etc. If you genuinely can’t afford to hold on to your wealth, or to increase your wealth by making your purchases when there is blood in the streets, then you’re going to have to pull over, you don’t have a choice. But if you’ve managed to maintain your cash flow, and keep your expenses low, you will be getting the opportunity to buy distressed assets for very cheap. But lets look at the two scenario’s a bit closer.
If the fed has the spine to hold out and we stay in a prolonged stagflationary period; your job and income will be worth significantly more so long as you can hold them and maintain them. Assets will be losing value significantly as consumer goods increase significantly. In such a scenario buying assets won’t be of much value to you as they will continue dragging downwards for a decade or maybe a decade and a half. Your best bet in that scenario is to simply be productive and to own productive assets (like a business, a consulting business, etc.) and to get ahead slowly by being of more value to your employer, clients, customers, etc. than the competition.
If the Federal Reserve doesn’t have the spine to let the markets collapse to their natural bottoms, or if the treasury puts pressure on the Fed to intervene, then we’ll stay in a stagflationary period until that intervention begins at which point assets will bottom out and go on one of the most significant runs that you’ll probably see in your life. And not in a good way. But it’s the kind of thing you don’t want to miss, because it will be what separates the oligarchs from those scrambling for resources. You probably hear stories from time to time about Engineers, doctors, pilots, etc. from countries like Venezuela, Afghanistan, Lebanon, and soon Sri Lanka, who couldn’t make enough money to afford any wealth in their own countries and who escaped to other countries where the ladder to the middle and upper class was still lowered enough for people to grab on. Those people who had no choice to leave, are the same people who here in the US will be either forced to sell their assets, or never had any or never bought any when the bottoms hit.
This isn’t to scare you into buying now, for now it’s just calm DCA if you can afford to. It’s to let you know what you need to be preparing for when the bottom does hit. You need to have minimized your own expenses, maximized your own income, and have cash set aside with which you can invest. It almost won’t matter what you buy. Obviously, I tell you to buy crypto because I view it as having a future of being it’s own sphere of wealth separate from the western world (its not that yet). But you can buy real estate, collectors items like art or classic cars, precious metals, and to a lesser extent, stocks.
I more or less can’t tell you when the bottom will happen. I can guess. But the value of this substack is that when the bottom does happen, we’ll know within +/-7 days.
I don’t trust Janet Yellen to sit back and let interest rates rise so high as to threaten the US Treasury’s ability to pay. She’s a Keynesian to her bones and has so far never met a recession she understood or saw coming.
Her inability to understand what’s going on in the markets will lead to her making decisions that further harm the future markets. She held interest rates down at essentially zero for almost the entirety of her term as Federal Reserve Chair, and only hiked rates after it was determined that she would be replaced. I don’t trust her to try and manage the US treasury honestly in a stagflationary environment with significant liquidity issues. I trust her to be herself, which means that she will be pressuring the Fed to return to money printing, consequences be damned. I can’t tell you specifically when that will be, I can only tell you how and where pressure will be applied. When Powell decides to fold will be dependent on him and which market the liquidity crunch breaks first.
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