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All times given in this update are in US Central time (UTC-6 clock).
Song of the Week - Mike Posner - I took a pill in Ibiza (the original version)
Do you remember when this song came out? It sounded a bit different back then, didn’t it? This version was the original. The record companies twisted the knife in Mike Posner’s back by making a pop-techno remix of this song into a hit. All of the subtlety was lost. This was probably the last straw for Mike, he still makes great music to this day, but none of it is even close to radio-friendly.
Table of Contents
There is only one Topic this week
The Secular Market Bottom has Occurred
Mortgage Rates Will be Going Down
The Start of a Crypto Economy
Economic Calendar
An End to QT?
FOMC Decision
Credit Suisse Collapse?
Conclusion
Internal References
1. There is only one Topic this Week
As I indicated in the free post that came out after my extended snowboarding trip finally ended, the US Government and Federal Reserve are backstopping the banking sector entirely.
This means quite a number of things. The most obvious for us degenerates is number go up.
Since the announcement of the BTFP swap desk, Bitcoin price has risen by ~$7,000 or 35%. We’re still in No Man’s land for price with little structure forming here, and due to the parabolic nature of the current price rise we won’t get any price structure in this zone and it’s quite likely price won’t show any structure until ~$29k. Usually, I keep these price assessments behind the paywall, but that feels quite cruel considering how large this week will be. Don’t say I never give my free subscribers anything.
For those who may not have understood me in my post about Silicon Valley Bank, I’ll make it very clear.
The Secular Market Bottom has Occurred
The announcement of the BTFP swap desk for treasuries has marked the beginning of the next bull market. This is a complete tragedy in my eyes, but I invest to find hopeful futures in the face of tragedy, so here we are and I hope you were doing the same alongside me.
So, just what is this week going to be about? One thing and one thing only. We’re here to watch the federal reserve, they have already de-facto put an end to QT as their balance sheet is now expanding rapidly as banks use the BTFP swap desk. We’ll cover this more in section 3.
So what should you be doing?
Well, I’ve already discussed buying Bitcoin and Ethereum. That’s basically it. Hopefully, you spent the last 18 months learning how to manage a wallet, sign transactions, and transfer tokens off of a centralized exchange like coinbase or crypto.com and to your private wallet. The time for practice and training is when the sun is shining. You don’t want the first time you pick up a gun to be the day civil war has come to your neighborhood. Similarly, you don’t want the first time you are trying to buy crypto to be in the middle of major bank failures. But unfortunately, this is the time when I get the most questions for advice, and I hate giving it now.
Please don’t touch leverage, spot exposure only. You don’t want to be carrying liquidation risk. Nothing moves up in perfectly straight lines. Price action is jagged. Leveraged entries require a certain level of precision and discipline that you probably don’t have if you’re asking for advice. This isn’t intended as an insult, consider this instead to be the loving words of a parent telling his child he can have a dirt bike when he’s older and that at 3 he just has to watch others race Motocross for now.
If you didn’t follow the advice over the last 18 months or are new, or just need a refresher, there is an entire series of free posts for beginners, I’ll link them below.
Beginners Guide to Wallets and Transactions
But what about the housing market?
Well, since we’ve now had a banking collapse and the BTFP swap desk also allows banks to swap their Mortgage Backed Securities for a Fed loan at face value; this means the housing market is being bailed out too. That’s right.
Mortgage Rates will be going down
And as those rates go down, housing prices will be able to go up as well. If you already own a home, congrats. If you don’t, well, sorry to say you’ll be watching the ladder being pulled up right in front of you. I don’t mean to rush you if you’re not ready, and if you aren’t ready, please accept that with serenity rather than trying to rush into a home that you can’t afford or maintain. If you have a large pile of cash and can buy a home with a significant bit down, you’ll be able to profit quite a bit in ~1-2 years on a purchase in the next month or two. If you can’t put a significant amount of cash down, you’re better off waiting for rates to fall as banks use the BTFP swap desk to offload their mortgages for free money from the federal reserve.
This is the worst kind of trickle-down theory. It’s human centipede theory.
Doesn’t feel so great, does it?
This isn’t any way to run an efficient economy. Nor is it any way in which to efficiently steward a currency that can be passed on to your children. The obvious conclusion is that you spent the last 18 months watching the dollar in its death throes, and now we’re in the ambulance riding with it to the hospital. When we get there, we’ll probably get the bad news. They managed to resuscitate it at the hospital but there’s no brain function. Do you pull the plug?
I would. But I’m not in charge. And so we’re going to spend the next bull market standing around watching Powell and Yellen pretending every involuntary movement is a sign of life while they ignore the obvious.
Stagflation will be setting in, it’s here to stay.
The Start of a Crypto Economy
One of the last missing pieces of the crypto economy is that other than in El Salvador, we don’t really have any places where we can earn, spend, and live in Crypto without off-ramping into another fiat currency. The pressure for vendors to begin accepting crypto and maintaining a crypto treasury will be immense as this continues. Imagine, ~5-10% of the US population is holding a currency that isn’t rapidly inflating that they want to spend. You own a shop that sells knick-knacks and you want to at least keep some of your business funds in a non-inflating currency. The easiest way to do that would be to offer discounts for users to pay in bitcoin/Ethereum etc. But you don’t know how to set up a wallet, or accept payments and manage that currency securely.
The pressure for someone to invent a user interface that is more user-friendly than current wallets will be immense. If it gets done, it will spark the next wave of crypto adoption for those who are less tech-savvy and adaptable. If we fail to create such then adoption in the US and the west will continue at a slow pace as we let decrepit regulators 5% us to death.
The fight against regulation isn’t a legal one, it’s a question of pure numbers. Regulators always target small groups of people because the majority of the population could care less when it doesn’t affect them. You don’t fight gun laws with lawyers, you fight them by getting your parents a gun for Christmas. They will suddenly care when some innocuous piece of plastic they own has been made illegal. They’re invested, they get it now.
Similarly, when my Mom can use Bitcoin like Kohl’s cash she’ll be a lot more invested in the outcome of regulation. So long as we are just 5% of the population, we’re a target. Not quite the case at 20%, and invincible at 50%. While a certain level of evangelism is a good thing, it’s not enough. We need the tech. We need the Gutenberg bible.
2. Economic Calendar
Refer to the Economic Calendar Settings Post for filter settings used as well as a link to the site I prefer to use for this calendar.
This is not a slow news week by any stretch of the imagination.
But in terms of what you and I should be focused on, there is only one thing happening this week, and that’s the US FOMC press conference and interest rate decision.
Is the ECB president speaking? Yes. Did they just hike rates another 0.5% last week? Yes. Is that putting European junk bonds and the PIIGS nations in further distress? Yes. Do we care right now? No.
Are the Swiss meeting to discuss interest rates? Yes. Is it a relevant decision? No, they’re going to hike rates to keep up with the ECB at the very least. Despite Credit Suisse being in Switzerland, Credit Suisse does not have a lot of exposure to Swiss government bonds, their exposure to the bond markets is here, in the US.
Are the British meeting to discuss interest rates? Yes. Does it matter? No. The British will follow in the direction the Americans go. If Powell pivots, the Bank of England will have a green light to pivot as well. They are not in charge, they are an unpowered ship in a river, and they can only sail downstream.
There is only one event this week.
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