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Macro Update

Unfortunately, the energy crisis throughout much of Europe is unfolding as expected. Utility bills have soared as much as 10-fold in some parts of Europe over the past several months, with some companies being forced to reduce operating hours and lay off workers due to prohibitive energy costs.

The U.S. Central Bank, desperate to bring inflation down, has increased their fed funds rate by 0.75% three consecutive times since June, bringing the current rate to 3.25% with a stated goal of getting the rate up to 4.5%.

With rates projected to climb further in the months ahead, the USD is growing stronger by the week relative to almost all other currencies. The Euro, CAD, AUD, Japanese Yen, Chinese Yuan, and Korean Won are all rapidly losing strength relative to the USD. Why does this matter? The vast majority of global trade is settled in USD, so as the currencies in these and most other countries continue to weaken, it becomes increasingly difficult for them to afford to buy the goods and services that they normally do from abroad, as they have to exchange their own currencies for USD before making payment.

Another enormous problem is that many governments, corporations, and individuals around the world are struggling to afford interest payments on their debts, and those that have to refinance their loans in the near future may be unable to obtain a rate that they can afford.

Jerome Powell, the chair of the U.S. Central Bank has explicitely stated that we should all expect some pain in the months ahead. Simply translated: most asset prices will continue to fall, a global recession is upon us, and more layoffs are in our future.

Right now, governments and central banks around the world are holding their breath while waiting and hoping for one thing: For the U.S. Central Bank to pivot on their plan to continue to raise interest rates and take liquidity out of the markets. For now, the U.S. Central Bank is signalling that they don't care about anything other than getting inflation down, and if they continue to hold the line with this agenda, it's a mathematical certainty that substantial credit markets across the world will go insolvent - this is why I'm of the view that sooner or later, Jerome Powell and his unelected buddies at the Federal Reserve will have no choice but to reverse course.

For family members and friends who have asked, my view remains the same: until the U.S. Central Bank puts a pause on rate hikes and turns their money printer on again to buy hundreds of billions of dollars' worth of bonds on a monthly basis to bring interest rates down, the single best asset to hold is U.S. dollars - at the moment, it's the best house on the worst street in the world.

For those who are keeping dry powder on hand, I feel this is a good time to do the research needed to prepare a short list of the best assets you'd like to allocate your funds to once Jerome Powell and his friends capitulate and start injecting massive amounts of liquidity into the system again. Those who have followed this newsletter for the past few years know my views on rational choices for assets that will allow for preservation and growth of purchasing power over the long term - Satoshi's invention remains my top choice within a basket of such assets, and my view is that the coming quarters will provide a generational opportunity to allocate to it before most of the rest of the world realizes how valuable it is as an un-seizable and truly decentralized global store of value with a finite supply, controlled by no one and available to everyone, governed by mathematical rules rather than by un-elected rulers.


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