Inflation | Is the World on Its Way Down?

In this post, we’ll discuss the Federal Reserve’s shifting stance. Quantitative easing is giving way to quantitative tightening. What does this mean for the various forms of global markets? Bond markets, stock markets, and cryptocurrency markets? What impact does it have on risk-on versus risk-off assets? Plus, Microsoft’s billion-dollar purchase of Activision Blizzard and how they’re attempting to co-op the metaverse. Denial is the current state of affairs in the United States. We don’t know whether that’s a good or unhealthy denial. Can we anticipate the crypto markets to climb and fall indefinitely, or are we naive? Is the World on its Way Down? Macro Markets, Inflation, and the Fed.

 

The Bond Market Has Been Destroyed

The bond market had one of its worst weeks on record. When interest rates fall, bond prices become more volatile, which is referred to as positive convexity. As a result, when interest rates are at historic lows, the amount that bond prices vary is enormous. Interest rates are the cost of money in the TradeFi world, and they are most likely the starting point for everything. If the bond market is telling us anything, it’s that money is going to be a lot more expensive.

Remember, lower bond prices equal greater yields. Why did it happen at the start of the year, when these marketplaces are so well-established? When we talk about rising interest rates, we’re usually talking about US Treasuries, corporate bonds, high-yield bonds, municipal bonds, and asset-backed securities. However, if additional danger is regarded as a result of credit risk, the spread may expand and they may go a little further. In other words, if treasury bond yields are rising, they are all rising.

Inflation is a major issue

At least in the short end of the bond market, inflation is no longer temporary. The Federal Reserve will have to cope with this by raising interest rates several times. There’s some debate in the equity market over whether the Fed will hike rates as aggressively as the market expects.

Four rate hikes are already priced in for this year, and a fifth isn’t far behind. So there’s a lot of aggressiveness priced in the market, and if you ask stock traders right now, that’s not going to move much.

Many strategists and economists are either hesitant or unable to go there, depending on the word you want to use. They don’t think the Fed will raise rates several times, putting the stock market and the economy in jeopardy. But suddenly, something has changed. And that, my friends, is inflation. It’s impossible to avoid it. Due to rent savings, 40% of the population has less than $1,000.

According to economist John Taylor, the Fed must choose between protecting the stock market and dealing with the sluggish inflation problem. Is the World on its Way Down? Macro Markets, Inflation, and the Fed

The Fed’s Point of View

As a result, the bond market saw a significant drop in asset prices. These things are inversely correlated; bond prices fall, but bond yields rise, setting a new level for the cost of money, which is what you’re talking about with how much money costs, because if you can get a dependable 3% AP, the yield on your dollars in the bond market, which is deemed very safe, perceived by investors, why would you put your USDC in the stock market?

For the first time in a long time, the Fed has been presented with a new problem: inflation. Put yourself in the Fed’s shoes for a moment. Because the Federal Reserve’s dual mandate is to maximize employment while also maintaining price stability.

Fedspeak and signaling

Signaling is what they’re terrified of in the market because it causes a lot of market disruption. As a result, they want to make a fuss over it. That signaling is a little more complicated than that. Senior Federal Reserve officials are considering x, as reported by Robin Wigglesworth at steal and Nick timorous at the Wall Street Journal.

They normally do this by calling the newspaper and saying, “Hey, let everyone know we’re thinking about implementing quantitative tightening.” Senior Federal Reserve officials don’t want to catch the market off guard.

There are concerns about that if they stand out and say, “Today, we’ve decided something else,” the markets would crash. This is especially true during the OAE period. As a result, they wish to try to lead us all.

Then, if the market likes it, it’s fine. That is the rule. I have no idea what the market is talking about if it doesn’t like it.

Reality vs. Temporary

The inflation rate was 1.4 percent a year ago. And now it’s down to 7%. The reason for the higher prices is that it’s a rerun of the 2020 lockdowns, when we were all ordered home. We didn’t invest any money, and things started to open up in 2021. As a result, we’ll witness a resurgence of pent-up demand for goods in the marketplace.

We’ll be at 4%, maybe 5%, maybe three and a half percent by the end of the year. That is still an excessively high figure. The 40% of people who have less than $1,000 in savings are dissatisfied with the fact that everything is becoming more expensive. Even if it does peak and fall, it is unlikely to fall fast enough to bring inflation back to normal levels.

Inflation: Between a Rock and a Hard Place

The Fed has a habit of hiking rates excessively until something breaks. They appear to break something, whether it’s the stock market, the economy going into recession, or some other financial calamity. There is no one-size-fits-all policy that will make both parties pleased at the same time.

So they had to choose between the two. The Fed will raise rates too quickly, breaking the stock market, and the economy, or causing some other form of disaster somewhere down the road. Partly because they waited much too long and allowed things to deteriorate to this point, they now have no viable options. But, if the stock markets continue to fall, so be it; you never want to be in that situation.

Since 2009, the Fed has been pursuing a quantitative easing policy. Why is it that inflation has suddenly appeared? I recall hearing folks talk about inflation, and it’s right around the corner in 2012/2013. It never arrived. However, we saw a significant increase in asset prices. A significant amount of money, in the form of stimulus checks and job creation, did not go to banks or asset markets. They went straight to the customer, which makes me wonder if the Fed will ever be able to resolve some of these issues. Or it could be that inflation is caused by anything other than fiscal policy.

Inflation is a monster that we don’t fully comprehend.

The Federal Reserve, on the other hand, wants you to believe that they know how to control inflation, that they have these little tools, knobs, and levers that they can move to the third or fourth decimal place whenever they want, and that they have that kind of control.

I believe that one of the things that have changed is that we now demand more items and fewer services as a result of the lockdowns, work from home, and lifestyle choices we’ve made.

That, of course, goes against popular belief. In light of this, we’ve changed our lifestyle and desire more items because we’re at home more. That’s why you’re seeing these ever-increasing prices.

Now, in response to your question about fiscal policy, they have allowed the government to borrow trillions of dollars without appreciably raising interest rates. Capital goods have fuelled inflation more than services in recent years.

Working from home and wanting more things is a major driver of inflation. Where we’re going doesn’t have to be horrible, I don’t believe. And I would say that it isn’t going to be if we don’t take a look at how things are going in 2019. What Should You Concentrate On?

What was the significant adoption of 2021 in the next year or so? Traditional institutions were the first to invest in cryptocurrency, seeing it as a potential inflation hedge. But they saw it as the next step, like if we’d expanded the risk, the risk parameter, to include cryptography.

I believe that the crypto market will eventually become self-contained from the financial world. And if it becomes independent, it won’t have to deal with all of these issues about what the Fed will do.

Crypto needs to dissolve its ties with TradeFi, but it’s unlikely to do so very soon because they just sold everyone on the idea that it was the riskier end of the scale. We’ve already been in stormy waters for eight or nine months. And I believe we’ll see more of the same as time goes on. Expectations & Crypto

The Fed needs to do something about inflation, and it will most likely do so in the first, second, and third quarters. Then one of two things may happen: either something will break, prompting the Fed to say, “OK, time to dial it down,” or the midterm elections will be done.

When the Fed keeps raising rates, something breaks when the game is over, and the extreme risk end of the risk spectrum screams out. That’s what happened last summer when the stock market exploded. This is when we purchased roughly 1700 Eth, and it also took off. Deflation?

Isn’t it true that crypto investors want to hear about the long game? And we’re not even talking about years here; we’re talking about decades. We’re only talking about a few months here. Surprisingly, Raoul Paul believes that inflation will not be a significant issue in the coming decade.

The economy is a snake that ate the baby boomer generation and is now working its way out.

Demographics, globalization, and technology DGT are the three major factors that have driven inflation down in recent generations. The issue, in my opinion, is that demographics are unlikely to change, so inflation should continue to fall.

The nature of globalization is shifting. All of a sudden, China is no longer our friend. We simply do not see China with the same distrust that we did three or four years ago. What we’re seeing is a shift in how we spend our money, which is causing inflation.

The tenure yield is 185 percent, while the fed funds rate is zero percent; those are absurdly low-interest rates. They’ll have to come up with a lot of ideas, possibly approaching three or four percent rates.

Traditional financial markets will be put under a lot of strain as a result of this. So, while I agree with Raul that we won’t see the 1970s, I believe that inflation of 9, 10, or 12% will be a concern.

A Metaverse that is centralized

The Metaverse is buzzing right now because markets are experiencing unprecedented volatility owing to inflation. The Metaverse is still being developed out. Microsoft has rejected Activision Blizzard’s Call of Duty for $70 billion.

The stock is presently higher. Today’s price is 16 dollars, which is a 30 percent increase. Facebook and Microsoft are well aware that they are the web to a world if you will. They’re aware of Web3’s impending arrival and their plans for the Metaverse.

Many of these large corporations want that to be the location where we will go. They’re attempting to seize control of whatever the Metaverse ends up being. Hopefully, in the end, it achieves its goal of becoming a truly decentralized world. Everything, in my opinion, should begin with decentralization and end with centralization.

Many of these large corporations want that to be the destination for us, and they’re betting big on it. I sincerely hope this is not the case. But they’re making a concerted effort to seize control of whatever the Metaverse turns out to be; they want to spread it out, calling it web3, but making it web 2. They really want it to be number two.

Do you have any thoughts on this article? Let us know what you think in the comments section below.

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