Inflation down, BTC up
Friday January 13, 2023 - Issue # 35
Happy Friday! We got some new data to chew on yesterday — the US CPI print came in at 6.5%, as expected, and markets reacted very positively as it has now been 6 consecutive months of lower inflation prints.
It is pretty clear that inflation is trending down, but 6.5% is still well above the Fed's 2% goal. For reference, the 3-year average pre-Covid was 2.1%. Side note, I find it pretty funny watching the talking heads at CNBC and other news outlets pontificating over possible outcomes involving numbers to be reported. “I believe we will actually see CPI come in at 6.8%”, said one the other day. “I think it will catch us by surprise and come in at 6.3%”, said another. “It will come in at 6.5% as expected, and that will be good for markets”, said a prominent banker. It’s sad that I still fall into these meaningless pits of distraction. Their predictions are as meaningful as me assessing the undercarriage and crunch of a pizza before guessing a number during one of Dave Portnoy’s pizza reviews — for the record, I’m scary accurate.
Anyway, the lower print certainly helped to fuel BTC’s rally and we now have $20k in our sights.
The Bank of Canada (BOC) was trending on Twitter yesterday…after recently released third-quarter financial results showed that, for the first time, the bank incurred a net loss of $511 million. In a study published yesterday by the C.D. Howe Institute, the BOC could see cumulative losses from 2022-23 to 2024-25 ranging from $3.6 billion to $8.8 billion...yikes. While many Canadians are experiencing a pinch (to put it lightly) on their mortgage payments, the BOC is also suffering from their own higher policy rates which have immediate implications for the Bank’s own finances.
It is important to remind ourselves that governments and central banks enjoyed printing money (slowly destroying their people’s purchasing power) at a consistent pace while keeping interest rates low because they were able to keep inflation at ~2%. I think they could’ve kept it going for a long time. Instead, they unloaded their clip in response to Covid and did a decade’s worth of printing in a matter of months and ignored the early signs of the inflationary repercussions. It was just transitory. What they’re trying to do now is reign it all back in so that they can get back to the good ol’ days.
Increasing rates from here or even keeping rates at the current level to bring inflation down to the arbitrary number of 2% is ex-pen-sive! My guess is that CBs keep up the charade until they can adjust to a new norm (3-4%?) without causing too much havoc.
The price to posture is incredibly high.
Remember this statement from BOC Governor, Tiff Macklem in October 2020?
“We’re going to hold our policy interest rate at the effective lower bound, until slack is absorbed, so that we can sustainably achieve our 2% inflation target, and we’ve indicated that's not going to happen until sometime in 2023. What does that mean? It means that if you’re a household considering making a major purchase, if you’re a business considering investing, you can be confident that interest rates will be low for a long time.”
Central banks have shown time after time that they are not to be trusted.
What I really wanted to write about today was CBDCs and how they will likely become a major catalyst for bitcoin adoption. Stay tuned for next week where I’ll try to be less distracted by new market information!
I’ll leave you with an update from legendary Investor, Bill Miller, on his unwavering conviction in Bitcoin:
Have a nice weekend.
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)