Rate Hike on Market's Minds 📊 & Elon's Gloomy Outlook

GM and BRRR.

It’s Friday! I’d like to wrap up a difficult week in markets by zooming out more than we normally do in today’s opening.

The US Dollar is the world’s most consequential asset.

• Present in 88% of all foreign exchange transactions

• 60% of all the cash on central bank balance sheets

• Supply has grown by 42% since pandemic

The US is granted tremendous privilege as the issuer of the world’s reserve currency.

• Low borrowing costs for US government

• Strong buying power internationally

• Low-cost imports

These benefits increase the standard of living for all Americans and should not be taken for granted.

How could a country squander this privilege?

• Massive deficits/ debt

• Excessive money printing

• Protectionist trade policies

• Geopolitical aggression

Unfortunately the US is engaged in all of these practices and the world is beginning to notice. Check these recent headlines for confirmation:

• Debt ceiling jitters lift US credit default swaps to highest since 2011
  Reuters 

• Central banks are too powerful and they’re to blame for inflation
  Fortune

• UK Slams Protectionist Biden
  Politico

• US Seeks to Transfer Seized Russian Assets to Ukraine
  Bloomberg

• Why SWIFT Ban is Such a Potent Sanction on Russia
  Washington Post

Is the dollar set to weaken dramatically over the next decade? The country is following the playbook to ensure that happens.

Here’s what we brrr’d today:

• Interest Rate Jitters, Market Dips, Tesla Skids

• Money Supply Contracts for First Time since ‘94

• Elon’s Gloomy Outlook for US Economy

Prediction Contest #5

Interest Rate Jitters, Market Dips

• Unemployment on the rise: Last week, the number of Americans filing for benefits increased slightly, indicating a slowdown in the labor market. Coupled with declining retail sales and manufacturing activity, this raises the risk of a recession as early as the second half of the year.

• Banks tighten lending: Making it harder for households and small businesses to access credit, a measure of future economic activity that hit its lowest point in almost 2.5 years in March.

• Earnings reports flatten stocks: Shares of Tesla and AT&T drop after both companies miss market expectations for Q1 earnings. Investors brace for a lackluster earnings season.

• Overbought market runs out of steam: The S&P 500 suffers as corporate profits decline, and there's not enough interest to keep demand afloat.

• Insuring U.S. sovereign debt costs: As the government prepares to raise the U.S. government debt ceiling, the cost of insuring exposure to U.S. sovereign debt rises to the highest level in over a decade, adding to investor anxiety.

  Reuters (and here)

Money Supply Contracts for the First Time Since 1994

• Not growing on trees: Money supply growth fell to a 50-year low in February, continuing a downward trend from unprecedented highs experienced in the past two years.

• Red flags: Negative money supply growth is a red flag for economic growth and employment.

• Drop in the bucket?: Money creation since 2009 has been so large that even an $1.7 trillion drop is relatively small in percentage terms.

• Hangover period: The US economy still faces a large monetary overhang from the past several years, leading to weakening economic trends such as falling home prices, soaring credit card debt, consumer loan delinquencies, and falling job openings and manufacturing outlook.

• No interest: The Federal Reserve has allowed the federal funds rate to rise to five percent, leading to trouble for zombie companies and banks heavily dependent on easy money.

  The Mises Institute

High Interest Rates even giving Tesla a shock

• Elon predicts tough year for US economy, rebound in 2024: Tesla CEO warns of higher interest rates, layoff fears, and tighter bank lending hurting demand. Musk has been calling for Fed rate cuts and warning of recession for months

• Fed affecting Tesla's profit: Central bank's hikes making Tesla vehicles less affordable and reducing demand. Musk notes higher rates equivalent to increasing the price of a car

• Warns of credit crunch: With banks taking fewer risks after recent bank runs, banks not providing loans and people more hesitant to buy new cars if their job is not secure. Says banks are "maybe not as secure as they used to be"

  Business Insider

AI ART OF THE DAY

American anxiety for the dollar

The BRRR’s Portfolio

Took it on the chin yesterday, but still up a solid 6.9% in just over a month.

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The BRRR is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.