Thoughts on the FOMC Meeting
Let's Refocus
Since everyone has an opinion or a thesis on how Fed policy will affect markets these days, I figured I’d write to add my two sats. Last night, I listened to a crypto “influencer” declare that Powell triggered a “rug pull” in markets because of his hawkish tone in yesterday’s FOMC meeting. Hearing this influencer equate what Powell said to a “rug pull” bothered me, and it took me a minute to sort out why. Essentially, this person was whining that the Fed didn’t promise to pump more cheap credit into the system so that the price of assets would continue to inflate. This person’s popularity on YouTube/his business model relies on asset prices inflating, because YouTube views for these influencers tend to climb in tandem with crypto asset prices. I’m sure that a number of people watching his channel have very little idea why the assets that they are buying are inflating in price. Most probably think it’s little more than magic. Since buying crypto has become many young people’s first foray into investing, they probably have very little idea as to what has been driving markets for the past two years. And while the Fed has been the driver, teaching them that the Fed is “rug pulling” them is still irresponsible and technically incorrect.
I want to make it clear that I do no support the devaluation of the U.S. Dollar. I even wrote about how I would like to see the “US Dollar network” expand here. Over 56% of Americans claim that they live paycheck-to-paycheck. Cheering for more money printing so that your assets can temporarily go up on value, while those living paycheck-to-paycheck lose purchasing power is gross. Working people get hurt when money becomes worth less. I was one of those people for a long time. Had I simply had more purchasing power over the past decade or so, I likely wouldn’t have even begun to study finance and economics.
I don’t write about the benefits of owning assets like $BTC and $ETH in times of inflation because I believe these assets will make people rich overnight. If these assets skyrocket in price in an instant, it will not because their networks have grown so quickly in the short term; it will likely be because hyperinflation has set in, and you don’t want that. Let me not speak for you, though. I don’t want that. I don’t want Mad Max world, and I’m not cheering for us to get there. I simply think of these assets as nets to catch more cash with during inflationary times. And what I love about digital assets is that anyone with an internet connection can buy a small fraction of these “nets”.
As I’ve shared, I started writing about money because I didn’t understand how it worked for a large portion of my life, and I struggled financially as a result of it. When I did feel like I started to get a grasp on how money worked, I wanted to share it with other people, because once I had a little bit of money saved - once I wasn’t living paycheck to paycheck anymore - I, all of a sudden, had this new headspace open up; my bandwidth was no longer dedicated to figuring out my next hustle to pay the rent, and I could focus on other things that were important to me, but that I had neglected for financial reasons. I wanted other people to feel this small taste of freedom, as well. I also appreciate having money because it enables me to help people from some of the more financially vulnerable populations with whom I’ve lived. Last year, I was able to put one of my former students in Ghana through a semester of college, and I was able to help pay for the surgery of a friend of mine from Venezuela’s father. These two people had little to no access to capital, and it meant the world to me to be able to provide it for them.
If you know me or have been to my apartment, you likely know that I live monastically. I’m not really into possessions or fancy things. I like living a simple, peaceful (the latter is admittedly a bit easier when markets are up lol) life. I’ve tried psyching myself up to get into the Wall St. hustle, and it didn’t feel right. It also didn’t feel right to constantly be at the mercy of bureaucracies in both the fields of education and social work. So, I’ve set out in an attempt to do things my own way, probably much like that YouTuber I was listening to last night. And don’t get me wrong… I respect his hustle; I just think it’s of the utmost importance to not mislead your audience.
So, if I’ve misled you in any way, I apologize. My intention when I set out to start writing this newsletter was simply to help people get a piece of the pie, and to maybe help them understand finance and economics a bit better (again, not that I’m an “expert”). And on that note, I don’t really have any issue with what Jerome Powell said yesterday. I have more of an issue with the fact that the global economy hangs on the words of one unelected bureaucrat. As I’ve said before, I don’t like what the Fed has done to manipulate markets over the past 13 years, and I am not sure they have as much control as they claim to have when it comes to taming inflation (or permanently propping up the market). They might, though, and anyone claiming that the Fed has surely lost control and that hyperinflation is without a doubt imminent is just slinging hopium in efforts to have their bags pumped (to have the assets they hold continue to inflate in price). And if the Fed does stop inflation and the dollar strengthens, all markets will continue to take a hit, because, over the past two years especially, it’s not that assets have magically become worth more; it’s that the dollar has become worth less. I wrote about that in greater detail here. So, please understand the risk of having any exposure to markets right now; they’re in a very tenuous position. My thesis is that there is one more notable leg up in this market before some sort of bust. This is part of a macro framework that I subscribe to, but my feelings on why I think we will see a bust when we least expect it are broader than that. To use an analogy, addicts (Wall St. and some retail investors) don’t sober up after a little bump in the road (this last market correction); they often sober up after an all out banger (euphoric melt-up in asset prices) after which they hit rock bottom (market crash). I don’t know if that will happen, though, and I’ve planned accordingly if it doesn’t. I hope that you have done the same.
Lastly, there have been a lot of narratives about what Bitcoin “is” and “isn’t” lately. Is it digital gold? Is it a store of value? Is it an inflation hedge? Is it a tech stock, a risk on-type asset? In ways, it’s all of these things, and in ways it’s none of them. It simply is what it is - an inherently deflationary monetary technology that is perfectly scarce and carries no counter party risk. And yes, lately, its price action has been correlated with traditional markets, particularly tech stocks. But please remember that if we zoom out as far back as the crash of March of 2020, most of those tech stocks might be up somewhere between 50-250%, while Bitcoin is up 1000%. Will it continue to rise in price before this “cycle” finishes? I think so, but I don’t know for sure. If this volatility is too much for you, consider buying some stablecoins and staking or lending them for a yield. The average yield on stablecoins (about 8%) is just about keeping up with the reported inflation as per the CPI (7%).
So, please understand that the market is like an ocean; it’s going to do what it wants to do. Yes, Powell and the Fed can create waves in this ocean, but ultimately, no one knows for sure where and when the tide will turn. By all means, feel free listen to influencers and maybe even consider what I have to say, but invest in a way that is comfortable for you. Don’t buy into hopium, and don’t blindly listen to people who make a profit off of your attention.
Best,
Frank
Twitter: @frankcorva
