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Fundamentals

The Fed Funds rate is the rate at which the Fed loans money to banks in the short term. Over the years the rate has had a series of lower highs and lower lows. When they raised rates in 2005-2007, they blew up the housing market and caused the housing crisis. The last time around they could barely raise it to 2.5 percent without causing a major economic slowdown.

The Treasury yield curve at the front-end is almost at zero, while on the long end it is about 2 percent. The Fed Funds is right at the start of the curve.

JPMorgan said they think the Fed will raise the Fed Fund rates five times this year and three in the following year. Bank of America predicts 11 rate hikes of a quarter each. Other banks are in the same ballpark.

What happens if Bank of America is right and the Fed Fund rate hits 3 percent? It would devastate the economy. Total federal public debt is $28.4 trillion. Debt went vertical up in 2020 and shows no sign of stopping. If the yield curve is basically flat at 3 percent to keep it simple. On the debt, interest rates become $852 billion. However, the yield curve is basically never flat, so longer-term borrowing has higher rates. If the Fed Fund rate hits 3 percent, then longer-term borrowing will be higher. If longer-term rates hit 4 percent, then interest payments on the US public debt would be $1.36 trillion. At 5 percent, payments would be $1.420 trillion. These numbers assume that the total public debt does not continue to grow, which is unlikely given the government has massive promised payments in the future in social security and other programs. Also, longer term rates tend to be higher than short-term rates, so the debt payments would likely be much higher if the short-term Fed Fund rate hits 3 percent.

Right now, interest payments are only $424 billion - half what it would be if rates rise to 3 percent, let alone at higher rates.

If Fed Funds are raised, then bonds go down, stocks go down, mortgage rates go up and housing prices go down. People make less in housing and the stock markets, so there are less capital gains, which means the government gets less tax income. This, in turn, makes it harder for the government to pay the debt, even if it hasn’t gone up. If that happens, the government has to borrow even more money to cover their debt payments, which increases the debt even more. However, fewer people want to buy US federal debt. Russia and China are buying fewer US government debt, so the Fed has stepped in to buy the debt. This is the path to a major debt crisis. The market will see it coming. The Fed then has to raise interest rates, which is a tighter policy, while at the same time printing more money to pay the debt, which is a looser policy.

Therefore, it's much easier to never raise short-term rates in the first place, which is what the Fed appears to be doing. All the banks appear to be wrong since there is no way the Fed raises short-term rates to 3 percent without blowing up the economy. The rest of the decade is going to be very low interest rates and tons of money printing. Therefore, we will see even more volatility as we move between inflation and deflation and back again. The US dollar is strengthening, but stocks and bonds are selling off, which is deflationary—cooling the economy. When that happens, the Fed has to cut interest rates again and it starts all over again.

Money printing is the only way out, so we recommend Bitcoin as an alternative, which the government can’t devalue by printing more.

As a consequence of the anomalies in the yield curve and the fear that interest rates are going to rise in response to inflation is probably wrong. There's pressure on interest rates not because of inflation, but because of the monetary policies that have been in place since the pandemic hit in March 2020. The printing presses have been going full tilt and have provided the markets with unlimited supply of US dollars, which has eroded the value of the US dollar. Now we have consumer inflation as prices go up with so much money in circulation combined with supply chain issues and shortages.

The 10 Year Note is trading at about 2 percent, yet real inflation is much, much higher than that level. Therefore, we're running a major deficit between real inflation and the interest rates. We strongly recommend buying Bitcoin as much as you can.

When the market realizes what are real assets, it will not be fiat currencies, such as the US dollar. It will be gold and silver, which are ancient valuable assets, and Bitcoin—a decentralized asset, which the government cannot debase. Precious metals and Bitcoin offer the chance to hedge against a collapse in the US dollar.

If tapering continues, the economy will suffer. If the Fed continues to taper, the economy will slow down over the next few quarters. The Fed will then have to reverse course and print more money to prop up the market. Even up to now, the Fed has done some minor tapering since June 2021 but has tried to rely on rhetoric to bring precious metals and Bitcoin down in price. They have been effective at keeping metals and Bitcoin lower in price, but it will not continue. Now it seems that it's overdone. The markets have discounted what the major banks are saying they expect; five or six interest rate hikes. Such hikes, given current massive debt levels, are unlikely.

“We recommend to aggressively diversify into Bitcoin and precious metals, since we are on the cusp of a major move to the upside over the next few weeks,” Equity Management Academy CEO Patrick MontesDeOca said.

Technical Analysis Featuring: Bitcoin

Monthly

The February 1, 2022, Bitcoin monthly trend-momentum of 39,864 is bearish. This is the larger momentum of the market; the bigger picture, so we can align ourselves with the trend. The monthly Variable Changing Price Momentum Indicator (VC PMI) of 39,642 is bearish, which means the price momentum within the larger trend is bearish. The market closing below the VC PMI level means there's a bearish price momentum. A close above 39,643 stop, it will negate the bearishness to neutral. Based on the VC PMI, if you are short, take profits at 31,512 and 24,838. If Bitcoin trades above 39,643, then the new targets come into play of 46,000 to 54,000.

We want to trade the extremes of the market, so we wait for the market to reach extremes before we trade.

For February, the monthly average price is 39,643. The market coming in below that price indicates a bearish price momentum. From the average, there is a 50/50 chance of the market going up or down–so you do not want to trade at that level. We extrapolate pivot points above and below that average, with buy and sell levels that are 90% and 95% probabilities. If the market reaches Buy 1 or Sell 1, there is a 90% chance of the market reverting to the mean. The Buy 2 and Sell 2 levels indicate a 95% of the price coming back to the mean from those levels.

Bitcoin has come down more than 78.8% Fibonacci in a few months. As we trade above 39,643, the bearish trend will be negated and we will see a bullish price momentum with targets of 46,417 to 54,448.

Weekly

The weekly numbers show that the market is trading above the average of 36,517. It has also come above the daily average, so it's activating a bullish price momentum. The trigger is between 37,000 and 35,485–the recent low. The trend is completed and we are seeing a change from a bearish to a bullish trend. If Bitcoin closes above 40,163, it will validate the change from a bearish to a bullish intermediate trend with the weekly target of 42,557.

The level to watch is 40,163 since it's a harmonic alignment between the daily and the weekly. At that level, lock in some profits and wait for a close above to confirm additional strength.