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Friday, October 18th 2019 - Issue #594

Einstein was wrong

"At minimum, negative rates mean there’s increased uncertainty, and thus we have to proceed with more trepidation. Whatever we knew in the past about how things worked, I think we know less when rates are negative."

The above quote comes from a letter sent out yesterday by investor Howard Marks. In it, Howard expands on his thoughts regarding negative interest rates. I highly suggest any of you NIRP-curious freaks out there peep the letter when you get a chance because it is a great synopsis on the current consensus around NIRP; no one really knows what the long-term effects will be.

The tables have been flipped. We are now in the upside down world in which long standing models begin to break and previously held assumptions turn out to be pretty faulty. One such assumption coming from the great Albert Einstein, "compounding interest is the 8th wonder of the world." In a world consumed by NIRP, as Mr. Marks points out, compounding interest turns from a wonder to a nightmare as people are now forced to pay (being penalized) for the storage of their capital instead of being rewarded for providing capital to capital allocators. 

Another important side effect of NIRP that arises is the weird spot it puts the Fed in;

"Finally, negative rates abroad strengthen demand for dollars so foreigners can invest at the positive U.S. yields, causing the dollar to appreciate. Thus the Fed may have to lower rates to keep the foreign-currency cost of U.S. exports from rising too much, and thus their competitiveness from declining and our economy from weakening. How long can the Fed maintain rates that are much higher than those in the rest of the world?"

It appears that when other Central Bankers break the x-axis below 0.0% it creates a dash for dollars that causes things to speed up, forcing the Fed's hand with more force as the delta between the strengthening dollar and its weakening counterparts is pried open. Will the Fed be forced to act by joining the race below the x-axis? What does this mean for the future of our financial system? Where can one find reprieve from the assault on personal capital?

I don't know the answer to the first two questions. However, I feel like Bitcoin may be a good place to find reprieve in this environment. Independent, apolitical, distributed sound money for the win! 

Thanks for reading my letter about a letter.   
Final thought...

Drank moonshine for the first time last night. Not too shabby.

Enjoy your weekend, freaks! 
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