We first want to wish all our readers and clients a Happy New Year!

As we say goodbye to a tumultous 2021, we look forward and to 2022 and what it may have in store for investors. 2021 saw inflation run away to heights not seen for decades. The Fed completely under-estimated this and shifted gears stating it was going to get serious about tackling inflation by tapering its bond buying and raising interest rates in 2022. The markets are re-calibrating. How big an issue is "inflation" and how soon can it be brought under control? These are the key questions as they will influence how aggressive the Fed is with respect to raising interest rates.

The key determining factors with respect to taming inflation are:

We have often written about the "asset inflation" bubble caused by a trifecta of near zero interest rates, record levels of money printing not seen in american history and the federal reserve acting as a backstop for everything! Well maybe not everything, but again more than ever before. The "relative value" of the dollar continues to fall against this backdrop. a trend that has continued over a 50+ year period. The purchasing power of the dollar has fallen by 92% over the last 50 years. Let that sink in for a moment. The only saving grace is that other westernized countries are not faring much better yet none have the size of national debt of the USA. It helps to be the worlds reserve currency!

In the midst of a historic "asset bubble" of "everything" where many fund managers are cautious, there are well respected fund managers talking about a continuation of the bull market into 2038, one that is fueled by the "millennial" generation. The arguments are compelling and we wanted to share some of them in this article.

Cathie Wood, the architect of Ark’s comprehensive range of ETF's sais: “So this is the echo of the baby boom,” in reference to the millennial investors being the new drivers of an extended bull market into 2038 to mirror the baby boomers who fueled a 20-year bull market in stocks during the 1980's and 1990's.

We have talked about the blockchain in prior articles. Many people associate the "blockchain" with "Bitcoin" but the blockchain is far more than Bitcoin. Bitcoin is a counter financial cyclical innovation that arose directly after and as a result of the 2007/8 financial crash and depression. We refer to it here as counter-cyclical because it has a deflationary monetary supply built into the code. It is not subject to human, governmental or political motivations that can inflate the money supply to unprecedented levels of indebtedness - in a monetary experiment - that devalues the worth of the currency, causes inevitable inflation and arguably impacts those who are the least well off, the most, over the mid to long term. Bitcoin's supply is fixed and known. It is finite. It is often referred to as a "store of value" - the equivalent of digital gold, except more easily stored on a comparative basis, more liquid and transportable, not to mention an increasingly globally accepted currency and asset class in the westernized world.

Bitcoin is however just the tip of the iceberg of changes and innovations spurred by the blockchain that will sweep the world and impact every industry on the planet. The biggest disruption in finance in the last two hundred years is unfolding now. It will be commonplace soon to be able to send monies for free or fractions of a cent 24/7 to anyone in the world. Businesses will be able to accept payments for cents vs paying 2-4% in fees for every sale. Individuals can access fair market interest rates in exchange for depositing monies with crypto banks. You can do that right now. Yes, these do carry more risk but with over $250 billion dollars accessing the decentralized financial markets today these risks will become more manageable. Insurance products are already being created to manage this risk. This industry is still in its early evolutionary phase and as the products and technology mature so will the ease of use, accessibility and safety.

Another industry that is being reinvented on the blockchain is the gaming industry. In one year, Axie Infinity, a blockchain gaming company is generating more revenue than some of the largest gaming companies in the world. More, many more such ventures are coming. The economics or tokenomics of these ventures allows users to also interact financially whether it is to secure the network, purchase games, buy/sell various items within the gaming ecosystems, compete and generate income.

Institutional adoption of digital currencies and payment methods is on the rise. We are seeing a tectonic shift in the payments landscape along with the rise of Bitcoin. However, behind Bitcoin, blockchain companies and projects are looking to reinvent the way individuals and entire industries transact across the entire global industrial landscape.

One of the the core concepts behind blockchain is "trustless" transactions which essentially means transactions between two parties that are controlled by a piece of computer code "A smart contract" that is programmed to embody the transactional details and execute automatically. Essentially any "exchange" of property or digital property can be programmed accordingly removing the need or reliance on centralized parties or intermediaries to broker an exchange for fees. The movement to decentralised finance for example aims to remove "banks" and "brokers" as intermediaries allowing what is known as "peer" to "peer" transactions. Individual A can buy a stock or any asset directly from Individual B in a secure and trustless manner or Individuals can send monies "peer to peer" directly to one another without a bank as an intermediary.

Every transaction on the blockchain is recorded in a tamper proof ledger. No one can go back in time and modify the ledger which makes blockchain one of the most secure and transparent technologies in history to date.

Why on earth would a bank charge negative interest rates? It's so " upside down" and counter-intutive we thought it would be a good idea to cover the topic in this weeks blog post.

During times of economic uncertainty central banks lacking in policy alternatives to stimulate the economy have turned to unconventional policies such as negative interest rates to stimulate the economy. The use of negative interest rates is a tool to counter potential deflationary spirals where - in times of economic uncertainty - there is less incentive on the part of businesses and consumers to spend and therefore less investment, growth, profits and a higher propensity for unemployment which in turn creates a negative feedback loop. By offering negative interest rates banks disincentivize individuals and businesses to hold cash at banks as it now costs depositors money to do so (which turns the traditional banking model on its head) and encourages businesses and individuals to borrow money by actually being paid to borrow by the banks.

Sweden was the first to experiment with negative rates in July 2009 when the Reiksbank cut interest rates to -.25%. The ECB (European Central Bank) did so in 2014 lowering its interest rate to -0.10%. Other European countries and Japan have done likewise with over $10 trillion in government debt carrying instrument with negative yields by 2017. The objective is to encourage banks to lend money rather than hold reserves at the central banks (where they are now charged for the privilege). Another objective is to use negative interest rates to devalue a currency and in essence make it more competitive, stimulating the economy through demands for export of goods and thereby encouraging business expansion.  This has been one of the objectives of the ECB.