Fear and Loathing in the Bond Markets

Despite the Fed announcing a series of rate hikes the US Dollar is rapidly losing value against the MX Peso. Banxico's Board of Governors unanimously decided to raise the overnight interbank interest rate by 50 basis points to 6.5 percent today.

This dwarf's the US Fed's recent rate hike of 25 basis points with a target rate of 1.9% by the end of 2022. Banxico's aggressive stance against inflation is showing in the USD:MXN exchange rate, as the rate dropped precipitously below the key 20 MXN : 1 USD level today.

From a broader, macroeconomic perspective, things are not looking so hot for the global economy. The bond market is on track for its worst year since 1949, and yield curves are inverting.

Rising interest rates suppress housing prices, as new mortgages become more expensive, and ARMs and HELOCs readjust. Coupled with soaring inflation in energy prices that's rapidly overflowing into the cost of goods and services, and increasingly hard to service Government debt, we may be in for some hard times financially for the average person. There is strong potential for Carter era stagflation or worse. What's most dangerous and often left unsaid is that macroeconomic trends are naturally going to siphon even more wealth from the working class to the wealthy.

This could play out a number of different ways politically, but a swing towards populism and isolationism with regional conflicts flaring up is likely. The Russia/Ukraine matter is far from settled. Keep a close eye on Taiwan and China!

Bitcoin and other cryptocurrencies have been stealthily rising in price over the last week. Bitcoin is flirting with recent highs. If we break above 45k USD levels, we could see a big spike in crypto prices. Stay tuned!

Best regards,

Will -bridge21.com

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