VIX At 34 And The FED Raises Rates. Get ready.
One of the largest transfers of wealth is about to occur.
This week's newsletter will be brief. Last week we talked about the six steps a world power takes before it ceases to be a world power.
- Interest Rates Hit 0%
- Money Printing
- Financial Crisis
- Wealth Gaps
- Internal Conflict
- External Conflict
This week, and after deciding with a Twitter poll, it happened. Elon Musk buys Twitter for $44B. This is the largest company purchase by an individual in history. But this is not the worst thing. The worst part is that this purchase "only" represents 17% of his net worth.
Elon Musk intends to have a social network where freedom of expression is allowed, free of bots, and where the only way to enter is through a unique identity manager or Wallet (web 3.0).
But what is really amazing is that this purchase coincides with one of the events Ray Dalio talked about. Perhaps he is right, and this is the moment in history when these wealth gaps occur.
If there was any other doubt, take a look at the following chart.
When we look at the big economic cycle, we see that since the gold standard was cut in the US, unprecedented money printing has been taking place, but generally, this money is always going to the same pockets. Since 1980 all the wealth has gone to the top 0.01%.
Perhaps it is time for this economy to revert to the mean. Even a -20% reversal would be quite healthy for the markets.
This week the VIX reached 34. This is one of the highest values of the year. This event comes just a week before the FED is going to raise rates for the second time this year.
As announced by the FED, this second rate hike could be as much as 0.5%. This would be a rally in the markets in the short term but would end up implying that the policies were totally unsustainable in the long term.
“...you do not really understand the concept of banking. All the banks are broke. Bank Santander, Deutsche Bank, Royal Bank of Scotland — they’re all broke! And why are they broke? It isn’t an act of God. It isn’t some sort of tsunami. They’re broke because we have a system called ‘fractional reserve banking’ which means that banks can lend money they don’t actually have! It’s a criminal scandal and it’s been going on for too long.”
— Godfrey Bloom, ‘The Banks Are Broke’10
We will certainly keep a close eye on the week ahead and should volatility spike. We will alert our founder members.
On our side, we have materialized some of the Covered Calls that we opened just a few days ago with a +200% yield.