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HEALTH, WEALTH, AND HAPPINESS

March 1, 2022

"The path was never paved with gold

We worked and built this on our own."

- Beyonce, Be Alive

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Worthy news for aspiring whales


Crypto for Ukraine (Coin Metrics): With the economic sanctions against Russia -- and the "domino effect" on Ukraine (in a global economy, we're all connected) -- there is a run on crypto.


Investor takeaway: Crypto activity from the two national currencies -- the Russian ruble and the Ukrainian hryvnia -- has increased in recent days, showing that more ordinary citizens are moving their money out of these assets, and into crypto. (See charts below.)

Your Money is Growing



Your Money is Growing

Truth, in numbers


Remember that the sanctions against Russia spill over to every Russian citizen, whether they approve of the Ukrainian invasion or not. Who can blame them for moving their money into crypto?

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Courtesy Coin Metrics


Above: a look at the daily volume of Russian ruble quoted markets on top exchanges. Note that Russian investors seem to be interested in converting rubles to Tether and Binance USD: stablecoins pegged to the U.S. dollar.


Below: the same report for the Ukrainian hryvnia. Again, investors are getting out of local currency and into dollar-denominated crypto assets, bitcoin, or Ethereum.

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Investor takeaway: This is a natural consequence of economic sanctions. The longer this conflict wears on, the more people we should expect to see moving into crypto. While war can accelerate the crypto timetable, remember that ultimately peace is preferable.

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The Big Picture

with Evamarie Augustine


Hi Everyone,


As the saying goes, March comes in like a lion, and it goes out like a lamb.


On this first day of March, multiple roars are being heard around the world.

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There are the obvious roars—Russia warning that it will start bombing civilian areas, including Kyiv—and there are the not-so-obvious roars.


The world continues to watch the events unfold in Ukraine. It is hard to believe it was two years ago that the global pandemic was just beginning to emerge.


Today, markets remain on edge, falling, rallying and falling again. In response to Russia’s actions, the West has responded with unprecedented economic sanctions.


But as policy makers opted to dole out stimulus without fully judging the repercussions, are governments thoroughly considering the consequences of their sanctions? The impact of removing Russia from SWIFT in such an abrupt manner could have unknown implications.  


There is particular concern regarding Russia’s energy exports. Oil prices have been increasing at a steady pace, and both Brent and WTI futures are currently trading for over $100 per barrel.


Most importantly, Russia supplies more natural gas and petroleum oils to the European Union than any other country. 

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Prior to last week’s invasion, the U.S. Federal Reserve was on track to raise rates as many as seven times this year to combat inflation.


Will the combined headwinds of declining consumer sentiment and heightened geopolitical risk —as well as the possibility of more supply-side pressures on the energy sector—alter the Fed's trajectory?


Twice this week, Fed Chair Jerome Powell will testify before Congress. On Wednesday, he delivers testimony on the economy to the House Committee on Financial Services. Then, on Thursday, Powell presents to the Senate Banking Committee. 


Up until November, Fed officials had maintained that inflation was transitory. However, inflation recently reached 30-year highs, and the Fed’s balance sheet is almost $9 trillion—more than double the pre-pandemic amount.

As the central bank's policy makers prepare to end the “near-zero” interest rate policy, will the events in Ukraine have any impact?


One of the Fed’s roles is to set “U.S. monetary policy to promote maximum employment and stable prices in the U.S. economy.”


However, inflation is currently at multi-decade highs and consumer confidence declined for the second consecutive month in February.


The short-term economic outlook is impacting future purchases for consumers, and the current geopolitical situation has increased stock market volatility.


I spoke with Chester S. Spatt, Pamela R. and Kenneth B. Dunn Professor of Finance, Tepper School of Business at Carnegie Mellon University.


He served as chief economist and director of the U.S. Securities and Exchange Commission's Office of Economic Analysis from 2004 to 2007 and was a member of the Fed's Model Validation Council. 


Professor Spatt doesn’t believe the Fed can pivot from its direction of rate hikes given the current rate of inflation, in spite of what is occurring in Ukraine and the financial markets. 


"The Fed is very far behind the curve, and to pull back from the strongly choreographed rate hikes could create further market turmoil," he stated. 


Prior to last week’s invasion, rate hawks were predicting a 50-basis point hike and as many as seven raises before the end of the year. However, the market’s present instability may prompt the Fed to enhance its flexibility in both the amount and timing of their monetary policy easing. 


Professor Spatt added that “The underlying inflation that the economy faces is huge—and a significant portion is from the demand side. Hence, returning to a more normalized and less stimulative monetary policy is key.”


With inflation both persistent and non-transitory, the Fed has its work cut out to reduce the current rate from 7% annually to the desired 2%.

The inflation contagion


The obvious "roar" of inflation can be seen in the steadily rising prices of homes, automobiles, food and energy.


But there is also the not-so-obvious "roar" and impact on business investment, government programs, pensions, tax policies and also inflation-adjusted returns. 


Despite the current challenges in the financial markets, the Fed needs to move forward with its goal of price stability. And hopefully, the month of March can end peacefully.


As always, thank you for reading. I appreciate your comments and suggestions.

Evamarie Augustine

Market Analyst

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