Inflation is not so much prices going up as it is the dollar going down

The Rake Review: July 2022

Welcome to the Stormrake monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.

Summary:

If you are a busy investor that doesn't have time to read this whole newsletter here is a brief summary:

* The FED, ECB, and RBA all raise rates between 0.5% and 0.75%.
* Inflation continues to run hot across the globe with Australia recording the highest rate of 6.1% since 1990 and the annual inflation rate in the US accelerated to 9.1% in June of 2022, the highest since November of 1981
* Crypto Credit Contagion settles as market finds an answer
* Ethereum merge is very close
* Geo-political situation worsens with overthrow in Sri Lanka and Farming protests in Europe

or read below for all the details.

The US official inflation rate hit 9.1% and the US Fed raised its target rate by a further 0.75% today. In Europe the ECB, traditionally reluctant to raise rates, pushed their target up 0.5%. In Australia the RBA raised by 0.5% and yesterday's CPI figure came in at the highest level since 1990 (6.1%). Amazingly this was actually below consensus expectations at 6.2%. This makes it the first time in living memory that a 1% increase in the CPI over the previous reading was actually below expectations.

Why does inflation lead to interest rate rises? Well, many reasons, for one, inflation causes real earnings to decrease and that's untenable.

[

](https://www.youtube.com/watch?v=F94jGTWNWsA)

Why is inflation here and who is responsible? Well Milton Friedman (the most important economist of US origin) explains best, while governments will use any scapegoat they can for inflation it always boils down to how much money your country has printed:

Milton Friedman (1912-2006) - Former National Medal of Science winner, Nobel Memorial Prize winner and Presidential Medal of Freedom was at the US Treasury for 3 years

As we've been calling it, the outsized money printing of the covid era (In Australia, the US Euro area and elsewhere) led to inflation and in turn higher rates. On the plus side the Central Banks can't keep raising rates forever. Eventually we will hit the reality of recession.

Eventually, consumers work out that we are in a recession long before central banks actually admit it. The Biden administration has recently said that the usual definition of recession (2 quarters of negative real growth) no longer applies and they don't believe we are in a recession. But of course people know that this is just spin.

As I listened to talk back radio this morning I heard an interesting call. A pensioner called in and talked about the pain of rising prices (or falling purchasing power) while any pension increases lagged behind. She reeled off multiple staples such as milk and bread and the price she used to pay and what she was faced with now. The host asked if that meant she reduced her spend via buying less items. To everyone's surprise she answered that she was actually stocking up more non-perishables in expectation of higher prices. You see this particular lady lived through the depression of the 30's and the experience of living on food stamps in the 30's helped her understand the impact of inflation and economic collapse.

While the media wants you to concentrate on COVID-19 and the weekend's footy the reality is that people are waking up to the much more concerning threat of inflation as illustrated below;

Meanwhile, crypto markets stabilised this month with most coins well off their cycle bottoms as we noted in our Thunder Trading update. Part of the reason for higher prices is that the credit contagion caused by the LUNA debacle has settled down. Sam Bankman-Fried the FTX founder has emerged as the white knightand provided a floor by buying up equity in failing companies and guaranteeing customer funds. Celsius has filed for bankruptcy and we expect their customers to get back a portion of their funds once administrators can finalise assets vs liabilities.

The market also absorbed some massive selling over the last 2 months in further evidence that the bottom might be in but don't jump in with euphoria just yet as there are plenty of dark clouds around. Accumulate with caution. (Not financial advice).

Let's get in to the rest of the report:

[

](https://www.youtube.com/watch?v=aPHyHsM78IA)

Video of the Month

The White House is in damage control as they deny a recession by arguing about the definition.

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