5 Things You Should Know as a Financially Informed Person in 2024

Remember the March 11 deadline, well the day has come and gone. But a couple of things happened in the nick of time that the average person in finance would not notice. I don't have time to cite sources here, but if you follow me on Twitter (now X) you will see the charts and links.

Just before the March 11 deadline for the Bank Term Funding Program (BTFP), the banks sent a letter to the Fed (i.e. the central bank) to stop including bonds in their risk ratio calculations. The threat was that the banks would stop trading treasuries or offering them to clients if their demand was not met.

So apparently, if you check the risk ratio of banks, it will not include their mammoth bond portfolio. And this in many cases, is in losses for these banks. Anyway.

BTFP has ended. On the last day, banks still managed to squeeze out 3.5 billion before the program closed. Now, it's a timing game to see who will crack first.

The latest US retail sales came in much weaker than expected. And stocks slipped into red a little bit based on that. Well, that is not the sign I am looking for. There is still a big bullish bias. Don't trust those tiny jitters. Stocks have topped but there is no sign of a significant pullback yet.

Always remember, in the economy, the truth is not true until a lot of people start to buy it. Here are 5 things every financially informed person should know today:

1. Prices are increasing because of currency devaluation

It is easy to look at home prices and feel like you are rich because you own a house. Meanwhile, if you try to build the kind of home that you have in today's economy, you will spend more.

Your house is not appreciating. The currency is worth less. It is important to understand this so that you won't be caught in some weird exuberance.

For people who have been in business for more than two decades, 250k is the new 100k. And the way I see it, institutions receiving newly printed money are just dumping their dollars on things. For example, Nvidia stock.

The lesson here is that you should not blindly trade your hard assets for currency. Don't trade it for cash. Cash is for circulation. You don't really own it. The asset in your legal name is what you own. Don't trade it blindly for cash.

2. The first priority of the central bank is the banks

The Fed in America has been emphasizing inflation in the last few years. They say that their primary mandate is to get inflation back to 2%. (Which is not happening in the near term, by the way).

The primary mandate of the central banks is NOT to bring inflation back to 2%. That was not why the central bank was founded in the first place. The central bank was founded in America to stop bank runs.

The central bank exists to protect banks. Let no one tell you otherwise. If the Fed has to choose between protecting the banking system and bringing inflation down, guess which one they will focus on?

They can say that bringing inflation down is their primary concern. But if you watch their actions, you will realize that keeping the banks safe and functioning is their primary priority. The same goes for the ECB and all the other central banks.

If there is a banking system crisis, the Fed will relegate its inflation mandate.

3. Data never tells the whole story

The unemployment data tells a very narrow story about employment. Remember, they are not calculating employment. They only do employment to determine labour force participation.

For unemployment data, they count people who applied for unemployment benefits. And you know the only people that will apply for unemployment benefits are lower-income people who are previously employed.

A person earning a 6-figure salary who got fired will very likely not apply for unemployment benefits. So, what we are witnessing in this economic cycle is a gradual wipeout of the middle class. People who lose their jobs in that bracket don't actually reflect in unemployment data until it is too late.

The job gains in the US economy so far in 2024 have mostly been part-time jobs. There are high-profile layoffs at quality upper-middle-class jobs. Meanwhile, lower-tier jobs in industries such as healthcare and hospitality have been the major boost to the data.

Hence, from a general outlook, all is fine. But when you look deeply, everything is not fine. But always remember, in the market, it is not about what is right or wrong. Instead, it is about what investors believe.

4. Everyone is pushing a narrative, especially the media

One thing that pisses me off the most nowadays is the talk of US exceptionalism. And it is a bunch of crap. But investors are buying it at the moment.

The US economy is not exceptional. They print the global reserve currency. And the economy has been riding on economic stimulus for a while now.

There is global demand for the US dollar, so the US can get away with a lot of things. As bad as inflation is in the US, it is less than what it ought to be. This is because much of the inflation is exported to other countries. Everyone everywhere wants the dollar.

Don't trust anything you hear from the media. Everyone is trying to sell their narratives. If you must form your own narrative, listen to multiple sources and angles. Then, decide what your angle will be.

5. Money is not currency

On every piece of currency in this world, the name of the owner is written on it. On the American dollar, the Federal Reserve Bank of America is on the notes. In the UK, the Bank of England is boldly written on the Pound notes.

That is not your name. Currency is a product of a special kind of company called the central bank. Whatever you have in dollars or Pounds, or whatever currency is not yours. The only thing that is yours is what is legally tied to you - what has your name on it.

Start thinking today of money as that which you produce. For example, I don't think of dollars as money, instead, I think of my articles as money. I think of my books as my money. Those are my products.

A currency is designed to pass through you. But what makes you rich is YOUR money. In other words, assets that bring you currency inflow is YOUR money.

Conclusion

Here are 5 things every financially informed person should be aware of today:

1. Prices are increasing because of currency devaluation

2. The central bank exists to protect banks and the banking system

3. Data never tells the whole story

4. Everyone is pushing a narrative, especially the media

5. Money is not currency

Stay rich.