Arthur Hayes: Global Central Banks Start Easing Early, Go Long on Bitcoin, Altcoin Season Isn't Far

The USD/JPY exchange rate is the most important macroeconomic indicator. In my previous article, I wrote that some measures must be taken to strengthen the yen. My proposed solution is for the US Federal Reserve to exchange unlimited newly printed dollars with the Bank of Japan (BOJ) for yen.

This way, the BOJ can provide the Japanese Ministry of Finance (MOF) with unlimited dollar firepower, allowing them to purchase yen on the global foreign exchange market.

While I still believe in the effectiveness of this solution, it seems the central bank fraudsters in charge of the "Goon Squad" (also known as the G7) have chosen to make the market believe that, over time, the interest rate differentials between the yen and the dollar, euro, pound, and maple syrup (CAD) will narrow. If the market believes in this future state, it will buy yen and sell all other currencies, mission accomplished!

For this magic to work, G7 central banks with "higher" policy rates (the US Federal Reserve, European Central Bank, Bank of Canada, and Bank of England) must lower their rates.

Notably, the BOJ's policy rate (green) is 0.1%, while other countries' policy rates are 4-5%. The interest rate differential between domestic and foreign currencies fundamentally drives exchange rates. From March 2020 to early 2022, everyone was playing the same game. As long as you stayed home sick and injected mRNA heroin, everyone could make money for free.

When inflation manifested in such a significant way that the elites could no longer ignore the suffering and torment of the common people, G7 central banks—except the BOJ—actively raised interest rates. The BOJ cannot raise rates because it owns more than 50% of the Japanese Government Bond (JGB) market. As interest rates fall, JGB prices rise, making the BOJ appear solvent.

However, if the BOJ allows rates to rise, causing its JGB holdings to fall, this highly leveraged central bank will suffer catastrophic losses. I did some terrifying math for readers in the "Easy Button."

Therefore, if the "bad woman" Yellen, who calls the shots in the G7, decides to narrow the interest rate differential, then the central banks with "higher" policy rates have no choice but to lower them. According to orthodox central bank thinking, lowering rates is good if inflation is below target. What is the target?

For some reason, I don't know why, the inflation target for G7 central banks is all 2%, regardless of differences in culture, growth, debt, and demographics. Is the current inflation rate rapidly exceeding 2%?

Each colored line represents the inflation target of a different G7 central bank. The horizontal line is 2%. None of the G7 countries' governments' manipulated, dishonest inflation statistics are below the target. With my technical analysis hat on, G7 inflation rates seem to be forming a regional bottom in the 2-3% range, then explosively moving higher.

Considering this chart, orthodox central bank governors would not cut rates at the current level. However, this week, the Bank of England and the European Central Bank cut rates despite inflation being above target. This is strange. Is it financial turmoil necessitating cheaper money? Not at all.

The Bank of England cut its policy rate (yellow) while inflation (white) is above the target (red).

The European Central Bank cut its policy rate (yellow) while inflation (white) is above the target (red).

The problem lies in the weak yen. I believe "bad woman" Yellen has stopped the Kabuki dance of raising rates. It's time to maintain the US-led global financial system. If the yen doesn't strengthen, the Chinese will release the dragon of yuan devaluation to match Japan's super cheap yen, their main export competitor. In this process, US Treasuries will be sold off, and if this happens, the American Co-Prosperity Sphere will be in trouble.

Next Steps The G7 will meet in a week. The communiqué issued after the meeting will garner significant market interest. Will they announce some coordinated currency or bond market manipulation to strengthen the yen? Or will they remain silent but agree that everyone except the BOJ should start cutting rates? Stay tuned!

The biggest question is whether the US Federal Reserve will start cutting rates as the US presidential election approaches in November. Typically, the Fed doesn't change course close to an election. However, typically, the favored presidential candidate doesn't face potential imprisonment, so I am prepared to be flexible with my thoughts.

If the Fed cuts rates at its upcoming June meeting, with its preferred tampered inflation measure above target, the USD/JPY will fall sharply, meaning the yen will strengthen.

I don't think the Fed is ready to cut rates yet because Slow Joe – Biden – is under scrutiny in the polls due to rising prices. Understandably, Americans care more about whether their vegetables are more expensive than the cognitive ability of the vegetable running for re-election. Fairly, Trump is also a vegetable because he enjoys watching "Shark Week" while munching on McDonald's fries. I still think rate cuts are political suicide. My baseline view is that the Fed will do nothing.

On June 13, when these second-rate people sit down to a lavish taxpayer-funded meal, the Fed and BOJ will have already held their June policy meetings. As I mentioned earlier, I expect both the Fed and BOJ to maintain their monetary policies. The Bank of England will meet shortly after the G7 meeting ends, and while consensus expects them to keep the policy rate steady, considering the rate cuts by the BOE and ECB, I think they will surprisingly cut the policy rate. The BOE has nothing to lose. The Conservative Party will be thrashed in the next election, so there’s no reason to defy the orders of their former colonial masters to curb inflation.

Helicopter Money The central bank drama in June, kicked off by rate cuts from the BOE and ECB this week, will propel cryptocurrencies out of the summer doldrums in the Northern Hemisphere. This was not my expected base case. I thought fireworks would start in August, around the time of the Fed's Jackson Hole Symposium. That is usually the place to announce sudden policy changes heading into the fall.

We know how to play this game. We've been playing this damn game since 2009 when our savior Satoshi Nakamoto gave us the weapon to defeat the TradFi devil.

Go long on Bitcoin, then shitcoins.

The macro landscape has changed compared to my baseline. Thus, my strategy should also change accordingly. For the Maelstrom Investment Project, they sought my opinion on whether to launch tokens now or later. My advice: "Launch them damn tokens now!"

As for my excess liquidity crypto synthetic dollar cash (aka Ethena’s USD (USDe)), which is earning some juicy APYs, it's time to redeploy it into conviction shitcoins again. Of course, after I purchase them, I will tell readers what they are. But let me just say that the crypto bull market is awakening and is about to skin and flay the extravagant central bank governors.