So much fear out there. You've got the S P 500 down seven percent year to date, Nasdaq down 11 year to date. A correction is a decline of 10 or more. You've got Arcs flagship fund down 23 and a half percent.

year-to-date mostly due to deforestation. The deforestation over there has been very, very bad. Obviously, bigger picture. Six months, Eight months.

Ten months is much, much worse for Ark. But the truth is that the sell-off that was once constrained to growth in growth tech has now spread to the rest of the market. At once, investors could find a safe haven, but increasingly it's looking like they can't. But you're starting to very, very rapidly see a new trend emerging, and Netflix is the perfect example of the first player in this trend.

You look at Netflix Netflix down 20 percent. Just a disaster. worst day since 2012. that's 50 billion dollars in market cap erased, gun nada.

They dramatically dropped their guidance, at least in terms of what analysts were expecting for new subscriber editions. in Q1 of 2022, they expect half of what analysts were projecting, actually. But that's not exactly what I'm concerned about, and I really don't care that much about Netflix as a company anyways. But what I do care about is a few big issues that they cited in this earnings report.

They cited concerns that the Us Dollar has strengthened meaningfully against most other currencies, and they estimate that the dollar's appreciation rate over the past six months cost them roughly one billion in expected 2022 revenue, and U.s companies that transact all around the world are going to have a very, very similar problem whether we freak out or not. We are in a period of a very strong U.s dollar and a strengthening Us Dollar. But Charlie, we have huge, huge inflation. Seven percent more inflation than we've had in decades.

How do we have a strong dollar at the same time that we have these massive inflationary pressures? Well, it's because the Us Dollar is graded on a curve. Its strength is relative to other currencies. even if the dollar is weakening compared to its previous self. If the dollar is still weakening at a slower rate than the other currencies, then it's strengthening.

If you look at the nominal, broad Us Dollar index, since May, you've had a consistent and rapid uptrend in nominal Us dollar value. To put this in a simpler perspective, if you look at some of the markets that Netflix and a lot of major U.s companies do business in, and you compare the currencies over the last six to 12 months, you could see the picture Very, very clear. January 21, 2021. One South Korean one could buy you 0.00091 Usd.

Now January 21st, 2022. That same one South Korean one only buys you 0.00084 Us dollars. It doesn't sound like a big difference, but think about that. That's a difference of 8 in a year.

If you're an American company paying expenses in Usd and receiving income in one, what does that mean? What means that? What you're getting paid for converts to less pricing power. In May of 2021, one Euro would buy you 1.22 us dollars. Now it will buy you one dollar and 13 cents. That's a loss of seven point three percent in pricing power.

Converting Euro back to the Usd compared to last year Japan. One Japanese Yen would get you 0.0097 Usd. A year ago. Now it gets you 0.0088 That's a 9 drop.

That Yen isn't buying as much dollar anymore. Brazil is another big market, which Netflix and many other companies work in June 24th, 2021. So not nearly as long ago, one Brazilian hail got you 0.20 us dollars. Now it gets you 0.18 Again, sounds like not a big difference.

Who cares? Two cents. But again, if you look at it percentage-wise that's a 10 drop in pricing power when you convert it back to Usd. If you're earning income in Brazilian hey, all or Hal, or however you pronounce it, you are getting 10 percent less in pricing power when you convert it back to your native currency Usd. Similar story in Australia, Canada, Russia, New Zealand.

The British Pound itself tried to make a decent comeback towards the last couple of weeks, but it's on an overall similar trajectory. So why is this happening? Well, the simple answer is because the Central bank in the Us has signaled that it's going to be a lot less accommodative than other central banks, the more that our central bankers commit to being hawkish, the more world reserves flock from other currencies to Usd. further weakening the value of other currencies, as foreign governments have to pay even more to acquire U.s dollar reserves. And the more that foreign currencies are weakened, the more incentivized foreign governments and foreign corporations are going to be to move their reserves into Usd in order to better preserve their pricing power.

It's simple economics, which causes a massive massive shift and lots of dynamics. so we have to go through what the pros and cons of a strong dollar are. Well, in terms of a pro, it makes imports cheaper. If you're a German chocolate maker yah yah, and you sell German chocolates for one Euro.

Well, now that one Euro is worth less in comparison to the dollar, that means your company in Germany still gets your one Euro. but you can now sell those chocolates for cheaper in the U.s market. That chocolate you sold last year and May 31st for one dollar and 22 cents. you can now sell for one dollar and 13 cents.

and you still get the same one Euro. now. Obviously, chocolates are a ridiculous example, but there's many, many, many more important products that actually really matter for our economy that come in through imports, and a pricing drop to that level means a lot for very, very high priced goods that come in very, very high quantities. considering the substantial amount of imports that we have from foreign countries, that does have a deprecating factor on pricing pressures.

Imports become cheaper for U.s consumers. The one asterisk that I do have to mention here that's very, very important is that China's currency has actually been one that held up very strong relative to the Usd. It hasn't had the same trend as the rest of the world currencies, which has been part of the reason why we've had such high pricing pressures here in the Us. But here's the thing.

They're signaling a completely different change in policy. In the last couple of days they've gone and cut rates. they've gone and loosened monetary policy. So not only are they not reversing the trend to tightening, they're now going and loosening.

Which signals what a weakening Chinese currency and a stronger Usd compared to the Chinese currency. Which means our number one trading partner is now going to have discounted goods dropping all across our markets. That's something that's probably going to play out very, very heavily. As we go into Q2 and Q3, you're gonna start seeing that Chinese currency match a lot of other foreign currency trajectories in terms of approach.

Sounds like oh yes, all of these cheap goods are going to flood our markets. That's great. It's going to help bring down pricing pressures and that's true. It is good for the consumer in terms of buying products, and it should help cool off a lot of pricing pressures and it's also good for international businesses that transact with the Us because they can sell more products here and out-compete our domestic brands.

But of course, from a U.s business standpoint, this isn't that great of a thing. A strong dollar favors imports into the Us and hurts exporters out of the Us. If you want to sell microwavable pizza in foreign markets for the same price that you sold it out last year, you're now getting much less in terms of pricing power back. So you have to either raise your prices dramatically five to ten percent depending on how bad the foreign currency has traded, or you have to take an L.

Makes domestic businesses a lot less competitive, both here at home and abroad. That's at the same time where again personal savings rates have reverted to where they were pre pandemic. So you don't have that 2021 huge consumer demand pricing pressure that was able to bid up everything regardless of the price and people didn't even ask questions. So anyways, Charlie, what the hell does this mean in terms of our investment decisions? Well, it means two things: It means that the international economy believes that U.s inflation is going to be tamed.

Whether that's from the Fed or the natural trajectory, the international market believes that inflation in the Us is more likely to be tamed than inflation and other currencies, and thus value is flocking back into the U.s dollar as a reserve currency. And by plowing all this value into the U.s dollar, it's actually strengthening the U.s dollar and creating a deprecating factor on inflationary pressures, creating a self-fulfilling prophecy that props up the Us Dollar because all this value is actually flowing in and backing the Us dollar, which should create this dynamic where you have tons of cheap exports dumping into the Us markets. So from an inflation standpoint, it certainly helps a lot. But again, keep in mind that it's meant to help a lot.

The Fed knows what they're doing by tightening monetary policy and raising interest rates. They are signaling that this is going to happen, and people are predating that they're anticipating the reaction by having that factored in now. So it does mean the world has confidence that the Us dollar isn't going to go into rapid hyperinflation, at least not relative to other currencies, and that is backed by again, the bond yields. But still, a stronger dollar isn't very good.

In terms of the actual fundamentals of a lot of U.s companies, Us companies are losing a huge competitive edge in almost all foreign markets. Now, on the flip side, you're starting to see international currency flows trying to pre-factor in the Usd getting its inflation problem under control, predating inflation actually being under control, and predating a lot of the Fed's actual policies, creating a self-fulfilling prophecy that helps bring down inflationary pressures, the more that value rotates on a global scale and money moves around trying to pre-factor in the Fed's moves, the less actual Fed moves are going to be needed to curtail inflationary pressures. And since markets, in my opinion, are starting to price in the worst case scenario, it creates a very, very unique opportunity. The minute that we start seeing inflation cool off, the Fed has reversed trajectory many times, and I think the minute you start seeing a few months of really strong reports of inflation moving in the correct direction, you see the Feds start thinking a little bit more dovish.

especially considering a lot of companies in Q1 and Q2 are going to be guiding for lower numbers in international markets because of a strong dollar. The Fed doesn't want the dollar to be so strong that our companies end up getting destroyed and employment starts going down. They just need a strong enough dollar so we don't have these massive month-over-month pricing pressures. Now, don't get me wrong, we're in the eye of the storm right now and I think that next month's Cpi report is going to continue to be very, very hot because energy prices have been on a steady damn rise.

But I believe if you give it some time, you give it some patience, you're stoic about it. You slowly buy the dip on some of your favorite plays, and you keep a bigger, longer term picture in mind. Well, you may just end up finding that this is going to be one of the best opportunities that we've had in decades. So anyways, just my thoughts.

I could be wrong. I've been wrong before, could be wrong again in the future. But I think if you're looking at the bigger picture here, you're not going to be disappointed. Let me leave you with one thing to think about during every single bull market.

People tend to romanticize people who bought during the previous Bear Market. Oh, they were so smart to buy it near the bottom. So smart I should have done that. Next time.

I'm gonna do that. But what they forget is that during every single dip, every single massive dip on a market wide level or on a single stock level, there's a big damn reason that it's dipping. and it's always a scary reason. and it always seems like it's never going to change and you never know how long that dip is going to last.

And so if you're buying the dip, you have to deal with emotions of oh no, I'm buying a falling knife. Oh no, I bought a falling knife and it went down even more should I really keep buying more even though I believe in the company. But the people that look at Dips and companies that they like and they've actually done the work on and genuinely believe are undervalued are the ones that come out ahead over the long run.