 Good day fellow investor! Now, if you have been following Buffett over the last 50 years, you know that he has always been saying how he doesn't care what the Fed is doing, what are the interest rates, because in the long term it all evens out. The Fed increases interest rates when the economy is doing well and lowers interest rates when the economy is doing not so well, so it all evens out. I would agree with such a statement, but for the past century, as things have changed and very significantly. If we take a look at what has been going on in the last 10 years, we can see how central banks' balance sheets went from about 3 billion in 2007 to the current 13 billion. We are talking the Fed, ECB and Bank of Japan. So, we have had a fourfold increase in central bank balance sheets. This means that those three central banks have been buying assets on the market in order to put more liquidity into the market, more cash, and holding assets, mostly bonds. US Treasuries, Bank of Japan and Europe, corporate bonds. So, it's a big, big, distorted impact to financial markets. And that's why it's very important to follow what the Fed is doing. It wasn't that important in the past, now it's extremely important. To put it into perspective, by adding the assets of other central banks, Bank of China, Australia and so on, we get a balance sheet of 21 trillion dollars. If we compare it to the global bond market, it's almost half of the global bond market. One third of the global GDP and also one third of the global world stock market capitalization. When you have a central bank that owns almost half of all the bonds in the world, you know that the situation is very delicate. And you better keep an eye on what's going on. So Buffett's advice was worth in the past, now it's extremely important to see what's going on. The best way to see what's going on is not so much follow the news, but read the meeting minutes. So, every meeting, every few months, the Fed meets, the ECB, European Central Bank meets, and they all discuss their ideas, see what's going on. And if you go and read those minutes, you can learn a lot about their way of thinking, operating, forecasting, and how will that impact financial markets, because the impact is very, very significant. You have seen how big are central banks' balance sheets in comparison to other markets. Just a quick look at how global central bank liquidity changes impact the SAP500 can be seen in this report from Citi. As you can see, the correlation is almost perfect, which means that really the money doesn't even go to the economy directly, but it goes into inflating asset prices. Another very important factor to watch and to really look. Credit spreads also very, very volatile in relation to what central banks are doing. So I have read the Fed minutes for you, the ECB minutes for you, and I'll just quickly summarize everything so that you know how to position your portfolio and yourself into this environment. The first change in the Fed's minutes is that they are going to start to trim their balance sheet. Now, 4.5 trillion is the Fed's balance sheet, and they're going to start trimming it by selling 6 billion of assets, not selling. So when a bond matures, they get the cash, they will not reinvest it. They're always reinvesting now, whenever a bond matures. Now, they're going to keep the cash 6 billion per month for now, and then increase that amount up to 30 billion. So they're really, really going to slowly, slowly trim their balance sheet. However, they're going to pull out some liquidity out of the markets, so the impact is expected to be negative for bonds and stocks. Important to consider is that this trimming is really minimum. It will take the Fed at maximum cap 12 years to trim its complete balance sheet. And they also say that their goal is not to trim the complete balance sheet, but to keep it significantly higher than what was the level in 2007. So plenty more money will remain into the ecosystem, and balance sheets will keep a very important role in what's going on in financial markets, unlike it was the case in the past when Buffett was advising not to care what they're doing. Apart from the trimming and slight increases in the interest rates, I find this very, very significant. So the committee says that they would be prepared to use their full range of tools, including altering the size and composition of balance sheet, thus putting more money, buying more corporate bonds, or even go to quantitative easing and helicopter money if future economic conditions were to warrant a more accommodative monetary policy. So the Fed is telling you, we're going to slowly trim in order to keep inflation in line. But if something happens, we're going to put as much money as necessary into the system. This is very important to watch and understand what it means for the investor, because the impact, as we have seen on stocks and the proportion of what we are talking here are huge. Now what's also good to look at is the Fed's projections. They see GDP grow at 2%, they see the unemployment around 5%, that's a little bit higher from the current, closely to the natural unemployment rate, and they see inflation at around 2% in the longer run. Inflation at 2%, it means that the federal funds rate should be at 4%, it means that bonds should yield treasuries 6%, so you can expect a 50-70% decline in the value of long-term bonds. And of course, stock valuations should also be lower, because it's better to invest in risk-less treasuries than into stocks. So this is if everything goes well, you can expect lower bond values and lower stocks. It's as simple as that. Just a quick note on Europe. Europe is different than the US, as Europe is still buying 60 billion euros of bonds on European markets. So 60 billion bonds per month is huge, and they're buying corporate bonds, they're buying everything. So the European market is even more distorted at the moment than the US market. It's crazy, I don't know how it will end, but it's good to keep an eye on. And if something happens in Europe or in the States, again, DCB also says we're going to do whatever it takes to help, thus print even more money. So to conclude, also what the Fed is doing now is really insignificant. It's most a facade. As you can see, the current interest rate of 1% is still very much below all interest rates in the last 60 years almost. Just for a minute it was lower in the 1950s, but that was just after a recession. So we have to see how would higher interest impact the economy. Probably lead it into a recession, but that's a different topic. Now what to do? The only thing you can do is to be prepared. We have different scenarios that might evolve, and I don't know which one will evolve, and nobody knows. Really nobody can know if a recession will come in the next six months or after 10 years. Just look at the predictions that have been made this year, last year, last five years. Nobody knows what will happen in the economy in the future. The only thing you can do is to be prepared. What can happen is that we can have a few more years of situation as is. So we have to have stocks and bonds that will do well in such an environment. The second option is that there will be a recession, slow down growth and the fat, let's say, prints more money, lower interest rates, ECB prints even more money. So you need to own bonds that will do well and that you're happy with the yield now, precious metals which will explode if there is inflation and because of the higher money printing. Commodities that will do good as a protective asset. So you have to really think what can happen. Look at the probabilities of a recession. There is a pretty good probability that it will happen in the next few years. So be prepared and really think what can go wrong, not just what can happen good because we have seen the SAP 500 drop 50% in 2002, 50% in 2009 and given the market distortions, the possible panic, the loss of faith in the currencies, anything can happen. So the focus is to be prepared. I'll discuss many stocks. We have discussed gold, copper, commodities, food commodities, growth stocks. So there will be plenty of you to create a good portfolio that will lead you through thick and thin. Thank you for watching. Be prepared. Don't forget to check my other videos and I'll see you of course in the next video.