"Dem Fiddlin' Feds"
Inflation bites as debts and deficits pile ever higher...
By Joel Bowman
"'Cause it's a bitter sweet symphony that's life
Trying to make ends meet,
you're a slave to money then you die..."
~ The Verve, Bitter Sweet Symphony
Buenos Aires, Argentina - “Giant distortions need to get resolved and trillions of losses need to be realized,” Tom Dyson warned BPR members in Wednesday’s research note. “How?” We’ll return to Tom’s musings... and the reckonings that are fast coming due... in a moment. But first, a quick look back over the markets this past week...
US stocks ended with mixed results. The Dow Jones Industrial Average closed the session up 0.4% yesterday, while the S&P 500 fell 0.3% and the Nasdaq dipped 0.6%. Nothing much to see there. For the week, the major indices were equally uninspired, one way or the other. The Dow slid 0.1%, its third straight weekly decline. The S&P 500 ended lower by 0.3%. The Nasdaq rose 0.6%. Ho-hum. Year to date, the Dow, S&P and Nasdaq are up 2%, 6.7% and 13.5% respectively. One reason for the, ahem, flaccid mood in the markets: inflation.
One Nation, Under Inflation: Tuesday’s Consumer Price Index report, published by the Labor Department, showed monthly prices increased at a 0.5% clip...a sharp acceleration from December’s (upwardly revised) 0.1% increase. Annualized, that’s over 7%. Core CPI (which excludes food and shelter... ‘coz, who needs those?) was up over both three and six month trends. Not the direction the Fed wanted to see prices headed, in other words, and “more red meat for inflation hawks,” as one poetic wonk put it.
Then came Thursday’s Producer Price Index (PPI), commonly seen as a leading indicator of prices still to “come down the pike.” That data showed wholesale prices accelerated by 0.7% last month, the sharpest increase since the summer. Whoopsie!
Higher producer prices were driven, in part, by a 5% surge in energy costs. But fear not, comrades… the president re-upped his commitment to green energy this week, restarting a $10 billion tax credit plan for producers of solar panels and windmills. Back in the real world, a (WTI) barrel of the world’s preferred energy source was trading around $77.50 last we checked on Friday afternoon.
For its part, gold is sitting pretty around $1,850/oz... while that other free market money, Bitcoin, took the fed’s inflation news particularly well. The lead crypto rallied hard this week to take out the psychological $25k barrier, last seen in June of 2022. Bitcoin is up almost $3,000 (or ~13%) over the past five days and was last seen hovering around the $24,700 mark. Bitbugs have seen their favorite digital currency rally almost 50% ytd.
Meanwhile, dem fiddlin’ feds continue to pile the nation’s debts and deficits ever higher... Bonner Private Research’s macro analyst, Dan Denning, underscored a few of the “lowlights” in this week’s report from the Congressional Budget Office. Here, a few takeaways from yesterday’s research note to members:
America’s national debt will rise by $20 trillion over the next ten years. For perspective, total federal debt for the country’s entire history didn't hit a TOTAL of $20 trillion until the third quarter of 2017. It's now over $31 trillion. Why do Republicans and Democrats hate America so much?
Nearly 200%. By 2053, if the country still exists in its current form and the Federal government is a going concern, the growth in mandatory spending and net interest costs will drive the debt to 195% of GDP.
Interest expense on the rise. Net interest costs could double in the next 10 years to $1.4 trillion. And that’s at relatively tame average interest rates.
What does this mean for the Health and Wealth of the Empire, you ask? And what of those trillions of losses that need to be realized, as Tom pointed out, above? How do they get resolved? Here’s Tom, from Wednesday’s note to BPR members..."Gradually is the answer. I fear it’s going to be a brick-by-brick demolition… a mixture of money debasement, politically-approved bailouts and asset write downs… a mixture of soft default and hard default… to gradually extinguish the mountain of malinvestment and bad debt and restore long term balance to the economy.
I call this swing between debasement and price declines “inflation volatility” and I think it’ll take years to play out. To help our readers preserve purchasing power through this gigantic bubble deflation, it’s my job to build a practical investment strategy using publicly traded securities. So I spend every waking moment of my life (and often in my dreams too) trying to figure out how to do this. I think about stock prices, recessions, inflation rates, wars, energy markets, government policies and property prices. And I look at hundreds of potential indicators and time series.
Right now, it’s hard to know what the immediate future holds. The financial authorities are simultaneously debasing currencies while raising interest rates. A recession seems likely. But it’s taking much longer than I expected. And I’m impressed by the resilience of the stock market and the refusal of investors to back away from risk even though Treasury bills pay 5% now.
If history is any guide, we’re in more of a “hard default” period than a “currency debasement” period, just because interest rates have risen so far, so fast and that must be hurting all those people who relied on cheap leverage. As we’ve said many times, modern American capitalism doesn’t work well in reverse."
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