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WOW!! $109,8B March trade deficit -
https://www.zerohedge.com/economics/us-trade-deficit-explodes-record-high-march
My Comment: $Trillion plus annual trade deficits and the US$ keeps strengthening. Add $31Trillion national debt and a $9Trillion Fed balance sheet. Where does it all end ?
Excerpt:
The US trade balance with the rest of the world collapsed to its largest deficit ever in March.
Imports rose 10.3% in March to $351.52b from $318.62b in Feb.
Exports rose 5.6% in March to $241.72b from $228.82b in Feb.
The gap in goods and services trade grew 22.3% to $109.8 billion, Commerce Department data showed Wednesday (this was even worse than the median estimate in a Bloomberg survey of economists which called for a $107.1 billion deficit).
It's all about the debt -
https://www.zerohedge.com/markets/tesla-netflix-and-stock-market-going-much-lower-mark-spiegel
My Comment: Deficits don't matter until they do and then they really matter
Excerpt:
Meanwhile, even last year when short-term rates were set at just 0.125% and average rates were around 1.5%, the interest on the $30 trillion of federal debt cost $562 billion. That interest cost is now on a path to double, yet even then would still be far below the anticipated rate of inflation. Does anyone seriously think this Fed has the stomach to face the political firestorm of Congress having to slash Medicare, the defense budget, etc. in order to pay the even higher interest cost that would be created by upping those rates to a level commensurate with even 4% or 5% inflation (not to mention today’s over 8%)? Powell doesn’t have the guts for that, nor does anyone else in Washington; thus, this Fed will likely be behind the inflation curve for at least a decade. And that’s why we remain long gold (via the GLD ETF).
Condor Resources (CNRIF/v.CN) showing signs of life. -
All that's needed is confirmation of an agreement to give Condor access to Pucamayo for the share price to increase substantially. We'll see if this is for real. I've watched the shares climb on hope only to fall back so many times.
Thanks. I grew up in South Texas, graduated from UT Austin, and I have relatives in Austin and the hill country. I plan on finding a winter place in central Texas once my PM mining shares payoff and Texas RE cools. You had a sizable spread with 300 acres and the livestock.
Curious about where you live. Would it be Wyoming ?
It's done. Now we will see just how far the markets can sink before the Fed relents. Increasing rates will slow demand, but supply is driving inflation which the Fed has no control over. There's a lot of air in the bursting bubbles. It's gone beyond insane.
Tchir: The Not-So-Good, The Bad, & The Ugly
https://www.zerohedge.com/markets/tchir-not-so-good-bad-ugly
America's Fatal Dependency : https://www.zerohedge.com/geopolitical/americas-fatal-dependency
My Comment : The US is currently running $1Trillion Annual trade deficits. This is not sustainable and will eventually lead to a weaker US$.
Excerpts:
The United States has borrowed $18 trillion from foreigners since the Great Financial Crisis of 2008, a staggering sum that is nearly equal to America’s annual Gross Domestic Product. The notion that the dollar’s dominance in world finance might come to an end was a fringe view only five years ago, when America’s net foreign investment position was a mere negative $8 trillion. Notably, the net international investment position fell by $6 trillion between 2019 and 2022, roughly the amount of federal stimulus spent in response to the COVID-19 pandemic.
In addition to the $18 trillion of net foreign investment in the U.S., foreigners keep about $16 trillion in U.S.D in overseas bank deposits to finance international transactions. That’s $34 trillion of foreign financing against a U.S. GDP of not quite $23 trillion. Foreigners also have enormous exposure to the U.S. stock and real estate markets.
No one—least of all China with its $3 trillion in reserves—wants a run against the dollar and dollar assets. But the world’s central banks are reducing dollar exposure, cautiously but steadily.
For the past fifteen years, American consumers have bought roughly a trillion dollars more of goods each year than America exports. The import-led consumption boom, and the availability of cheap electronics from China and other Asian exporters, fed a digital entertainment boom that inflated the stock prices of Apple, Microsoft, Google, Meta and other U.S. software companies. Foreigners then invested their earnings from exports in U.S. tech stocks, as well as government bonds, real estate, and other assets. The tech boom harmed the U.S. economy far more than it helped it, turning American teenagers into risk-averse recluses addicted to smartphones and social media, while generating stock market valuations never before seen outside of classic economic histories of bubbles.
Overall, net imports of manufactured goods rose from about $60 billion a month prior to the COVID pandemic, to $100 billion a month as of February 2022.
The bubble is so enormous that the entire world has a stake in it, and none of the world’s major economies can extract themselves from it without significant damage.
Nothing prevents the 76 percent of the world’s population whose governments refused to join the sanctions regime against Russia from financing trade in local currency. Asian countries now have $380 billion of swap lines in place, more than enough to accommodate the whole of intra-Asian trade.
By no coincidence, the same central banks who are bypassing the dollar financing system have bought the most gold over the past twenty years, according to the World Gold Council’s data. China and Russia were the biggest buyers of gold, followed by Turkey, India and Kazakhstan.
Gold also represents an option on “Bretton Woods III,” a local-currency regime of trade financing in which some imbalances may be settled in gold. The value of the nearly 32,000 tonnes of gold now held by central banks is a bit over U.S.$2 trillion at the April 13, 2022 price of $1,980 an ounce. That represents about one-sixth of world central bank reserves of $12 trillion. If gold were to substitute for the dollar as a reserve instrument, the proportion of gold in central bank reserves would have to increase, which in turn implies a substantial increase in the gold price. Persistently high inflation in the U.S. and the Euozone, moreover, would lead to an increase in the gold price as well.
Gold is not gaining today. The implications for sustained and much higher inflation due to the war in Ukraine and the Chinese Covid lockdowns mean gold should be going gangbusters. And the Fed's meager attempts at controlling inflation should not be an obstacle for gold. So, why is gold not responding ?
Yellen to convene high-level panel on food security crisis on Tuesday
https://www.kitco.com/news/2022-04-18/U-S-Treasury-to-focus-on-cracking-down-on-Russian-sanctions-evaders-official.html
My Comment : The financial institutions and CBs cannot print food
Excerpt:
The meeting will include the heads of the International Monetary Fund, World Bank, and the International Fund for Agricultural Development, as well as ministers representing the G7 and G20 countries and technical experts from international financial institutions, it said on Monday.
David Stockman On The Coming Bond Bear Market... And What Comes Next : https://www.zerohedge.com/markets/david-stockman-coming-bond-bear-market-and-what-comes-next
My Comment: The problem for the Fed is that after 35 years of coddling the stock market, no one believes they will really harm the markets by raising rates dramatically enough to kill inflation and that they will relent at the first signs of a recession. So, in order to have any credibility, the Fed is going to have to raise rates a lot which will crash the stock market and the housing market. Otherwise, inflation will only get worse. The Fed can only control demand, not supply. And supply constraints are driving inflation : Covid, China lockdowns, labor shortages, climate change, sanctions and the war in Ukraine, supply chain bottlenecks.
Excerpts:
Needless to say, an economy staggering under the weight of $87 trillion in debt, representing a record 365% of GDP, can’t take much interest rate increase in any case. But when the Fed is drastically behind the curve and will be forced to hit the brakes hard (and unexpectedly) in coming months, you are talking about a recipe for financial carnage.
Looked at differently, recall when there were $18 trillion of negative yielding debt trading in world bond markets?
That number is already down to $3 trillion and heading vertically toward positive territory—-the only rational place for bond yields to stand. And as it corrects, there will be a world of hurt among corporate, household and government borrowers who had foolishly assumed that free money was a permanent condition.
The benchmark yield, of course, does not exist in a vacuum—just the opposite. The Fed’s post-March 2020 printathon caused a radical plunge of mortgage rates, triggering a speculative run-up in housing prices. Now its reversing violently, and housing prices can’t be too far behind.
In fact, the whole beneficent housing cycle of the last 42 years is likely reversing. As shown in the chart, between 1980 and the first peak in 2006, housing prices rose by 295% as the 30-year mortgage rate plunged from 15% to 6%.
But the Fed was not nearly done. During the era of ZIRP and QE after the 2008 crisis, it drove the 30-year rate (red line) to a low of 2.67% in Q3 2021, thereby fueling a new housing price (blue line) surge of another 60% from the 2006 high.
But here’s the thing. In just the last two quarters, the 30-year rate has rebounded by 175 basis points to 4.42% from the 2021 low, thereby already cancelling 50% of the 350 basis point drop from the Q1 2007 level. So tumbling housing prices are surely next in line.
It's all about the debt -
My Comment ; Sovereign debt will explode higher and consumer debt will implode into default in the next recession
As Prices Rise Americans Turning To Their Credit Cards : https://www.zerohedge.com/personal-finance/prices-rise-americans-turning-their-credit-cards
Excerpt:
Americans now owe a total of $4.48 trillion in consumer credit.
The Federal Reserve consumer debt figures include credit card debt, student loans and auto loans, but do not factor in mortgage debt. When you include mortgages, US consumers are buried under more than $15 trillion in debt.
Americans ran up their credit cards at a blistering pace in February. Revolving credit, primarily credit card debt, rose by a whopping 20.7%. American consumers added $18 billion to their credit card bills in February alone. US credit card debt now stands at over $1.06 trillion.
Americans aren't likely to lose their homes if the real estate bubble bursts, 2 economists say : https://www.msn.com/en-us/money/realestate/americans-aren-t-likely-to-lose-their-homes-if-the-real-estate-bubble-bursts-2-economists-say/ar-AAW0WGs?ocid=msedgntp&cvid=c184004ef1bf406c83e341cdab3b599a
My Comment: Hmm. Reason #1-Household debt-to-income at four decade low (What if you get laid off and you lose your income ?) Reason #2-Household equity at three decade high (What if house prices plummet wiping out equity in a recession due to a lack of buyers ?). A lot of home equity is just bubble excess.
Excerpts:
Home prices have soared to new highs as buyers continue to duke it out for the limited amount of homes available for sale. As the imbalance widens, fears of a second foreclosure crisis, like the one in 2008, have flooded financial markets
Odeta Kushi, the chief economist at First American, thinks that's unlikely to happen for two reasons. Both have to do with the fact that homebuyers are in a far better financial position than they were in 2008.
"First, the housing market is in a much stronger position compared with a decade ago," Kushi told Insider. "Accompanied by more rigorous lending standards, the household debt-to-income ratio is at a four-decade low and household equity near a three-decade high."
Gold is the asset investor want to own : https://www.kitco.com/news/2022-04-08/Gold-is-the-asset-investor-want-to-own.html
My Comment: Gold should be a lot higher. Of course, one could always buy into the RE bubble at the top by paying $2.5M when the ask is $1.5M or you could by NFTs for gazillions.
Excerpt:
This is where gold comes in. Volatility is destroying capital in equity markets. At the same time, investors are losing money with their bond investments as yields rise. With few places to turn, investors are embracing gold as an inflation hedge and safe-haven asset.
One report that stood out for us came from Société Générale. The French bank said it is holding a 10% maximum position in commodities in its Multi-Asset-Portfolio. Half of that position is in gold.
It's all about the debt -
https://www.zerohedge.com/markets/shocking-us-consumer-credit-numbers-savings-long-gone-credit-card-debt-soars
My Comment: It's all about the debt. I think there will be a lot of defaults and bankruptcies once the recession takes hold. Watch the housing market which is in an insane bubble ($1Million doesn't buy much anymore). Gold should be a lot higher.
Excerpts:
the real stunner was revolving, or credit card debt, which soared nearly six-fold February to $18 billion from $3.1 billion in January, the second highest print on record, just in time for those credit card APR to starting moving higher, first slowly and then fast.
The implications are profound: any model that projected that US spending will be fueled by "savings" can now be trashed. And since this is most of them, the consequences are dire as they confirm - once again - that the Fed is tapering, QTing and hiking right into a recession, which according to Deutsche Bank will begin in late 2023 and which according to Morgan Stanley can start in as little as 5 months. Today's data suggests that Morgan Stanley is right...
Insanity prevails -
Warhol's 'Shot Sage Blue Marilyn' could fetch a record $200M at Christie's auction : https://www.cnn.com/style/article/andy-warhol-shot-sage-blue-marilyn-auction-record/index.html
My Comment: $200Million for Marilyn ? More money than sense. Also in the news today is the bankruptcy court approved sale of the LA mega mansion for $141Million which is below the original $500Million asking price. RE is insane most everywhere. Meanwhile, Bezos and Russian oligarchs own $100Million yachts. Gold has some catch up to do.
Rickards: The Sanctions Boomerang & Putin's Options : https://www.zerohedge.com/geopolitical/rickards-sanctions-boomerang-putins-options
Excerpt:
For that matter, a global financial panic may emerge even before the shooting stops. We all see what’s happening on the surface. Here’s what you don’t see: Someone is on the wrong side of every one of those trades. Hedge funds and banks are losing billions and are sinking. It takes about a week for bodies to float to the surface.
Could market forces end the paper gold market ? -
My comment : Market forces may be in the process of making Basel 3 irrevalent for the paper gold market. Basel 3 can be delayed and avoided indefinitely, but market forces can do the job Basel 3 was intended to do. In the following article, Pozsar argues that it is the underlying commodity that has value, not the rehypothecated derivatives on that commodity. I've seen numbers as high as 1000:1 for paper gold vs the actual gold being used as collateral.
Gold: "A crisis is unfolding. A crisis of commodities"- Zoltan Pozsar | ZeroHedge : https://www.zerohedge.com/news/2022-03-10/gold-crisis-unfolding-crisis-commodities-zoltan-pozsar
Excerpts:
Collateral is the foundation on which the financial system is based. Collateral equals money in the realest sense.
That collateral is a large and grossly undervalued part of the current core’s valuations. Put another way, the derivative-tail has been wagging the spot-dog too hard and too long.
The collateral underpinning the system is not financial this time. It is real. War, sanctions, and the ensuing chaos has split markets along spot versus derivative lines. Geographically: East vs West. Collateral: Real vs rehypothecated.
Who Cares About The (Record) Trade Deficit? We All Should... | ZeroHedge: https://www.zerohedge.com/economics/who-cares-about-record-trade-deficit-we-all-should
My Comment : Huge trade deficits, huge national debt and deficits, and high inflation. The US$ is doomed.
Excerpts:
Another milestone (or more accurately millstone) was recently passed by the U.S. economy as the January trade deficit surged to an all-time record high of $107.6 billion, up some $26 billion from December’s $80.7 billion imbalance.
Even with this advantage, however, trade deficits have continued to grow. It appears that even its status as the possessor of the world’s reserve currency may be coming to an end as the dollar’s preeminence will fall with the surge in price inflation. This will have a devastating effect not only on the domestic economy but its foreign trade as well, as the country will not be able to export dollars for goods in the future.
Markets Are Now More Vulnerable To Systemic Stress On A Scale Not Seen Since The Global Financial Crisis https://www.zerohedge.com/markets/markets-are-now-more-vulnerable-systemic-stress-scale-not-seen-global-financial-crisis
Excerpt:
Given this backdrop, the risk of counterparty default in many tail-risk options that are now probably deep in the money isn’t negligible -- though we won’t hear about it immediately. As I have observed before, the first shoe to drop during the financial crisis was in early 2007, but it wasn’t until late 2008 that some of the events that are most recalled about the episode took place.
That means that daily moves of 10 basis points in key developed-market bond yields and swings of 1% in G-10 currencies aren’t going to go away anytime soon. Not to mention U.S. stocks, which until recently behaved like they were immune to all laws of financial gravity and had a special license to thrill.
Truly, what goes around, comes around.
China's 'Debt Bomb' Is Going off Under Xi Jinping : https://www.msn.com/en-us/news/world/china-s-debt-bomb-is-going-off-under-xi-jinping-opinion/ar-AATBBDY?ocid=msedgntp
Excerpts:
An "economic crisis," as Soros suggests, is coming.
Chinese officials have continually defied dire predictions, so many analysts think they will be able to muddle through this time. The problem, however, is that by muddling through in the past, officials postponed crises by taking on additional debt and thereby making the problem even more difficult to resolve. "They may have postponed dealing with it for too long, because people's confidence has now been shaken," Soros said.
Xi's tools to deal with out-of-control property prices are limited, in large part because of something else Soros mentioned at Hoover: out-of-control disease. COVID-19 is ripping through the country and, with ineffective Chinese-produced vaccines, the country's only defense against the coronavirus is isolation.
Isolation is the enemy of economic growth. Xi's "zero-COVID" policy of draconian lockdowns has made maintaining the internal Chinese economy exceedingly difficult.
The highly respected Diana Choyleva, the chief economist at London-based Enodo Economics, argues China's economy is headed for "stagnation," not "collapse." Her reasoning is highly persuasive; nonetheless, the issue for Beijing today is whether, in the middle of a debt crisis, stagnation must inevitably lead to outright collapse.
U.S. trade deficit rises in December; deficit in 2021 largest on record : https://www.kitco.com/news/2022-02-08/U-S-trade-deficit-rises-in-December-deficit-in-2021-largest-on-record.html
My Comment: It's all about the DEBT
Excerpt :
The Commerce Department said on Tuesday that the trade deficit rose 1.8% to $80.7 billion in December. Data for November was revised lower to show a $79.3 billion gap instead of the previously reported $80.2 billion. Economists polled by Reuters had forecast a $83.0 billion deficit.
The deficit jumped 27.0% to $859.1 billion in 2021. That was the highest on record and followed a $676.7 billion shortfall in 2020.
"This Sucker's Going Down..." : https://www.zerohedge.com/geopolitical/suckers-going-down
Excerpt:
Even with the NASDAQ’s 11.2 percent decline from its all-time closing high set on November 19, the index is still up over 110 percent from its March 2020 low. What will it take for the NASDAQ to crash back to earth?
Something else that has gone to the moon is government debt. In 1980, the national debt was $908 billion. Today it’s over $29.8 trillion. That’s an increase of over 3,181 percent. Over this time, however, gross domestic product (GDP) has only increased 632 percent – from $2.86 trillion to $20.94 trillion.
Of course, these are merely the facts and figures. The effects to countless Americans are hard to measure. But, by and large, the last 40 years have been a great disappointment for the American worker – and an absolute boon for the political elites.
In addition to asset prices and government debt, social discontent has also gone to the moon. Here in the LA Basin, for example, some of America’s most resourceful fellows have taken to emulating the corruption found in Washington and on Wall Street. They’re looting stores and plundering freight trains as a matter of business. Daring professions like these flourish when hard work and playing by the rules no longer pays.
What’s really going on…
Prediction from the guy who is always wrong -
U.S. stock markets to crash by 90% this year, followed by the best buying opportunity in your lifetime - Harry Dent : https://www.kitco.com/news/2022-01-06/U-S-Stock-Markets-to-crash-by-90-this-year-followed-by-the-best-buying-opportunity-in-your-lifetime-Harry-Dent.html
Excerpt:
"This is going to be the biggest crash and the biggest downturn of your lifetime, and most of it is going to happen probably in 2022," Dent said. "The whole crash is going to be 80% to 90%."
Is it time to fight the Fed? This veteran strategist says the central bank won’t risk a 20% drop in house prices and a 30% slide in stocks. : https://www.msn.com/en-us/money/markets/is-it-time-to-fight-the-fed-this-veteran-strategist-says-the-central-bank-won-t-risk-a-20-drop-in-house-prices-and-a-30-slide-in-stocks/ar-AASx1kZ?ocid=msedgntp
My Comment : I think the Fed will end tapering once the stock market caves. The Fed will do everything to prevent a recession including more QE which will make inflation and the eventual recession much worse.
Excerpts:
If the Fed were to hike to 1.75% next year, it would mean the possibility of a 20% decline in home values and a 30% slide in equity prices, if there were a mean reversion in price-to-income ratios. Even now, both asset classes are overpriced by 15%, he says.
Cryptocurrency crime reached a record $14 billion last year, according to research company Chainalysis, with scammers taking $7.8 billion and outright theft of $3.2 billion. As a percent of all transactions, however, the company said crypto crime was at a record low, since total volumes jumped 567% but illicit activity rose by 79%.
Yes, the gold derivatives market needs to reflect reality. Basel 3 has been postponed till 2023. Will it ever get implemented?
RE:Welcome to 2022 inflation
Can the Federal Reserve engineer a soft landing for the US economy? (msn.com) : https://www.msn.com/en-us/money/markets/can-the-federal-reserve-engineer-a-soft-landing-for-the-us-economy/ar-AASoeIv?ocid=msedgntp
My Comment: I think the Fed will abandon tapering once the stock market caves. The Fed will do everything possible to avoid a recession which means once we do have a recession it will be far more destructive.
Excerpts:
The Fed, however, faces multiple challenges as it aims to engineer a soft landing for the U.S. economy in 2022. First, a sustained period of near-zero policy rates and the extraordinary amount of liquidity that the Fed has been pumping into the financial system since March 2020 have contributed to speculative fervor and a spike in asset prices.
A second challenge facing the Fed relates to its ability to attain the necessary terminal rate to restore price stability while still maintaining steady economic and financial conditions. Given the explosive growth in both U.S. public debt and non-financial corporate debt, the Fed may be facing a serious debt trap.
Economist Nouriel Roubini recently observed that "With such a massive build-up of private and public debt, markets may not be able to digest higher borrowing costs. If there is a tantrum, central banks would find themselves in a debt trap and probably would reverse course. That would make an upward shift in inflation expectations likely, with inflation becoming endemic."
However, even a modest spike in yields will imply a substantial increase in net interest payments for the federal government. Corporate debt has also exploded and threatens the Fed's ability to fight inflation by sharply raising interest rates.
Meanwhile, a variety of factors suggest that upward pressure on prices will persist and cause high inflation expectations to become embedded in the system. For instance, rising home prices and surging rents indicate that inflation may be stickier than the Fed had originally assumed. Structural developments and population shifts may be driving up home prices and creating sustained pressure on rents in a wide range of communities across the U.S.
Furthermore, U.S. shale oil producers have abandoned their "growth at any cost" model and, along with their Big Oil brethren, are exhibiting capital discipline to keep investors happy. Such behavior does, however, limit the potential for a near-term domestic oil and gas production surge that could ease supply concerns. Rising energy costs and unusual weather patterns are also contributing to sustained food inflation.
Welcome to Inflation 2022 -
$29,000 for a used car? Blame inflation. (msn.com) : https://www.msn.com/en-us/money/news/29-000-for-a-used-car-blame-inflation/ar-AASodMM?ocid=msedgntp
My Comment: Consumers priced out of housing and autos. Food prices keep rising. Lumber prices are through the roof, crude oil and natural gas are in short supply and rising and the ultimate inflation hedge, gold, is struggling to maintain $1800/oz while the stock market keeps going higher. There will be a huge price to pay once the asset bubbles in stocks, bonds, realestate, and collectibles burst.
Excerpt:
Consider that the average price of a used vehicle in the United States in November, according to Edmunds.com, was $29,011 — a dizzying 39% more than just 12 months earlier. And for the first time that anyone can recall, more than half of America's households have less income than is considered necessary to buy the average-priced used vehicle.
Is The Crack-Up Boom Here? : https://www.zerohedge.com/economics/crack-boom-here
Excerpt:
The Fed recently announced it is accelerating the timetable to reduce its monthly purchases of Treasury and mortgage-backed securities. The Fed also announced it is planning three interest rate increases next year. However, the Fed plans to increase rates by no more than one percent. So even if the Fed does follow through on its promise to hike rates, it will do little if anything to combat rising prices. If the Fed allowed interest rates to rise to anything approaching market levels, it would make the federal government’s debt servicing costs unsustainable. This puts tremendous pressure on the Fed to maintain low rates.
Here's one of the big problems with cryptos -
Crypto scams: $7.7 billion stolen in 2021 – report : https://www.kitco.com/news/2021-12-21/Crypto-scams-7-7-billion-stolen-in-2021-report.html
My Comment : I've noted this as a problem with cryptos here before. Other problems are loss of access if you forget your key, volatility, stolen by hacking, and lack of government acceptance. $7.7B stolen just from scams.
Excerpts:
Tuesday December 21, 2021 17:18
Kitco NewsShare this article:
(Kitco News) Volatility and trust issues bedevil the crypto space, which saw more than $7.7 billion stolen worldwide in scams, according to a report published by blockchain analytics firm Chainalysis.
"Scams were once again the largest form of cryptocurrency-based crime by transaction volume, with over $7.7 billion worth of cryptocurrency taken from victims worldwide," Chainalysis said in the report.
This was 81% higher than last year's total. However, the figure was still below 2019's number of around $9 billion.
Scams are one of the biggest barriers to crypto adoption, which is why all players need to contribute, Chainalysis concluded. "Fighting [crypto scams] can't be left only to law enforcement and regulators.
Stagflation Is Coming To A Theater Near You : https://www.zerohedge.com/markets/stagflation-coming-theater-near-you
My Comment : The Fed wants to control inflation, but they cannot control supply chains, labor shortages, Covid, hoarding, government spending, or climate change which all contribute to inflation. I think the Fed will be forced to end tapering and to reinstate QE once the stock market caves and the economy slows. Gold has to reflect this at some point.
Excerpts:
If it looks like a duck, walks like one and quacks like a duck, it’s a duck. Inflation is rising and consumer spending power is falling. Those are clear warnings of slower growth and higher costs -- spelling out the dreaded STAGFLATION scenario that the Fed is pretty much powerless against, leaving risk assets in the cross hairs.
During the pandemic spread, many economists had pointed to the savings rate as key to maintaining consumer spending power in the face of rising prices. But as the chart above shows, that is no longer the case. Savings as a percentage of disposable income has cratered. Add to that the drop in real earnings and you have a consumer running out of gas to fuel spending and corporate earnings.
It all points to slower spending, higher prices and lower earnings, which reduces stock prices, lowering the wealth effect resulting in stagflation. Things are not looking so rosy for 2022 without a real boost to wages.
Discombobulated -
Global supply chain crisis could last another two years, warn experts : https://www.msn.com/en-us/news/world/global-supply-chain-crisis-could-last-another-two-years-warn-experts/ar-AARWgzC?ocid=msedgdhp&pc=U531
My Comment : The Fed cannot fix supply chains, labor shortages, hoarding, or the virus. Expect more QE once the markets react negatively. QE will only exacerbate inflation. Got Gold ?
Excerpts:
Shipping accounts for the movement of at least 90% of goods around the world and the cost of transporting things by sea has rocketed in the past year. For example, the Drewry world container index measuring the cost of moving a 40ft container is 170% higher than it was a year ago. The price on some particularly in-demand routes such as Shanghai to Rotterdam has increased by almost 200%; in the case of the Dutch port to New York, the cost has risen by 212%.
His point is illustrated by the bottleneck of giant containers that has built up off the west coast of the US. With so many ships unable to dock and unload, more than 80% of the 434,000 20ft containers exported out of the Port of Los Angeles in September went out empty. Shipping companies can make up to eight times more money taking goods from China to the US, so it made sense to get the containers back to Asia rather than wait for them to be filled.
This has fulled huge imbalances throughout the system, he said: “The supply chains were discombobulated. Shipping capacity was quickly exhausted at the start of the pandemic because everyone planned for a big decline in demand but in fact there was a surge because people wanted to buy things. Then the supply side was hit hard with ports, warehouses and truck companies all short of workers.
The deterioration in relations between the US and China which led to trade tariffs and loss of trust was also having a bigger impact than hitherto recognised, he says, dislocating the mechanics of world trade that have been taken for granted for many years. Cyber-attacks and robotics have also made companies review their supply chains and source materials closer to home.
From the Periphery to the Core -
Turkey Halts All Stock Trading As Currency Disintegrates, Central Bank Powerless To Halt Collapse : https://www.zerohedge.com/markets/turkey-halts-all-stock-trading-currency-disintegrates-central-bank-powerless-halt-collapse
My Comment: These economic problems manifested at the periphery migrate to the Core (ie developed country economies). The EU and China are both under a lot of economic stress. And the Fed has to fight inflation but can do nothing about supply chains, labor shortages, or the virus. Got Gold ?
Excerpt:
Another day, another collapse in the Turkish lira, only this time there was a twist: as the hyperinflating currency implodes, Erdogan has finally had enough of the relentless pummeling, and is starting to shut down Turkey's markets.
Ray Dalio warns the Fed’s hands are tied and that higher U.S. inflation is sticking around. Democracy, maybe not. : https://www.msn.com/en-us/money/markets/ray-dalio-warns-the-fed-s-hands-are-tied-and-that-higher-u-s-inflation-is-sticking-around-democracy-maybe-not/ar-AARQlYA?ocid=msedgntp
Excerpt:
MarketWatch: So you’re thinking that higher U.S. inflation is not transitory. It’s going to stick.
Dalio: Yes. There’s two types of inflation. There’s inflation when the demand for goods and services rises against the capacity to produce them. That’s normal, cyclical inflation. Then there’s monetary inflation — the creation of a lot of money and credit relative to the quantity of goods and services. The U.S. is having both.
When I look at the country’s financials going forward, what the size of the deficit will be and how much money is produced, that’s a concern. There’s also the risk, or even the probability, that those who are holding cash and bonds will choose to sell those to move into other things. If that happens, the U.S. central bank will have to decide if it raises interest rates, which will hurt the economy — and I don’t believe they can do that in a significant way. It would be bad for the economy, politics and the markets if they tried to rectify that by allowing interest rates to rise. So they’re probably going to have to print more money, and that causes more monetary inflation.
Buckle Up -
My Comment : The Fed has really screwed the economy with its creation of one bubble after another. We now have the mother of all bubbles. The Fed's tapering will most likely trigger a selloff in gold and stocks. Bubba Horwitz has a $1450 target for gold. How much of a market drop will the Fed tolerate before it restarts QE ? This article is spot on : Former Fed Governor Blasts Powell, Says Inflation Is The Fed's Choice | ZeroHedge : https://www.zerohedge.com/economics/former-fed-governor-blasts-powell-says-inflation-feds-choice
Excerpts:
Achieving a soft economic landing at this late stage is difficult. If the sole task were to drive inflation down, the Fed would immediately taper its asset purchases and start raising rates. But a significant tightening cycle would likely cause market volatility to surge and assets to reprice. The authorities have expressed little concern about financial excesses, bubbles or financial imbalances. Hope they’re right. I expect tension between the Fed’s goals of price stability and financial stability to be in sharper relief in the new year.
Warsh accurately commented "Most troubling, the Fed bankrolled the fiscal profligacy, purchasing more than half of the new Treasury debt issued this year. Call it monetary dominance."
Hopefully this comes up as a question in the Q&A following Wednesday's FOMC meeting.
Regardless, the inflation cake is baked, and so is the resultant bubble bursting affair.
Powell bears the most responsibility for this enormous bubble as do Bernanke and Greenspan before him.
U.S. Senate advances toward boosting debt limit to $31.4 trillion : https://www.msn.com/en-us/news/politics/u-s-senate-to-vote-on-2-5-trillion-boost-to-federal-debt-limit/ar-AARNFcW?ocid=msedgntp
My Comment: This $2.5T increase is supposed to last into early 2023. Will it be enough ? I'm expecting the national debt to be between $40T and $50T by 2026. When will Treasuries factor in the risk of owning government debt by having higher rates ? With such a huge national debt, small rate increases have a dramatic effect on the deficits.
Basel 3 - Will it ever get implemented ?
My Comment: I've read that UK banks can opt out of the gold restrictions in Basel 3. What good are regulations if they never get implemented or if they can be opted out of ?
Found this in a google search:
The implementation date of the Basel III standards finalised in December 2017 has been deferred by one year to 1 January 2023. ... The implementation date of the revised market risk framework finalised in January 2019 has been deferred by one year to 1 January 2023.
More on labor costs -
The Next Catalyst For Inflation: Significant And Persistent Increases In Labor Costs : https://www.zerohedge.com/economics/next-catalyst-inflation-significant-and-persistent-increases-labor-costs
Excerpts:
A few months ago, large companies, such as Walmart, Costco, and Amazon, announced pay increases and significant pay incentives for workers to stay with the firm in 2022. At those announcements, the jobless rate was around 5%; there is even more pressure now, with the jobless rate approaching 4%. The most severe pressure is likely to be felt in smaller companies (100 or fewer workers) since losing a handful of workers will force others to work longer hours, demanding more pay in the process.
So far, the current inflation cycle has been more significant and broader than expected. Despite its scale and persistency, many are forecasting an end to the inflation cycle, citing stable to lower oil prices and easing freight and shipping costs. Yet, that optimistic view contradicts the lessons learned from the 1970s inflation cycles and the political trade-off at the Fed of fighting inflation at the expense of jobs and wages.
Supply-side factors, impacting a wide range of agricultural and industrial commodities, sparked the 1970s inflation cycle. That is similar to what sparked the current inflation cycle. But, years of easy money and expansive fiscal policy extended the 1970s inflation cycle.
Fed policy nowadays is more accommodative than the entire decade of the 1970s. At the same time, the federal government appropriated a record $5.6 trillion in spending (roughly 25% of GDP) over the past two years, with the White House hoping Congress will pass another round of stimulus before year-end. In the 1970s, fiscal stimulus was a fraction of that.
With that monetary and fiscal accommodation scale, it makes more sense to look for reasons the inflation cycle will live instead of dying on its own. Surprised by the 2021 inflation cycle, policymakers and many analysts appear to be making the same mistake by ignoring the factors that could sustain the inflation cycle in 2022.
Will huge spending Build Back Biden? Not a chance : https://www.msn.com/en-us/news/opinion/will-huge-spending-build-back-biden-not-a-chance/ar-AARL4XC?ocid=msedgntp
My Comment : On the inflation front, the Fed has to also contend with demographics as baby boomers retire and there will be a shortage of workers which will mean higher labor costs.
Excerpts:
Why are people so indifferent to Biden’s largesse? Because they think, rightly, that the trillions spent over the past two years in government handouts have driven up prices; even some liberal economists like Jason Furman and Larry Summers agree.
They are also worried that Biden’s Build Back Better bill will only make matters worse, despite Biden’s non-credible assertions to the contrary. Sadly, voters no longer trust our president, in part because his declarations about BBB are so nonsensical.
Russians go on a gold buying spree : https://www.kitco.com/news/2021-12-13/Russians-go-on-a-gold-buying-spree.html
Excerpt:
(Kitco News) - Russian nationals have bought a record amount of gold since 2014, the Russian media has reported (Sputnik). They bought four tonnes of gold bullion and coins in the past nine months, which is around 8% more when compared to the previous year, the reports specified.
Traditional gold investments have become very popular in other countries as well, with Americans having purchased 91.3 tonnes of the yellow metal in the past nine months (+79%), while in China and India gold buying has surged by 54% and 24% respectively.
Also, Larry Summers says Fed cannot control inflation: https://www.msn.com/en-us/money/markets/larry-summers-is-sounding-the-alarm-on-inflation-again/ar-AARLvvP?ocid=msedgdhp&pc=U531
Excerpts:
(Bloomberg) -- Former Treasury Secretary Lawrence Summers, a paid contributor to Bloomberg, reiterated his inflation views on Twitter, saying that “the idea that inflation will revert soon to levels anywhere near Fed’s target looks like a long shot.”
Summers adds that he sees “no compelling reason to expect major deceleration in inflation.”
Read More: Summers Says Policy Makers May Have Now Cemented Inflation at 4%
One other point -
Just how does the Fed control the effects of the snarled supply chains and the virus on the economy. Tapering and rate increases will do nothing to fix these issues. Also, I've read that crude oil prices are expected to rise dramatically ($150/bbl) due to the lack of capital investment (due to emphasis on renewables and government penalties) by the oil companies and due to the shortage of labor (no future in being a Petroleum engineer with the future being in renewables). Supply will not keep up with demand.