Regardless of how You Turn It, The Global Strategy is Already Doomed: Got Precious metal?
A recession is still a recession, and an elephant is still an elephant, plus both are fairly easy to find out at a distance.
Below we look into the interplay of embarrassing financial debt, dying currencies and failed monetary fantasies masquerading since policies to confirm that no matter how one turns or rotates the inflation/deflation, QT/QE or recession/no-recession narratives, the global financial system is already doomed.
Recession: The particular Elephant in the Room
As Seems arguing in report after report , my view continues to be that the US, with its 125% debt-to-GDP and 7% deficit-to-GDP ratios, was, and already is, in a recession proceeding into 2023, despite established efforts in DC to re-define the very definition of the recession.
But a recession is still a recession, and an elephant is still an elephant, and both are fairly easy to find out at a distance.
As of now, however , the recession offers officially been avoided.
As with the inflation data, it’s nice once the folks in Washington may exercise their magical powers to move the goal-posts in mid-game whenever a little “ cheating” helps their chances and fictional narrative.
For me, an elephantiac recession is now in the space.
The Empire Manufacturing information in my latest report, for example , supported this recessionary outlook.
In case, however , all of us still need more recessionary evidence, the dramatic 6 month decline in the Conference Board’s index of top indicators serves as yet another neon-flashing warning that the recession— in the event that not under our bow— can be certainly right off our bow.
Still Hoping for the “ Softish” Landing?
Furthermore, and despite Powell’s belief that will his office can manage a recession with the accuracy of a home thermostat, their faith in what he lately described as a “ softish landing” is almost as farcical as his prior make an effort to describe inflation as “ transitory. ”
Without wishing to appear “ sensational, ” as many of us blunt and math-based observers (from Burry to Middelkoop) of late are described, I am going to stick my tin-foil-covered go out and say candidly which i see nothing “ softish” ahead.
Rather, I see either: 1) economic crisis which will dwarf 08 and/or, 2) an absolute tanking of the USD, whose unsustainable strength throughout 2022 had been indeed “ transitory, ” as I argued numerous times .
The Simple Math of Liquidity
The easy math and reality of even centralized and central-bank distorted markets is quite simple: These markets rise plus fall on liquidity.
Once the monetary “ grease” required to maintain the MMT fantasy of mouse-click money as a debt solution “ tightens” too tight or runs too dry, the whole house of cards from the post-2008 fairytale comes to a hard rather than “ softish” finish.
Again, we all saw the first signs of this particular collapse in the “ tightening” backdrop of 2022.
Of course , this critical “ liquidity” won’t be coming from economic growth, rising tax invoices, a robust Main Street or even a fairly-priced market.
Instead, and as expected, it now comes from out of slim air…
Is It a Race to the Bottom for Risk Resources?
The particular honest but scary numbers rather than fluffy but fictional words of our financial main planners make it all too obvious that unless Powell places his finger on the Eccles-based mouse-clicker to create more fiat money (highly inflationary), US and global credit marketplaces will simply continue their race to the ocean floor (highly deflationary or at least dis-inflationary).
As credit marketplaces sink and bond produces and rates rise, this actually also means that equity markets, who have been sickly addicted to years of central-bank repressed low rates and cheap debt, will simply join those bonds at the bottom of the dark ocean floor.
In other words, bonds (and hence danger parity portfolios) won’t help you save. Rather than hedge stocks, they are now correlated to the same.
More Easing Won’t Bring “ Ease”
Not being able outright and open connection default, it thus appears that an eventual capitulation in order to more magical “ liquidity” and renewed QE will be nothing short of inevitable, meaning the USD’s fall from the 2022 highs is similarly the case, as shown beneath.
But such “ easing, ” in case realized, will lead to more inflationary-debased Dollars and hence a lot more inflation dis-ease for traders.
This is hard for investors to fully grasp when the Dollar seems “ strong, ” but also that was an illusion, then one which hardly did any kind of asset class any good within 2022 but for the Money itself.
The Damage Already Wrought by Strong USD
In the interim, the particular cancerous ripple-effects of the Fed’s strong USD policies, as warned all through 2022 , carry on their waves of damage, as openly evidenced with the earnings reports from our beleaguered S& P.
Already, the early data coming from its listed companies is certainly anything but positive.
As in the July plus October earnings seasons associated with 2022, corporate earnings designed for 2023 are still drowning underneath the weight of the USD.
But we must also keep in mind that the DXY (which measures the family member strength of the USD) has fallen 11% (from 113. 9 in order to 101. 8) over the last quarter.
If the S& P hit an Oct bottom during a DXY higher, what can we deduce from a now falling DXY?
Will markets rise like Lazarus?
This will be something worth tracking.
But the reason why?
Solid Dollar or Weak Dollar, No One Wins…
Should earnings and hence stocks continue to decline despite the particular DXY declines, this would claim that not even a weakening UNITED STATES DOLLAR can save these post-08, over-stretched, Fed-addicted and debt-soaked markets.
However , should stocks rise on a less strong Dollar, the percentage benefits in price will only be consumed away by the invisible tax of inflation and the progressively debased value of the very dollars used to measure those so-called “ appreciating” stocks.
In short, a no-win scenario…
For the moment, it seems the stock market just cares about the Fed as opposed to the DXY, as the Fed is the market.
Which is, when QE is the meme, zombie markets rise; whenever QT is the meme, these people fall.
Once again, see for yourself:
Yellen, Squawking for a Less strong Dollar?
In fact , it was during all those October market lows which the queen of toxic liquidity, former Fed-Chair-turned-Treasury-Secretary (imagine that? ) Janet Yellen, had been suddenly ringing the bell for more magical money— i. e., “ liquidity. ”
Specifically, Yellen was wondering who would be buying Uncle Sam’s IOU’s without a lot more mouse-click money from the Eccles Building?
Because my latest reports on the UST markets confirmed, the answer was basic: No one.
Instead, foreign central banks were and are selling rather than buying America’s bonds. Just request the Japanese…
Is Yellen, contrary to Powell, silently suggesting that QT has backfired? Is Yellen, unlike Powell, realizing there are no buyers for our progressively issued yet unloved USTs but the Fed itself?
Perhaps these tensions within the Treasury market supply the hidden clues as to why the particular USD has been sliding rather than rising from the DXY’s Oct highs?
In fact, a weaker USD means less forced need for foreign nations to dump their particular UST reserves to come up with the cash to buy their own dying provides and strengthen their own declining currencies as a direct reaction to Powell’s (and originally, Yellen’s) strong USD policy.
In short, perhaps our Treasury Secretary now desires to stop the bleeding within her Treasury market…
Weaker Money Ahead?
My current view is usually therefore this: We are viewing the slow end from the strong USD policy.
Because as warned all through 2022, such a strong USD was a massive gut-punch in order to foreign currencies and hence foreign slots of USD-denominated debt.
Indirectly then, the strong USD was also the gut-punch to the UST market, which saw more sellers than buyers around a crippled globe. Hence Yellen’s backfired and back-stepping fears above…
Furthermore, and returning to the aforementioned topic associated with recessions, I also argued all through 2022 that no economic downturn in history has ever been solved with a strong currency.
Given that such a recession is, again, either straight off our bow or already under it, it is likely no coincidence that the USD/DXY is now falling rather than rising.
In short provides Uncle Sam’s strong Money finally cried, well… “ Uncle”?
Or more simply stated, has Yellen realized, in private, exactly what we’ve been arguing in public, specifically: That we are already in a economic downturn and thus need a weaker Buck.
Powell: Ignoring Reality & Yellen?
In the meantime, however , you have the math-challenged but psychologically tragic Jay Powell wanting to save his legacy as a Paul Volcker rather than as an Arthur Burns.
Like a child wanting to be John Wayne rather than Daffy Duck, Powell and his rate-hiked strong UNITED STATES DOLLAR refuses to see the $31T debt pile in front of him which makes it impossible to be a reborn Volcker, who in 1980 confronted a much smaller debt heap of $900B.
In short, Powell’s America associated with 2023, unlike Volcker’s The united states of 1980, can’t tummy rising rates or a strong USD.
Or stated even more simply: Powell can not be Volcker .
Will someone on the Eccles Building please help remind him of this?
Doomed Either Way
Yellen or even Powell, QT or QE, strong Dollar or weak Dollar, the global financial system will be nevertheless doomed.
We either tighten the bond and hence stock markets into a free fall and economic disaster, or we all loosen and ease liquidity into an inflationary headache.
As We’ve said so many times: Pick your poison— depression or hyperinflation.
Or perhaps both… namely stagflation.
Either way, of course , Powell, and the American economy, is now condemned. And he has only Greenspan, Bernanke, Yellen, himself plus years of mouse-click fantasy accountable.
Supercore (CPI) Lies from On High
Meanwhile, the lies, turned math and Nobel-Prize degree mis-information continues…
Last week, for example , I reminded readers of DC’s latest attempt to mis-report otherwise humanly-felt inflation by tweaking an already-tweaked (i. e., bogus) CPI inflation scale.
But if that humor wasn’t already comical enough, now welcome none other than Paul Krugman to this stage associated with open theatrics masquerading as economic data.
According to one of Krugman’s newest neoliberal economist tweets, “ 3-month ‘ supercore’ CPI is below Fed’s 2% inflation target, ” which naturally had those equally raggish economic playwriters at the WSJ almost galvanic along with theatrical “ good news. ”
What neither Krugman nor the WSJ appeared to recognize is that “ supercore” CPI excludes food, energy, shelter and the price of used cars, so yes, absolutely, if you take away all the things that truly cost lots of money, inflation is not any problem at all… Bravo!
Such shameless misuse of data and headlines, of course , is almost because shameless as the misuse associated with monetary policy we’ve been savoring since the Troubled Asset Reduction Program…
Yet as stated last week, such eager tricks from on high will continue to mount since global financial problems the actual same.
An Historical Turning Point
The incredible lack of accountability from the foxes guarding our financial hen house will one day function as the stuff of history books, presuming history itself is not cancelled, as it seems the study associated with economics has already left the room.
The best we are able to hope for from the very “ experts” who have brought a global economy toward a mathematically unavoidable cliff are now bare words and twisted mathematics, as per above.
Such disloyalty from our monetary generals on the eve of an unprecedented strategic and technical economic defeat of their own making reminds me of officials sitting miles from the ditches as investors go “ over-the-top” toward a row of cannons pointed straight at their trusting boxes.
In short: Sickening.
Gold: A Far More Loyal Lieutenant
Gold was obviously a far more loyal asset compared to stocks and bonds in the turbulent times of 2022; and given that 2023 portends to be even worse, we can expect better loyalty from this alleged “ barbarous relic” from the past.
With inflation ripping and war blazing, many still argue that gold did not do enough.
Yet gold in every currency however the USD (see above) would certainly beg to differ.
Furthermore, and as argued so many ways and occasions, that USD strength will not hold, as gold’s cost moves this year have already monitored.
Gold’s future strength and rise is certainly thus easy to foresee, as gold doesn’t rise, currencies just fall.
It’s really that simple.
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