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While the market remains focused on tomorrow’s CPI print, and to a lesser extent the April retail sales reports, which will both be released at 8:30am on May 15. we should flag another important report that doesn’t typically get a lot of attention: the New York Fed’s Household Debt and Credit Report for 1Q 2024 which was just published, and where the latest data on credit card debt and delinquencies has recently been the most important part of the report.

While we already know that in the latest monthly consumer credit report published by the Fed last week and covering the month of March, total consumer debt hit a record high (despite a sharp slowdown in credit card growth) even as the personal savings rate plunged to an all-time low, hardly a ringing endorsement for the strength of the US consumer…

… today’s report provided more granular details which however did not change the conclusion: the US consumer is getting weaker, and while not in a crisis just yet, will get there soon enough.

As the chart from the NY Fed shows, at the end of the first quarter, US household debt reached a record and more borrowers are struggling to keep up: overall US household debt rose to $17.69 trillion, the NYFed’s Quarterly Report on Household Debt and Credit revealed (link here). That’s an increase of $184 billion, or 1.1%, from the fourth quarter.

Consumers have added $3.4 trillion in debt since the pandemic, and that increased debt bears much higher interest rates.

And with both credit card rates and total credit at all time highs, the data corroborate the mounting financial pressures on American families in an age of elevated inflation. The persistent rise in the prices of essentials such as food and rent have strained household budgets, pushing people to borrow against their credit cards to pay for necessities.

…click on the above link to read the rest of the article…

Inflation is a Policy. Gold Does Not Reflect Monetary Destruction, Yet

May 19, 2024

Inflation is a Policy. Gold Does Not Reflect Monetary Destruction, Yet

The money supply is rising again, and persistent inflation is not a surprise. Inflation occurs when the amount of currency increases significantly above private sector demand. For investors, the worst decision in this environment of monetary destruction is to invest in sovereign bonds and keep cash. The government’s destruction of the purchasing power of the currency is a policy, not a coincidence.

Readers ask me why the government would be interested in eroding the purchasing power of the currency they issue. It is remarkably simple.

Inflation is the equivalent of an implicit default. It is a manifestation of the lack of solvency and credibility of the currency issuer.

Governments know that they can disguise their fiscal imbalances through the gradual reduction of the purchasing power of the currency and with this policy, they achieve two things: Inflation is a hidden transfer of wealth from deposit savers and real wages to the government; it is a disguised tax. Additionally, the government expropriates wealth from the private sector, making the productive part of the economy assume the default of the currency issuer by imposing the utilization of its currency by law as well as forcing economic agents to purchase its bonds via regulation. The entire financial system’s regulation is built on the false premise that the lowest-risk asset is the sovereign bond. This forces banks to accumulate currency—sovereign bonds—and regulation incentivizes state intervention and crowding out of the private sector by forcing through regulation to use zero to little capital to finance government entities and the public sector.

Once we understand that inflation is a policy and that it is an implicit default of the issuer, we can comprehend why the traditional sixty-forty portfolio does not work.

Does Inflation Lead To Civilizational Collapse? A Look At Rome

May 19, 2024

Does Inflation Lead To Civilizational Collapse? A Look At Rome

With the US national debt at $34 trillion and climbing, USD reserve status under pressure, inflation destroying standards of living, and the Biden administration stoking costly war on several fronts, perhaps it’s time for more thoughts on the Roman empire.

In a Tuesday thread posted to X, user ‘Culture Critic‘ (@Culture_Crit) posted a deep dive into the unraveling of the Rome in the 3rd century. Let’s jump in;

When Augustus slowed the expansion of the empire, wealth stopped flowing from conquered lands into the treasury. Managing expenditures (construction, armies, bureaucracy) became increasingly difficult.

Whenever costs exceeded tax income, emperors minted new coins to cover it. Mining precious metals increased the supply of gold and silver coinage.

Things remained pretty stable for two centuries…

But the army was an immense burden. In the mid-2nd century, it was 70% of the entire budget — half a million soldiers were on the payroll.

Then, crisis struck.

Frontiers across the empire came under attack in the 3rd century. Military expenses soared as entire provinces were being abandoned and their tax yields lost. Plus, the mines were drying up…

When soldiers’ wages could no longer be paid, “debasing” the currency was the only option.

Emperors issued new denarius (the silver coin troops were paid in) with less and less silver content — i.e., further increasing the money supply.

Nero had already begun clipping coins and diluting silver purity in 64 AD. The state soon got addicted to solving its problems this way — and lining the pockets of political insiders at the same time.

The denarius was down to 60% silver purity by the 3rd century AD. Of course, prices inflated with it.

Still, the state kept spending to maintain the illusion of prosperity, until things got really bad…

…click on the above link to read the rest of the article…

It’s Not Just Gold. This Is A Full-On Commodities Bull Market

May 19, 2024

It’s Not Just Gold. This Is A Full-On Commodities Bull Market

Which, ironically, is a good reason to be careful

First, uranium had a nice run. But it was all alone for a depressingly long time.

That changed a couple of months ago as gold, silver, and copper began runs of their own:

Nickel, meanwhile, has staged a nice recovery from its brutal late 2023 flash crash:

The point? This isn’t just gold breaking out of its trading range. We’re witnessing the launch of a broad-based commodities bull market. And history says that once such a thing gets started, it can persist for a very long time (on the following chart, CAGR stands for “compound annual growth rate”).

Another way of analyzing this trend is to compare commodities to equities. The next chart is a bit outdated but its point remains valid: Commodities are dirt cheap relative to the S&P 500, and if history repeats, gold, copper, etc., should outperform tech and financial stocks for another decade or two.

Keep a Cool Head

This is potentially a once-in-a-generation cycle, with “real” replacing “financial” in the esteem of momentum traders. But don’t jump in with both feet. The charts on this page contain multiple bull market corrections. And after the nice recent run, a double-digit percentage loss for many commodities won’t be surprising.

So continue to buy high-quality commodities stocks gradually via low-ball bids, dollar cost averaging, or put writing.

Yoyo Fed and Yoyo Markets

May 19, 2024

Yoyo Fed and Yoyo Markets

Once again, we have a report saying consumer sentiment is collapsing just as economists were projecting it would be continuing to float along, and once again we have a report of rising inflation, just as the Fed decided to reduce its fight against inflation by slowing down QT to save the federal government from its overwhelming debt financing burden, and once again we have an actual voting Fed official saying the Fed may have to raise rates. Yet, all of that has been OK apparently, since, once again, stock and bond markets have shot up in a buying frenzy because, once again, Fed Chair Jerome Powell filled them with his hot air so they would rise again on the hopes that rate cuts still might be coming this year.

So, the delusion in markets, continues intensely, causing investors to take back more of the financial tightening in the last three weeks that the Fed had finally put back into place, undoing, ONCE AGAIN, the premise Powell rested his hope of rate cuts on back in November, which was that the markets were doing enough tightening on their own that the Fed could stop its own inflation fight sooner. This is the second time he’s undone that tightening by markets; so, we’ll see more inflation and a worse inflation fight down the road because Powell has encouraged the markets to loosen financial conditions with his false hopes.

Consumers get what the Fed doesn’t

The University of Michigan Survey of Consumers sentiment index for May posted an initial reading of 67.4 for the month, down from 77.2 in April and well off the Dow Jones consensus call for 76.

…click on the above link to read the rest of the article…

Orange Juice Prices Primed For Breakout After Forecast Warns Brazil Set For Worst Harvest In Decades

May 19, 2024

Orange Juice Prices Primed For Breakout After Forecast Warns Brazil Set For Worst Harvest In Decades

Breakfast lovers are in for another jolt as orange juice prices surge to near-record levels. A new report released on Friday indicates that Brazil, the leading global exporter of OJ, is facing its worst harvest in over three decades. This alarming development compounds existing issues in Florida’s citrus groves, which have been plagued by disease and are experiencing collapsing production levels to the lowest in decades.

Fundecitrus wrote in a note that Brazil will produce 232.4 million boxes—each weighing about 90 pounds—for the growing season this year. That’s a 24% collapse from a year earlier and the lowest production levels in 36 years.

“Excessive heat brought stress to orange trees during a crucial period of flowering and early fruit formation between September and November last year. Further hurting output is an increase in citrus greening, a disease that causes fruit to prematurely drop from trees,” Bloomberg wrote, commenting on the report.

The report sparked additional fears about a worsening global OJ shortage.

In markets, prices of concentrated OJ futures in New York surged as much as 5% on Friday, closing up about 3% to $394 and only 8% off the record high of $425.

Sliding production in Brazil could soon impact US retail prices at the supermarket, considering Florida has yet to stage a significant comeback in production.

In the last year, the US has ramped up imports of OJ from Brazil to mitigate losses in Florida.

Don’t worry. Federal Reserve Chair Jerome Powell has everything under control on the food inflation front, as the prices of OJ, coffee, eggs, and cocoa have hyperinflated.

Watch OJ futs in NY into the new week.

Even The Millionaires Are Fed Up

May 19, 2024

Even The Millionaires Are Fed Up

How to speak to a hostile crowd

Some weeks ago, I was sitting on stage with an economist from the World Trade Organisation and a banker from UBS. We were opening a small, one-day conference for the private aviation industry, and I had been invited to challenge the prevailing macro-economic forecast. I had been surprised to receive the invitation, to say the least, and asked the woman organising the event if she was sure she wanted me there. She laughed: “Hell yeah!” So off I went to the Swiss Alps—by train, of course—to calmly and assuredly explain to a hostile audience that the excellent economic forecast provided was awfully narrow in scope when you factor in resource scarcity, geopolitical instability, nuclear war, climate tipping points and the illusion of material decoupling. In sum, we’re heading for economic collapse by 2050, I said.

The banker disagreed. I told him perhaps he should look at the data before forming an opinion. He recoiled as if I had slapped him, and I wondered how often he is around people who disagree with him. The economist from the WTO offered a middle ground, focusing on the necessity of economic development, and using it as a reason to warn against the injustice of degrowth. I smiled wanly and gave the correct definition of degrowth as a redistribution mechanism to develop the majority world whilst reducing the output of the global north.

Then someone from the audience, fed up with my negative outlook, shouted out that he didn’t necessarily disagree with everything I was saying but he wanted solutions! He’s a capitalist, for god’s sake! What, did I just want to throw away capitalism?

…click on the above link to read the rest of the article…

Dear Jerome Powell, Is Everything Under Control? Spotlight Gold and Silver

May 19, 2024

Dear Jerome Powell, Is Everything Under Control? Spotlight Gold and Silver

The US stock markets are all at record highs, gold is at a record high, and silver is at the highest price since 2013. Welcome to the everyone wins market, no craps allowed.

Congratulations to silver bulls, copper bulls, gold bulls, S&P 500 bulls, Nasdaq bulls, Dow bulls, and US housing bulls?

Did I leave anything out?

Record High on Gold

Gold’s Strongest Move In a Year Was When the Dollar Was Rising

Gold and the US dollar are not as inversely correlated as widely believed. Sometimes gold and the dollar move strongly in the same direction. Let’s discuss why.

Gold and US Dollar charts courtesy of StockCharts.Com, annotations by Mish.

On April 11, 2024, I noted Gold’s Strongest Move In a Year Was When the Dollar Was Rising

Gold’s strongest move in over a year started in March with the US dollar index generally moving higher.

Gold vs the US Dollar

Charts courtesy of Stockcharts.Com, annotations by Mish

Gold vs the US Dollar Synopsis

Contrary to widespread myth, gold is not a good US dollar hedge.

With the US dollar Index at 90, gold has been at $380, $1000, $1130, and $1900.

And there are times when gold and the dollar rise together.

When Does Gold Do Best?

In general, gold is a poor inflation hedge. The best example is gold fell from$850 to $250 per ounce with inflation every step of the way.

In the mid-to-late 1990s, everyone thought “The Maestro”, Alan Greenspan, had everything under control. In such periods, gold is among the worst assets to hold.

Gold is best viewed not as a hedge against inflation but a hedge against credit stress, stagflation, and faith in central banks.

Is Everything Under Control?

Hello Jerome Powell. Sorry for asking, but we need to know: Is everything under control?

…click on the above link to read the rest of the article…

Why you can’t win an argument with a Neoclassical

May 19, 2024

Why you can’t win an argument with a Neoclassical

I’ve been arguing with Neoclassical economists for over fifty years, without ever getting a concession from them that I was right, even when there was overwhelming logical or empirical evidence on my side.

Recently, I’ve realised why. It’s because they don’t read—really read—critical literature. Instead, they skim it, looking for anything they can use to dismiss your argument. Once they find something that satisfies them, that’s the end of the matter: they turn off completely because, from their point of view, they’ve already won the argument. They’re not engaging with you: they’re looking for some excuse, no matter how trivial, to dismiss you.

This particular lightbulb clicked on for me in a Twitter exchange with the CATO Institute economist George Selgin. It’s a superb example of this general rule, because there are no matters of contentious economics involved. I don’t need to persuade anyone of some economic proposition, which is contrary to accepted wisdom, to expose how they behave in an argument. All you have to be able to do is comprehend English.

The back story is that George wrote a critique of the empirically realistic theory that banks are not primarily intermediaries in lending, but instead they are primarily money creators:

Banks Are Intermediaries of Loanable Funds

I read his paper very carefully, and wrote a detailed reply (with an admittedly cheeky title):

Selgin’s Hot Air on Bank Money Creation (on Patreon; on Substack)

George then wrote a tweet thread in response to my criticisms, in which he said that:

First, Steve says that I “ignore[] banks borrowing from non-banks, and then on-lending these funds to other non-bank borrowers,” as if I claimed that banks fund their lending only by borrowing from other banks. (https://x.com/GeorgeSelgin/status/1788655373840248925)

…click on the above link to read the rest of the article…

Is China Dumping US Treasuries and Buying Gold? Bloomberg Says Yes, Pettis Uncertain

May 18, 2024

Is China Dumping US Treasuries and Buying Gold? Bloomberg Says Yes, Pettis Uncertain

Bloomberg reported that China is selling a record amount of US debt while buying gold. Previous reports of debt selling were false. Let’s check in with Michael Pettis at China Financial Markets for another opinion.

China Sells Record Sum of US Debt

Bloomberg reports China Sells Record Sum of US Debt Amid Signs of Diversification

China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist.

Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium, often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period.

China’s investments in the US are garnering renewed investor attention amid signs that tensions between the world’s largest economies may worsen. President Joe Biden has unveiled sweeping tariff hikes on a range of Chinese imports, while his predecessor Donald Trump said he might impose a levy of more than 60% on Chinese goods if elected.

“As China is selling both despite the fact that we are closer to a Fed rate-cut cycle, there should be a clear intention of diversifying away from US dollar holdings,” said Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence. “China’s selling of US securities could speed up as US-China trade war resumes” especially if Trump returns as president, he said.

China is Buying Gold

One part of the story is not in question. That part pertains to China buying gold.

Is China Dumping US Debt?

I asked Michael Pettis that question yesterday. Pettis graciously replied with an email this morning plus a five-part Tweet.

…click on the above link to read the rest of the article…

Doug Casey on the Relentless Rise of Taxes, Regulations, and Inflation

May 18, 2024

Doug Casey on the Relentless Rise of Taxes, Regulations, and Inflation

International Man: Almost every government worldwide is moving to increase taxes and regulations on its citizens while at the same time engaging in ever-increasing currency debasement.

What do you think of this trend, and where is it going?

Doug Casey: Higher taxes, more money printing, and more regulations are long-standing trends. The cat first got out of the bag with the French Revolution and the triumph of the Jacobins, who wanted to collectivize French society. They almost succeeded. Not many years later, Karl Marx wrote The Communist Manifesto and Das Capital, letting another feral meme loose into society. The idea that the State was a good thing and should grow is now everywhere.

With the turn of the 20th century, roughly 120 years ago, governments all over the world created central banks and the income tax. They started small but have become behemoths, funding welfare and warfare. Both things are highly destructive. In the 19th century there was no welfare and very few wars, because wars are expensive. Governments were hard-pressed to extract adequate revenue from their populations for fighting.

Like all living creatures, the prime directive of the State is to survive and grow. But the State is unique. The State, as Mao said, comes out of the barrel of a gun. Since it’s based on coercion, it’s only natural that some form of socialism would be its preferred way to organize society. Currency inflation, income taxes, and debt have enabled governments to get completely out of control. The prognosis is not good.

International Man: There seems to be a coordinated effort to increase capital gains taxes.

For example, Canada just announced an increase in the capital gains tax from 50% to 67%. President Biden has proposed increasing the US capital gains tax to 44.6% and adding a tax on unrealized capital gains.

…click on the above link to read the rest of the article…

Why The Gold Rush Is Just Beginning, In Six Charts

May 18, 2024

Why The Gold Rush Is Just Beginning, In Six Charts

A lot of embarrassed investment advisors out there…

Gold blew through $2400/oz this morning:

And the world’s central banks continue to add gold to their monetary reserves. Note that the real action coincided with the outbreak of the Ukraine war, when the US started slapping sanctions on everyone in sight. De-dollarization is a trend with legs.

A case can be made that China alone is driving the current gold bull market. Note how the metal’s price tracks the increase in People’s Bank of China gold reserves.

Silver just pierced its 5-year resistance. If it holds above $30/oz, $35 becomes the next big test.

One of the problems with gold miner stocks has been the fact that mining costs are rising, which offsets some of the benefits of a higher gold price. But that’s changing, as gold rises faster than mining costs, widening miners’ margins and lighting a fire under their stocks. See Finally, Some Good-Looking Gold/Silver Miner Charts.

The Next Price Driver

Is the gold rush played out? Well, 98% of mainstream investment advisors currently have less than 5% of their clients’ money in precious metals. Imagine all the tense upcoming meetings in which clients demand to know why they don’t own the year’s best-performing assets — and advisors apologize and promise to add gold to their mix. Just 1% of global investible capital flowing into gold would send it to the moon.

Precarious: One Misfortune Away from Insolvency

May 18, 2024

Precarious: One Misfortune Away from Insolvency

As a result, a significant percentage of households that are considered middle-class are one misfortune away from insolvency.

We can summarize the changes in our economy over the past two generations with one word: precarity, as life for the bottom 90% of American households has become far more precarious over the past 40 years, despite the rising GDP and “wealth” as measured in phantom capital.

This reality is expressed in the portmanteau word precariat, combining proletariat (someone whose livelihood comes from their labor) and precarious: outside of government employment, work has become far more precarious. Where it was still common 40 years ago to work for a company for much or most of one’s career and have a private-sector pension, now private-sector pensions have vanished, replaced by self-managed 401K funds, and private-sector work is characterized by a series of not just job changes but career changes.

The source of one’s livelihood can dry up and blow away almost overnight, and to fill the hole many turn to gig-work with zero benefits that saddles the worker with self-employment taxes (15.3% of all earnings, as the “self-employed” gig worker must pay both the employee and the employer shares of Social Security-Medicare payroll taxes).

This isn’t true self-employment, of course, as true self-employment means the owner-worker can hope to extract the full value of their labor; in contrast, much of the value of the gig work is skimmed off by corporate platforms (Uber et al.). The gig worker is a precariat wage-slave, not a self-employed owner of their own labor and enterprise.

Forty years ago, households with healthcare insurance being driven into bankruptcy by medical bills was unknown. Now this is commonplace. We’re forced to ask, what exactly does “insurance” even mean if our share of the medical bills is so burdensome that we’re forced into insolvency?

…click on the above link to read the rest of the article…

Birth Dearth or Baby Boom?

May 18, 2024

Birth Dearth or Baby Boom?

A new debate on where global population may be headed

Writing in the Wall Street Journal earlier this week Greg Ip and Janet Adamy explored the possibility that the world’s population may peak and begin to fall far sooner than demographers have previously projected:

The world is at a startling demographic milestone. Sometime soon, the global fertility rate will drop below the point needed to keep population constant. It may have already happened.

Fertility is falling almost everywhere, for women across all levels of income, education and labor-force participation. The falling birthrates come with huge implications for the way people live, how economies grow and the standings of the world’s superpowers.

The United Nations, in its World Population Prospects 2022, projected in its medium variant scenario that global population would peak in the 2080s at about 10.4 billion people. The WSJ reports that figure represents a substantial drop from U.N. projections just five years earlier: “In 2017 the U.N. projected world population, then 7.6 billion, would keep climbing to 11.2 billion in 2100.”

The Institute for Health Metrics and Evaluation (IHME) at the University of Washington in 2020 projected a global population in 2100 of about 1.5 billion less than the United Nations:

In the reference scenario, the global population was projected to peak in 2064 at 9.73 billion (8.84–10.9) people and decline to 8.79 billion (6·83–11·8) in 2100.

Both the U.N. and IHME foresee projected 2100 population to be less than demographers had previously projected. The trend in population projections for these organizations is down.

In contrast, the International Institute for Applied Systems Analysis (IIASA) in a recent update to its Shared Socioeconomic Pathways scenarios increased its 2100 population projection by more than 1 billion people in its “middle of the road” scenario:

…click on the above link to read the rest of the article…

How Powell Destroyed His Inflation War as he Eats the Poor

May 18, 2024

How Powell Destroyed His Inflation War as he Eats the Poor

I’m going to save discussion of today’s CPI report for my Deeper Dive this weekend because it requires digging deep into the numbers involved in the report to show why it is not the game-changer for the new trend in inflation that the stock market made it out to be today. Not even close. It could, of course, become a first blip in the direction of a new downward trend against the rising trend for inflation that has held all year, but this year’s trend, so far, remains firmly anchored.

Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…

that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”

In fact, another article out today claims, as I’ve been claiming here, that Fed policy is not restrictive at all; and that’s the interesting point for the day I want to focus on as I think the article says it well:

Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.

HOWEVER …

After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong…

…click on the above link to read the rest of the article…

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