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Last week we detailed BofA’s Michael Hartnett’s warning that “The Fed will tighten until something breaks”.

Well, something just broke…

SVB’s collapse – the second biggest US bank failure in history – dominated any reaction to this morning’s mixed bag from the BLS (hotter than expected earnings growth, rising unemployment (especially for Latinos), better than expected payrolls gains).

Things started off badly as SVB crashed 65% in the pre-market before being halted. SVB bonds were puking hard and when the FDIC headline hit, the bonds collapsed further…

Source: Bloomberg

A number of small/medium sized banks were clubbed like a baby seal…

Source: Bloomberg

And the KBW regional bank index crashed (down 9 of the last 10 days and 20% in that period). The 18% drop this week was the index’s worst drop since Lehman (Sept 2008)…

Source: Bloomberg

And as you’ll see below, that started to have some notable impacts on the most arcane of global systemic risk red flag signals…

TED Spread at YTD highs (systemic risk rising)
Global USD Liquidity tightest in 2023 (foreigners paying up for USDollars)
Global Bank Credit Risk rising

The worst week for stocks in 2023… On the week, all the US majors were down hard with Small Caps crashing 9%, S&P, Dow, and Nasdaq over 4% lower…

The Dow has been underwater on the year for over a week and is now down 4% in 2023. Today’s ugliness smashed the S&P 500 and Russell 2000 down to unchanged on the year…

Source: Bloomberg

All the US Majors are now back below their 200DMAs…

Unsurprisingly, financials were the week’s biggest sector laggards but all were red on the week…

VIX exploded higher on the day, back above 28 and recoupling with equity weakness…

Source: Bloomberg

…click on the above link to read the rest…

Central Bank Digital Currency Prison – Catherine Austin Fitts

March 7, 2023

Central Bank Digital Currency Prison – Catherine Austin Fitts

Catherine Austin Fitts (CAF), Publisher of The Solari Report, financial expert and former Assistant Secretary of Housing (Bush 41 Admin.), says the Central Bank Digital Currency (CBDC) is much easier said than done. There is a monster fight behind the scenes between commercial banks and central banks. CAF explains, “You have bubbled an entire economy, and now you are bringing out something (CBDC) that could shrink the bubble dramatically, and it can put a lot of banks out of the game and out of the business. If the central banks are going to compete directly for retail accounts, it’s going to shrink the fees and business for a lot of banks. You are talking about cutting their income or putting them out of business. So, CBDC is highly controversial. One reason is people are beginning to wake up and realize, oh, I am no longer an insider. CBDC is going to turn me into a slave, and they are going to be able to take all my assets. You think they could lock you down during the pandemic? The CBDC is the ultimate lockdown tool, and they can lock anyone down whenever they feel like it.”

The Fed’s biggest fear is losing control of the financial system. CAF says, “The Fed is scared to death of the global debt growth model, and they kept this model going by growing the debt more and more and more. Now, interest rates are accelerating in a way . . . it shrinks your productivity. So, the pie that is supporting the debt, is shrinking. . . . This is a coup model just like in Ukraine. You push all the people out or you kill them. You have war conditions so you can pick everything up cheap. You can do this with government money to ‘help’ Ukraine….

…click on the above link to read the rest…

Fed Fears Complete Economic Collapse – Peter Schiff

February 27, 2023

Fed Fears Complete Economic Collapse – Peter Schiff

Money manager and economist Peter Schiff said in October the Federal Reserve “could NOT win the fight on inflation by raising interest rates.” As inflation just turned up anew, it looks like he was right—again. Schiff explains, “Based on the recent data we got . . . the inflation curve has bent back up. The months of declining inflation are in the rearview mirror. Now, we are going to see accelerating inflation . . . and I think before the year is over, we are going to take out that 9% inflation high last year in year over year CPI (Consumer price Index) . . . and what that is going to show is what the Fed has done thus far in its inflation fight is completely ineffective. If the Fed is serious about fighting inflation, and I do not believe it is, it’s going to have to fight a lot harder than it has. Interest rates need to go up much higher than anybody thinks, but that alone is not going to do the trick. We also have to see a big contraction in consumer credit and lending standards rising so consumers can’t keep spending. . . . Consumers are running up credit card debt. That is inflationary. That is an expansion of the supply of credit.”

It gets worse when the Fed has to save the economy again. Schiff predicts, “I think the Fed is going to have to throw in the towel on the inflation fight because it will be fighting something it fears more, which is a complete economic collapse. . . .The federal government may be legitimately forced to cut Medicare and Social Security instead of illegitimately cutting it through inflation. . . .We have this collapsing standard of living, but think about it as a tax. This is what Americans are paying…

…click on the above link to read the rest…

Monetary Policy. Is The Fed Trying To Wean Markets Off Of It?

January 20, 2023

Monetary Policy. Is The Fed Trying To Wean Markets Off Of It?

Is the Fed trying to wean the markets off monetary policy? Such was an interesting premise from Alastair Crooke via the Strategic Culture Foundation. To wit:

“The Fed however, may be attempting to implement a contrarian, controlled demolition of the U.S. bubble-economy through interest rate increases. The rate rises will not slay the inflation ‘dragon’ (they would need to be much higher to do that). The purpose is to break a generalised ‘dependency habit’ on free money.”

That is a powerful assessment. If true, there is an overarching impact on the economic and financial markets over the next decade. Such is critical when considering the impact on financial market returns over the previous decade.

“The chart below shows the average annual inflation-adjusted total returns (dividends included) since 1928. I used the total return data from Aswath Damodaran, a Stern School of Business professor at New York University. The chart shows that from 1928 to 2021, the market returned 8.48% after inflation. However, notice that after the financial crisis in 2008, returns jumped by an average of four percentage points for the various periods.“

Monetary, Monetary Policy. Is The Fed Trying To Wean Markets Off Of It?

We can trace those outsized returns back to the Fed’s and the Government’s fiscal policy interventions during that period. Following the financial crisis, the Federal Reserve intervened when the market stumbled or threatened the “wealth effect.”

Many suggest the Federal Reserve’s monetary interventions do not affect financial markets. However, the correlation between the two is extremely high.

The result of more than a decade of unbridled monetary experiments led to a massive wealth gap in the U.S. Such has become front and center of the political landscape.

It isn’t just the massive expansion in household net worth since the Financial Crisis that is troublesome. The problem is nearly 70% of that household net worth became concentrated in the top 10% of income earners.

…click on the above link to read the rest…

Want to Know Where the Economy Is Going? Watch The Top 10%

January 19, 2023

Want to Know Where the Economy Is Going? Watch The Top 10%

Should the wealth effect reverse as assets fall, capital gains evaporate and investment income declines, the top 10% will no longer have the means or appetite to spend so freely.

Soaring wealth-income inequality has all sorts of consequences. As many (including me) have noted, the concentration of wealth and income in the top 0.1% has enabled the few to buy political influence to protect their interests at the expense of the many and the common good.

In other words, extreme wealth-income inequality dismantles democracy. There is no way to sugarcoat this reality.

But the concentration of wealth and income isn’t limited to the top 0.1% or top 1%. The top 5% and top 10% have increased their share of household wealth and income, too, and this has far-reaching consequences for the economy, as the top 10% accounts for the bulk not just of income but of spending.

According to the Federal Reserve, ( Distribution of Household Wealth in the U.S. since 1989), the top 1% owned 22.7% of all household wealth in 1989. Their share increased to 30.6% in 2022. The share of the 9% below the top 1% (90% to 99%) remained virtually unchanged at 37.4%. The top 10% own 68% of all household wealth.

But this doesn’t reflect the real concentration of income-producing assets, i.e. investments. Total household wealth includes the family home, the F-150 truck, the snowmobile, etc. What separates the economic classes isn’t their household possessions, it’s their ownership of assets that generate income and capital gains.

As the chart below shows, the top 10% own the vast majority of business equity, stocks/bonds and income-producing real estate, between 80% and 90% of each category.

This means the tremendous increases in asset valuations of the past two decades have flowed almost exclusively to the top 10%, with the important caveat that the vast majority of the gains in income and wealth have flowed to the top 0.1%, top 1% and top 5%.

…click on the above link to read the rest…

The Fed Is a Purely Political Institution, and It’s Definitely Not a Bank.

January 17, 2023

The Fed Is a Purely Political Institution, and It’s Definitely Not a Bank.

Those who know Wall Street lore sometimes recall that Fed chairman William Miller—Paul Volcker’s immediate predecessor—joked that most Americans believed the Federal Reserve was either an Indian reservation, a wildlife preserve, or a brand of whiskey. The Fed, of course, is none of those things, but there’s also one other thing the Federal Reserve is not: an actual bank. It is simply a government agency that does bank-like things.

It’s easy to see why many people might think it is a bank. “Bank” is right there in the name of the twelve regional banks that make up the system: for example, the Federal Reserve Bank of Kansas City. The Fed also enjoys many titles that make it sound like a bank. It’s sometimes called the “lender of last resort.” Or it is sometimes called “a banker’s bank.” Moreover, many people often call the Fed “the central bank.” That phrase is useful enough, but not quite true.

Moreover, even critics of the bank often repeat the myth that the Federal Reserve is “a private bank,” as if that were the main problem with the Federal Reserve. And then there are the economists who like to spread fairy tales about how the Fed is “independent” from the political system and makes decisions based primarily on economic theory as interpreted by wise economists.

The de facto reality of the Federal Reserve is that it is a government agency, run by government technocrats, that enjoys the benefits of being subject to very little oversight from Congress. It is no more “private” than the Environmental Protection Agency, and it is no more a “bank” than the US Department of the Treasury.

It’s a Purely Political Institution

…click on the above link to read the rest…

Peter Schiff: Inflation Is Going to Win the War

January 17, 2023

Peter Schiff: Inflation Is Going to Win the War

The CPI data for December buoyed markets and raised hopes that the Federal Reserve is winning its war against inflation. But in his podcast, Peter explained that the Fed isn’t winning the war. It is losing and will ultimately surrender to inflation.

Markets rallied after the CPI data appeared to show further cooling in price inflation. Most people assume that means the central bank can be less aggressive and ease up on rate hikes in the coming year. And if there is enough progress, many people think the Fed will reverse course and start cutting interest rates later in 2023.

Peter said he agrees that there is a good chance the Fed will cut rates this year. And he thinks there is an even better chance the central bank returns to quantitative easing, whether it cuts rates or not. But this pivot won’t be because of a victory in the war against inflation.

No. They’re going to surrender. Inflation is going to win that war. The Fed is going to run to fight another battle — at least it’s going to try to fight because it’s going to lose that battle too. That battle is going to be recession, maybe financial crisis, maybe a battle to try to prop up the US government whose insolvency is becoming a bigger problem with rising interest rates.”

The US government continues to run massive budget deficits even as its interest costs rise. Interest payments on the debt rose 41% in 2022. According to the Peterson Foundation, the jump in interest expense was larger than the biggest increase in interest costs in any single fiscal year, dating back to 1962.

If interest rates remain elevated or continue rising, interest expenses could climb rapidly into the top three federal expenses. (You can read a more in-depth analysis of the national debt HERE.)

…click on the above link to read the rest…

15 Facts Which Prove That A Massive Economic Meltdown Is Already Happening Right Now

December 27, 2022

15 Facts Which Prove That A Massive Economic Meltdown Is Already Happening Right Now

Economic conditions just keep getting worse. As we prepare to enter 2023, we find ourselves in a high inflation environment at the same time that economic activity is really slowing down. And just like we witnessed in 2008, employers are conducting mass layoffs as a horrifying housing crash sweeps across the nation. Those that have been waiting for the U.S. economy to implode can stop waiting, because an economic implosion has officially arrived. The following are 15 facts that prove that a massive economic meltdown is already happening right now…

#1 Existing home sales have now fallen for 10 consecutive months.

#2 Existing home sales are down 35.4 percent over the last 12 months. That is the largest year over year decline in existing home sales since the collapse of Lehman Brothers.

#3 Homebuilder sentiment has now dropped for 12 consecutive months.

#4 Home construction costs have risen more than 30 percent since the beginning of 2022.

#5 The number of single-family housing unit permits has fallen for nine months in a row.

#6 The Empire State Manufacturing Index has plunged “to a reading of negative 11.2 in December”. That figure was way, way below expectations.

#7 In November, we witnessed the largest decline in retail sales that we have seen all year long.

#8 Even the biggest names on Wall Street are starting to let workers go. In fact, it is being reported that Goldman Sachs will soon lay off approximately 4,000 employees.

#9 The Federal Reserve is admitting that the number of actual jobs in the United States has been overstated by over a million.

#10 U.S. job cuts were 417 percent higher in November than they were during the same month a year ago.

#11 A recent Wall Street Journal survey found that approximately two-thirds of all Americans expect the economy to get even worse next year.

…click on the above link to read the rest…

No Surprise: Wall Street Wants to Raise the Target Inflation Rate above 2 Percent

December 14, 2022

No Surprise: Wall Street Wants to Raise the Target Inflation Rate above 2 Percent

Price inflation in the United States remains stubbornly high, with October’s print at 7.7 percent. The Fed’s preferred measure, so-called core inflation is only two-tenths of a percent below 40-year highs, at 6.3 percent. Yet, it was just last year that the Federal reserve and other “experts” were concerned that inflation wasn’t high enough. In January 2021, for example, Jerome Powell stated that the Fed wanted price inflation to run above the “2-percent goal” because it had run below 2 percent for too long. The 2-percent inflation target, of course, is the arbitrary target picked by the Federal Reserve (and many other central banks) as the “correct” inflation rate.

Now with inflation running near 40-year highs, many are wondering what will be necessary to bring price inflation back down to the target level. More specifically, how many hikes in the target interest rate will be necessary, and how severe of a recession will be required? Wall Street is especially interested in the answer to this question because Wall Street is no longer about fundamentals. Rather, the “market” depends overwhelmingly on how much easy money the central bank pumps out. Naturally, the banker class wants a return to “normal”—i.e., quantitative easing and ultralow interest rates—as soon as possible. Moreover, Washington wants the same thing since the political class wants low interest rates to help ease the path to ever more government debt and higher deficits.

It’s not the least bit surprising that we’re already hearing calls for the Federal Reserve to abandon the 2-percent inflation target and instead embrace even higher perpetual inflation rates. For example, last week Bank of America economist Ethan Harris suggested that the 2-percent target CPI inflation rate be raised. We’ve seen similar urgings from both the Wall Street Journal and from think tank economists in recent months.

…click on the above link to read the rest…

What Does the Fed’s Jerome Powell Have Up His Sleeve?

December 12, 2022

What Does the Fed’s Jerome Powell Have Up His Sleeve?

The Real Goal of Fed Policy: Breaking Inflation, the Middle Class or the Bubble Economy?

“There is no sense that inflation is coming down,” said Federal Reserve Chairman Jerome Powell at a November 2 press conference, — this despite eight months of aggressive interest rate hikes and “quantitative tightening.” On November 30, the stock market rallied when he said smaller interest rate increases are likely ahead and could start in December. But rates will still be increased, not cut. “By any standard, inflation remains much too high,” Powell said. “We will stay the course until the job is done.”

The Fed is doubling down on what appears to be a failed policy, driving the economy to the brink of recession without bringing prices down appreciably. Inflation results from “too much money chasing too few goods,” and the Fed has control over only the money – the “demand” side of the equation. Energy and food are the key inflation drivers, and they are on the supply side. As noted by Bloomberg columnist Ramesh Ponnuru in the Washington Post in March:

Fixing supply chains is of course beyond any central bank’s power. What the Fed can do is reduce spending levels, which would in turn exert downward pressure on prices. But this would be a mistaken response to shortages. It would answer a scarcity of goods by bringing about a scarcity of money. The effect would be to compound the hit to living standards that supply shocks already caused.

So why is the Fed forging ahead? Some pundits think Chairman Powell has something else up his sleeve.

The Problem with “Demand Destruction”

…click on the above link to read the rest…

Why Economic Models Neglect Energy, and Why That’s a Problem

November 30, 2022

War Cycle Heats Up & Markets Tank in 2023 – Charles Nenner

November 30, 2022

War Cycle Heats Up & Markets Tank in 2023 – Charles Nenner

Renowned geopolitical and financial cycle expert Charles Nenner said, back in September, the markets would sink and then go back up. Both calls happened right on time. What does Nenner see now? Nenner says, “Two days ago, we started to take profits again. So, we are not that bullish. . . . The public we have now do not understand bear markets. . . . They don’t understand that we can have rallies of 15% to 20%, and then it can go down again. . . . So, we took profit and we are mostly in cash again. We are long in the bond market for a change because it looks like inflation is going to moderate for a little bit. We are waiting for the gold cycles to bottom, and we are getting very close, but the bull market in gold will come, but it’s still going to take a few more weeks.”

So, are interest rates on the way down? Nenner says, “Yes, but for very short term. You might remember our interest rate cycles bottomed, and the cycle is up for the next 30 years. I expect interest rates to go back to where they were in the early 1980’s. . . . Longer term interest rates are going much higher. Right now, we have a bounce because commodities are weaker, and I think they will be weak until around February. This is probably why the Fed is not going to talk as aggressive as they were talking. This is still temporary and interest rates are still going to go much higher in the future.”

Nenner also says, “Mortgage interest rates will go to the 8% to 9% range in 2023. . . .and the stock market will go down by about 50%.”

…click on the above link to read the rest…

One Monetary Policy Fits All – Part II

November 30, 2022

One Monetary Policy Fits All – Part II

In Part one of this series, Our Currency The World’s Problem, we discuss the vital role the U.S. dollar plays in the global economy. With an understanding of the dollar’s role as the world’s reserve currency, it’s time to discuss how the Federal Reserve’s monetary policy machinations influence the dollar and, therefore, the global economy and financial markets.

Given the Fed’s recent extreme monetary policy actions, which haven’t been seen in over 40 years, it is more important now than ever to appreciate the potential global consequences of the Fed’s stern fight against inflation.

Triffin’s Paradox

In Part 1, we highlight the following two lines, which help describe Triffin’s paradox.

“To supply the world with dollars, the United States must consistently run a trade deficit. Running persistent deficits, the United States would become a debtor nation.”

“Simply the growing divergence between debt and the ability to pay for it, GDP, is unsustainable.”

Increasingly borrowing without the means to pay it off is unsustainable. The terms zombie company or Ponzi Scheme come to mind when considering such a system. That said, because the printer of the currency and taxer of its citizens is in charge, we can only ask how long the status quo can continue.

The answer is partially up to the Fed. The Fed can use QE and low-interest rates to delay the inevitable. As we now see, the problem is that those tools are detrimental when there is high inflation. Fighting inflation requires higher interest rates and QT, both of which are problematic for high debt levels.

Financial Tremors

The Bank of England is bailing out U.K. pension funds. The Bank of Japan uses excessive monetary policy to protect its currency and cap interest rates…

…click on the above link to read the rest…

Gold’s Climb Amidst Wisdom’s Decline

November 25, 2022

Gold’s Climb Amidst Wisdom’s Decline

As the latest headlines from the FTX implosion remind us yet again of a politicized and rigged market riddled with deception, gold’s climb becomes easier to foresee.

But first, a little philosophical musing…

Modern Policy: High Office, Low Wisdom

I have often referred to La Rochefoucauld’s maxim asserting the highest offices are rarely, if ever, held by the highest minds.

Nowhere has this been more apparent than among the halls of the physically impressive yet intellectually vacant Eccles Building on Constitution Ave in Washington DC, where a long string of Fed Chairs have been un-constitutionally distorting free market price discovery for over a century.

The media-ignored levels of open fraud and inflationary currency debasement which passes daily for monetary policy (namely monetizing trillions of sovereign debt with trillions of mouse-clicked Dollars) within the FOMC would be comical if not otherwise so tragic in its crippling ripple effect to the Main Street citizen.

From Greenspan to Powell, we have witnessed example after example of error after error and gaffe after gaffeon everything from mis-defining inflation narratives as “transitory” to re-defining a “recession” as non-recessionary.

And all this while the Fed (and its creative writing team at the BLS) simultaneously and deliberately fudges the math on everything from misreported CPI data to artificial U6 employment statistics.

Pondering the Philosophically Nobel Amidst the Administratively Dishonest

To any who have pondered the philosophical pathways (as well as elusive definition) of wisdom (from the ancient Greeks to the pre- and post-modern Europeans, romantic Emersonians, tortured Russians or enlightened Confucians), one common trait of wisdom through time, culture and language is the ability to admit, and then learn from, error–as any man’s journey is one riddled with countless opportunities for teachable error.

…click on the above link to read the rest…

The Regime Is Shifting, And Here’s What That Means

November 17, 2022

The Regime Is Shifting, And Here’s What That Means

Authored by Simon White, Bloomberg macro-strategist,

The macro landscape is changing. Inflation will remain in an elevated and unstable regime, but the first stage of the crisis is drawing to a close. That means the dollar in a downward trend, bonds in an upward trend, stocks underperforming bonds, and growth outperforming value.

Regime shifts can be almost imperceptible in real time, but in retrospect they mark fundamental turning points. Inflation today is going through one of these shifts, analogous to the 1970s. In that decade, inflation could be understood as a play in three acts, a drama that is likely to be repeated in this cycle.

In the first act, inflation makes new highs and the Fed tightens aggressively.
The second is when inflation begins to recede, allowing the central bank to pull back from tightening.
The final act is when we see inflation return with a vengeance, eliciting a Volcker-esque monetary response and a deep recession in order to fully snuff it out.

So what’s brought the curtain down on the first act? Three important indicators have made a decisive turn:

The market is now ahead of the Fed’s rate projections (the Dots)
The real yield curve is emphatically flattening
My Advanced Global Financial Tightness Indicator (AGFTI) is rising

All through this cycle, the market has been anticipating a lower peak rate than desired by FOMC members. That changed in the last couple of months, signaling that Fed hawkishness was peaking as the market was amplifying — not inhibiting — the Fed’s intended policy.

The real yield curve had steepened relentlessly as shorter-term real rates kept falling while the Fed rate lagged inflation. But the trend definitively turned in July, pointing to a peak in the dollar…

…click on the above link to read the rest…

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