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Peter Schiff: It’s Game Over if the Markets Call the Fed’s Bluff

Peter Schiff: It’s Game Over if the Markets Call the Fed’s Bluff

The Federal Reserve insists inflation is “transitory” and the economy is making “progress.” Yet, it continues with the extraordinary monetary policy it launched at the onset of the COVID-19 pandemic. Meanwhile, we’re seeing all kinds of data hinting that the economy may not be as great as advertised. Despite this, and even as prices continue to spiral higher, the Fed’s only monetary policy is talk. Peter breaks it all down on his podcast and drills down to the key question: what happens if the markets call the Fed’s bluff?

The July Federal Reserve meeting took center stage this week, but there was a lot of economic data that got lost in the shuffle. Peter said the data “really evidences the stagflationary environment that we’re in.”

On Wednesday, the trade deficit in goods data came out. It exceeded the high end of estimates and set another record high, rising 3.5% to $91.2 billion. Peter said he doesn’t think this record will last long.

These records are going to fall like dominoes. And this is not happening because we have a strong economy. It’s happening because we have a weak economy.”

A lot of mainstream pundits keep looking at these numbers as if they somehow reflect strength because Americans are buying so much stuff. But as Peter pointed out, the strength of an economy isn’t measured by what you buy but by what you produce.

Strong economies produce more. They don’t simply consume more. We are consuming more despite the fact that our economy is weak. How are we doing that? Well, the Fed is printing money and we are spending it. But that does not constitute strength. That really evidences profound weakness.”

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

Michael Pento: First Disinflation, Then Deflation, Then Big-Time Inflation

Michael Pento: First Disinflation, Then Deflation, Then Big-Time Inflation

Suddenly investors are panicked that (hyper)inflation is taking over.

But what if they’re mistaken? That could be a costly mistake if they’re betting their portfolio’s future on it. Because there’s a strong case to be made that we’re now actually entering a period of dis-inflation, one that has a high risk of tipping into outright deflation by next year.

To argue this, investment manager Michael Pento, who pulls no punches, joins Wealthion for this video explaining why the Fed and Congress don’t currently have sufficient air cover to continue the same magnitude of stimulus the market is now addicted to — and thus won’t be able to resume it until after the next painful market correction arrives.

Michael then proceeds to explain why the bond market is such a ticking time bomb right now for investors.

And, of course, he shares his views on his favored asset classes for each stage of the upcoming progression he sees:

1. first disinflation, then…

2. outright deflation, and then…

3. a hugely inflationary response from our central planners

Watch the full interview below:

Markets Next “Minsky Moment”

Technically Speaking: The Markets Next “Minsky Moment”

In this past weekend’s newsletter, I discussed the issue of the markets next “Minsky Moment.” Today, I want to expand on that analysis to discuss how the Fed’s drive to create “stability” eventually creates “instability.”

In 2007, I was at a conference where Paul McCulley, who was with PIMCO at the time, discussed the idea of a “Minsky Moment.”  At that time, this idea fell on “deaf ears” as markets were surging higher amidst a real estate boom. However, it wasn’t too long before the 2008 “Financial Crisis” brought the “Minsky Moment” thesis to the forefront.

So, what exactly is a “Minsky Moment?”

Economist Hyman Minsky argued that the economic cycle is driven more by surges in the banking system and credit supply. Such is different from the traditionally more critical relationship between companies and workers in the labor market. Since the Financial Crisis, the surge in debt across all sectors of the economy is unprecedented.

Markets Minsky Moment, Technically Speaking: The Markets Next “Minsky Moment”

Importantly, much of the Treasury debt is being monetized, and leveraged, by the Fed to, in theory, create “economic stability.” Given the high correlation between the financial markets and the Federal Reserve interventions, there is credence to Minsky’s theory. With an R-Square of nearly 80%, the Fed is clearly impacting financial markets.

Markets Minsky Moment, Technically Speaking: The Markets Next “Minsky Moment”

Those interventions, either direct or psychologicalsupport the speculative excesses in the markets currently.

Markets Minsky Moment, Technically Speaking: The Markets Next “Minsky Moment”

Bullish Speculation Is Evident

Minsky’s specifically noted that during periods of bullish speculation, if they last long enough, the excesses generated by reckless, speculative activity will eventually lead to a crisis. Of course, the longer the speculation occurs, the more severe the problem will be.

Currently, we see clear evidence of “bullish speculation” from:

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

Weekly Commentary: Dangerous Addiction

Weekly Commentary: Dangerous Addiction

July 20 – Reuters (Karen Pierog): “Risk-off sentiment that drove Monday’s sell-off on Wall Street and rally in U.S. Treasuries widened credit spreads on corporate bonds to multi-month highs. The spread on the ICE BofA U.S. High Yield Index, a commonly used benchmark for the junk bond market, spiked from 318 bps on Friday to 344 bps as of the last update late Monday, its highest level since late March, according to Refinitiv data. It was also the biggest widening in a day since last June.”
The S&P500 dropped 1.6% in Monday trading, as U.S. stocks followed global equities lower. The VIX Index spiked to 25, a two-month high, while 10-year Treasury yields dropped to a five-month low 1.17%. Germany’s DAX and France’s CAC 40 indices sank 2.6% and 2.5% – to lows since May. Hong Kong’s Hang Seng Index fell another 1.8%, with the Hang Seng China Financials Index trading this week at an eight-month low. Global “Risk Off” was gathering momentum.

July 20 – Bloomberg: “Fresh signs of a cash crunch at China Evergrande Group sent shares and bonds of the world’s most indebted developer to new lows on Tuesday, stoking fears of broader market contagion. The property giant’s stock tumbled to the lowest level since April 2017, extending its two-day loss to 25%. Several of Evergrande’s local and offshore bonds sank to records, with its dollar note due 2025 falling to as low as 54 cents. Bonds of other junk-rated Chinese borrowers declined, while a gauge of developer shares dropped to a nearly three-year low. The nation’s bank stocks also slumped.”

July 20 – Bloomberg (Rebecca Choong Wilkins and Alice Huang): “Rising concerns over the financial health of China Evergrande Group are weighing down the broader market of high-yield bonds as contagion fears rise…
…click on the above link to read the rest of the article…

Market Volatility Is Troubling, But This Is the Real Problem


If you were awake at all this week, you caught glimpses of the stock market drama. Maybe you tuned it out? Here’s a quick recap:

Monday. Huge sell-off, the worst one-day decline since October 2020.

Tuesday: Big rebound recaptured 80% of Monday’s losses.

Wednesday: Rally continues, Monday’s losses fully recouped.

Thursday: Stocks rise a bit, ended the day up.

Friday: All major indices up, near their record highs.

And that’s just the numbers… Financial media headlines were absolutely schizophrenic. We saw everything from “Dow Plunges on Covid Resurgence” and “Speculators Flee Suddenly Volatile Market” to “Wall Street Ends Higher, Powered by Strong Earnings, Economic Cheer.”

Economic cheer? Let’s take a closer look at that last article

It starts with the typical bullish post hoc rationalization for the market’s response: “robust corporate earnings and renewed optimism about the U.S. economic recovery fueled investor risk appetite.”

Yay Wall Street! Stocks tried to go down and failed, everything’s all better. Move along, nothing to see here…

Amid all the hysteria, there were a few interesting tidbits: this CNBC article and another published on Monday both emphasized market volatility. Both titles read like a PR firm’s damage control efforts: “Don’t make this mistake,” and “volatility can be a good thing.”

Don’t be afraid of volatility! It’s a good thing!

While volatility can be troubling for investors, experts caution against any hasty selling when markets fall. In addition, slumping stock prices can be a prime buying opportunity that investors should take advantage of.

Volatility is a “normal part of the process of investing.” And if your stocks go down, well, buy more of them!

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

“This Is The Biggest Bubble I’ve Seen In My Career” – Dems’ Infrastructure Spending Could Lead To Devastating Crash, Druck Warns

“This Is The Biggest Bubble I’ve Seen In My Career” – Dems’ Infrastructure Spending Could Lead To Devastating Crash, Druck Warns

This isn’t the first time billionaire investor Stanley Druckenmiller has warned that US markets are caught up in a “raging mania” fostered by the trillions of dollars in government spending. Druck, an acolyte of George Soros known for his macro investing prowess (even as he complains that contemporary Fed-backstopped markets “make no sense”) is a frequent guest on CNBC. But on Friday morning, he made a brief appearance on MSNBC’s Morning Show with Stephanie Ruhle, who seemed ill-equipped to respond to Druck’s arguments about why the Dems’ multi-trillion two-part infrastructure plan will end up hurting America’s poorest citizens.

Druckenmiller

As Druck explains, the “V-shaped” economic recovery has been “the sharpest recovery in history,” noting that it took 10 years for the American economy to achieve the same gains following the start of the Great Depression.

The problem is that the nearly $6 trillion allocated by Congress to combat the economic impact of COVID has been spent after the economy already finished recovering. The accelerating pace of inflation, and inability of certain businesses to hire lower-wage workers, are but byproducts of this.

Source: Committee for a Responsible Federal Budget

Moving on, Druck pointed out that the biggest economic crises of the last 100 years have largely been caused by asset bubbles and inflation. “Inflation is a tax the poor can’t afford or avoid,” Druck added.

Any further stimulus spending is intended to fix a problem that, in Druck’s words, “doesn’t exist anymore.” He added: “If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive spending in the middle of an already hot economy.”

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

Reset Means Crash of Epic Proportions – David Stockman (Revised)

Reset Means Crash of Epic Proportions – David Stockman (Revised)

Reagan White House Budget Director and best-selling author David Stockman says, “This is not the time to be invested in the markets . . . . A reset is just a pleasant name or a clinical name for a crash of epic proportions, which we will have because the markets are so inflated.  There are trillions of dollars that are at risk.  To put a dimension on this thing or a way of sizing this, is we have a $60 trillion bubble on the balance sheets of 130 million people in American society, but especially in the top 5% to 10% that own a huge share of the assets. . . . I have no thought about how big the correction will be, but if it were just back to the norm . . . it would be a $60 trillion correction, and that is a pretty big hole in the bucket.  If $60 trillion disappears (out of the U.S. economy), it changes everything.  It turns the financial system and economic reality upside down.”

How did things get so perilous in the economy?  Stockman says look no further than Washington D.C. and the Fed.  Stockman explains, “When central banks start to inflate like crazy, you first inflate financial assets.  It eventually works its way into goods and services, and that’s where we are now.  You get the second stage of inflation as well.  There has never been a small group of government officials, unelected at that, who have done more damage, more wanton harm to the economy and to the lives of ordinary people than (Fed Head) Powell and his merry band of mad money printers.  This is really an outrage.  I say these people are damn near criminally incompetent given what they say about the world, which is totally wrong, given what they’re doing, this massive money printing, which is totally unjustified. . .”

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

Crisis, Crash, Collapse

Crisis, Crash, Collapse

We have a fine-sounding word for running with the herd: momentum. When the herd is running, those who buy what the herd is buying and sell what the herd is selling are trading momentum, which sounds so much more professional and high-brow than the noisy, dusty image of large mammals (and their trading machines) mindlessly running with the herd.

We also have a fine-sounding phrase for anticipating where the herd is running: front-running. So when the herd is running into stocks, those who buy stocks just ahead of the herd are front-running the market.

When the Federal Reserve announces that it’s going to make billionaires even wealthier with some new financial spew, those betting that stocks will never go down because the Fed has our back are front-running the Fed.

There are two remarkable assumptions at the heart of momentum and front-running: The momentum herd and those front-running the herd base their behavior on the assumption that there will always be other rich people who will sell all the shares they want to buy at today’s prices before the run-up to new highs.

Front-running and the Greater Fool Theory

Since only rich people own stocks, we know that those selling stocks are selling to other rich people and those buying stocks are buying from other rich people. So the assumption of those front-running the market is that there is a large enough sub-herd of rich people who for whatever reason aren’t smart enough to front-run the herd, and who will foolishly sell their stocks just before they double in value.

The second assumption is that there will also be a large enough sub-herd of rich people who will buy all the shares they want to sell at the top, just before the bubble pops and the value of the newly purchased shares falls in half.

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

Cornered Fed Weighs Dilemma: Market Crash or Runaway Inflation?

The U.S. economy is at a fork in the road.

One route leads to the return of market fundamentals and sane stock valuations, at the cost of a historic market correction.

The other route leads to runaway hyperinflation that eats up the debt almost as fast as it devours the dollar’s buying power. That would likely cause the dollar to lose its hegemony as global reserve currency and bring about a simultaneous market collapse.

Here’s where we are, and where we might be going…

How did we get here?

For the most part, through Fed interventions that suppressed interest rates for the last 13 years, creating artificial demand for U.S. IOUs in the form of bonds, and generally maintaining an “easy money” policy. (And let’s not forget the hundreds of millions of stimulus checks, unemployment extensions, fraud-riddled Payroll Protection Program and the other boondoggles associated with the pandemic lockdown.)

Now, all this works great. For a while. The Fed came out of the Great Recession with $2 trillion on its balance sheet. Today, over a decade later, its balance sheet sits at $8 trillion. And climbing.

Let’s reiterate: This works great. For a while.

Junk-rated companies are able to borrow massive amounts of money (and spend it all on bitcoin, sure, why not?) at absurdly low rates, only 3% over the “safe rate” offered by Treasurys. Everyone who owns stocks made money, at least on paper. We’ve already watched stock valuations climb into the stratosphere as lockdown-addled day-traders took their stimmies to the Robinhood casino to play with the /WallStreetBets and AMC apes. We’ve seen home values skyrocket (15% annually in April 2021 and currently about 30% higher than the peak of the housing bubble).

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

Unstoppable Oil Could Be Nail In Coffin For Stocks

Unstoppable Oil Could Be Nail In Coffin For Stocks

Stock investors worried about inflation should pay close attention to the rising price of oil. It could be the final kick needed to derail the consumer-spending spree behind the U.S.’s surging growth. From groceries to housing materials to gasoline, life is getting expensive for the average American, even those lucky enough to hold on to their jobs through the pandemic.

Take food. In the last six months alone, the Bloomberg Agriculture Subindex has risen 20% — a margin not seen since 2010-2012. That was when the world’s supplies were roiled by a series of global weather events, including a severe U.S. drought and a massive Russian fire that destroyed some of the nation’s grain crop. Countries where bread is a staple, like Egypt and Tunisia, were hit badly. Geopolitical analysts say it helped set off the Arab Spring.

Not that anything so dramatic seems to be building up. But it’s worth realizing the real-world consequences of climbing raw material prices like we’re seeing right now.

Oil prices have returned to levels last seen in 2018 before the trade war with China began. In the first half of 2021, oil rose 45% on the heels of a gain of some 26% in the six months before. It’s now around $75 a barrel and strategists and trading houses are predicting it will hit $100. As much as it may help producers, it’s bad news for consumer-driven economies like the U.S.

That’s where it matters for stocks. Consumer spending is already moderating and the effects of the fiscal stimulus will likely roll off by September-end. Rising prices from groceries to gas will likely result in less spending and traveling. And that means less revenue — and likely earnings — for many segments of corporate America.

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

 

When Expedient “Saves” Become Permanent, Ruin Is Assured

When Expedient “Saves” Become Permanent, Ruin Is Assured

The Fed’s “choice” is as illusory as the “wealth” the Fed has created with its perfection of moral hazard.

The belief that the Federal Reserve possesses god-like powers and wisdom would be comical if it wasn’t so deeply tragic, for the Fed doesn’t even have a plan, much less wisdom. All the Fed has is an incoherent jumble of expedient, panic-driven “saves” it cobbled together in the 2008-2009 Global Financial Meltdown that it had made inevitable.

The irony is the only thing that will still be rich when the whole rotten, corrupt, fragile financial system of illusory stability collapses in a heap of runaway instability. The irony is that the Fed’s leaky grab-bag of expedient “saves” was not designed to ensure systemic stability, though that was the PR cover story.

The Fed’s leaky grab-bag of expedient “saves” had only one purpose: save the fat-cats, skimmers, scammers, fraudsters and embezzlers who had gotten rich off the Fed’s cloaked transfer of wealth: the purpose of all the 2008-2009 extremes was not to impose the discipline required to truly stabilize the financial system; the purpose was to elevate moral hazard— the separation of risk from the consequences of risk–to unprecedented heights, backstopping every skimmer, scammer, fraudster and embezzler from well-deserved losses as the entire pyramid of fraud collapsed under its own enormous weight of risky bets gone bad.

To save its cronies from the catastrophic losses that should have been taken by those making the bets, the Fed instituted one expedient “save” after another: backstopped global banks with $16 trillion, dropped interest rates to zero, eliminated truthful reporting by ending mark-to-market pricing of risk, flooded the financial system with free money for financiers, all designed to signal that the Fed will never let its cronies suffer the consequences of their risky bets, i.e. the perfection of moral hazard.

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

Economic Evolution Turns Many Comparisons Obsolete

Economic Evolution Turns Many Comparisons Obsolete

The financial system has entered uncharted waters and it would be wise to take nothing for granted. To assume the economy will move forward without a glitch in such an environment is  extremely optimistic. With time, things change and evolve, this transformation can be seen in both society and the economy. We are constantly bombarded with charts showing where things are going based on historical references but a question we must ask is just how relevant today’s comparisons are with prior economic cycles?Over the decades we have moved from an agricultural-based society to an industrial-centered economy where manufacturing and services have become the dominant way of making a living. Now, we are rapidly moving in the direction of technology becoming the main driver of the economy and it is creating a huge cultural change. The economy is again undergoing a metamorphosis. Over time, we tend to forget or minimize in our minds that throughout history the growing pains flowing from such a change tend to batter society from every direction. These transformations also create a great deal of noise making it difficult to understand what is happening.

Please consider the possibility the important adjustments the economy must make are lagging far behind our current “financial culture” or that the economy has evolved in a way that simply no longer works. Much of this has yet to become apparent to the masses and is masked by institutions papering over problems. A tradition of optimism has served mankind well, however, it has become clear something seems to be broken or out of kilter. It does not help that things like stock buybacks and outright fraud are creating a situation that could at any minute spin out of control. Making matters worse is that the general population is oblivious to this, and conditioned to accept whatever they are told. To many people, this is the new normal.

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

The long history of money

We are approaching a critical turning point in the history of financial systems.

Since the Great Financial Crisis, central banks have exerted control over the financial markets through their QE-programs and plan to extend their influence over the monetary system through the introduction of national digital currencies.  Opposing forces include, as usual, those of financial innovation, which include independent cryptocurrencies.

In the June issue of our Q-Review series, we will delve deep into the world of digital currencies and the future of monetary systems. To accompany our report, we intend to publish a series of blogs which examine the long history of monetary and financial systems.

Today we will start with a brief summary of the history of money.

The early days

Current archaeological research has established that the measurement of economic interactions, i.e. accounting, predates writing. The clay tablets discovered at the birthplace of Mesopotamia, the Temple of Uruk, were used as an accounting tool for commodities and even for human labor as early as 3100 B.C.

The foundations of banking practices were developed in Ancient Greece, in the harbor city of Piraeus, where the local bankers, or trapezitai, took deposits and provided loans. While borrowing and lending in commodities follows the principles of banking practices then in use in Mesopotamia, the establishment of the concept of a unified monetary value for all economic units, such as commodities, assets, services, human labor, etc. was created in Ancient Greece. This also made the eventual emergence of modern banking practices possible later.

Still, the first banks known that truly resembled modern banks operated in Imperial Rome. It has been said that Rome’s financial system was so sophisticated that it was matched only by the banking sector created during the Industrial Revolution over a millennium later.

Birth of fractional reserve banking

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

Translating Yellen-Speak into Golden-Speak

Translating Yellen-Speak into Golden-Speak

Given the increasingly politicized interplay (cancer) of central bank policy and so-called free market price discovery, it’s becoming increasingly more important to track the actions of central bankers rather than just traditional market signals alone.

Like it or not, the Fed is the market.

Toward this end, we’ve had some substantive fun deciphering the past, current and future implications of “forward guidance” from our openly mis-guided crop of central bankers, most notably Greenspan, Bernanke and Powell.

But let’s not forget Janet Yellen.

As we see below, translating Yellen-speak into blunt speak tells us a heck of a lot about the future.

The Open and Obvious Debt Crisis

Back in 2018, Janet Yellen (former Fed Chairwoman and current Treasury Secretary, eh hmmm) along with Jason Furman (current Biden economic advisor) observed in a Washington Post Op-Ed that, “a U.S. debt crisis is coming, but don’t blame entitlements.”

As I like to say, “that’s rich.”

As in all things economic, the motives and thinking coming out of DC are largely political, which means they are self-serving, partisan and predominantly disastrous.

As for translating Yellen’s political-speak into honest English, the motives for this 2018 warning were two-fold: 1) Yellen and Furman were making a partisan attack on Trump’s then $1T budget proposal, and 2) Yellen actually believed what she said and that the US was indeed careening toward “a debt crisis.”

In fact, we were already in a debt crisis in 2018, a crisis which has simply risen to much higher orders of magnitude in the three short years since Yellen’s “warning” was made.

Stated otherwise, Yellen will get her debt crisis. It’s ticking right in front of her.

Tracking the Debt Trail

Ironically, the most obvious metrics of the current and ever-expanding debt crisis began just months after Yellen’s infamous Op-Ed.

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

Don’t Go Picking Up Quarters in Front of a Steamroller

How did you go bankrupt?
Two ways. Gradually, then suddenly.
― Ernest Hemingway, The Sun Also Rises

Winning the lottery sounds like a dream come true, until you understand most people who win end up broke a few years later. (Most don’t invest their money properly to make it last.)

Everyone knows the possibility of making a large sum of money fast is a thrill, especially if you end up turning a small amount of money into a heap of cash. Maybe that’s why Americans on average spend over $1,000 a year on lottery tickets?

Now, you’re probably thinking that investing, especially saving for retirement, is completely different from buying a lottery ticket. Here’s the problem: your brain doesn’t really understand the difference.

When you win, whether it’s a $100 scratch-off prize, a Texas hold ’em pot or a great trade in your brokerage account, your brain rewards you. This psychological process is identical to gambling addiction. And it’s potentially just as destructive. Especially when it comes to investing or saving for retirement, gambling is a dangerous way to think Here’s why…

The way addiction works is just brutal. As Scientific American explains, over time the euphoria of winning decreases. People tend to risk more and more to recapture that feeling. And when a big bet goes wrong, you can get crushed by losses. Like a steamroller smashing your wealth into dust. Worse still, some “chase the high” by leveraging their investments on margin (and we’ve seen how that ends).

Which brings up an important question…

What makes these fast profit opportunities so tempting?

“Look! A shiny quarter! And there’s another one!”

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

Olduvai IV: Courage
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Olduvai II: Exodus
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