Just the Worst People
Derek Hunter +++ How Media Botched Coverage of the Waukesha Christmas Parade Massacre
Gabriella Hoffman ++++++++++++++++++++++++++++ ROSS RANTS AGAIN:
My favorite friends, the black swans, have reminded us they are never far away. Friday's rout reminds us that there is always the possibility of a black swan event just as you thought things were getting good. We will have to wait two weeks to know more about the new variant, but one thing is certain, it is not good news. Hopefully the US early move to get shots and boosters will work to help deter this new one from being a big problem here. Why Old Joe is waiting until Monday to shut down travel from Africa is mind numbing. If it is bad on Monday it is already bad. In the meantime don't rush for the exit. Monday might see new buying, and in any event Friday was holiday short trading session. There are other major issues described below.
Regardless of what the story turns out to be on Covid, here is how the economy and markets are likely to play out. Core PCE rose 4.1% over last year and food and energy PCE rose 5%. These are the highest since 1990. Energy rose 30%. That is a huge hit to low and middle income workers whose real wages are declining. These is very bad numbers. The durable goods inflation is up 8.8% over last year-the highest since 1980. This is not transitory inflation. Even with this Powell and Yellen act as though this too will pass soon. The savings rate dropped 1%, and consumer confidence dropped 4.4%. While the rate of price increases will moderate sometime next year, they will continue to rise as oil, rent and wages are not reduced, unless this new variant sweeps the world and forces new massive shutdowns, and economic disruptions. Oil will rise again. We will have to wait to see what happens.
So now, Powell stays in place, but has likely committed to the White House to be accommodative, and to push regs that force lenders and others to push on climate change. However the board has already recognized they may need to quickly reduce QE and raise rates much sooner than planned. Bad for stocks and especially for growth stocks. Brainard as vice chair, is the radicals person in a top position so Biden can look like he appeased both sides. She is left wing. Biden gets to name 3 more governors. You can bet everything you own that they will be a mix of female, black and maybe trans, or surely gay. Merit will not be a factor. Think Omorosa as Controller of the Currency joining with the left wingers to be named on the Fed, and banking will be in serious trouble if Omorosa is confirmed. You can also be certain the new Fed nominations will be left wingers who will push for the Elizabeth Warren policies of slam the banks with lots more regulation, and focus on climate change and "equality", whatever that means to a central bank that can regulate lenders, but does not make loans. They can force banks to again do subprime loans in the name of "equality", which will just recreate a new bad loan situation. With the new left wing head of FHFA, in charge of Fannie and Freddie, underwriting for low income homes will again go by the way side. They never learn. With Brainard and three new governors they are very likely to do just that. It is akin to the AMA decreeing licensing new doctors should not be based on merit anymore, but should be based on diversity. Same insane ideology basis. Wall St is completely failing to grasp what is about to happen, and what a bad choice Brainard is for vice chair. They are buying the White House lie that Powell means stability. Fact-he will be outvoted with the new Biden nominees in governor seats. The Fed has already waited too long, so will not be helpful in controlling inflation, and will constrain underwriting of commercial loans with massive new regs. Wall St is pricing in 3 rate hikes of 25BP each next year. That sounds about right
The Fed now needs to be raising rates by February, but they won't until May when inflation will be higher, or a lot higher if the BBB bill passes.
Here is where that report from the House of Lords comes in. Even without the BBB bill, the deficit is far too high and rising. If BBB passes, the reality is, taxes do not begin to cover it, and the make believe increased collections by the IRS will be an illusion. So Treasury will be issuing hundreds of billions of new bonds to cover the massive new deficit. The Fed will be the main buyer as the market is simply not wanting to absorb all that paper. Conclusion- the Fed will have lost independence. They will at some point have to be a buyer of a major amount of Treasury debt whether it makes good monetary policy or not. I believe they already lost independence this year by playing the inflation is transitory lie to get Powell renominated, and continuing QE far too long.
So what does this mean. All depends on if the BBB bill passes even close to what the House passed. Inflation will not be receding anytime soon, and maybe not until fall when we may be in recession. Rates will have to be raised at least twice next year, and likely three times. The Fed will now be a political partner with the White House since it will be impossible to fund the critical parts of government, and especially defense. The Fed will not be able, as a result, to raise rates to where they need to be as the interest cost to the government will get too high. If Fed Funds goes to a market rate, and then the ten year goes to say 4% over time, which is around its historic level, or more, then the government is faced with all the BBB spending requirements, which are really $4.6 trillion, plus funding other critical needs. This is the transition the Left and Biden talk about taking money from defense and other essentials to fund a vast entitlement society. They will have to raise taxes on the middle class to do that. Higher rates and heavy regulation of banks and business along with high taxes will in fact reduce total taxes as profits disappear and the stock market drops by 20%, or likely more, and as house prices drop
Here is why the stock market is at record levels. $900 billion was invested into ETF's ($785B) and long equity funds. That is more than the combined amount over the past 19 years per B of A. Along with near zero interest rates, the capital markets are flooded with capital pushing asset prices, including house to record levels. Add on the children investing through Robinhood and taking advice from bloggers on Reddit etc., and then crypto, and you have the definition of a bubble. There was far too much stimulus passed by Congress, especially that last $1.9 trillion in March which contributed a lot to inflation we now see.
Pension funds, in their effort to earn a decent return, have invested more heavily than normal in illiquid investments such as real estate, private equity and other non-liquid securities. There is some risk that a few of these funds might have a problem meeting demand for worker cash withdrawals.
So you understand the underlying White House and Dem economic policy basis, here is a direct quote to me from a friend who is a top consultant to the White House economic team, and directly involved in policy formulation. "The first priority is getting the economy back to full employment as fast as possible. ( Reality-We have more open jobs and the lowest new applications for unemployment in 50 years). This is accomplished in part by supporting high asset values, which supports consumer spending and investment. As the economy returns to full employment (Reality-we are probably already there based on the unemployment applications report), policy support should be reduced, interest rates normalize, (normal is a 4% or higher ten year) and asset values adjust. Of course, it is desirable if the adjustment in asset prices is slow and orderly, but there is clearly the risk that prices fall. (in my view there would be certainty- the market would drop by over 20%). There is a not inconsequential risk of a meaningful correction in stock prices, housing values and other asset prices as policy normalizes in 2022." That is consistent with my expressed views that 22 might be bad for stocks and house values. What is so concerning is the Dem push for their BBB bill which would just make the situation much worse. This person is all for the BBB bill.
In my opinion, all these - happy days are here again in 2022, forecasts from Wall St are dreams, or are marketing statements to push the market higher. Yes consumers and companies have huge cash reserves, and yes the economy is doing very well now, and Covid is receding in the US. GDP will be up more than most think in Q4, according to the Atlanta Fed, but then after the holidays consumers are being hit with huge increases in energy and gas costs, food costs, and rental costs, and they then cut back on other spending as inflation eats their paychecks. 25% have already told surveys they have cut spending, a record 11% say they are buying nothing for the holiday, and we are just getting started with inflation. Retail dollars may look good, but they are inflated dollars, and increased spending is mainly from upper income homes. Christmas will wipe out a chunk of 2022 new spend as the inflated costs eat into those savings, and as real wages fall further behind. It is very likely that December sales will appear to be lower than expected purely because it is very likely a sizable amount has been brought forward by all the publicity about shortages, and buy early. Total dollars spent will be high and good, but timing is the issue, so when December retail sales are announced that number may not reflect what was bought in November earlier than normal. Online sales are booming right now as early shopping is underway. This should be good for the big online companies. It would be good if they provided an inflation adjusted number of spend not including food and energy, plus the demographics.
I believe 2022 is not going to be a good year as the year progresses. By the time the Republicans take over in 23 it will be too late, and if they do not have 60 votes in the Senate they will be limited in reversing the bad stuff.
CA has refused to issue new fracking permits, and the US has just raised fees on drilling on federal land, so naturally US production is reduced and guess what-oil prices rise. The 50 million barrels Biden released is a drop in the ocean and much of that will go offshore as it is heavy crude. Another total BS political stunt by the White House that will do nothing. OPEC has already suggested it will reduce production to offset any increase in releases from the reserves. Does the White House understand anything about how markets work.
This will get your attention. There is a story now, which someone in DC in a real position to know, told me has a bit of truth. Harris is a total failure. She is now at real odds with the Biden team, and especially with Jill. The White House senior staff knows Joe is fading and failing, and will not last 4 years. The Dems know Harris cannot be their candidate in 24. The supposed plan is to somehow force out Harris, maybe appoint her to the Supreme Court, appoint Michele O as VP, and then have Joe resign, and make Michelle president. Then she runs against Trump in 24 and wins in a landslide as the first black female president. We then have two more terms of Obama. As my source said, hope to do, and doing, are very different, so don't assume this will really happen, but Joe is clearly declining even more. The Dems are assuming Trump could be the nominee again, and they know Harris would lose. This all makes perfect sense from the Dems viewpoint. For the Dems it is all about retaining power and solidifying it. The BBB bill to bribe voters, open borders to flood parts of the country with potential voters in local elections and who gets counted in the census, and HR1 to seal in mail-in ballots with very easily manipulated rules and no voter ID. All these machinations in the White House do not bode well for the stock market, nor for geopolitical ++++++++++++++++++++++
++++++++++++++++++++++++++++++++++ WHY DEMOCRATS ARE DUMBER THAN ROCKS FOR PERPETUATING SOCIALISM BECAUSE IT WORKS:
Teacher Fails Entire Class and explains why Socialism won't work, and always fails. This teacher is a GENIUS!
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, "OK, we will have an experiment in this class on this plan". All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (substituting grades for dollars - something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F.
As the tests proceeded, the scores never increased as bickering, blame, and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else. To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
These are possibly the 5 best sentences you'll ever read and all applicable to this experiment:
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. 2. What one person receives without working for, another person must work for without receiving. 3. The government cannot give to anybody anything that the government does not first take from somebody else. 4. You cannot multiply wealth by dividing it! 5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation. +++++++++++++++++++++++++++++++++++++++++
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