“The time has come for someone to put his foot down and that foot is me.” Dean Wirmer in Animal House
“You got pigeon shit in your eyes? You’re pathetic, you know that. You’re a disgrace to your profession.”
Well, the funny part of that exchange in the 1984 basketball movie Hoosiers was that Coach Dale played by Gene Hackman was trying to get kicked out of that game. He even told the ref as much. I think this scene shares a similarity to what we are seeing now in the financial markets, but everyone doesn’t realize it because they have short memories.
Powell doesn’t have pigeon shit in his eyes, you book talkers and buy the dip dips that are thinking we are going back to 2019 pivots. Yes, I realize that if I am wrong and Powell pivots like an ice skater, I am going to look like a total dumbass, but remember last summer at Jackson Hole? Powell promised pain, but no one wanted to listen, and the markets kept drifting higher.
Remember when Jeffrey Gundlach made his prediction that the bond market was in charge and that there was no chance we would get to 5%? The markets kept drifting higher. Remember when the banks bailed a few weeks ago and the markets built in rate cuts and said the Fed was done, and the markets went higher. Wrong, wrong, wrong. I said then and I will say it again, Jerome Powell will decide when this is over.
It is why he came back, and I think people underestimating the resoluteness of this man are going to be surprised and poorer come next year. We here at Bygone Relics have called him the last Jedi and our only hope. We have said that we hope he can do what he says he wants to do. Well, update time. He is starting to inflict pain as he said he would. He is making a lot of rich people very uncomfortable. He is being asked to resign, and I just laugh at these people. They have had a lifetime of easy money and one man comes along with a newspaper and pops them on the nose. He is making them crazy with his ability to say, no, no soup for you to quote the Soup Nazi from Seinfeld. This is a man that did not look comfortable in the question and answer period after the rate hike was announced Wednesday, but looks don’t matter, actions do. His actions are more QT and more rate hikes in the face of the banking crisis. He has the most unpopular job in America other than bathing Harvey Weinstein and critics on Twitter are going to sway him into changing course with twit twit demands or memes? Ha!
To quote Die Hard with a Vengeance “This, gentlemen, as they say, is where the plot thickens.” I will be the first to admit that we are in a real crap sandwich. We have inflation that has not been defeated, in fact it might be stickier and higher for longer, just like Powell said the rate hikes would be. But on the other hand, the pain is being felt.
Banks are going bankrupt, growth is slowing. Actually, before I continue, I have a real bone to pick with this narrative that banks are going broke, and Powell has now broken something and must pause or pivot. Powell has telegraphed this move from the beginning. The slow start that people criticized him for, the deliberate and telegraphed series of 75 basis point moves, the slowdown to 50 basis points was floated by Nick Timiraos in the Wall Street Journal well before it happened. Powell has done nothing surprising except do what he said he was going to do. Why are we blaming him instead of the bank management or the regulators?
Hey there people, I know you don’t believe that he can do what he says he is going to do, but you probably should prepare for that very scenario. What happened? Crypto banks went broke when the music stopped on that charade. Silicon Valley Bank locks in 30 year bonds at the lowest interest rates in the last 5,000 years? These are supposed to be the sharpest people in the world in Silicon Valley? A bank of blue jean bib bankers in BFE wouldn’t have been that dumb in farm country. I guess all the farmers needed was an app to finance a delivery service for the local donut shop to deliver an apple fritter to a guy in a tractor or a sugar beet truck to entice VC money. Seed money from the VC world was sitting in checking accounts well above the $250,000 insurance level limit.
No, the farmer drives to town, has his coffee and donut for $2.25 and gooses the waitress on the way out the door. He doesn’t use easy money and financial engineering to have it delivered where he can way $11. These banks deserved to fail for stupidity. NBA champion and MVP Giannis Antetokounmpo put his money in up to 50 banks to protect his money. This man was an immigrant to Greece with little schooling and didn’t even set foot in the United States until a decade ago. Somehow this street savvy hooper knew more about FDIC than the VC world, bank’s CFOs, and crypto geniuses. No, he simply paid attention and was careful with his money because he knew how precious it was. That is what the bailouts didn’t offer to the Silicon Valley Bank bailout recipients, a lesson. Much like America, rules and laws are to be ignored, but when something bad happens a tantrum is thrown, and we want justice. People like Giannis know what happens when there is no bailout. They know real pain, not inconvenience.
Powell didn’t force banks to make loans to real estate purchasers at levels when property prices were jumping 20% a year, when the government was printing money at the fastest level in history. No, the banks made those decisions, and they should not be rewarded for those foolish decisions. They should go broke, and just like the people that shouldn’t have been bailed out in the Silicon Valley Bank incident, they should learn a lesson and others should see this as learn a cautionary tale. Bad things can happen? In America, I have never seen it happen? No, I have seen such a thing. Well buckle up butter cup, because you are about to.
We spoke last year about zombie companies and if you listen real closely you can hear their problem. Tick tick tick. That’s right, that is time and the time before they have to refinance their shitty money losing operation at a rate that is about 5-7% higher than before will spell the end of stupid malinvestment that was only allowed because of the easy money and fraud that came from the Trump and Biden Covid helicopter money programs. If I have to hear one more sad ballad of a crypto company telling me that its shitcoin is a better technology and for smart people, I might actually give up and just start screaming, “I want to remain dumb, you gullible goldfish.”
To find out how this odd statement pertains to finance, go to over 20,000 cryptos are now in the dying wail of trying to find a chair in the musical chairs of gu gu gullibility, another Die Hard III reference haha! The zombie company is one that doesn’t generate enough revenue to pay its bills and interest expense and therefore relies on more financing. Silicon Valley Bank and the other banks failing have sent the message that new loans will be harder to come by. With 20% of the Russell 3000 index being zombies, I think it is bankruptcy season so watch out for more and more of those. The nice part about having a debt ceiling fight means that our broke government can’t bail out any more broke businesses. They will try though and might even manufacture a program with a fancy acronym to do so but we shall see. That is the one side of the equation, but I said we would discuss inflation as well.
The problem with inflation is that it isn’t going back to 2% and it likely won’t without a serious recession. That is ultimately what it did in the early 80s, not one recession but two. This was after Paul Volcker raised interest rates up to 20% and slammed the economy into a stall. People hated him for it, but this is what needs to happen now. As long as they tell us that we have a real estate shortage of homes, when every Pam Dick and Harry have 5 Airbnb’s that they rent out and use the proceeds to sit around and take pictures of their avocado toast and plan trips to Vegas pool parties, we will not get to where we need to go to. No, it will have to cut deep, the lines at Starbucks will have to disappear, the cruises will stop sailing so often, and Vegas will have to close casinos. Inflation is in all of those lines, planes, trains, ships, and casinos. It is in their wallets and their credit cards like a plague that just won’t die. The consumer mindlessly buying negative ROI consume now with no return later items. The fed has to vacuum up some of the money in the system.
There is another fly in this ointment that we have discussed before. The interest on the debt is now approaching $1T a year. Remember when we said that zombie companies were companies that couldn’t pay their bills and their interest expense on their debt? Welcome to the United States of America. Yes, that’s the statue of Liberty on your left and Manhattan up ahead and we might just big the biggest damned zombie of all. A zombie that hasn’t been told no for a very long long time. That spoiled child has grown up to be an undisciplined adult and doesn’t have the street smarts and fiscal discipline of a Giannis Antetokounmpo. No, we throw tantrums and demand bailouts instead. Bailed out by whom, I ask you? It seems Powell is their last hope too.
I apologize for the language but remain,
Sincerely Yours,
C Thomas Printer
This week’s financial tip
You have now seen how close the similarities are between now and 1893 or perhaps you think the 1970s or even the 1930s. Pick your disaster, we are approaching one, but it is difficult to understand how it might play out. Jamie Dimon, the nation’s biggest banker and CEO of JP Morgan, called it an approaching economic hurricane last year and like people familiar with hurricanes, it is time to board up the windows. That means, be prepared. By now, you should be on your way to having an emergency fund. When crises happen, it is usually because no one sees them coming. I believe that is because no one was looking. So, this week, let’s look. Look at your situation and see if you can pay off a debt sooner, can you get a second job to increase your savings? What would happen if you lost your job? What about if your government hits a debt ceiling and you missed your government check? What then? I want you to think about a plan B, then we will implement. This week’s homework assignment- What is one thing you can do to avoid your own crisis that no one else could see but you might because you are now looking and thinking?
On this date in history
108 years ago to be exact, a German submarine sank the British ship Lusitania, and that helped force the United States’ hand into entering World War I.
Born on this date in history
Former first lady and icon of Argentina, Eva Peron.
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