Looking Backwards…
LB #1
We recently mentioned that the markets were in a fragile place and it turned out the market listened. The Japanese Yen was at the important 150 level and the market went through that level as the Bank of Japan kind of eased off their stance of yield curve control, but not really. The Yen went through to 151 and a half before falling back with the dollar’s decline in the the bond rally this week. We said the 10-year treasury was at a key 5 % level and the market rallied driving the yields all the way down to 4.5% this week before finishing at about 4.6%. Folks, these moves are huuuge in the bond market. People call the bond market the deepest and the most liquid markets in the world, but they are trading like crypto right now. We said the stock market was at key levels as well with the Russell stock market index breaking to new lows from last year’s sell off. The rally in the stock market was extraordinary. One of the reasons the market is thinking the Fed is done raising rates is that the bond market is doing the work for them. What happens when the bond market sells off 50 basis points in a week? This is like having the Fed cut rates by that logic? We will discuss the crack up boom in Looking Forwards, but as long as our Jedi Jerome Powell is out there with higher for longer, these rallies are just bear market rallies. He will slow things down, but if he bails on that task then watch out. That is why he is our only hope. Follow the money…
Interest Rates were supposed to do the Fed’s job, now what?
LB#2
The Bankman’s fall grace is almost complete. Sam Bankman Fried was the toast of the world a couple years ago. He was Tom Brady’s new best friend as Tom and Giselle were the new power couple of crypto, Sam was the largest donor to the Democratic party, and he was promising that his new way of understanding money was easy unfortunately you common people just don’t understand it. Well Sam when Tom and Giselle lost $50-100 million in the fall from crypto heaven you broke up the first couple in sports, the Democratic party finished off Donald’s Trump helicopter money tour and we have had the highest inflation in 4 decades, and the American public doesn’t understand how you defrauded your customers of their money, but they understand not to allow it again. I’m just kidding, of course the American public will fall for something like this again. Tom Brady was hanging out with this awkward dork because he gave him $50 million in beanie baby money. When something is too good to be true, just walk away. The other day this beautiful woman came up to me and asked if I wanted to have dinner with her, I started looking for cameras because I knew I was on Candid Camera or America’s Funniest Home Vtoideos because after all these years I know one thing- that isn’t how the world works. Stop dreaming people. Follow the money…
LB#3-
On Friday the US non-farm payroll report came out and showed 150,000 new jobs created versus a Dow Jones expectation of 170,000. The attached article goes on to explain that the difference was in workers from the UAW strike. If you add the workers omitted from the report due to the strike, there were actually more new jobs than forecast. The stock and bond market paid no attention to the details and continued the face ripping rallies that they have been experiencing all week. This doesn’t make logical sense. The rally on Wednesday after Janet Yellen announced how the bond market was going to sell government debt made no sense. The market celebrated that she was going to sell more short-term treasuries than long term. That is because she knows she can’t sell at the long end because no one wants to buy them, and the interest rate has rallied 150 basis points in 4 months as proof. She has to sell them short term at a higher rate which costs the US government a higher interest rate. Like we discussed she is selling them at the short end because she has a buyer in the reverse repo facility. She has about one and a half more quarters to be able to sell there. 3-4 months left and then where is the Treasury going to go to find its buyer for our debt? Follow the money…
Looking Forwards…
LF#1 Berkshire Hathaway came out with their earnings this week and they lost $12.8 billion due the the third quarter’s struggling stock market. The Wall Street Journal notes some of Warren Buffet’s company’s biggest holding were down sharply in the third quarter: Apple down 12%, American Express down 14%, Coca-Cola down 7% and Bank of America down 4.6%. One of his newer acquisitions Chevron was up 4.6% on strong energy prices. They also reported that he is sitting on $157 billion in cash, earning over 5% on that in short term Treasuries I assume from his past comments. What is the world’s best investor doing? Why does he have so much cash? What is he waiting for? Bargains…Bargains occur after sales and Buffet must believe that there are sales ahead. Follow the money…
Berkshire Hathaway’s cash pile
LF#2
I have heard two people now talking of a crack up boom. A crack up boom is the term Austrian economist Ludwig Von Mises labeled an end of system move when non-stop credit expansion pushes prices to unsustainable levels and the system explodes. There are two ways to create money folks: the Fed buys bonds and introduces money into the system or banks lend money into existence by creating loans aka credit. The Fed is selling bonds, actually more accurately letting bonds roll off their balance sheet, and banks are insolvent and can’t make new loans. Their depositors are leaving for more interest elsewhere and they can’t lend. They have treasuries, residential mortgages, and commercial mortgages sitting on their balance sheet that if they were forced to mark to market, they’d be insolvent. They can’t lend, this is the opposite of a crack up boom. This week was just a very very nasty bear market rally. Look for the sell off to continue. Follow the money….
LF#3
Zero Hedge has a wonderful article on crack up booms as well. It’s important to understand crack up booms as we are at a fork in the road where this is a very real possibility. I think this is how we will end up, but just not yet. I encourage ya’ll to read the attached article. It is so well written and poignant that I would do it a disservice by paraphrasing… “Pushing rates below natural market levels sends a distorted signal to businesses that long-term capital investment is more profitable than the economy can actually support. In the euphoric boom phase, jobs multiply, and GDP grows with investment. But the investments lack economic merit, so the house of cards eventually collapses. With the liquidation of malinvestments, the bust phase emerges: unemployment soars, output contracts, and a recession begins. Since the investments were built on quicksand, they must unwind. Each failed business further curtails consumer spending, rippling the bust through the economy. But rather than letting liquidation and market corrections occur, policymakers add stimulus, setting up a larger bubble and more painful bust down the line.
At this point, people panic and exchange currency for real assets before rapid devaluation consumes their savings. As the crack-up boom picks up steam, the demand for money plummets while prices of real goods skyrocket, leading to hyperinflation.”
Zero Hedge is explaining the boom and bust cycle as described by Austrian economist Ludwig Von Mises. We saw this last week with Janet Yellen thinking short term instead of long term, knowing if she loaded the back end of the curve the bond market would tank, and yields would go screaming higher. We have been mentioning green energy projects that are either bankrupt or going bankrupt without even more government stimulus. If we look back at our recent history the bailouts of the banks in 2008, the bailouts during Covid, and even the bailouts of depositors of Silicon Valley Bank we see the government adding stimulus instead of letting the market and failed businesses take their medicine. Jerome Powell was at the helm during the banking crisis last spring and he bailed them out when those rich pompous depositors would have been the perfect example to let go broke and lose their malinvestments. Jerome Powell and higher for longer will not allow the crack up boom if IF he manages to break the economy and push us into a depression. That will hurt a lot, but it is the accumulation of a lot of little hurts that have been allowed to fester and weren’t dealt with in a timely manner. The other alternative is a crack up boom and that is the end of the US dollar and that is worse. Does Powell have the stones to cut off the leg to save the patient? He is our only hope, and if I was a betting man, I’d say no. He might be killed or resign if he is principled enough to do it and he just might cave to political pressure if he isn’t. Get your money into real things and dollars aren’t money, they are currency. Follow the money.
The crack up boom means hyperinflation
Normally we save this on this date in history part for Bygone Relics which is released on Wednesdays but we have two important cinematic dates to note.
On this date in history…68 years ago to be exact….dreamboat Marty McFly arrived in Hill Valley after travelling back in time in Doc Brown’s Delorian.
Few people remember that 10 years later across the wrong line in some map, Lt. Pete Mitchell call sign Maverick, his father, a natural heroic son of a bitch, disappeared in an F-4 after saving three planes before he bought it.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.