Looking Backwards …
LB #1
Well, it seems everyone is talking recession this week which means we are probably right in the middle of one and they are just figuring it out. This from ZeroHedge, “A recession is imminent…The Atlanta Fed’s GDPNOW model – forecasting US economic growth – just downgraded its estimate of Q1 2025 GDP growth (or lack of it) from +2.3% to -1.5%…After recent releases from the US Bureau of Economic Analysis and the US Census Bureau, the nowcast of the contribution of net exports to first-quarter real GDP growth fell from -0.41 percentage points to -3.70 percentage points while the nowcast of first-quarter real personal consumption expenditures growth fell from 2.3 percent to 1.3 percent.
Put a different way, spending less on transsexual Guinea pigs in Bora Bora means US GDP gets hit. It does make us wonder how a ‘model’ of economic growth can swing 380bps into contraction from trend growth in a week… but hey, propagandists gonna propaganda.
Who could have seen this coming? Well we did!”
ZeroHedge then references their own tweet from Feb. 8 that says, “Here’s the bigger play at hand, and why there is only token pushback to DOGE.
You cut enough spending – even if it’s all grift and fraud – you eventually get a recession, guaranteed. That’s all Congress is waiting for cause then they use the “emergency” to vote through a far greater spending package (“will someone please think of all the unemployed”) one which eclipses all of DOGE’s spending cuts.
What Musk is doing in trying to streamline the govt is admirable but ultimately it will be Congress that decides the endgame. And there things are as status quo as always.”
Hmmm. I think that might happen but not before a bunch of other stuff has to happen. We have to have some serious tightening belts and pain before that happens and that is what always happens meaning Congress is going to spend. However, I am still of the belief that the recession is going to cause interest rates to fall temporarily, but long enough for the government to get that debt termed out into bonds from bills and cut that interest expense.
Why am I still clanging that dinner bell like Bolivar down in Lonesome Dove? It’s easy when you see data like this from ZeroHedge, “In January, the Bidenomics hangover weighed on consumers. New data showed that car owners defaulted on their monthly payments at the highest rate in over three decades.
Bloomberg reports that the share of subprime auto borrowers at least 60 days past due hit 6.56%, the highest percentage since Fitch Ratings began collecting data in 1994.” They followed that up with a tweet that referenced what Commerce Secretary Howard Lutnick said earlier in the day, “LUTNICK: INTEREST RATES WILL COME SMASHING DOWN just need a recession.”
That’s really it in a nutshell. They are going to wreck this economy with government job losses, tariffs, and cutting of funding. They will get some cover by blaming it on the Biden Administration and they will buy some time. This isn’t necessarily threading a camel through a needle’s eye here but it needs to be pretty coordinated to work. Remember, this is all about deficit reduction. The interest expense is the biggest line item that they can control. They need lower rates, and Powell doesn’t control the longer end so they have to kill any growth expectations and do it now. They will have to come up with stupid policy after stupid policy and we will go into a recession. They have to refinance our debt, it is the only thing big enough. We need to get $500 billion or more reduction in that expense. They have to AND they have to be able to get out of it. They are actually starting to say it out loud a bit too. Nikki McCann Ramirez of Rolling Stone writes about Bessent this week, “If Republicans’ crusade to fire tens of thousands of federal employees, raise prices through an ill-advised trade war, gut Medicaid and other social services, and generally make things more difficult for working class Americans wasn’t enough, they would also like you to stop being such a baby about it. On Thursday, Treasury Secretary Scott Bessent defended President Donald Trump’s decision to implement steep tariffs against Canada and Mexico, which economists and retailers warn could severely spike prices for consumer goods.
“Access to cheap goods is not the essence of the American dream,” Bessent told the Economic Club of New York. “The American Dream is rooted in the concept that any citizen can achieve prosperity, upward mobility, and economic security. For too long, the designers of multilateral trade deals have lost sight of this.”
True prosperity apparently means paying a higher grocery bill to support the president’s ego trips against our own regional allies. Bessent has an estimated net worth of more than $700 million, in case you were wondering.” Remember that the Rolling Stone is somewhere between liberal and Bernie Sanders on the entitlement spectrum.
LB #2
This all is part of the plan, but no one wants to talk about it yet because it sucks. The Nasdaq has sold off 10% already and people are just whispering it, but it is starting to suck out there so soon people will be able to talk about it, then they will scream about it but not for awhile.
I read an interesting thing this week about what I have been calling Trump’s plan to wreck this but Robert Gore has been calling it the turnaround in his piece this week at Straightlinelogic.com. “The best way to understand Trump is also the simplest: he’s a businessman. From that perspective, little of what he’s doing is as inexplicable or surprising as many make it out to be…The common element of successful business turnarounds is that they don’t emerge from slow, incremental changes from within the system. Somebody comes in and administers shock therapy. Turnaround artists are never popular. Lots of people are fired, unprofitable operations discarded, finances tightened, business philosophies rethought, and the company’s direction radically reset. Because the company’s situation is dire, this all has to be done quickly, with shareholders howling and creditors pounding at the door…What Musk and DOGE are doing would be standard operating procedure in a comparable business situation; indeed Musk did the same thing when he took over Twitter…At Twitter, Musk fired 80 percent of the workforce, reflecting business wisdom that 20 percent of any workforce does 80 percent of the work. For government, those figures should be revised to 10 and 90.”
I think Robert is spot on here. This is the first time in 40 years that this close of an examination has been done to government spending and where it can or must be trimmed. Then Robert really hits the nail on the head for me. “The business of America has been and must be business. Trump can’t elucidate an Ayn Rand-type defense for the morality of free enterprise, production, and profit. However, he realizes that the productive element of society is supporting its own parasitic destroyers. Nor can he elucidate a John Quincy Adams-type defense of a foreign policy in which America minds its own business. However, he apparently recognizes that the empire cannot be sustained.”
Without business, we aren’t America. We aren’t nothing, really except geography. America was formed on an ideal. Productivity, small government, social mobility, and freedom from oppression, foreign and domestic are the cornerstones of America. Businesses hire, they employ, they produce, and they multiply. This is the romanticized version of what Trump wants by bringing manufacturing home, and Bessent knows that if we do, then our standard of living goes down a lot in the mean time. No more cheap stuff at Wal-Mart, but more really good quality products long term. The mental adjustment will be harder than the physical to this shift.
LB #3
From one Rand to another, Rand Paul has a new fan, Elon Musk. Rand, who we have highlighted with his Festivus report long before Doge existed has seemingly gotten the attention of Musk and has a wonderful idea on how to say massive amounts of money in Congress. This from ZeroHedge, “ Seeking to codify spending cuts pursued by his Department of Government Efficiency, Elon Musk held a closed-door lunch with Republican senators on Wednesday. Musk was said to be “elated” with Sen. Rand Paul’s recommendation to make the cuts stick with a relatively expeditious budget-slashing technique called “rescission.” The approach could guide DOGE cuts around federal judges who consider executive-branch-initiated spending cuts as exceeding constitutional authority.
Rescission offers a means by which presidents can collaborate with Congress to cancel previously-appropriated spending. Enabled by Title X of the Congressional Budget and Impoundment Control Act of 1974, the rarely-used process starts with the president sending a special message to Congress, providing specific details about which budgetary authorities he wants to rescind…Rescission is an alternative to “impoundment,” by which presidents unilaterally delay Congressionally-directed spending. First used by Thomas Jefferson, the method was restricted by the Impoundment Control Act of 1974 (ICA) after Democrats felt President Nixon was abusing it.”
The way this works is that a simple majority in the Senate can delay spending that has already been approved by Congress. For example, the Chips Act signed into law by Biden has set aside a bunch of dollars for funding for chip companies that have to jump through a bunch of hoops to get it. If rescission is used, that money just gets tied up and not able to be used. It is like getting a credit card with a limit, and then losing the credit card. You can’t spend anymore. This could save us billions and I am curious to know if the Congressional Budget Office has full spending utilization in their models or if they can be adjusted downward based on rescission. Let’s hope it works and the tap gets turned off.
Looking Forwards…
LF#1
You might not be aware of my superpowers, but I have the ability to see into the future. When was the last time you went into McDonalds? The kiosk is there all lit up and welcoming, no person is there to greet you, and the passive aggressive language of the workers hurrying to distribute muffin sandwiches is use the kiosk. Well, I go waving my arms and say help, I’d like to order some breakfast burritos over here and sooner or later someone wanders over and takes my order which they can do but prefer not to. That’s ok, they will soon lose my business but not today. However, the extension of this crappy scenario is already worsening the lives of the people in Japan. That’s right, it is actually worse, the future. Erica and Momoka Yokoyama write for Bloomberg about the massive appearance of cats in restaurants and how restaurants are putting them to work. “A cat-themed robot with big blue eyes glances from side to side as it purrs across a Tokyo restaurant, searching for the customers who ordered strawberry parfaits covered in cream to go with a large, piping hot pizza.
“Your order’s here,” the robot says, arriving with a crisp 90-degree turn that lights up the faces of the patrons at the table. “Meow!”
Yasuko Tagawa, 71, and her coworker from Nepal, Ranjit Dhami Khawas, are the only humans working the floor of the packed restaurant in the Mita neighborhood, a short walk from Tokyo Tower in the center of the city.
This isn’t a scene from Studio Ghibli’s latest animated fantasy. Rather it’s an increasingly common sight at more than 2,000 restaurants operated across the country by Skylark Holdings Co., the nation’s largest table service restaurant chain. Faced with a severe labor shortage and one of the world’s most rapidly aging populations, service-sector businesses in Japan are increasingly investing in robots that don’t need expert supervision and can work alongside people instead of replacing them. So-called service robots are also making it easier for firms to employ older or foreign workers — crucial to plugging the shortfall — by helping them cope with language barriers or the physical demands of a role.
“My job’s no trouble at all when I’m working with robots,” said Tagawa in between wiping down tables.”
I have mentioned my disdain for AI more than once because it is a methodology that requires accuracy, but robots. They are coming like a tsunami of blinking lights and dumb expressions. They might as well be dumb high school kids. The demographics of Japan’s aging economy is spearheading this charge into electric little buddies, but it will soon be here in America too. This is another sign of inflation. It used to be good value to eat at a fast-food joint or if you went out for a fancy meal you got a very good meal and fantastic service. Fast food is no longer a bargain and if you happen to go out for a sit-down meal by and large the service is just so subpar that you don’t want to experience it again. So, what can we do? As usual, we turn to the Oracle of Omaha, Warren Buffet, who has always said that the best investment you can make is in yourself. Well, you better go get some cooking lessons then because I am.
LF#2
I wanted to get mad at something this week and scream and cuss, but instead I will just shake my head in shame. Jeremy Portnoy wrote for RealClearWire about the bailouts of the banking crisis in 2023 and as usual, it just makes me sad. “The Federal Deposit Insurance Corporation was forced to spend $31.6 billion to protect customers at three failed banks in early 2023. While taxpayers footed the bill, the CEOs of the three banks made out nicely, each collecting millions in compensation right before their banks folded, according to a Feb. 20 report from the Government Accountability Office. First Republic Bank gave CEO James Herbert II $17.8 million in compensation in 2021, according to the GAO. Silicon Valley Bank awarded CEO Greg Becker $9.9 million in 2022, and Signature Bank paid $8.7 million to Joseph DePaolo the same year.
All three CEOs had base salaries below $1.2 million but multiplied their earnings with performance-based incentives, mostly paid out as stock in the bank. All three sold off large portions of their stock in the two years leading up to their banks’ failures, the GAO found. Between 2021 and 2023, Herbert II sold $52.9 million of his stock, DePaolo sold $39.8 million and Becker sold $30.7 million.
Herbert II and Becker were still selling stock in the first quarter of 2023, just weeks before their banks closed down. They collected $5.5 million and $3.6 million, respectively, the GAO said…The FDIC had to spend $31.6 billion of taxpayer money to reimburse depositors for their losses: $16.1 billion for Silicon Valley, $13 billion for First Republic and $2.5 billion for Signature.
The FDIC also reimbursed several foreign businesses. Former vice president Mike Pence wrote in an op-ed for the Daily Mail that “Americans will also be paying to guarantee the deposits of many Chinese companies that were Silicon Valley customers. We have to stop the insanity of bailing out failing businesses.”
Mike Pence, I didn’t recognize you without a fly on your head, but Amen brother you are 100% right. The question is when?
LF#3
Here is your warning, that perhaps the time is now. Skylar Woodhouse and Josh Wingrove wrote for Bloomberg, “President Donald Trump campaigned on a promise to cure what he said was an ailing US economy. Little more than a month into his second term, he’s starting to hint that the treatment might hurt.
The administration is still lavishing Americans with visions of a golden age to come. Yet in the course of a madcap week – which saw a flurry of tariffs and reversals, sparking a global trade war and a sharp stock-market decline – the tone changed a bit.
“There’ll be a little disturbance, but we’re OK with that,” Trump told Congress on Tuesday, defending his plans to throw up a protectionist barrier around the US with the biggest tariff increases in almost a century. By Friday, Treasury Secretary Scott Bessent was arguing that the world’s biggest economy needed some “detox” to wean it off dependence on public spending.”
Folks, I have been yammering about taking our medicine and living within our means for years now. No pain no gain, your portfolio will never be the same. I can show you how in 1929 it took almost 25 years for the stock market to recover its 29 highs and I can show you 1969 and how it took 25 years for the market to recover those highs and I can show you how we are more extreme than either of those two time periods were.
But when the newly elected President and Treasury Secretary who are promising to kick off a new golden age and make America great again and whatever other smoke they are blowing up your chemise start using words like “little disturbance” and “detox” that means only two words to me. Holy shit. This is gonna be bad.
Sincerely Yours,
C Thomas Printer
The Dow Jones finished trading …at 42,801.
The 10-year Treasury bond is at …4.30%
The price of Brent Crude is … at $70.45 per barrel.
The price of gold is … at $2,917/oz.
The price of silver is … at $32.91/oz.
I leave you with this from the information superhighway, What does a house wear? Address.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.