Austerity Jones asks C Thomas Printer what’s his take on Boris Johnson of the UK and Martin Guzman of Argentina resigning, Mario Draghi trying to resign, and the US inflation print – all from this past week.
“To quote Bobby Jones ‘I can take out of my life everything except my experiences at St. Andrews and I’d still have a rich full life’ I feel exactly the same.” Jack NicklausGood morning I’m Austerity Jones, I am here with C Thomas Printer and we would like to discuss the financial and geopolitical happenings of the past week, but first G Spot wanted to make an announcement very near and dear to his heart as he makes his way back from his skirmish with the law.
G Spot: That wasn’t a skirmish my dear, that was a misunderstanding. I have made amends with Mary Lou and things are peachy. What I wanted to say quickly was that one of our own, Jack Nicklaus, the greatest champion of them all received a great honor this week. St Andrews, the birthplace of golf, and the home this week to the 150th playing of the Open Championship honored Jack Nicklaus as an honorary citizen of the town of St Andrews. Only two Americans – Ben Franklin, a cooperative favorite as well, and his own idol Bobby Jones, the outstanding amateur golfer – have received this award. Not merely for his outstanding golfing record, but the class, sportsmanship, and dignity that he has shown for all 82 years of his life. Salute to you, Mr Nicklaus, well deserved.
Austerity: Thank you G Spot and congratulations to Mr Nicklaus. It is good to have some positive news about as there doesn’t seem to be a lot in the world of politics and finance. C Thomas, let me list a few things for you to discuss that have happened recently and I want to get your take. Boris Johnson left the UK leadership taking along parts of his leadership team, Mario Draghi is trying to resign in Italy, the Argentinian finance minister Martin Guzman resigned amongst 94% inflation in that country. The US CPI print came in at 9.1% on Wednesday while the Atlanta Federal Reserve is now expecting Q2 GDP growth to be negative. That makes two quarters in a row which many people consider a recession. What are your thoughts?
C Thomas: Good morning Austerity, what we are discovering is that there are prices to pay for actions. Why is the political heat so high in the UK? They have the highest inflation in 40 years. Why is Mario Draghi getting votes of no confidence and threatening to resign, because the Italian debt to GDP ratio is so bad that the European Central Bank is buying bonds of Italy with the proceeds it is getting from expiring German Bonds. This twist toward Italy, Spain, and others in the European south is at the expense of Germany. Germany just posted its first foreign trade deficit since 1991. Germany has largely been the motor behind the European Union. If the motor starts sputtering (and with 30% producer price inflation, no natural gas alternatives, and the highest electricity prices in the world just ahead of Bermuda) then the Euro is in trouble. We are seeing this as the Euro just reached parity meaning one euro buys one dollar for the first time in 20 years. This is just a collection of bad decisions coming home to roost.
Austerity: You have mentioned Europe specifically here, what do you mean bad decisions?
C Thomas: Well Europe has decided to die upon its principles and foolish pride. One of their biggest problems is their energy policy. Germany shut down three nuclear plants which are the best source of cheap clean baseload power known to mankind. Their policies have been hijacked by climate activists that say the answer is wind and solar. Germany has been a leader in the implementation of that technology. They are being applauded by climate supporters worldwide. There is only one problem: the sun doesn’t shine that often in Germany, the wind doesn’t always blow, and that technology isn’t very economical. They moved a lot of their nuclear to natural gas which was another dirty word amongst climate supporters. It is cleaner than coal, but Germany bought most of its natural gas from Russia. When Putin embarked on their military operation against the Ukraine, the United States decided to sanction Russia, the 11th largest economy in the world. Europe backed Americans’ play. Now Germany is facing declining natural gas supply, unreliable wind and solar production, and the highest energy costs on the planet making their industrial base uncompetitive. Energy is in everything Austerity- the tires that are on your car, the plastics that your food is stored in, the makeup on your face and the stuff that heats your home. Europe and Germany have allowed themselves to make poor decisions and they are coming home to roost. Their green policies has hijacked their economy- and now they are back to using coal because when faced with the derision of climate supporters or having your people sitting in the dark or freezing in the 21st century, I guess they have decided that they would rather see the light. Whether or not they have seen THE light? That I am not sure of yet. Italy and the UK are following along that same path Austerity- think of how effective solar must be in the UK? While Americans complain about gas prices, we are awash in our own self-produced energy and Europe can only look longingly at our gas and electricity prices in envy. They will be poor or cold this winter but maybe the admiration of climate advocates can keep them warm. Bad economics are paved with good intentions.
Austerity: So you don’t necessarily think it is intentional?
C Thomas: I’d like to think not, and I don’t want to go down those conspiracy theory rabbit holes. I simply think that we have been awash with cheap money for 40 years and money hasn’t meant a whole lot to people and governments have made bad resource expenditures. Whenever people tell you that money doesn’t matter- just remember, they have never done without… Money only matters when you don’t have any. Economics isn’t a prerequisite for being a politician, their only concern is winning elections. People have been very comfortable for a very long time and they tend to worry about the end of the world ideas when their bellies are full and their house is warm. Noone in third world countries share such concerns.
Austerity: They have more immediate problems like securing food, shelter etc.
C Thomas: Precisely, In the more developed economies what we are seeing is people losing their purchasing power because of inflation. Inflation is too much money in a system aka too much demand chasing too few goods. Look at the US housing market right now- why is it 40% higher than 3 years ago? Well the money supply grew by 40% and there is a lag in the system. Economics works slowly- I like the analogy of a pig through a python. Now prices have gone to record highs, mortgage rates have jumped at a record rate, and now we are seeing inventory explode. Why? Remember the government didn’t allow evictions or foreclosures. Another bad policy, which is now exacerbating the problem. Foreclosures are starting, housing that was delayed during Covid is finally hitting the market, housing that was purchased by investors en masse with cheap money well that money isn’t so cheap anymore and they are selling too. This is why we are seeing record month over month declines in price in numerous markets across the US- dwarfing, yes dwarfing the monthly price declines of the great financial crisis.
Austerity: So you think we will see a housing crash in the US?
C Thomas: Oh I think we are seeing the beginning of one right now. It might be different than the 2008 version, but it is actually going to be felt worst in most of the same markets- Florida, Arizona, Nevada, and California. We have some new participants this time like Boise and Austin, but we are seeing homes not have offers over list, prices start to be marked down at greater and greater rates, and more inventory about to hit the market. All this at the precise time when buyers are faced with mortgage costs that have went up by 40-50% just on the interest rate component of a mortgage, forget the house price increase of 40%. We are in an unaffordable stew created by bad decisions. The lack of foreclosures, the Mexican flu induced crazy money printing and helicopter money drops, and bad interest rate policy by the Federal Reserve on how to handle the ensuing inflation.
Austerity: Well you are just awash with positivity today sir…
C Thomas: Wait a minute, you gave me a bunch of bad news items and wanted my comments! You never asked about how good my cinnamon rolls turned out this morning. I have plenty of positives! Just to wrap up my thoughts though, there are real consequences to political decisions and I think people are unhappy because their leaders have been making poor decisions for awhile now. It doesn’t matter whether it is European energy policy that is crippling their economy, Argentinian fiscal policies that have reduced it to a banana republic status for decades, or the US which is getting in the game with an untidy house of its own lately. We have housing on the brink shall we say, an economy technically in recession, and a stock and bond market that is sputtering at best and in bear markets at worst. When I look at Sri Lanka and the complete breakdown of law and order, ability to purchase anything, and rioters swimming in the overthrown presidential palace I wonder not if it will happen again but when and where.
“War is when the government tells you who the bad guy is. Revolution is when you decide for yourself.” Ben FranklinSincerely Yours,
C Thomas Printer
Also born on this date:
Angela Merkel,
David Hasselhoff,
Kiefer’s dad,
Donald Sutherland,
Fields medal winner in math Terence Tao,
the mad bomber Darlye Lamonica,
and Oh my! Verne Lundquist.