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Nov 9, 22 | Looking Backwards Looking Forwards

by C Thomas Printer on

Happy Hump Day! Welcome back to Looking Backwards, Looking Forwards. I’m C Thomas Printer and I’m here with Austerity Jones. 

Austerity: Happy Wednesday, C Thomas. Today, let’s start with last week’s interest rate hikes. On Wednesday, the Fed raised interest rates by 75 basis points, which brought borrowing costs to the highest since 2008. And on Thursday, the Bank of England did the same, which is for them the highest single hike in 33 years.

C Thomas: Yes, they did. Now, let’s think about this. The Fed raised interest rates to the highest since 2008. Do you know when the last time the market was down 25% outside of the Corona sickness?

Austerity: I assume 2008.

C Thomas: Yeah, but we were cutting interest rates at that time. Now, we’re hiking interest rates. How interesting… I keep thinking to myself, am I in bizarre world? Is like, you know, is the world spinning the other direction? Did the time just fall back an hour? Wait, we did fall back an hour. But you get my point. We normally are lowering interest rates when the market sells off 25%. The S&P broke that threshold. Then we were, Oh, how fast can we lower interest? Powell came out and said, We’re raising interest rates. So if you think the market is done going down, I’m gonna have to disagree with you. Because I just think that there’s so many things that we’re looking at here. The market earnings expectations are still up and some of them are up double digits for next Q1, Q2. And I’m like, Where are you seeing the strength out there? Do you not realize that the cost of borrowing is going up? Everybody you’re talking to is like, I don’t wanna miss that on this rally, I’m gonna put money to work. I’m gonna get 4.7% interest. That’s pretty good… That’s just because you haven’t seen it in a while. If you were on a desert island and hadn’t seen a woman, I’m guessing you would’ve think the first woman you saw when you got back to dry land would be the most beautiful woman you’ve seen because you were on a desert island. That’s the same thing with a bond offering, 4.7%. That’s the most beautiful bond you’ve seen in a long time because we’ve been in a desert, an absolute desert of low interest.

Austerity: Well C Thomas, you certainly covered Fed in detail and not a lot Bank of England, anyways… I want to ask you about US sanctions on Cuba. Last week, the UN for the 30th time, pasted resolution condemning the US embargo on Cuba.

C Thomas: 30 years, they’ve been condemning us. And 30 years, we haven’t listened. How striking is that to just a few months ago when they were bragging about the coalition of UN Sanctions against the Russian invasion of the Ukraine. But when we have sanctions against Cuba that are unpopular, the whole world votes against us. Do we just ignore those or are we just hypocrites? I think we’re just hypocrites. That being said, I actually like the embargo on Cuba. Right. I do think that is an evil dictator that has been continued through to his brother Fidel Castro, and that administration was absolutely a poor rendition of some of the worst leaders we’ve seen in the 20th century. They had absolutely killed citizens for practicing free speech and speaking out against the government. So the fact that we’ve got this embargo on them, I’m very happy about that. I just think it’s very convenient when we use the UN resolution to say that, everybody’s on our side when we’re trying to gain favor for something. And then we conveniently discarded when it seems to be going against us.

Austerity: Meanwhile in Pakistan, ex-president and now opposition leader Imran Khan was shot in the leg on Thursday, while leading a protest march. What did you think when you saw this news?

C Thomas: Well, the funny thing is, I heard he was shot in the leg and I thought random violence. And then I heard that like there was gunfire breaking out and that everybody was scrambling and he was lucky to only be shot in the leg. And that’s a little bit different from when I first heard this. Sometimes when we read the title of something, it’s a little different than when we actually get into the article. I think the big takeaway I have is: I give you the Black Lives Matter marches, and there was some violence, but what you saw, there was a whole bunch of sophomore girls that made t-shirts and they walked along and it was nice and safe in the afternoon, and they got to get out of school and they marched for a social cause. That is not what normally happens when you’re leading a protest march. If you look back at the civil rights marches in the sixties, there was German Shepherds unleashed in the crowd. There was water spraying, there was tear gas. I mean, that took real courage to stand up for your beliefs when you were gonna get the crap kicked out of you for this opposition leader now president or ex-president, to be walking down the street with risk of gunfire. I’m just always amazed at the courage that it takes to do these types of things. It’s not talking safely behind the voice of a podcast, it’s not walking in the afternoon with all my schoolmates after we’ve gotten out of class on a sunny day because we don’t wanna learn our economics or math. Nope. That takes real courage and I hope that he can continue to lead it because if it’s provoking that kind of violence, he’s probably hitting a nerve with whatever he’s saying.

Austerity: Thank you, C Thomas, and I want to move on to one of your favorite topics: Inflation. Markets look forward to the CPI inflation figure coming out on Thursday. Y-o-y, the core inflation is expected to hit 6.7%, accelerating from 6.6% in September while reaching a new 40 year high.

C Thomas: Yes, I think we’re gonna have some strong core inflation. The CPI might come down a little bit. I think the real important thing to think about is what can happen from here. There is a diesel shortage in the United States. Right now we’re down to about 25 days worth of diesel. Diesel fills our trucks, diesel fills our tractors. Diesel and fellow distillates basically are producing heating oil for the Northeast, and this is a bad time of year to be short on diesel. If diesel prices go up sharply, you will see inflation go up sharply. Now the core excludes energy and food, but you will see this inflation break into everything that’s shipped, everything that’s produced, and this will have a real big impact. It might not be felt for a couple more months, but we gotta keep an eye on core inflation because that’s what the Federal Reserve is looking at.

Austerity: On Friday, the University of Michigan will release its preliminary consumer sentiment index for November which will obviously provide a key update on consumer confidence. The index is projected to show a reading of 60, which would mark a slight improvement from 59.9 recorded in October. What would be your comment on the slight improvement, if happens?

C Thomas: If it goes from 59 to 60, I don’t think it’s very comment worthy. I think this is kind of a cop out. Like, I was fifty nine, let’s call my guess 60, right? 🙂 I think what’s more likely to happen is what if it’s 56? Or what if it’s 62 and a half? Do we really think things have jumped in the last 30 days? Well, the stock market’s jumped. Gas prices have come down a little bit. Maybe we get a little higher reading than what they’re thinking, right? Or it could be the flip side of, Hey, this is finally starting to hit? Consumers, they’ve spent and spent and now we’re seeing, you know, layoffs in the tech sector and it’s more likely down. I think the bigger thing is which way it could go up or down, how that would be interpreted versus a 60, which is basically same as October.

Austerity: Finally, then let’s come to the big news: US midterm election. What does this signal for the future?

C Thomas: Well, we don’t know yet. It’s expected that the Republicans at least hold the house and if they hold one of the chambers, of the Congress at least, we’ll probably put a little bit of a kibosh on the spending. And I think if they get both of ’em, it might give them a little bit more enthusiasm. But quite frankly, we have a president that is not going to work with them, so he’s gonna be a lame duck for two years, and we’re gonna have a bunch of gridlocks. That’s pretty good for the markets. The last thing we want is another big spending packages, and we certainly don’t want to have any cuts or anything like that right now considering we already are feeling, austerity measures from the quantitative tightening and we’re raising rates. So if the, if the Republicans think they’re gonna ride in and cut taxes and, and do a bunch of that and expand the debt even more, probably not gonna happen cuz Biden will never sign it. So we probably have gridlock and gridlock can be good.

I think the one thing we need to keep in mind is what if things go bad? What if this market backs up? What if the Fed has tightened too much and we have a big, huge selloff or something breaks in the credit markets or in the treasury market and we start having a collapse? Are the Republicans gonna do the same thing that they did under Trump and just start giving money away again to save the thing? Are they going to allow the Fed to pivot and go back down to quantitative easing and policy of zero rates? Because if they do, you know what’ll happen? The inflation will jump right back up, which is what they’re saying they don’t want. So the question I have is, will they have a backbone? If things get tough, if it’s good, that’s easy. What’s gonna happen if it gets tough? That’s when you need real leadership. Count me sceptical but I don’t think they have the backbone.

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