A perspective on what awaits us in the new year: Elon’s empire on the brink, oil price-supply&demand, geopolitics in China-Taiwan issue, other regional hostilities: Belarus-Ukraine, Kosovo-Serbia, and India-China, another potential hotspot: Ghana defaulting on its debt, and the big question mark: housing market.
And finally, turbulences in the US: $545bn in interest in the $1.7tn congressional bill, $31tn federal debt, pension funds at risk, and threats to the US Dollar’s reserve currency position.
And a final look into last year: 2022 – Bubble of genius.
-Part I-
“Freedom is the right to say no.” George Orwell “There is something happily rebellious about that definition.” Ronald Reagan Good morning and Happy New Year! I’m Austerity Jones and I am back with C Thomas Printer. Good morning C Thomas. How do you want to start the year?
C Thomas: Above the ground Austerity, above the ground. I’d like to say hello to all the people with New Year’s resolutions who feel completely crapulous after the holidays and are determined to go to the gym until MLK day at least.
This coming year is not going to be easy Austerity, for too long we have kicked the can down the road and the road is now coming to an end. So how do we prepare ourselves for such an event, well by saving and building our emergency fund, by preparing our spending and purchasing habits, and by preparing our mindsets for changes. It isn’t that we can’t handle tough times, but the shock of having to deal with them will be tough for some people. We just have to gird up our loins as they say.
Austerity: Who says that C Thomas, and what does that even mean?
C Thomas: It means hold on to your dungarees or your britches or more directly, watch your ass because the kickings are coming, but where you ask? Let’s explore some possible boots…
2022 was the year that popped the bubble of genius. We have had this generation’s JP Morgan, Sam Bankman-Fried, and this generation’s John D. Rockefeller, Elon Musk, have their empires blow up in their faces. SBF is in jail, Elon paid 3-4 x more than he should for Twitter and then lost half his advertisers and then watched Tesla lose 70% of its value. He’s on the brink of margin calls and his empire is crumbling, but at least he can fall back on selling flamethrowers, he is good at that. Flamethrowers are going to appear in a variety of locations and markets in the coming year and Elon has always had his finger on the pulse of the populace and he does now, by that I mean on the world’s Twitter finger. The fallout from these diaper fires haven’t yet been completely felt.
Inflation is at 7% and the oil price is lower than when Putin invaded Ukraine. Tough to blame high energy prices on Putin now isn’t it Europe? Now what happens when Putin says “naah I won’t sell energy at that price,” try burning your principles or climate bills and heating your homes, it doesn’t quite work that way Klaus Schwab. Now, what happens when China reopens after they strive toward herd immunity by allowing their population to get sick. This increase in energy demand will be large and hitting the market at a time when supply will be at its lowest due to Russia price cap sanctions- what happens to inflation then? Supply down, demand up, hmmm what happens to price in that situation? Inflation is like nausea, it comes in waves and I while it has peaked for a while, I don’t think we are done with it. It will retreat and advance, retreat and advance, it always does once the genie is out of the bottle.
Speaking of China, we have to understand a little geopolitics here. President Xi got the lifetime appointment and literally removed his competitors, so he is free to be more bold. The Chinese protests might have forced his hand at reopening, but if he wasn’t a lifetime appointee, he might not have responded the way he did, but we will never know. Meanwhile, China is eyeing Taiwan like a Rottweiler on a rib eye so don’t be surprised to see them follow in the footsteps of Russia and Ukraine. Remember 2014, Russia went into Crimea and Obama did nothing, now Ukraine and Biden is doing nothing. The Joe Biden window is closing and that might force Xi to move more quickly than he would like if he thinks a more formidable president like a Trump or Desantis might win in 2024.
Belarus came out and said that a missile from the Ukraine was shot down by their systems and any more of that and it would be considered an act of aggression. Now why would Belarus do that? What if Putin needs some foot soldiers and Belarus loves cheap Russian energy, can they play let’s make a deal? Kosovo and the Serbs are simmering again, the Indians and Chinese have had skirmishes on their border, and now Belarus and Ukraine are bickering. When people are struggling financially, people resort to force so keep an eye out for small regional hostilities and who is siding with whom, for fear they advance in size.
Speaking of small regional situations, Ghana was going to buy oil for gold, and now they are defaulting on their debt. Now you might say, C Thomas, why the love affair with Ghana recently, and to you I reply, like military conflicts disaster will start some place small, remember the assassination of Archduke Ferdinand? Of course you do. If Ghana uses gold to buy energy and no longer have a need to buy dollars, yet they get what they need-oil. They don’t need dollars they just need oil, and if they can avoid the dollar trade using their own natural resources they don’t import our inflation. But, they owe loans in dollars likely, Ghana owes debt payments to someone, Eurobond payments to someone, and if they default due to lack of dollars that puts stress on their counterparties. Those counterparties might not be strong enough to withstand such an action, and then they default and it goes up the line and up the line. Maybe the trigger is in housing instead of a regional hotspot…
Price discovery will be back in the housing market- Michael Burry mentioned the bull whip effect hitting the supply chains, but now it is going to hit the real estate market because it has a slower lag than getting containers on ships. We had Covid delays finishing housing and there was a short term shortage and prices spiked, and now everyone jumped into the housing market. My neighbor’s dog owns two rental houses and a duplex that he rents out as an AirBnb, and all he had to put down was a second mortgage on his doghouse which he had plenty of equity in due to housing price inflation. It looks like the frackers a decade ago jumping into oil with cheap money and oversupply followed. Supply and demand people. Homeowners have changed. Wall Street and everyone with a get rich quick book has been buying real estate creating a bubble bigger than 2008. We have people that own houses for Airbnb purposes that are seeing their occupancy rates fall as the stimulus money fades away and the pent up travel demand is falling. We have Wall Street investors who bought with cash, remember them out bidding owner occupants, and they are now seeing their borrowing costs rise and rise while rents are falling and falling. This is bad for their models and we saw Zillow exit en masse and others will follow.
Austerity: Now C Thomas, that can’t be right?
C Thomas: Oh but it is, you see Covid spread us out geographically. Everyone had stimulus checks, child tax credits, and government loan money to buy houses and a place in the country. But, it also allowed people to not pay rent, not pay their electric bill, and not pay their student loan so people were flush with cash. Everyone got their own place so they didn’t have to live with a roommate that might bring home Covid, or get on their nerves etc. So I give you the much hyped media event called the housing shortage, but it was really a housing distribution change that was temporary. If 4 roommates all get their own place, we have a shortage, but once they have to pay their bills and move back in with each other we have normalized supply but due to informational deficiencies we are building the largest amount of apartment housing units since 1973 so we will soon have abundance of supply. This informational misunderstanding is what usually causes a bull whip and boomtown Boise is about to get a sting from the whip as will others that had bubbles. Housing is coming and hell is coming with her.
In 2022,
No one looked into SBF…
No one looked into the gay, Jewish, Hampton living, descendant of Holocaust surviving Republican congressman
No one looked into passive investing, which is buying an index. What if Apple and Tesla are in every index and they both just made 52 week lows…
No one looks into underfunded pensions
No one looked into or read the $1.7T spending bill or even had time to read it
No one stopped to think that if every southwest Airline seat was full how would they handle a disruption? You can’t bump people to the later flights when there is no room on the next flight.
No one wants to think and no one wants to listen. I am speaking generally as people are calling every one of these things into question, but I guess they didn’t get enough clicks to arrive at the top of your algorithm. Move aside cat videos…
Thinking will be the best skill to develop, but reading and consuming quality information will also help.
-Part II-
“We got a long way to go and a short time to get there.” Bessie Baxter Bessie Baxter played by Marjorie Rambeau in 1943 Oscar nominated movie “In Old Oklahoma” re-released as War of the Wildcats. Now you might wonder why that quote is listed here today. Well, because it is interesting, that’s why. The first reason is that some people credit Marjorie Rambeau might be the inventor of the Reuben sandwich in Reuben’s Delicatessen in New York City, when she visited one night and the owner, Arnold Reuben, was short on sandwich offerings and he made it for her. The second is that this happens to be the exact quote in the Jerry Reed song “East bound and down” written for Smokey and the Bandit, the 70s classic that made a star of Sally Field and Burt Reynolds. So, this line was used in an Oscar nominated movie in the 1940s, a cult classic that made Burt Reynolds the biggest movie star in the World in the 70’s, and now Austerity Jones used it on the C Thomas Printer Cooperative’s first episode of 2023. She must have a bright future ahead and big things ahead of her, I hope we don’t lose her to Good Morning America because I heard there are openings there considering the hosts were sleeping with each other and are now divorcing their spouses. Speaking of “We got a long way to go and a short time to get there.” Jay Powell is in for a rough year, have you heard about the little boy that cried wolf…
The little boy cried wolf, and the townfolk came to save him and he laughed at his fun joke and he did it again and again until the townfolk stopped coming to save him. Then when the wolf came, no one came to save him and the wolf killed the little boy. The fed put has always been there to save the market, at least since 1987 when Alan Greespan decided to abandon free markets and become a celebrity economist by inserting the Fed into capitalism with both feet. Bernanke, Yellen, and yes even Jay Powell have followed. Powell is telling us that he will not be there to save the market this time, but after 35 years of the Fed put, no one is believing him.
$545 billion in interest in the $1.7 T congressional bill? That’s right, funding the government is getting more and more expensive and Congress just passed a $1.7T bill that was full of voter delights on top of that interest check, like stools for pregnant women, funding for Ukraine, disaster funding aid for farmers, and it went right down the line checking of the box of every demographic group with handouts for one and all. I didn’t see how we are going to pay for any of this though, so the federal debt grows which is inflationary and only makes Jay Powell’s job tougher. So does the fact that having the reverse repo facility pay the banks to have an emergency slush fund in essence set aside for an emergency. I wouldn’t want to be Jay Powell in the coming year, the screaming will only get louder and louder. Be strong Jay, you are our only hope.
But those aren’t the only landmines Powell will have to dodge this year, we just saw Biden bail out the teamsters pensions and then this week we got to see how underfunded Chicago and the Illinois pension fiasco has become. More bailouts of government workers, municipal workers, teamsters, and other pensions will follow and I know nobody wants to pay attention to this, but it is your money they will be using as a taxpayer to do so, and who is going to bail you out? The US Federal debt is $31 trillion and counting my friends… Keep an eye on Calpers, the California pension fund and the largest, we saw that they were heavily invested in AMC, which just made a 52 week low. I did a little digging and Calpers,in its wokeness as is all things California, doesn’t invest in tobacco stocks, despite their historical outperformance of the S&P 500, but invests in meme stocks. I hope the new incoming Republican house of representatives makes each state eat their own cooking, because Florida and Texas are booming and New York, Illinois, and California are slowly sinking into financial quicksand by running productive people and businesses out of their states with their ridiculous tax and spend policies.
It’s easy to be a critic so I shall offer up some solutions.
First, I’d like to introduce a $100 dollar tax on every syringe in the country. This will balance a lot of cities budgets like San Francisco and Portland where open drug use is the norm while making drugs unaffordable for the masses.
Austerity: C Thomas, don’t be ridiculous…
C Thomas: But a pack of cigarettes costing $20 isn’t ridiculous? I haven’t had to step over a person with a cigarette hanging out of their arm for awhile now, but I’m probably out of touch. As America becomes more unaffordable, the drug use will get worse people. Your cities are becoming horror shows America.
Second, I’d like soup kitchens to have a policy of you must bring in a bag of trash before you get a meal. You don’t work, you don’t eat. That way we can clean up our streets and make sure no one goes hungry. But that isn’t just soup kitchens, that is all government assistance. Food stamp, or the SNAP program as they call it, guaranteed student loans, farmer’s checks to not farm land, tax credits for buying EV cars
Austerity: C Thomas, don’t be ridiculous…
C Thomas: I realize you think I’m being ridiculous, but Austerity all good things do come to an end. This country had none of those things in Warren Buffet’s lifetime. The government was small and the debt was small and taxes were small and people flourished and we built a strong country, the envy of the world. If we don’t say no, then someone else will say no for us. I realize Triffin’s dilemma and that we are responsible for supplying the world with its reserve currency, but I’m looking at this from Jay Powell’s view- he is behooven to the American people not the world and by saving the US we might be in a better place to save the world. The first rule of being a good drug dealer is that you don’t get high on your own supply, but we are getting high on our own supply- of dollars. We are creating and spending dollars like there is no day of reckoning for that sort of foolish behavior, but there is, and it starts in Ghana or Belarus or some place unexpected when they say no more, no more dollars. Then it trickles up the line and that will be the end of the fiat experience known as the US dollar. It has happened to every fiat currency in history eventually and we will be no different, and while I don’t expect it to come crashing down in 2023, I can promise that we will move closer to that day of reckoning, and in that day of reckoning I won’t be ridiculous Austerity, all those programs will go away, all of them and more. That’s why we need to advance the Have More Grace Challenge, learn to sacrifice, understand honor and duty, and be prepared to sacrifice in the future. All lessons we have learned in year one here at the C Thomas Printer Cooperative and we look forward to bringing you more food for thought to prepare you for the unexpected times ahead.
Sincerely yours,
C Thomas Printer
Resources
State pension plans were hammered in 2022. Next year will be worse. – POLITICO
The recession would hit Chicago’s pension funds – Illinois News (localtoday.news)