The Fed didn’t raise rates yesterday. What it did do was update its projected dot plot for where Fed officials expect rates to be in 2024 and 2025.
The Fed now only expects to cut rates twice in 2024, as opposed to four times. In very simple terms, the Fed sent a message that rates will need to be higher for longer to end inflation.
The markets took the news hard with bonds, stocks, and even oil all selling off simultaneously. The yield on the all-important 10-Year U.S. Treasury spiked to new highs.
This is a HUGE deal. As I mentioned in yesterday’s article, this is the bond yield against which all risk assets, especially Tech stocks, are priced. If this yield keeps rising, it means stocks will need to be repriced lower.
High yield credit has already figured this out. Stocks are next.
And God help us if the S&P 500 FINALLY realizes what the long end of the treasury market has been saying for the last few months.
As I keep warning. The Great Debt Crisis of our lifetimes is fast approaching.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
The most important bond in the world has just broken to a new low.
Our financial system is backed by debt, specifically, U.S. Government debt or Treasuries. These bonds are the senior-most assets in the world, representing the bedrock of our banking system and financial markets. The yield on these bonds represents the risk-free rate of return against which all risk assets (stocks, real estate, oil, etc.).
Now, when we talk about Treasuries, we are actually talking about a series of bonds of different duration ranging from 4-weeks to 30 years. The total list is below.
Treasury Bill Maturation Periods:
4 Weeks
13 Weeks
26 Weeks
52 Weeks
Treasury Note Maturation Periods
2 Years
3 Years
5 Years
7 Years
10 Years
Treasury Bond Maturation Periods
20 Years
30 Years
Of these bonds, the 10-Year U.S. Treasury is the single most important one. The reason for this is that 10 years usually encompasses an entire economic cycle. This is the bond used to determine mortgage rates as well as pricing all longer duration assets (tech stocks).
I mention all of this because the yield on the 10-Year U.S. Treasury has just broken to new highs.
This is a HUGE deal. The risk free rate of return is rising… which means ALL risk assets will be repriced to lower levels in the near future. Small cap stocks, which are closely aligned with the real economy have already figured this out. The S&P 500 will soon follow.
That’s not the worst of it either. As I wrote in yesterday’s article, the Great Debt Crisis of our Lifetimes is fast approaching. I’ll explain precisely how the 10-Year U.S. Treasury fits into that in tomorrow’s article. In the meantime, if you’re looking to prepare yourself and your family for what’s coming, the time to take action is NOW before it hits.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
Posted inDebt Bomb|Comments Off on The Single Most Important Bond in the World is Breaking Down
By Graham Summers, MBA
The Great Debt Crisis of our lifetimes is approaching.
As S&P Global recently noted, global debt has just hit $300 TRILLION for the first time in history. As if that wasn’t jaw dropping enough, this amount of debt represents 349% of global GDP. If you were to spread out this debt across the world population each man woman and child would owe over $36,000.
Put simply, this is an incomprehensibly massive debt bomb. And inflation has lit the fuse.
You see, bond yields trade based on inflation among other things. So once inflation entered the financial system in 2021, it was only a matter of time before bonds yields began to rise.
Higher bond yields mean greater debt payments. And greater debt payments mean that it the debt becomes more difficult to service. At a yield of 0.25%, you can service $1,000,000 worth of debt for just $2,500. But at a yield of 5%, that same $1,000,000 in debt now costs $50,000 to service.
Again, inflation lit the fuse of our global debt bomb in 2021. And by the look of things, the fuse has almost burned completely away!
Take a look at the below chart and you’ll see what I mean. This is the Invesco 1-30 Laddered Treasury ETF (GOVI). It’s effectively a proxy for the entirety of the U.S. Treasury market. And as you can see, it is now trading at the same level it first hit in 2015, and just barely clinging to critical support.
Once that line gives way, the great debt crisis of our lifetimes will likely begin.
Smart investors are already taking steps to profit from this.
On that note, we are putting together an Executive Summary outlining how to invest when this Everything Bubble bursts.
It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here.
While mainstream economists prance around on television claiming that inflation has been defeated, the real data suggests otherwise.
It’s a well known “secret” on Wall Street that the official inflation measure, the Consumer Price Index, or CPI, is heavily massaged to UNDER-state inflation. However, even the CPI, with all of its gimmicks is showing inflation bottomed in June.
In June of 2023, the CPI was 3.0%. It’s now 3.7%. And with oil now above $90 a barrel again, it’s likely going much higher in the coming months. Again, this chart is going in the WRONG way.
The CPI is not the only inflation metric that has rebounded. The Atlanta Fed’s “sticky inflation” metric tracks parts of inflation that are deeply embedded in the financial system. These items are “sticky” meaning that it’s much more difficult for the Fed to get rid of them. And it’s clocking in at 4.7% after dropping below 3% just a few months ago.
That’s quite a rebound.
Indeed, CPI for August clocked in at 3.7% year over year. That sounds decent until you realize that CPI was 3.0% in June. That’s quite a rebound in just two months. And bear in mind, core inflation is still well over 4%!
Take a look at what oil is doing. Does this look like inflation is under control to you?
On that note, we recently outlined a unique “off the radar” investment that could EXPLODE higher as inflation rebounds. We detail this opportunity in a special report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
As I noted a few weeks ago, inflation likely bottomed in July.
By quick way of review, the official inflation metric, the Consumer Price Index or CPI, is measured on a year over year basis. So, when the CPI is 5.5%, for instance, what it’s saying is that prices are 5.5% higher than they were during the same month the year before.
As many pundits have noted, CPI has been declining. What they are failing to recognize however is that the only part of the CPI data that has been declining in 2023 is energy prices. And the reasons for this are:
1) Oil prices collapsed for most of the last 12 months after spiking higher during Russia’s invasion of Ukraine in 1Q22.
2) The Biden administration has dumped ~292 million barrels of oil from the Strategic Petroleum Reserve (SPR) forcing oil prices lower.
You can see this for yourself in the table below. Again, the ONLY parts of the CPI that has dropped significantly are energy prices (well that and used cars and medical devices).
However, this period is now ending. On a year over year basis, energy prices will no longer be down much if at all because we are comparing prices in the purple rectangle to prices in the blue rectangle on a year over year basis. This should result in CPI moving higher.
Indeed, CPI for August clocked in at 3.7% year over year. That sounds decent until you realize that CPI was 3.0% in June. That’s quite a rebound in just two months. And bear in mind, core inflation is still well over 4%!
So again, inflation has bottomed. Some investors will profit beautifully from this. Others will get taken to the cleaners.
On that note, we recently outlined a unique “off the radar” investment that could EXPLODE higher as inflation rebounds. We detail this opportunity in a special report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
Nearly every market collapse follows a particular pattern.
That pattern?
1) Stocks break down below a critical level of support.
2) Stocks rally to “kiss” this former support, failing to reclaim it.
3) Stocks roll over and the real collapse begins.
This pattern is now playing out with the S&P 500.
The S&P 500 first broke below its 50-day moving average (DMA) in August of 2023. This was a significant development as it was the first time the S&P 500 had lost this support since the March 2023 lows. I’ve illustrated this with a blue rectangle in the chart below.
The market then rallied to retest the 50-DMA from below. It briefly broke above this line in early September, but has failed to hold it.This represents the “kiss” as I mentioned earlier: when stocks try to reclaim critical support but fail to do so. I’ve illustrated this with a purple square in the chart below.
What comes next?
Bonds have been telling us for weeks. It’s just a matter of time before stocks “get it.”
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Last week, I noted that the Bureau of Labor Statistics (BLS) and other government agencies have been engaging in a strange scheme.
That scheme?
Releasing economic data that initially suggests the economy is booming, only for that same data to be revised downward multiple times in subsequent months.
Some people think the BLS is massaging the data the make Bidenomics look more successful that it really is. Others simply believe that the BLS is using faulty economic models (after all, how accurate is your model if it needs two or three revisions to be correct?).
Regardless of the reason, this issue continues to happen. And investors keep falling for it!
Case in point, last Friday, the BLS released the non farms payroll numbers for August 2023. And once again, you guessed it, the prior months (June and July) were revised lower. And not by a little: June’s NFP number was revised down by 80,000 jobs, while July’s was revised downward by 30,000 jobs.
Bear in mind, June’s initial NFP number of 209,000 had already been revised downward by 24,000 jobs in July. So with this second downward revision of 80,000 jobs, we now know that HALF of the jobs in the June NFP report were FAKE.
104,000 Fake Jobs / 209,000 Jobs Claimed = 49.7% of the jobs were fake.
As I mentioned a moment ago, the August NFP report also revised July’s job numbers down by 30,000. So when we add this to the 104,000 fake jobs “created” in June, we’re now up to 134,000 FAKE jobs being created in the last two months.
As if that wasn’t bad enough, as Bill King noted in his King Report, seasonal adjustments were boosted to make August’s NFP numbers look better. In 2022, the BLS adjusted August’s NFP numbers upward by 47,000. But for some reason, this very same seasonal adjustment accounted for 117,000 jobs.
Put another way, we already know that 70,000 of the 187,000 jobs the BLS claims the economy generated in August were due to a seasonal adjustment, as opposed to being real jobs created in the economy.
Oh, and bear in mind, July’s numbers have only been revised down once thus far. They will likely be revised down again next month. And we can expect a similar thing to happen for August’s NFP numbers as well.
Indeed, as ZeroHedge recently pointed out, these downward revisions have occurred for every single month in 2023 thus far.
Why does all of this matter?
Because investors are pouring billions of dollars of capital into stocks based on those initial jobs numbers. Check out the below chart and you’ll see what I mean.
These folks are in for a RUDE awakening in the coming weeks. The signs are now clear that the economy is slowing. And this is happening at a time when investors are paying 19 times forward earnings for stocks!
The only time stocks were previously this richly valued was when A) the economy was expanding rapidly and B) the Fed was printing trillions of dollars in new month.
Today the economy is rolling over… and the Fed is DRAINING liquidity from the financial system. So again, investors are buying stocks based on a fantasy.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
One of the hallmarks of the Biden Presidency is that economic data is released that looks fantastic at first glance… only to then be revised much lower in subsequent months.
Conspiracy theorists believe this indicates that the Bureau of Labor Statistics (BLS) and other bean-counter agencies are massaging the data to make the economy look better than it is in order to push a narrative that Bidenomics works. Other people simply believe that the reason data is continually being revised lower is because the economic models the BLS and other agencies use are garbage with little value (after all, how great can the model be if it needs to be revised two or three times to get an accurate number).
Regardless of the reason this is happening, the impact is the same: investors are buying stocks based on a fantasy that the economy is booming.
The formula is as follows:
1) The initial data released about jobs or GDP or some other metric looks quite strong.
2) Investors pile into stocks based on the notion that the economy is booming.
3) The data is revised lower, usually more than once.
The key item here is that investors DON’T sell stocks at a later date based on the downward revisions… in fact, few if any investors even bother keeping track of this stuff. And that’s the problem: people are buying based on the illusion of strong economic growth when in reality the growth is much weaker if not indicative of contraction!
As Zerohedge noted a few days ago, the monthly payrolls report has been revised lower every single month in 2023. Again, this is not just one or two months with downward revisions… it’s every. single. month.
Now, you could easily argue that these downward revisions are simply because the BLS’s models are useless, but that’s missing the point: the headline data, or the data that investors use to justify buying stocks at 19 times forward earnings, is WRONG.
In fact, if we dig into less popular data that isn’t broadcast by the financial media, we get a VERY DIFFERENT picture of the U.S. economy.
Take a look at the official job openings data taken from the Federal Reserve. Again, this is official data showing how many jobs are currently available in the U.S. economy. If the economy is booming and businesses are hiring people to expand their operations, why is this number cratering in ways usually associated with a recession.
Meanwhile, investors are bidding stocks higher and higher. As I write this, the stock market is priced at 19 times forward earnings. The only time stocks are this richly valued is when A) the economy is expanding rapidly and B) the Fed is printing trillions of dollars in new month.
Today the economy is rolling over… and the Fed is DRAINING liquidity from the financial system. So again, investors are buying stocks based on a fantasy.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
If longer duration Treasury yields continue to drop, then stocks will find a bottom of sorts. But if Treasury yields continue to rise, particularly on the all-important 10-Year U.S. Treasury, then stocks will be repriced to much lower levels.
As the below chart from Dr Ed Yardeni illustrates, the S&P 500 is currently trading at around 19 times forward earnings. This is an extremely RICH valuation given that the yield on the 10-Year U.S. Treasury is around 4.25%.
Consider that the last time stocks were this richly valued was early 2022 BEFORE the Fed started tightening monetary policy. At that time, the yield on the 10-Year U.S. Treasury was around ~2%. Obviously corporate earnings are now much higher, but the point is that the stock market is priced at a VERY high multiple given where the risk-free rate of return is trading right now.
Something has to give. Either Treasury yields are about to drop hard… or stocks will collapse. And smart investors who are properly positioned for this will see extraordinary returns.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Ever since the U.S. abandoned the Gold Standard in 1971, U.S. debt, also called Treasuries have become the bedrock of our financial system.
Put in the very simplest of terms, Treasuries are the senior most asset class, with their yields representing the “risk free” rate of return against which all risk assets (stocks, real estate, commodities, etc.) are priced.
Treasury yields are the reason stocks exploded higher from the April 2020 lows. They are also the reason stocks peaked and began a bear market in March 2022. And they are the reason stocks bottomed in October 2022, igniting one of the best bull runs in recent history.
I mention all of this because the yield on the 10-Year U.S. Treasury, which is the single most important bond in the world, has recently hit new highs. And if it doesn’t stop right here and now, stocks are primed for a major collapse.
How major?
The last time the yield on the 10-Year U.S. Treasury was at its current level, the S&P 500 was trading at 3,600. Today it’s at 4,400.
See for yourself.
Sure, stocks might hold up with Treasury yields at these levels for a time. But the clock is ticking. And it’s only a matter of time before we get a NASTY risk off move.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
The Tech ETF (XLK) is at major support at $166. Even if this is not THE low, it’s a decent spot for a bounce as XLK rallies to $175 or so as it carves out a potential right shoulder in a Head and Shoulders pattern.
Moreover, the yield on the 10-Year U.S. Treasury is at major resistance.
Tech is a long-duration play, meaning it is heavily affected by the yield on longer-term Treasuries. The odds of the yield on the 10-Year U.S. Treasury breaking above its current levels right here and now are not high. This suggests the next move for this yield would be down, which would alleviate some of the pressure on tech stocks.
Given that the S&P 500 is heavily weighted towards tech (the sector accounts for 28% of the index’s weight) all of the above items suggest a bounce in tech and the broader market here. Again, this is just a short-term idea.
In the big picture however, my proprietary Bull Market Trigger is about to register its first “buy” in over a decade.
This signal has only registered TWO times in the last 25 years: in 2003 and 2010. And it’s close to registering a new signal today,
If you’ve yet to take steps to prepare for invest accordingly, we have published an exclusive special report How to Time a Market Bottom.
It details the my proprietary bull market trigger, how stocks have performed following prior signals, and what it is stating right now.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
Nothing has changed in the U.S. in the last month.
The primary framework for investing in the U.S. is as follows:
1) The stock market is bubbling up due to:
a. There being too much liquidity in the financial system.
b. Inflation, particularly core inflation remains elevated (4.8%).
c. Stocks are a better inflation hedge that bonds or cash.
2) The U.S. economy isn’t growing rapidly, but it’s not contracting either.
a. The Atlanta Fed’s GDP Now metric shows economic growth of 2.4%.
b. The Federal government is running its largest deficit as a percentage of GDP in history outside of wartime/ a recession. Much of this deficit is going towards social programs and stimulus measures.
c. Social spending and economic stimulus measures will continue if not increase as we head into the 2024 Presidential election.
d. The recent debt ceiling deal removes all spending caps through the 2024 election.
Put simply we are in a situation in which nothing is going great, but pretty much everything is going OK. Inflation remains high, but it has come down from its peak. The economy is still growing, albeit at a sub-3% pace. And there is ample liquidity in the financial system.
All of this is generally “risk on” for the markets… which means this situation will continue until something significant breaks. This doesn’t mean that stocks won’t correct or ever fall in price again. But it does mean that we are likely in a new bull market and that things will continue to be in “risk on” mode until something major breaks.
Regarding the potential for a recession, the yield curve, particularly the all-important 2s10s (what you get when you subtract the yield of the 2-Year U.S. Treasury from the yield of the 10-Year U.S. Treasury) remains extremely inverted.
This has predicted every recession since 1955. However, the actual recession doesn’t hit until this dis-inverts, meaning it moves back into positive territory. And as the below chart shows, it can take months if not years for the yield curve to dis-invert once it becomes inverted.
Put simply, until this chart moves back into positive territory, this is just a warning that a recession is coming eventually. Nothing more.
So again, there are red flags in the financial system today, but these are warnings not signals that it’s time to get REALLY bearish. The purpose of investing is to make money, not miss out on gains because of a warning. So we ride this bull run for as long as we can until it ends.
Indeed, my proprietary Bull Market Trigger is about to register its first “buy” in over a decade.
This signal has only registered TWO times in the last 25 years: in 2003 and 2010. And it’s close to registering a new signal today,
If you’ve yet to take steps to prepare for invest accordingly, we have published an exclusive special report How to Time a Market Bottom.
It details the my proprietary bull market trigger, how stocks have performed following prior signals, and what it is stating right now.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
Everything changed for the financial system in March 2023.
What happened then?
The Fed and the Treasury implemented a backdoor bailout of the banking system.
If you’ll recall, in late February/ early March 2023, a number of smaller/ regional banks failed in the U.S. While we say these banks were “small” in comparison to the mega banks like JP Morgan or Wells Fargo, the reality is that when Silicon Valley bank, Signature Bank, and First Republic bank failed, they represented three of the largest bank failures in U.S. history.
Why were these banks failing?
Two reasons:
1) The banks were only paying 0.3% on deposits at a time when depositors could earn 4% or even 5% in a money market fund or short-term Treasuries. So people were pulling their money out of the banks in droves.
2) The banks were sitting on hundreds of billions of dollars’ worth of unrealized losses on their longer-duration assets (mid to long-term treasuries and loans) courtesy of inflation forcing these bonds to collapse.
Now, investor confidence is a strange thing. Both of the above issues were common knowledge as early as November 2022, but for whatever reason, investors chose to ignore them and give regional banks the benefit of the doubt until late February 2023,
Then Silicon Valley bank, Signature Bank, and First Republic failed, and investors began to panic, dumping regional bank shares. Banks’ share prices were falling 10%, 20% even 50% in a single day. And in early March 2023, it appeared as if the U.S. was mere days away from a full-scale banking crisis.
That’s when the Fed and the Treasury jumped in…
The Treasury, acting with the Federal Deposit Insurance Corporation (FDIC) moved to assure depositors that their money was safe, offering to backstop ALL deposits above the usual $250,000 that is insured by the FDIC.
Simultaneously, the Fed pumped nearly $400 billion into the financial system in the span of three weeks.
The Fed also opened a backdoor bailout scheme to funnel nearly $100 billion to the banks.
And that’s when everything changed for the stock market. Stocks bottomed and haven’t looked back.
Below is a weekly chart for the S&P 500 year to date. Each of those candles represent the price action of a given week. White candles represent up weeks and black candles represent down weeks.
As you can see, the last major black candle occurred in late February/ early March 2023 during the regional banks’ issues. Since that time, the market has closed UP for 13 of the last 19 weeks. And of the six down weeks, only two were significant; the other four we all bought aggressively, with stocks reclaiming most of the initial losses by the time the week ended.
I’ve illustrated the two significant down weeks with blue circles in the chart below. Note that the other four down weeks were either down only slightly (purple circles) or saw the market ramp hard off the lows (red circles).
In the simplest of terms, everything changed for stocks in early March 2023. Since that time, the markets are back into “bubble mode” with everything soaring. Companies like Sirius XM Holdings have saw their share price DOUBLE in the span of a week. Meanwhile Carvana is up 700%!
Bearing all of this in mind, smart investors are asking, “what’s next? Will the Fed continue to pump the markets into an even larger bubble, or is this whole mess going to come crashing down?”
I’ll detail my thoughts on this in tomorrow’s article. In the meantime, we recently outlined a unique “of the radar” investment that will could EXPLODE higher as due to the Fed’s money printing. We detail this investment in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
The Fed has raised interest rates from 0.25% to 5.25% in the span of 16 months.
And yet…inflation has yet to disappear in any significant fashion.
As I noted earlier this week, the ONLY data points in the CPI that are DOWN year over year are energy prices. When you strip out energy and food prices you find that core CPI is only slightly down. As I write this, it’s still clocking in at 4.8%… after fluctuating around 5% for most of 2023.
Moreover, asset inflation is out of control.
Stocks are less than 5% off their all time highs, despite one of the most aggressive rate hike cycles in history!
While financial conditions are roughly as loose as they were BEFORE the Fed started raising rates!
What’s going on here?
What’s going on is that the Fed is repeating the same mistake it initially made during the last major inflationary bout in the U.S. in the 1970s: focusing on rate hikes as opposed to draining excess reserves/ liquidity from the financial system.
During the first round of inflation from 1972-1975, the official inflation measure, the Consumer Price Index or CPI, rose from 3.3% to 11.1%. During this period, the Fed, chaired by Arthur Burns, attempted to rein in inflation using rate hikes. This succeeded in triggering a recession, but failed to end inflation: CPI only fell to 5.7% in 1976 before rebounding and eventually peaking at 13% in 1980.
Burns was replaced William Miller as Fed Chair in 1978, but Miller only lasted a year, as his efforts to end inflation proved similarly futile: the Fed raised rates from 6.75% to 10.5% during Miller’s tenure, but inflation continued to rise from 7.6% to 11.3%
It was only when Paul Volcker took the reins as Fed Chair in August 1979 that things changed. Volcker shifted the Fed’s focus from rate hikes to draining excess reserves/ liquidity from the financial system. The goal was to remove the froth from the financial system, while letting rates move in a wider range in order to tighten policy to the point that inflation finally disappeared.
The effect was a severe recession (July 1981-November 1982), but CPI also came down, eventually falling to ~3% in 1983.
The below chart of CPI in the 1970s is clear: rate hikes didn’t end inflation… but draining excess reserves did.
Unfortunately for us today, the Fed is repeating the EXACT same mistake it made from 1972-1979. And those investors who are properly positioned to profit from this mistake will do extremely well as I’ll outline in tomorrow’s article.
In the meantime, if you’re in the market for someone who can help you profit from the Fed’s blunders, I can help you not only thrive but achieve tremendous financial success.
This opens the door to some VERY inflationary surprises in the near future. And those who are positioned to profit from this could see some absolutely stunning returns.
We recently outlined a unique “of the radar” investment that will could EXPLODE higher as inflation turns back up. We detail this investment in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
Yesterday, I noted that inflation has very likely bottomed for 2023.
No one in the media is discussing this, but the only parts of the inflation data that is actually falling are energy prices.
See for yourself.
Everything else is still going UP in price, though the pace is slower (this doesn’t stop the media from claiming inflation is falling though).
However, by the look of things, energy prices are bottoming here, particularly in Year over Year comparables.
You see, the inflation data published in the U.S. is based on year over year comparisons. When the Consumer Price Index (CPI) comes out at 5%, what it’s really stating is that a basket of goods and services costs ~5% more currently than it did a year ago.
This is called the base effect: a comparison between two data points in which the current one is expressed as a ratio of the older one. And it can result in some pretty strange circumstances if you’re not careful.
Situations like the one we’re in today.
Let’s wind the clocks back to the first quarter of 2022. Oil prices were rising rapidly due to inflation as the Fed had yet to end its Quantitative Easing (QE) program, let alone raise interest rates. Then Russia invaded Ukraine, and oil spiked even higher to $130 a barrel as the financial world grew terrified of large-scale oil production disruptions.
I’ve illustrated this time period on the below chart of oil prices with a red rectangle.
The rise in oil prices then halted as it became clear that Russia’s war with Ukraine wouldn’t disrupt global oil production by much if at all (Russia would continue selling oil via back-channels to India and other countries). Another factor that stopped oil prices from rising was the fact the Biden administration dumped 292 million barrels of oil on the market by draining the Strategic Petroleum Reserve (SPR).
I’ve been accused of playing politics with this data point, but the chart is clear. President Biden took office in January 2021. At that time the SPR had 638 million barrels of oil. What followed was the largest drop in the SPR’s history, with the SPR declining to 346 million barrels of oil where it sits today. That is a decline of 292 MILLION barrels of oil.
Add it all up, and the end result is that since June 2022, oil prices have declined from $130 a barrel down to the upper $60s/ lower $70s per barrel. The result of this, as far as the CPI is concerned, is that on a year over year basis, for the entirety of 1H23, we have been comparing oil prices in the blue rectangle to oil prices in the red rectangle. As a result of this, energy inflation is down sharply.
This trend is now ending as we work our way into the second half of 2023. Going forward, oil prices on a year over year basis will be compared to the prices in the red rectangle in the chart below.
Put simply, on a year over year basis, the massive drop in energy prices that has lowered overall CPI considerably will be ending. And since energy prices are the ONLY part of the CPI data that has been declining… it is highly likely that the inflation data is bottoming here… or at the very least, won’t be declining much more.
This opens the door to some VERY inflationary surprises in the near future. And those who are positioned to profit from this could see some absolutely stunning returns.
We recently outlined a unique “of the radar” investment that will could EXPLODE higher as inflation turns back up. We detail this investment in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
The inflation data published in the U.S. is based on year over year comparisons. When the Consumer Price Index (CPI) comes out at 5%, what it’s really stating is that a basket of goods and services costs ~5% more currently than it did a year ago.
This is called the base effect: a comparison between two data points in which the current one is expressed as a ratio of the older one. And it can result in some pretty strange circumstances if you’re not careful.
Situations like the one we’re in today.
For most of the first half of 2023, inflation, as measured by the year over year comparison for the CPI has been trending down. However, as I’ve noted repeatedly, the only part of the inflationary data that is declining is energy prices (well that and used car prices).
See for yourself.
I mention this, because it is increasingly looking as though oil prices have bottomed.
Oil has spent much of the last 18 months in a downtrend. But that downtrend is about to be broke.
If oil prices rip higher from here, then the inflationary data will begin to turn back upwards. Remember, energy prices are the ONLY part of the CPI that are DOWN. The price of everything else continues to RISE, albeit a slower rate.
Many investors will be caught offsides here. Don’t be one of them!
We recently outlined a unique “of the radar” investment that will could EXPLODE higher as inflation turns back up. We detail this investment in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in inflationary assets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
The greenback peaked in October 2022. After plunging some 11% from October 2022 to January 2023, the $USD has since been moving in a range or what trader’s would call a “consolidation phase.”
There are a couple key issues to consider when you look at a consolidation phase. They are:
1) How long it lasts.
2) Whether the eventual breakout is a continuation or a reversal of the prior trend.
Regarding #1, the length of a consolidation phase is closely correlated with the significance of the eventual breakout: the longer the consolidation phase, the more significant the breakout.
In the case of the $USD, it’s been in a consolidation phase for SIX MONTHS. That is a significant length of time. And it tells us that the eventual breakout is of major importance.
Regarding #2, it’s critical to note whether an eventual breakout continues the trend the asset was in prior to consolidating or whether it reverses said trend. If the breakout is a continuation, then the asset is in a MAJOR trend, and the consolidation was simply a kind of “breather” between major moves.
That appears to be the case with the $USD today. The trend was down before it began consolidating. And now it is breaking down in a big way. This suggests that the $USD is in a MAJOR downtrend that will last for some time.
Finally, remember we are talking about the $USD here… arguably the most important asset in the world. This breakdown will have a MAJOR impact on the markets, particularly those that benefit from higher inflation/ a weaker $USD.
We recently outlined one such investment that should benefit GREATLY from a weaker $USD in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in assets that outperform during this kind of environment. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
We continue to receive signals that the U.S. is an emerging market.
One of the hallmarks of emerging markets, particularly banana republics, is that politically connected businesses are treated like royalty while everyone else gets screwed over.
This theme was on full display last week when JP Morgan reported its “outstanding” results. JPM reported record Net Interest Income that was boosted by the fact that the bank was given First Republic’s profitable assets for pennies on the dollar.
But who picked up the losses? After all, First Republic failed!
You did. So did I and the rest of the public.
The Federal Deposit Insurance Corporation (FDIC), which is part of the government that taxpayers fund, absorbed most of First Republic’s losses. Oh, and the FDIC also gave JP Morgan a $50 BILLION line of credit as part of the deal.
How sweet was this deal?
JP Morgan immediately reported a one time gain of $2.6 billion as soon as the deal closed. And it is expected to make $500 million per year from the assets it bought for pennies on the dollar.
These kinds of sweetheart deals that benefit the connected while burdening everyone else are common in emerging markets. To be clear, the U.S. has had them for a long time as well. But they only reached “3rd world banana republic” levels after 2008 once the Wall Street bailouts went from being the exception to the rule.
Indeed, things have become so egregious as far as fraud, waste, and abuse are concerned that the head of the Small Business Administration (SBA) didn’t even bother showing up to a hearing on fraud related to COVID-19 loans.
By the way, the fraud in question is $200 BILLION.
Sweetheart deals that favor the connected and screw everyone else? Administration officials who don’t even bother showing up for meetings concerning hundreds of billions of dollars in government funded fraud?
These are 3rd world, banana republic type issues. The fact that the U.S. can’t go a week without some new example of this stuff tells us just how far down the toilet the system has gotten.
aving said that, this kind of tectonic shift represents a “once in a lifetime” opportunity. Some investments are going to produce fortunes. Others will lose money for years… if not decades. And those investors who are positioned correctly for this will thrive while others struggle.
We recently outlined a unique “of the radar” investment that will outperform in this new economic landscape in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in emerging markets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
As I keep emphasizing, the U.S. is becoming an emerging market.
Two of the hallmarks of emerging markets are a weak domestic currency and higher inflation. While neither of these are good for those living in the nation, they do make the performance in the domestic stock market look fantastic.
Case in point, take a look at the South Africa stock market’s performance over the last 20 years.
Nothing special, right? It’s effectively been moving sideways since 2010.
Well, a big reason for that is that the above chart is priced in $USD. Watch what happens when we price South Africa’s stock market in its domestic currency, the Rand.
A similar dynamic is playing out today in the U.S.
The S&P 500 look wonderfully bullish. After all, it bottomed in October 2022 and since been roaring higher ever since.
However, much of this performance stems from the fact that the S&P 500 is priced in our domestic currency, the $USD, which has been extremely weak.
Watch what happens when we price the S&P 500 is another, stronger currency like the Euro.
Not quite some fantastic anymore is it? In fact, the S&P 500 priced in Euros has effectively been trading sideways for most of 2023.
Put simply, a major reason why the S&P 500 has done so well since October 2022 is because it’s priced in $USD. And the $USD has been dropping like a stone.
Again, this is the hallmark of an emerging market.
If you’re an individual investor trying to navigate this market, the framework that worked for investing in the U.S. from 1940 until today is over. You’re no longer investing in a developed nation… you’re investing in an emerging market.
Having said that, this kind of tectonic shift represents a “once in a lifetime” opportunity. Some investments are going to produce fortunes. Others will lose money for years… if not decades. And those investors who are positioned correctly for this will thrive while others struggle.
We recently outlined a unique “of the radar” investment that will outperform in this new economic landscape in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in emerging markets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
If you missed it, my main point was this: the U.S. is now an emerging market. And it’s getting downright embarrassing.
Last week our Secretary of the Treasury, Janet Yellen, arguably the most important financial figure in our country, and the person in charge of managing the U.S. dollar/ financial system, groveled in front of China’s Vice Premiere He Lifeng during her visit to China
Ms. Yellen bowed repeatedly to the Vice Premiere, groveling much as an emerging market financial official would kowtow to his or her counterpart from a more developed, superior nation upon which the former’s nation relied for aid/ support/ assistance.
See for yourself. And mind you, this is one of NUMEROUS bows.
I wish this was the worst thing about the current state of incompetence for financial/ economic leaders in the U.S., but unfortunately, it’s not.
No, far worse is the fact that our central bank, the Federal Reserve, or the Fed for short, has become a political entity, as is often the case in emerging markets/ banana republics.
Let me explain.
The Fed, as per its Dual Mandate, is meant to focus on just two things: inflation and employment.
That’s the law. And for most of the last 100+ years, the Fed did focus on these issues above anything else.
No longer.
The Powell Fed is a den of corruption, incompetence, and political activism. In the last few years we’ve witnessed:
1) Scandals in which senior Fed officials were caught trading around Fed announcements. This is insider trading on a banana republic level!
2) The Fed ignoring literally HUNDREDS of signals that inflation was out of control… while still printing over $1 trillion per year and paying billions of dollars to banks.
3) The creation of the worst inflationary storm in 40+ years, all due to Fed incompetence (how did the Fed’s 400+ Economics PhDs and 150 research associates miss that inflation had arrived in 2020-2022!?!)
4) Fed Presidents pushing social justice issues openly in speeches. It’s one thing for them to discuss these things in private. It’s something else entirely for them to push for policies to address climate change, social justice, and other item as FED OFFICIALS.
5) The Fed testing the banking system for “Climate Change Risks.” Mind you, this is the same Fed that didn’t see the regional banking crisis coming, resulting in several of the largest bank failures in history.
All of the above would be downright hilarious, if the damage they inflicted on ordinary Americans wasn’t so devastating.
Let me be blunt here…
Few if any of us got rich during the pandemic. Multiple Fed officials did by trading on insider information. By the way, this continues today, with at least one Fed President caught actively trading during Fed “black out” periods when it’s illegal to do so. He wasn’t fired or forced to resign either.
Similarly, inflation has taken a heavy toll on Americans. And yet, NONE of the Fed officials who ignored the countless signals that inflation was appearing in 2020-2022 have been fired. And why would they? These are politically connected academics who haven’t worked in the private sector in years, if ever!
Again, the U.S. is an emerging market. All the signs are there: abject corruption, incompetence, politicizing everything, etc. The U.S. that existed from the 1940s until the mid-’00s is gone forever. And most of us are now on our own to navigate this new environment.
The only good thing that will come from this is that if you know how to invest in emerging market regimes, you can stand to make a fortune in the coming years.
Indeed, this kind of tectonic shift represents a “once in a lifetime” opportunity. Some investments are going to produce fortunes. Others will lose money for years… if not decades. And those investors who are positioned correctly for this will thrive while others struggle.
We recently outlined a unique “of the radar” investment that will outperform in this new economic landscape in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in emerging markets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
Last week I noted that the U.S. is becoming an emerging market.
By quick way of review:
1) Many of the most important institutions in the U.S. now exhibit a level of corruption that is normal for banana republics. We now see these institutions doing everything from interfering in elections to arresting political opponents and more. The individuals who do this are not punished, if anything they given book deals and TV slots.
2) The U.S. no longer has a clear rule of law. Those with the correct political leanings and connections can avoid jail time for serious crimes, even treason. Meanwhile, those on the other side of the political spectrum are given lengthy sentences for minor transgressions.
3) The U.S. economy is no longer a manufacturing/ industrial leader. Decades of outsourcing have gutted the middle class resulting in the kind of wealth disparities you usually see in emerging markets. American children dream of becoming influencers or social media personalities instead of business owners or innovators.
It’s enough to make you sick.
Indeed, the “U.S. is an emerging market” theme was on full display last week when our Secretary of the Treasury, Janet Yellen, arguably the most important financial figure in our country, and the person in charge of managing the U.S. dollar/ financial system, groveled in front of China’s Vice Premiere He Lifeng during her visit to China
Ms. Yellen bowed repeatedly to the Vice Premiere, groveling much as an emerging market financial official would kowtow to his or her counterpart from a more developed, superior nation upon which the former’s nation relied for aid/ support/ assistance.
See for yourself. And mind you, this is one of NUMEROUS bows.
Again, this is the thing of emerging markets. And the fact that the person who manages our finances and currency is this incompetent/ embarrassing illustrates clearly just how far the U.S. has sunk.
The only good thing that will come from this is that if you know how to invest in emerging market regimes, you can stand to make a fortune in the coming years.
Indeed, this kind of tectonic shift represents a “once in a lifetime” opportunity. Some investments are going to produce fortunes. Others will lose money for years… if not decades. And those investors who are positioned correctly for this will thrive while others struggle.
We recently outlined a unique “of the radar” investment that will outperform in this new economic landscape in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in emerging markets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
As I’ve noted in our last two articles, the $USD has begun a significant decline against most major currencies (the Euro, the Pound and the Franc). And the only reason it is showing relative strength against the Yen is because Japan’s central bank continues to ease monetary conditions.
What’s happening here? The $USD should be performing well based on interest rates as well as how far along the U.S.’s central bank is in its fight against inflation.
I believe what is happening is that the world is increasingly aware that the U.S. has become an emerging market.
Historically, the U.S. was held up as the eminent developed nation with strong and stable institutions, the Rule of Law, and a dynamic economy.
No longer.
It is now clear that many of our most significant institutions in the U.S. are corrupt. And I’m not talking about the typical corruption one can assume from any organization involving people and power. I’m talking about 3rd world, banana republic levels of corruption, e.g. interfering with elections, jailing political adversaries, censoring free speech, etc.
Similarly, the Rule of Law in the U.S. is now more of a catch phrase than a reality. There are clear double standards applied on a local, state and federal level when it comes to the law. The politically connected/ chosen can commit everything from felonies to outright treason with little if any jail time. And in many cases, those involved in undermining their political adversaries even when it was illegal/ treasonous received book deals and prime time TV slots as opposed to going to prison.
Again, this the domain of 3rd world banana republics.
The U.S. economy has similarly entered a state of secular decline. The U.S. once was the manufacturing/ industrial capital of the world. It’s now a hollowed out, socialist economy that relies on other regimes (many of them hostile to the U.S.) for its resources and economic needs.
More and more Americans are paid simply to not work. Of those that do work, many take no pride in their efforts. It has become a running joke to post videos of goofing off at the office/ pretending to work/ faking productivity. Anyone who runs a business knows how hard it is to find committed, hard working people.
Perhaps nowhere are the above issues as obvious as in the U.S.’s financial status.
The U.S. now has a Debt to GDP ratio of over 120%. The government is running the largest peacetime deficit relative to GDP in history. Is the government trying to rein this in? Not in the slightest. The new Debt Deal removes all spending cuts through 2024.
Meanwhile, basic services (roads, bridges, etc) are crumbling. Go to any major U.S. airport or drive down any major U.S. highway and you’re looking at something that was a high quality/ top of the line project back in the 1950s.
Abject corruption, a lack of the Rule of Law, massive debt, massive deficits, crumbling infrastructure. These are the hallmarks of an emerging market. So is it any surprise that the U.S. dollar is behaving like an emerging market currency?
I’m not saying that other currencies/ economies are much better (if better at all)… I’m simply noting that the U.S. is far worse than ever before. On a relative basis, all of the things that made the U.S. an exceptional place are now of questionable quality/ credibility.
So why wouldn’t the U.S. currency be the same? Why wouldn’t the $USD become weaker, lose more and more purchasing power, and ultimately no longer serve as a storehouse of value?
For those of you who are upset by all of this, it’s time to take your financial future into your own hands
Indeed, this kind of tectonic shift represents a “once in a lifetime” opportunity. Some investments are going to produce fortunes. Others will lose money for years… if not decades. And those investors who are positioned correctly for this will thrive while others struggle.
We recently outlined a unique “of the radar” investment that will outperform in this new economic landscape in an investment report called Billionaire’s “Green Gold.”
It details the actions of a family of billionaires who literally made their fortunes investing in emerging markets. And they just became involved in a mid-cap company that has the potential to TRIPLE in value in the coming months.
Normally this report would be sold for $249. But we are making it FREE to anyone who joins our Daily Market Commentary Gains Pains & Capital.
