Inflation

By Graham Summers, MBA

Governments around the world are issuing staggering amounts of debt to “paper over” any weakness in the private sector with public spending. As Bloomberg notes, collectively, the U.S., U.K., E.U., and Japan will issue $2 trillion in new debt this year.

This is keeping the world from entering a recession, while simultaneously setting the stage for the next round of inflation. Remember that the first wave of inflation (2021-2023) was triggering by egregious levels of public spending/ stimulus during a time of private sector weakness.

In the U.S., it is clear the Biden administration is implementing policies to prop up the economy and financial markets for the 2024 election regardless of the consequences the policies will bring down the road.

Case in point, the U.S. is running the levels of deficit you usually see during a recession, at a time when the economy is technically still growing. Indeed, the only periods in which the U.S. was running a larger deficit as a percentage of GDP in the last 100 years during World War II, and the Great Financial Crisis.

As you likely know, deficits are financed via the issuance of debt. And because the U.S. is constantly having to roll over old debt into new debt while also issuing new debt to finance its deficit, the country has added some $2 TRILLION in debt in the last seven months alone!

My question to policymakers: what if all this spending brings back higher inflation when the U.S. finally rolls over into recession? What’s the plan, then? 

Gold has figured it out already. Other asset classes will soon, too.

If you’re looking for someone to guide your investing to insure you crush the market, you can sign up for our FREE daily market commentary, GAINS PAINS & CAPITAL.

As an added bonus, I’ll throw in a special report Billionaire’s “Green Gold” concerning a unique “off the radar” investment that could EXPLODE higher in the coming months. 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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

Since early 2023, numerous pundits and gurus have been calling for a recession. And despite numerous indicators flashing that one is coming… the recession has yet to arrive.

Why?

This: 

The U.S. is running a GARGANTUAN deficit equal to 5.5% of GDP.

To put this into perspective, it’s larger than the deficit the U.S. ran during EVERY recession in the last 100 years except for the Great Financial Crisis and when the economy was shutdown in 2020.

Put simply, the U.S. is running the kind of spending that we usually see during periods in which the private sector is in a total free-fall… at a time when the private sector is weak, but not yet collapsing.

This has managed to keep the economy positive. But it’s a short-term fix.

Ultimately, the U.S. cannot stay out of recession forever as no amount of government spending can replace the economic impact of the private sector (we learned this during the shutdowns when the Fed and Uncle Sam spent $8 trillion in 12 months but the economy still collapsed).

Moreover… this situation presents us with a MAJOR problem down the road: if the U.S. is already spending at a pace usually associated with recessions while the economy is still growing, what is going to happen when the economy finally does roll over into recession? How much spending will it be doing then? 8% of GDOP? 10% of GDP? More?

And bear in mind, this spending is being funded by debt (it is a deficit after all). What happens to the bond market if the U.S. cranks up its spending to 8% or more of GDP when the actual recession hits?

Gold has started to figure it out. Other assets will figure it out soon.

As I keep stating, you CAN outperform the overall market, but it takes a lot of work and insight!

If you’re looking for someone to guide your investing to insure you crush the market, you can sign up for our FREE daily market commentary, GAINS PAINS & CAPITAL.

As an added bonus, I’ll throw in a special report Billionaire’s “Green Gold” concerning a unique “off the radar” investment that could EXPLODE higher in the coming months. 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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

Inflation is back.

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

Inflation has very likely bottomed for 2023. 

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

Last week I outlined a major development in the currency markets.

That development?

That the U.S. dollar has begun to decline against nearly every major currency (the Euro, Pound, and the Franc). The U.S. dollar peaked in October 2022 against ALL of these currencies. It has since entered a steep decline, losing ~20% of its value against each of these currencies.

Indeed, the only currency against which the $USD has demonstrated any strength is the Yen… and that’s only in the last few months as it became clear that the Bank of Japan would continue to printing money/ maintaining its easy monetary policies. But even then, the U.S. dollar is still significantly lower in value from its prior peak.

What is happening here?

From a fundamental perspective, the $USD should be stronger than these other currencies. For one thing, interest rates are higher on the $USD (5.25% vs. 3.% for the Euro, 5% for the Pound and 1.75% for the Franc).

Moreover, the U.S. central bank, the Federal Reserve or Fed, is supposedly farther along in its quest to end inflation than the other central banks that issue those other currencies: the Fed has just announced a skip or pause in rate hikes, while the European Central Bank, Bank of England and Swiss National Bank are still hiking rates.

So what is happening here?

Is the U.S. dollar losing its reserve currency status before our very eyes? Why is the greenback so weak when it should be quite strong?

I think I know what it happening here. And I’ll detail what in tomorrow’s commentary. In the meantime, there are many different ways to profit from this situation. We recently outlined a unique “of the radar” one favored by a family of billionaires in an investment report called Billionaire’s “Green Gold.”

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

Something major is brewing in the currency markets.

Throughout much of 2021 and 2022, the $USD rallied aggressively, rising from 90 to 112. The driving force behind this move was the Fed’s tightening of monetary policy: the $USD was becoming increasingly attractive relative to other currencies based on higher rates.

However, something changed in October of 2022. The $USD began to break down. And not just a little. The greenback dropped violently from 112 to 100 in the span of a few months.

Since that time, the $USD has struggled to catch a bid against every major currency.

The $USD has been dropping relative to the Euro, the British Pound, and the Swiss Franc. And it is doing this despite the fact that rates are higher in the U.S. than in any of the countries that issue these other currencies.

Indeed, the only currency against which the $USD has demonstrated any strength is the Yen… and that’s only in the last few months as it became clear that the Bank of Japan would continue to printing money/ maintaining its easy monetary policies.

As I mentioned earlier in this commentary, something MAJOR is brewing in the currency markets. Currencies go up and down all the time… but when you see a currency dropping like a stone against every major currency, you know something BIG is happening.

I think I know what it is. And I’ll detail what in tomorrow’s commentary. In the meantime, there are many different ways to profit from this situation. We recently outlined a unique “of the radar” one favored by a family of billionaires in an investment report called Billionaire’s “Green Gold.”

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

There are two primary reasons why inflation has remained so persistent despite the Fed raising rates from 0.25% to 5.25% in the span of 14 months.

1)     The Fed is using the wrong tools to end inflation.

2)    The Federal Government continues COVID-19 emergency levels of spending. 

Yesterday we discussed #1. Today we’re going to dissect #2. 

Between 2020 and 2022, the Fed printed roughly $5 trillion. The Federal Government spent/ printed another $6 trillion.

Over the last 14 months, Fed has raised rated from 0.25% to 5.25% while draining $500 billion in liquidity from the financial system. In simple terms, the Fed has stopped printing money and is tightening monetary policy.

The Federal Government has not altered its money printing/ spending. In fact, courtesy of the Debt Deal that was just signed into law, the Federal Government has NORMALIZED the emergency levels of stimulus/ spending it introduced during the pandemic.

The government is financed via tax revenues. If spending is greater than tax revenues, then the government issues debt to finance its spending. Despite pulling in record taxes in 2021 (and 2022’s tax haul is looking to be ever greater), the U.S. continues to run $1+ trillion deficits.

Relative to GDP, the deficit is greater than that the government ran during the depths of the 2008 crisis. Indeed, you have to go back to World War II to find a period in which the deficit relative to GDP was greater! And bear in mind, the government is currently running this kind of deficit TWO YEARS after the recession associated with the shutdowns ended!

And thanks to the Debt Deal, this level of stimulus/ spending will become normalized.

Section 265 of the bill notes that the OMB (Office of Management and Budget) director has sole waiver authority to spend whatever money the government wishes if said spending is deemed “necessary for program delivery.” (H/T. Rep Nance Mace for catching this).

The OMB is the part of the Executive Branch in charge of “overseeing the implementation” of the President’s “vision” for the economy. The OMB director is appointed by the President. And according to the current version of the debt dealing congress is voting on, this person has “sole waiver” authority on spending caps.

Put simply, she (the current OMB director is Shalanda Young), is permitted to spend as much money as President Biden wants, provided the spending is deemed “necessary” to deliver on programs that meet his vision for the economy.

That single line negates any and all cuts or spending caps laid out elsewhere in the debt deal. It’s akin to someone writing “everything else in this 99-page bill is non-binding.”

In the very simplest of terms, this deal, if it passes, would normalize the government’s COVID-19 level of spending. This would be highly inflationary. And it would make the Fed’s job of tackling inflation that much more difficult. 

This is why the yield on the 6-month U.S. Treasury bill has soared to new highs…

While the yield on the 1-Year U.S. Treasury is back at its former highs.

The above charts tell us the bond market is figuring out the Fed will need to raise rates higher and hold them there for much, MUCH longer. Three months ago, the Treasury market thought rates would be at 3.75% in two years. It is now suggesting rates will be 4.50% two years from now.

Anyone who believes the Fed will be easing monetary policy soon is mistaken. Between the Fed’s refusal to drain excess liquidity from the financial system and the Debt Deal normalizing the federal government’s pandemic levels of spending, inflation is going to become quite sticky, if not permanently embedded in the financial system.

There are many different ways to profit from this situation. We recently outlined a unique “of the radar” one favored by a family of billionaires in an investment report called Billionaire’s “Green Gold.”

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

There are two primary reasons why inflation has remained so persistent despite the Fed raising rates from 0.25% to 5.25% in the span of 14 months.

1)     The Fed is using the wrong tools to end inflation.

2)    The Federal Government continues COVID-19 emergency levels of spending. 

Yesterday we discussed #1. Today we’re going to dissect #2. 

Between 2020 and 2022, the Fed printed roughly $5 trillion. The Federal Government spent/ printed another $6 trillion.

Over the last 14 months, Fed has raised rated from 0.25% to 5.25% while draining $500 billion in liquidity from the financial system. In simple terms, the Fed has stopped printing money and is tightening monetary policy.

The Federal Government has not altered its money printing/ spending. In fact, courtesy of the Debt Deal that was just signed into law, the Federal Government has NORMALIZED the emergency levels of stimulus/ spending it introduced during the pandemic.

The government is financed via tax revenues. If spending is greater than tax revenues, then the government issues debt to finance its spending. Despite pulling in record taxes in 2021 (and 2022’s tax haul is looking to be ever greater), the U.S. continues to run $1+ trillion deficits.

Relative to GDP, the deficit is greater than that the government ran during the depths of the 2008 crisis. Indeed, you have to go back to World War II to find a period in which the deficit relative to GDP was greater! And bear in mind, the government is currently running this kind of deficit TWO YEARS after the recession associated with the shutdowns ended!

And thanks to the Debt Deal, this level of stimulus/ spending will become normalized.

Section 265 of the bill notes that the OMB (Office of Management and Budget) director has sole waiver authority to spend whatever money the government wishes if said spending is deemed “necessary for program delivery.” (H/T. Rep Nance Mace for catching this).

The OMB is the part of the Executive Branch in charge of “overseeing the implementation” of the President’s “vision” for the economy. The OMB director is appointed by the President. And according to the current version of the debt dealing congress is voting on, this person has “sole waiver” authority on spending caps.

Put simply, she (the current OMB director is Shalanda Young), is permitted to spend as much money as President Biden wants, provided the spending is deemed “necessary” to deliver on programs that meet his vision for the economy.

That single line negates any and all cuts or spending caps laid out elsewhere in the debt deal. It’s akin to someone writing “everything else in this 99-page bill is non-binding.”

In the very simplest of terms, this deal, if it passes, would normalize the government’s COVID-19 level of spending. This would be highly inflationary. And it would make the Fed’s job of tackling inflation that much more difficult. 

This is why the yield on the 6-month U.S. Treasury bill has soared to new highs…

While the yield on the 1-Year U.S. Treasury is back at its former highs.

The above charts tell us the bond market is figuring out the Fed will need to raise rates higher and hold them there for much, MUCH longer. Three months ago, the Treasury market thought rates would be at 3.75% in two years. It is now suggesting rates will be 4.50% two years from now.

Anyone who believes the Fed will be easing monetary policy soon is mistaken. Between the Fed’s refusal to drain excess liquidity from the financial system and the Debt Deal normalizing the federal government’s pandemic levels of spending, inflation is going to become quite sticky, if not permanently embedded in the financial system.

There are many different ways to profit from this situation. We recently outlined a unique “of the radar” one favored by a family of billionaires in an investment report called Billionaire’s “Green Gold.”

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.

To pick up your copy, swing by:

https://phoenixcapitalmarketing.com/GreenGold.html

By Graham Summers, MBA

There are two primary reasons why inflation has remained so persistent despite the Fed raising rates from 0.25% to 5.25% in the span of 14 months.

1) The Fed is using the wrong tools to end inflation.

2) The Federal Government continues COVID-19 emergency levels of spending.

Today we’re going to dissect #1.

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 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 1972), but CPI also came down, eventually falling to ~3% in 1983.

Fast forward to today, and the Fed repeating the same mistakes it made from 1972-1979. Thus far in its quest to end inflation, the Fed has raised rates from 0.25% to 5.25% in 14 months. It has also attempted to drain ~$500 billion liquidity from the financial system via its Quantitative Tightening (QT) program. CPI has dropped from 8.9% to ~5% where it stands today.

Meanwhile, the evidence is clear that there is still far too much liquidity/ froth in the financial system.

Banks continue to park over $2 TRILLION at the Fed every night via the overnight Reverse Repo Agreements. This is a very technical arrangement that isn’t worth delving into right now, but the primary point is that there is a LOT of excess money in the system.

Other signs of excess froth concern the fact that several of the large tech companies are back at their all-time highs, despite the fact their underlying businesses have either gone ex-growth or growing at much slower rates.

And of course, there is the Artificial Intelligence (AI) bubble.

Nvidia (NVDA), which is seen by the market as the primary beneficiary of A.I., has seen its market cap go from sub-$300 billion to over $1 trillion in six months… on annual revenues of $44 billion (annualized based on the company’s increase 2Q23 outlook). By way of comparison, Cisco (CSCO) which operates in a similar business as NVDA, already has annual revenues of $50+ billion, but trades at a market cap of $200 billion.

Companies are doing everything they can to align themselves with this mania, to the point of mentioning the term “AI” on earnings conference calls even if their businesses has little if any real exposure to the technology.

To summate the above examples, there are clear signs that there is much too much froth/ excess liquidity in the financial system today. And the Fed seems unaware of how to fix this. Case in point, during the regional banking issues of March 2023, the Fed pumped $400 billion into the financial system in the span of three weeks, thereby reversing roughly two thirds of its entire nine-month Quantitative Tightening (QT) efforts!

All of the above items indicate to me that the Fed is unlikely to succeed in its attempt to end inflation unless it dramatically increases QT and implements other measures to drain excess reserves/ liquidity.

To summate, the Fed is making the very same mistake it made in the 1970s: focusing on fighting inflation with rate hikes when there is clear evidence that the REAL issue is that there is too much money/ reserves in the financial system.

For more inflationary insights as well as a Special Investment Report that details how to profit from sticky inflation swing by:

https://gainspainscapital.com/

By Graham Summers, MBA

One of the biggest questions we hear from clients is “why aren’t stocks breaking down?”

The answer is simple: the government.

The Fed is fighting inflation. The government is NOT. The Fed is raising interest rates and engaging in Quantitative Tightening (QT). The government is running a $1+ trillion deficit. And this is in spite of a record tax haul.

In our current socialist version of America, this money is being funneled into the economy. And as a result of this, the economy continues to plod along despite inflation hanging around 5%.

It’s likely going to get worse from here.

Estimated federal outlays for 2023 are slated to be $6.3 TRILLION. That’s 23% of GDP. and the Debt Deal only increases this as it will remove ALL SPENDING CAPS for the Federal Government through 2025.

Uncle Sam isn’t the only one spending like there’s no tomorrow.

State, county and local governments are all spending loads of money. The 50 U.S. states have budgets of $1.2 trillion for FY 2023. That’s a 6.7% increase over that of 2022 which was an 18% increase over 2021. And by the way, that 18% increase in 2021 was the largest in history.

So… if you’re looking for a reason why the economy refuses to roll over… and why stocks continue to hold up… here’s your answer: because the U.S. government from the federal down to the local level is spending trillions and trillions of dollars.

All of this is HIGHLY inflationary. And the bond market knows it.

The yield on the 6-month U.S. Treasury recently hit new highs for this cycle. The impact this is going to have on every asset class will be profound.

On that note, we published a Special Investment Report concerning FIVE secret investments you can use to make inflation pay you as it rips through the financial system in the months ahead.Paragraph

The report is titled Survive the Inflationary Storm. And it explains in very simply terms how to make inflation PAY YOU.

To pick up yours, swing by:

https://phoenixcapitalmarketing.com/inflationstorm2.html

Best Regards,

It’s worse than I imagined.

I had initially thought that the current debt ceiling deal would feature a small amount of spending cuts in 2024.  In reality, it will feature NO CUTS and will in fact open the door to as much spending as the Biden Whitehouse desires.

How is this possible?

A single line in the fine print from Section 265: The OMB director has sole waiver authority to spend if it’s “necessary for program delivery.” (H/T. Rep Nance Mace for catching this).

What does this mean?

OMB stands for Office of Management and Budget. This is the part of the Executive Branch in charge of “overseeing the implementation” of the President’s “vision” for the economy.

The OMB director is appointed by the President. And according to the current version of the debt dealing congress is voting on, this person has “sole waiver” authority on spending caps.

Put simply, she (the current OMB director is Shalanda Young), is permitted to spend as much money as President Biden wants, provided the spending is deemed “necessary” to deliver on programs that meet his vision for the economy.

So much for spending caps! This is the equivalent of handing a credit card to your 10-year-old child and saying, “you can only spend $100… unless it’s for something you think you need.”

We both know how that would turn out.

The reality is that this debt deal opens the door to a LOT more spending by the government, a mere 17-18 months before the next Presidential election. I’m sure the government will become fiscally conservative between now and then. After all, they’ve only grown the debt by $8 trillion since early 2020.

More and more the U.S. is beginning to look like an emerging market economy. Rampant spending, rampant corruption, and rampant inflation. Gold’s figured out what’s coming which is why it’s hanging around $2000 per ounce despite the Fed raising rates aggressively in the last 12 months.

Some investments will make fortunes from all this government spending/ inflation, others will absolutely implode.

On that note, we published a Special Investment Report concerning FIVE secret investments you can use to make inflation pay you as it rips through the financial system in the months ahead.Paragraph

The report is titled Survive the Inflationary Storm. And it explains in very simply terms how to make inflation PAY YOU.

We made just 100 copies available to the public.

To pick up yours, swing by:

https://phoenixcapitalmarketing.com/inflationstorm2.html

Best Regards,

By Graham Summers, MBA

As I first noted in my best-selling book The Everything Bubble: The Endgame For Central Bank Policy, “politicians make promises, but bond markets deliver.”

What I meant by this is that our entire political system is now consists of government overspending which is ultimately financed by the bond markets. As long as the bond markets remain stable, politicians will continue to spend and spend and spend. 

And that is precisely what happened with the debt ceiling “resolution.”

We now live in a “one party” system that consists of Democrats, who like to spend trillions and trillions of dollars, and Republicans who like to sign off on 98% of Democrat spending, while arguing that doing so is a “win” for conservatives because the Democrats didn’t get 100% of what they proposed. 

The latest Debt Ceiling “deal” is the latest example of this dynamic.

The Debt Ceiling deal features little if any spending cuts. Total federal spending will be reduced by about 0.2% of GDP in 2024. However, total spending then jumps 1% the next year (2025). And the debt ceiling is now suspended until 2025, which means we’ll likely tack on another $4 TRILLION in debt by then. 

Inflation was already proving extremely sticky in some areas of the economy. We’re 15 months into one of the most aggressive monetary tightening cycles in history and CPI remains at 4.9% while Core PCE (the Fed’s favorite inflation measure) is at 4.7% and has been stuck there for FOUR MONTHS. 

The fact the government will be permitted to continue running $1+ trillion deficits for the next 18 months will only make inflation even more embedded in the economy. The bond market knows this which is why bond yields are rising again.

The yield on the 2-Year U.S Treasury has broken out to the upside after a three-month consolidation period. As I write this, it’s rapidly approaching its former highs.

Some investments will make fortunes from this, others will absolutely implode. This is an extremely volatile market and one that could make or break your portfolio.

On that note, we published a Special Investment Report concerning FIVE secret investments you can use to make inflation pay you as it rips through the financial system in the months ahead.Paragraph

The report is titled Survive the Inflationary Storm. And it explains in very simply terms how to make inflation PAY YOU.

We made just 100 copies available to the public.

To pick up yours, swing by:

https://phoenixcapitalmarketing.com/inflationstorm2.html

Best Regards,