Fed chair Jerome Powell from Fed photo gallery.
Recession On the Way
A recession is on the way.
Three rounds of fiscal stimulus, the last two mostly unwarranted, coupled with reckless QE by the Fed sealed the fate.
Russia will get the blame just like Covid got the blame.
Certainly Covid dramatically increased the severity of the recession, but yield curve inversions had already sealed the fate before the pandemic hit.
The same applies now. Russia will get the blame, but the economy was headed to recession anyway.
If the Fed had the power to stop recessions there would never be any. The same applies to the Bank of Japan and ECB.
And let’s not forget oil.
Five Reasons Huge Demand Destruction Coming Up
- Stimulus wearing off
- Fed tightening
- Mortgage rates low but rising will kill cash-out refis and reduce purchases
- Wealth effect of stock market collapse will be enormous
- Neither China nor the US can save the global economy
Liquidity is drying up in multiple places simultaneously. And the near-term impacts of rising oil and commodity prices will also take their toll.
What Can Biden Do?
Unfortunately, the president is hell bent on making matters worse. He reaffirmed Build Back Better in his State of the Union address last night.
For details, please see Biden’s State of the Union Another Futile Plug for Build Back Better
Don’t look for the president to do anything useful. Instead, be thankful Senator Joe Manchin is still firm against Biden’s inflationary spending plans.
GDP Rear View Mirror
Strong GDP is in the rear view mirror.
For discussion please see First-Quarter GDPNow Forecast is Zero Percent and Falling Fast.
Inflation Measured Correctly Will Collapse
Inflation as measured by the CPI will slow but not collapse. Near term, CPI inflation is likely to rise. But the CPI is a poor measure of inflation.
If one counts asset bubbles, stock prices, and junk bond yields as a measure of inflation on the way up (and you should), then it’s appropriate to count them as deflation on the way down.
Looking ahead, I expect long term yields to drop and the Fed to attempt to put a floor on the market, but fail repeatedly.
Those mocking long-term bonds as an investment idea do not understand demand destruction, credit destruction, or wealth impacts.
Ironically, most are slaves to a CPI they they also scream is wrong.
In this environment, gold and miners rate to do well. Consumer discretionary and meme stocks are the last places one should want to be.
Also see Oil Prices Highest in 8 Years Fuel Inflation Concerns, Where to From Here?
Finally
Most People Have No Idea How Much Stocks are Likely to Crash
Let’s discuss value investor Jeremy Grantham’s thesis on “super bubbles” and his target for the S&P 500.
Most People Have No Idea How Much Stocks are Likely to Crash
The demand destruction from a stock market collapse will be breathtaking.
This post originated on MishTalk.Com.
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