Thoughts on Coming Apart and the Coming Great Reset
Turning and turning in the widening gyre
The falcon cannot hear the falconer
Reviewing the Bidding
Thoughts and Theses
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In the early 1990s, I predicted a severe crisis in the US in the early 2000s - see My Journey for details of how those thoughts were developed, and a description of my predictions, essentially all of which have held up well. That crisis would result in a resetting of the country's financial system and financial institutions and therefore would profoundly affect all parts of the culture and all institutions, including government and military.
The crisis would be precipitated by debt, deficits, entitlements and demographics.
The purpose of this web site is to Contemplate Out Loud about ways in which current events are reinforcing or contradicting my predictions. And to create a continual update of thoughts for the future.
The Fed, Congress and the Executive Branch have now made that crisis inevitable and of a much higher order of magnitude than I anticipated.
The crisis should be played out over the remainder of this decade. There will be a new world with a new financial system and a new culture under construction at the end of the crisis.
The Fed has three alternative paths: inflation, austerity and default. For now, they have chosen inflation.
We are deep into a multi-year end game and to the point at which things will generally become worse, faster, although nothing will move in a straight line.
The Fed will likely continue on its current path until something breaks.
When the Fed signals the end of raising interest rates, we will likely enter a new era of currency devaluation and yield curve control.
Biden is significantly contributing to underinvestment in fossil fuels that will result in a multi-year energy crisis. He is attempting to cross the green energy chasm in two steps. We will get to the point where even leftists will treasure every drop of oil and every lump of coal. I discuss this critically important issue, perhaps the most important issue we face today, in The Energy Crisis.
Biden made a major strategic error by confiscating Russian currency reserves.
The last stimulus payment, and arguably the one before that, were major errors, contributing significantly to inflation, shortages and the increase in asset prices.
Inflation is peaking - for now - and it will remain at a high level. In the long run, because of debt levels, there is no practical alternative to continued, elevated inflations - which will probably rise and fall in waves. Stagflation is my bet for the foreseeable future.
There will be deflationary / disinflationary crosscurrents including demographics (retirement of Boomers, declining birth rates), and debt rationalizing and blowing up of debt, worldwide. Temporarily, we will have the interesting phenomenon of too much retail inventory as a result of overordering during supply chain issues and a slowing economy. Inflation is necessary; deflation /disinflation is the wild card.
The economy is weakening - recession is probable, and there is definite slowing down at a fairly rapid pace. Actually, there is a good possibility that a recession has already begun. However, recessionary pressures may recede for a quarter or so.
Housing is weakening.
Ukraine is losing the war. It is not clear what Russia's next moves are. See Ukraine.
Russia may be winning the financial / energy war. Energy is so fundamentally important, and Russia has so much of it, while the US is burdened by extraordinary levels of debt, that Russia holds the better hand. The West's counter to that better hand is sanctions. Very high stakes poker. See Ukraine.
Europe will have very serious energy challenges this winter and may have to reach accommodations with Russia.
Food disruptions over at least the next year, primarily as a result of the Ukraine war, will be significant.
Given the failure of US / Iran negotiations and rumors that Iran is very close to having an atomic bomb, what is Israel's next move?
(7/15/22) The US dollar may have peaked, at least for now. We should be heading into a new financial regime.
I outline my thoughts about how the next few years will unfold here.
Beth tells me, enough with the analysis, already. People want to know how you feel. I am not so sure about that, but if you are interested, I emote here.
September 30, 2022
We have a molecule crisis. We've had 40 years where all the money went into broadband, or internet, or Netflix or the cloud and no money went into basic productive capacity of metals. - Robert Friedland
Inflation is the symptom, not the illness. Investors should remember that Fed-induced slowdowns are simply a short-term abatement of the symptom-inflation- and not a cure for the problem-underinvestment in physical production capacity - Goldman Sachs
Doom Loops - And A Little Good News
It's Getting Real
Big, very important changes are occurring rapidly, now. Consider:
The Norstream pipelines were sabotaged. There is not the option of gas to Europe from Russia other than through Ukraine, no matter what anyone wants. Beyond changing the geopolitical game, infrastructure in international waters is now fair game - we are now playing at a different level.
The financial system of the UK was this close to collapse. It's complicated, but a combination of QT, interest rate hikes and other steps taken by the government sent the system into a doom loop. The Bank of England had to take extraordinary steps to save the system. This is the canary in the coal mine. Look for more things to head for collapse.
Russia is using conscription to add hundreds of thousands of men to the military. Basically, they want to throw bodies at the war. This also has the effect of increasing political instability inside of Russia.
Not much to say. No change in thoughts in any of the markets. We have a bear market in essentially everything, however with a nice bounce in here just in time to make people feel better about the Democrats before the election.
You may recall that my base case is that the Fed will raise rates until something breaks.
Well, something broke - in the UK.
It has to do with rates and collateral and pension funds, probably too much to go into here. But the bottom line is that the UK financial system was on the verge of a doom loop when the Bank of England stepped in.
Coming to a country near you.
Are we in a recession or not? What is it going to look like? Inflation or deflation or both? Is depression possible?
This issue will contain a lot of charts and discussion.
You know the context - too much debt and deficits, the Fed is in a corner and now has to choose between inflation and austerity. For now, it has chosen inflation as the way to erode away the debt.
In the meantime, deficits are not going away and politicians are spending without restraint.
IMO, the Fed will raise rates until something breaks. And something will break - soon. The global financial system is coming unstrung and mini-crises are popping up everywhere.
I'm not just talking about attacks on the British pound, I am talking about social upheaval. Much social upheaval.
In the background, relentlessly approaching, is a supply cliff. We have underinvested in commodities, particularly oil. Commodities deplete and need continual new sources. We have not been doing that. This process is compounded by deglobalization, supply chain disruptions and the war in Ukraine.
Demand must be destroyed to match the destruction of supply.
So, simplistically, if we are running out of oil, grains and copper, why are their prices going down? If housing is booming, why has the price of lumber crashed.
This is the major theme of this issue. My answer to that question is that the markets are forecasting a dramatic decrease in demand - a deep recession - to bring supply and demand into balance.
The challenge is that fixing the problem takes years in the case of grains and around a decade for oil, copper and the building of nuclear energy capability. And we haven't started yet.
The coming decade could turn out to be a real bitch.
And, even though the inflation monster may be tamed by the recession - I think stagflation is more likely - it is probable that the Fed will not finish the job and that inflation will rear its ugly head, later.
Because the world's financial system is breaking down. Too complicated to go into here, but the plumbing is leaking and beginning to rupture.
It has long been my thesis that the entire system must be completely reset. We have taken things too far and they are basically unfixable. The Fed and the rest of the world are fighting mightily to take a series of steps to cure the most egregious ills of the current system. This will be a fascinating soap opera in which we are all participants.
So, I will briefly flesh out some of these statements, below.
Hang on, we have entered the end game.
For several months, I have been saying that the economy, including housing, is decelerating rapidly.
I have also said that the graphs of various commodities, particularly oil, are telling me that the recession is under way.
Following are some of those charts and some thoughts.
Housing is collapsing. As construction ramps up and as mortgage rates increase, housing is changing at the fastest rate on record.
This graph of lumber prices (linear, not semilog as are the rest of the graphs in this presentation, to make the changes more dramatic) gave us a good indication that the housing market was topping. Supply problems were being resolved, and demand was not keeping up with supply. If C=A, a common, but not required relationship, then the price of lumber is heading to the bottom of its historical range. It went up 6 times its "normal" price and then reverted, all in the space of around 3 years.
A Quick Overview
As a broad overview, commodities are in a long-term bull market, but we are in a bear market retracement phase. So in the short term, b will be going down for a while, before turning back up. Which means that commodity inflation should be constrained for a while.
It's Really Not That Complicated
Obviously, my Elliott counts could be wrong. But this is the chart that really, really scares me. Very bearish, although there should be a rally in our future. I don't know how high (b) will go, but if I am in the ballpark, oil could be heading to around 60.
Now THAT'S demand destruction.
"Doctor" copper has the same count as oil. Definitely a forecast of economic weakness.
In the midst of a food crisis, why would the price of grains be going down? Way down?
One obvious answer is that I am just wrong. Who the hell can tell the future, anyway?
And I hope I am.
Because the alternative is just scary.
But, we will track it here, blow by blow, whichever way it goes.
Lacy Hunt and Recessions
Lacy Hunt is just a treasure.
I listened to a presentation he gave that is behind a paywall.
He does not think we are in a recession now, but sees it coming.
My Bottom Line?
Nasty recession - maybe depression.
Financial systems on the verge of collapse - perhaps collapsing.
Underlying inflation dueling with the deflation caused by debt and a recession - I will take stagflation as a win.
Civil unrest everywhere.
War more than possible.
I very much hope I am wrong.
A Little Simplistic, But Definitely The Straw ...
Former Obama economist Larry Summers: “We basically had inflation under control for forty years,” but “we lost the thread...about a year and a half ago” with Biden’s $1.9 trillion stimulus
Oh, Well, Nevermind
The CDC just updated its Covid advisories:
"Updated to note that vaccination status is no longer used to inform source control, screening testing, or post exposure recommendations."
My translation - vaccination helps keep you from getting very sick or dying, and those are good things. However, that's about it. Doesn't keep you from getting sick or from transmitting the disease.
It's All Good
The Student Loan Wars
The Department of Education announced Thursday it was scaling back the scope of President Biden’s student loan cancellation plan, now excluding borrowers with federal student loans held by private entities—including Federal Family Education Loans or Federal Perkins Loan Program loans—from accessing the debt forgiveness. The tweak is expected to affect millions of borrowers otherwise eligible for the program, and is almost assuredly an effort to head off mounting legal challenges.
Naw, It's Not That Bad
The Mormons Were Just Ahead Of Their Time
A judge in New York has just ruled that polyamorous relationships - in this case a 3-person married unit living together in an apartment - are entitled to the same legal protection as opposite-sex or same-sex 2-person marriages. (Kit) It has been clear to me for a while that polygamy and polyandry were heading into the mainstream.
This Is Bee-Level Good