Tag Archives: Recession

Bonds Die, CPI’s Lie, & Gold Flies, by Matthew Piepenburg

Even bonds have declined in price somewhat, they’re still a terrible investment. From Matthew Piepenburg at goldswitzerland.com:

Below we look at Gold’s rise in a backdrop of more bond destruction in the public markets and more truth destruction in the war on inflation.

No Recession Yet?

As I argued in 2022, the much-debated and pending recession was in many ways already here, despite official attempts to re-define the same.

The thousands being laid off at Google, Amazon and even Goldman Sachs in 2023, for example, can likely attest to that.

Speaking of recession, last week’s embarrassing Empire Manufacturing report of -32.9 adds more confirmation that productivity and growth are not going to save our increasingly knee-capped economy.

In fact, the manufacturing figures have not been this bad since 2008 and 2020, which, if I recall, were pretty bad vintage years for markets—”saved” only by money printing at warp speed.

This, of course, raises the ever-charged question of whether Powell will be forced to return to more desperate mouse-click money creation—i.e., “quantitative easing.”

For now, of course, the current Fed is going the other direction, “tightening” rather than “easing” reserve assets to the tune of -$95B per month into a perfect debt storm.

As we’ll see below, this lose-lose option is just one of many hidden mines lying just beneath the surface of an already limping US Treasury market.

In the meantime, the dumb just keeps getting dumber.

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Winter in Central Europe and for the dollar, by Alasdair Macleod

Economic realities may drive the West to the bargaining table with Russia on Ukraine. From Alasdair Macleod at goldmoney.com:

In this article I examine the current state of the fight for hegemonic control between America on the one side, and Russia and China on the other. It is being fought on two fronts. Ukraine, the one in plain sight, is about to endure a winter without power and adequate food potentially leading to a humanitarian crisis.

The other front is financial with America facing a coordinated attack by Russia and China on its dollar hegemony. The Russians are planning a replacement trade settlement currency, which if it succeeds, could unleash a flood of foreign-owned dollars onto the foreign exchanges.

We have no way of knowing how advanced this plan is, but the indications point perhaps to a gold-based digital currency. Moscow establishing a new gold exchange, Asian central banks accumulating additional gold reserves, and Saudi Arabia seeking non-dollar payments for oil sales are all circumstantial evidence.

As well as these plans, there has been an underlying shift away from a long-term everything financial bubble, with the prospect of higher interest rate levels in time. The reasons for foreign ownership of fiat dollars are diminishing, and a successful new Asian trade currency will only add to the dollar’s woes.

Could this pressure compel America de-escalate Ukraine and sanctions against Russia? The argument to do so has become compelling. It is also a way to lower energy prices, giving central banks needed room for interest rate manoeuvre. 

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Why This Recession Is Different, by Charles Hugh Smith

This different recession is going to be a depression. From Charles Hugh Smith at oftwominds.com:

All of these are structural dynamics that won’t go away in a few months or years.

Let’s explore what’s different now compared to recessions of the past 60 years.

1. Deglobalization is inflationary. Offshoring production to low-cost countries imported deflation (product prices remained flat or declined) and boosted corporate profits.

Deglobalization will increase costs and pressure profits.

Just as cleaning up the environmental damage of rampant industrialization imposed costs on the U.S. economy in the 1970s that generated stagflation (inflation and stagnant growth), reshoring essential supply chains will impose costs, pushing prices higher.

Everything costs more in developed economies due to their high wages and social costs (pensions, healthcare, disability, etc.), high taxes, strict environmental standards and extensive regulations.

Consumers will pay more as supply chains are onshored / secured.

2. Energy will cost more. The price of oil and natural gas will fluctuate and could drop significantly as global demand drops, but in the long run the easy-to-access energy has been depleted and all energy will cost more.

Consumers will pay more regardless of where the goods and services come from

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Have We Entered the New Dark Ages? By MN Gordon

Politicians bemoan the “end of abundance,” but they’re the ones who are ending it. From MN Gordon at economicprism.com:

Elizabeth Warren must be a fool.  That, or she thinks the rest of us are fools.

The Senator recently took to CNN to publicly fret over the Federal Reserve’s rate hikes.  She’s worried they will tip the economy into recession.

What’s Warren afraid of?  Her fears have already come true.

The U.S. economy already is in a recession.  GDP data alone shows the economy contracted in both the first and second quarter of 2022.

The technical definition for a recession has long been understood to be two consecutive quarters of declining GDP.  So, by definition, the economy is in a recession.  Everyone knows this, save President Biden and Warren.

Recessions may not be agreeable.  But they are necessary.  In fact, the present recession is precisely what’s needed to clean up the consumer price inflation mess that Warren and her colleagues made.  There are consequences for mass money printing.  And they must be reckoned one way or another.

The fundamental fact is today’s consumer price inflation fiasco is a direct result of Washington’s spending policies.  The coronavirus hysteria provided the perfect excuse to spew printing press money into the economy.  Warren was one of the greatest advocates.

The Fed, for its part, merely obliged the wishes of Congress.  It created credit from thin air and loaned it to the Treasury in the form of Treasury note purchases.

The Treasury then obliged the wishes of Congress.  It used the money that was borrowed from the Fed to fund stimmy checks, PPP, and generous federal unemployment payments.  This was all to meet the legislative demands of Warren and the other knaves in Congress.

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It’s Worse Than Anyone Wants To Admit, by Jeffrey A. Tucker

The economy is worse than the Biden administration will admit, and it’s going to get a lot worse. From Jeffrey A. Tucker at The Epoch Times via zerohedge.com:

The news on July 28 was entirely consumed in the throes of another definition change. What everyone understood is that what it means to be in a recession has been suddenly changed by government edict. It’s not a recession, they say.

The great economist Frédéric Bastiat in the 19th century emphasized that the real costs of policy-inspired destruction is not what you see but what you do not see. (Steve Johnson/Unsplash.com)

Everything is going just great, they say, unless you are among the troglodytes who desire plentiful and low-priced energy, food, housing, and overall human thriving. Once you understand the beautiful world on the other side of the “transition”—to use the favorite word of the White House—you would see this suffering as actually beneficial in the long run.

These broken eggs are making omelets.

We can argue all day about the definition of recession, but it doesn’t take us to the intellectual place we need to be. The bottom line is that what we are experiencing now includes anomalies from previous downturns precisely because it is much worse. Only a few months ago, many worried that we were going back to the 1970s. That box has been checked. Then, we worried we were going back to the 1930s. My fear is that we might wish that were true.

The White House talks about the low technical rate of unemployment without referencing the falling labor participation rates that never recovered from lockdowns because so many people just left the workforce. Millions of previously employed Americans are living off legacy largesse from families or tapping plentiful unemployment benefits just to get by month to month. Real wages and salaries have been slammed, savings rates are sinking, and credit card debt is exploding.

It’s all hard to put in a picture but we can try, nowhere more saliently expressed than the change in real wages and savings, versus savings as a percent of personal income. The stable public data here go back to 1960 and here we see just how shocking these times truly are. Personal savings is half what it typically was from the 1960s through the 1990s, and even as recently as 2012. Real disposable personal income is falling dramatically.

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The Strangest Recession Of Our Lifetimes, by Jeffrey A. Tucker

There’s a shortage of workers with real hands-on skills and a surplus of Zoomers. The recession will hurt the latter far more than the former. From Jeffrey A. Tucker at The Epoch Times via zerohedge.com:

The evidence of economic weakness and decline fill the headlines day by day, with major banks reporting lower earnings, big box stores with excess inventories, home sales skidding, and consumer sentiment crashing.

Meanwhile, inflation in all sectors is raging so high and hot that it has overtaken every other issue that polls say matter in the lives of average Americans.

This inflationary recession—also called stagflation—is an odd beast in any case. The combination of both purchasing power declines and falling productivity violates not only every modeling presumption made since the Keynesian revolution of the 1930s but also just plain intuition. Higher prices are supposed to signal higher demand and/or tighter supply, not lower demand and higher supply.

So yes, this is strange. We are going to have to get used to it. It’s what happens when the money itself loses its integrity. The whole point of money in the first place—the essence of its economic utility—is to provide a common tool of measurement to facilitate trade and enable accounting. Its emergence permits investors, producers, and capital owners to assess the economic rationality of their actions.

When money blows up and no longer serves as a reliable guide to economic realities, various degrees of chaos ensue. You can feel like you are getting richer when you are really getting poorer. What can seem like profits are really losses. What seems like a hopeful environment can quickly switch to the other direction and become despair.

This is why inflation induces such fear in every sector of life.

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12 Nightmarish Economic Trends That We Should Expect To See During The 2nd Half Of 2022, by Michael Snyder

Things are probably going to get worse. From Michael Snyder at themostimportantnews.com:

If you thought that the economic news was crazy during the first half of 2022, just wait until we get to the second half.  So many of the problems that we are experiencing now are going to continue to intensify, and Americans are becoming more pessimistic about economic conditions with each passing day.  In fact, as you will see below, a whopping 85 percent of us believe that it is “very likely” or “somewhat likely” that the economy will go through a recession at some point during the next year.  Of course the truth is that if all we have to suffer through is a “recession”, we would be extremely fortunate.  Our leaders have lost control of the economy, and many of us are extremely concerned about what is coming next.  The following are 12 nightmarish economic trends that we should expect to see during the second half of 2022…

#1 Gas prices will continue to surge higher, and many Americans will be shocked by how high they eventually go.  If you can believe it, in Washington State at least one gas station has now reprogrammed their gas pumps “to make room for double-digit pricing”

At the 76 Gas Station in Auburn, Washington located at 1725 Auburn Way North, gas pumps have been reprogrammed to make room for double-digit pricing. In March, they still had single-digit programming.

A spokesperson at 76 confirmed to The Post Millennial that the gas pumps were reprogrammed to allocate for double-digit pricing. Although not confirming that they are expecting prices to increase up to $10.00 or more, the current trend suggests the possibility.

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Powell’s “Soft Landing” Is Impossible, by Daniel Lacalle

Assume crash positions, because we are sure not headed for a soft landing. From Daniel Lacalle at dlacalle.com:

After more than a decade of chained stimulus packages and extremely low rates, with trillions of dollars of monetary stimulus fuelling elevated asset valuations and incentivising an enormous leveraged bet on risk, the idea of a controlled explosion or a “soft landing” is impossible.

In an interview with Marketplace, Federal Reserve chairman admitted that “a soft landing is really just getting back to 2% inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now”. He went on to say that “nonetheless, we think there are pathways … for us to get there.”

The first problem of a soft landing is the evidence of the weak economic data. While headline unemployment rate appears robust, both the labor participation and employment rate show a different picture, as they have been stagnant for almost a year. Both the labor force participation rate, at 62.2 percent, and the employment-population ratio, at 60.0 percent remain each 1.2 percentage points below their February 2020 values, as the April Jobs Report shows. Real wages are down, as inflation completely eats away the nominal wage increase. According to the Bureau of Labor Statistics, real average hourly earnings decreased 2.6 percent, seasonally adjusted, from April 2021 to April 2022. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 3.4-percent decrease in real average weekly earnings over this period.

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Two Weeks to Flatten the GDP, by Jeffrey A. Tucker 

Pay no attention to that inflationary recession behind the curtain. From Jeffrey A.Tucker at brownstone.org:

What is it with these pundits and government spokespeople? Two years ago, they were wildly exaggerating virus threats, canceling and censoring people who pointed out contrary evidence. It was all about scaring people into compliance with a far-flung epidemiological experiment.

Now the tendency has swung the other way. No matter how bad the economic news is, the tendency is to downplay it, promise a turnaround soon, and otherwise claim that anyone who is worried is just being paranoid. We need only point to the claims from last fall that the inflation is merely “transitional.” Sure enough, it is easily the number one issue.

Yesterday morning, it was the same. The GDP numbers reported a first-quarter shrinkage of 1.4% annualized and what do they tell us? This is just noise, not a signal. That was the main message from all media outlets.

It’s only a flesh wound, one might say. The economy will soon bounce back. Just give it time! Sure, but how much time? How deep can the recession/depression get? No one knows for sure. We know by now that the experts are happy to lie about their intuitions, if only to keep the public calm.

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Powell’s Pivot to Nowhere, by MN Gordon

The Fed isn’t going to reign in price inflation anytime in the next few years and we’re probably looking at a recession, if not a depression. From MN Gordon at economicprism.com:

Slow growth.  High prices.  The U.S. economy – and the global economy – was already facing these disagreeable prospects before Putin invaded Ukraine.

But now, with Russian tanks rolling through the “borderland,” negative supply shocks to the global economy will take things to a whole new level.  The dial on nastiness has been cranked up to maximum.  How all the madness is reconciled will be equally nasty.

The major stock market indexes, for example, had already been slipping and sliding since early January.  But now they’re beset with panic and fear…and sudden moments of greed.  These emotions play out in erratic wave patterns that can be characterized as massive freefalls punctuated by episodic relief rallies.

The initial delight that the potential world war would slow forthcoming Fed rate hikes quickly faded to a sucker’s rally.  The reality of it all is much greater than the variance between a 25 or 50 basis point rate hike.  The fact is, even with the stock market’s decline over the last two months, there’s still much, much further to fall.

The obvious immediate effects to the U.S. economy will be from higher oil prices.  This week, a barrel of West Texas Intermediate Crude – the light sweet stuff – topped $112 per barrel.  And here in the LA Basin, a gallon of regular grade gasoline is over $5.39.

Consumer prices were already at a 40 year high before this latest bout of war madness was triggered.  Now, with oil and gas prices going through the roof, consumers will soon be tapped out.

High prices, in this respect, would appear to be the solution to high prices.  But not so fast…

There’s not only oil supply shocks to contend with.  There’s also food supply shocks…and broken supply chains.

The price of wheat has spiked up to a 14 year high.  This has the makings of a mass food price inflation.  Moreover, the global shipping industry, which was already constrained from two years of coronavirus madness, is being further disrupted.

Bottomline, supply shocks, and greater scarcity, will further propel consumer prices higher.  Inflation has much higher to run.

Here’s why…

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