Yesterday, I spent the entire day flying from Las Vegas to Louisville, Kentucky. While being crammed in a coach seat, I listened to CNBC on the miserable airplane wifi.
I watched the market meltdown. It’s spring so it’s time for a melt. One of the most interesting things to me was the conversations the anchors had with guests. Normally, I never listen but because I had nothing to do I did.
One question I heard was, “How can the market have one of its best days in history followed up the next day by one of its worst?”
Unemployment came out today. U-6 is 7% and I think it goes higher as inflationary pressures hit the economy. By the way, toss out any comparative analysis of unemployment that includes 2020, or 2021. Those years are outliers. I am stealing this post from Slope of Hope because I think it adequately sums up the psychology of the market right now.
Anticipation: ES down about 15 points. The market’s inner voice: “Gosh, I’m worried about these numbers. Yesterday was a really rough day. Maybe these numbers will give the market a chance to rally from these deeply-oversold levels.”
Indecision: ES up about 3 points. The market’s inner voice: “Hmm, these numbers are a mixed bag. There is really strong jobs growth, which lets the Fed keep cranking up rates, but it’s really hard to figure out.”
Relief: ES up about 10 points. The market’s inner voice: “Ya know what, this is good news after all! I mean, look at this wage growth! It’s only 0.3% instead of the expected 0.4%. Hey, maybe it’ll be a good day!”
Epiphany: ES down about 40 points. The market’s inner voice: “Who am I kidding? What goddamned difference does a tenth of a point in a single highly-manipulated report mean? This market is completely doomed, and being wet-nursed for the past thirteen years has made me soft, weak, and insipid. I’m a bad person. I don’t deserve to live. I hope I get trapped in an elevator with Jim Cramer, and the elevator’s cable breaks, and we are falling to our deaths, and in our final moments, he confesses his love for me, forcing a tongue kiss, which compels me to kill myself even though the elevator will do it in just another few moments.”
Back in the days when I was on the trading floor, I used to do some television hits for different channels to chat about the market. CNBC was among them. Often, a producer would call me up beforehand to see what I was going to say. I never knew since anything I said was extemporaneous and in the moment. I preferred it that way.
But, producers like to tightly control the process. Anchors don’t like to be surprised. You rarely see anchors ask super hard and probing follow-up questions. If they do, it’s someone whispering in their ear. They just are not wired like that.
Remember, 99% of these anchors don’t really have business experience. They just went to journalism or media school. They also are all almost 100% super left-wing. One time when I was on Bloomberg for a GDP number I talked about the anemic economy Barack Obama was producing with terrible policy and an anchor tried to say, “What Jeff means is…” and I cut them off. I reiterated that the policies were causing a terrible economy.
You can’t let them spin. Obama was their Golden Boy and they couldn’t let a thing touch him.
So, I listened closely yesterday. Boy, was the spin game on. I heard all kinds of things about the potential for soft-landings. I heard all kinds of statements about how the Fed needed to “thread the needle”. I heard all kinds of soft praise for Powell.
The Fed never threads the needle. When it comes to inflation, historically it has been way behind the curve. It never gets ahead of big bubbles or crashes. It reacts to them. That’s because the Fed is a human organization. It’s not a machine.
One thing occurred to me. They were laying the groundwork to blame all of the economic problems on the Federal Reserve not where it belongs.
Where does the blame belong?
Congress and the White House. Why? Because inflation at its core is a government spending problem. The Fed has to create money when Congress spends it and the President approves it.
We have other reasons for inflation this time too. Supply chains are totally messed up. Again, why? It’s not Covid. It’s Congress, the States, and President Trump that shut down the economy. They took advice from Tony Fauci and it was the worst advice in the world. Biden continued to push the Covid agenda and that was also a fatal mistake.
Especially in the face of objective data.
If you think we will have a soft landing, or that somehow inflation is going to rapidly disappear, you better readjust your lenses. No one on television yesterday would say we are in recession, but I am telling you we are at the beginning of one.
I am not going to apologize for the Federal Reserve. They surely screwed up. QE forever starting in 2009 was their first mistake. They should have been raising rates aggressively at the end of Obama’s second term right through the entire Trump term. A quarter point a meeting or so.
The Fed isn’t the primary culprit here. It’s spending by Congress. Cutting spending shouldn’t be a debate over spending an extra 2% or 5%, it should be negative growth in spending. Shrink the size and scope of the entire budget.
Recently, I saw an interview with an economist on Tucker Carlson’s show. He talked about inflation but he missed one way to get out of bad economies. He forgot to mention you can grow your way out.
Currently, we have very high annualized inflation and negative GDP growth. That’s a disaster.
If the government were to drastically cut spending and at the same time get rid of lots of regulations that are hamstringing businesses from growing, we would see GDP growth rise. At the same time with the Fed increasing the cost of capital through higher interest rates, and more importantly signaling clearly that they won’t be cutting rates anytime soon, businesses could take a reasoned objective path to make decisions on how to grow. That would not create stress on supply chains.
But, Biden’s people are so stupid they won’t do it. No one in Congress has the intestinal fortitude to make the difficult decisions on where to cut.
We will see the S+P down at 3200. Soon.
We live in Colorado at 6,000' above sea level and we heat with wood. I cut my own firewood. I have had to lay a tree down in a manner similar to what is shown in this post.
There is no feeling like the tension and stress right before the tree falls and then no relief like the great feeling of accomplishment when the tree falls exactly where you wanted it to.
I only rarely see this addressed in financial commentaries, but I think its just as, if not more relevant to inflationary pressure than the money supply that the supply of energy is intentionally restricted to cause high fuel prices. Because of the inelasticity of demand for fuel (and downstream items such as food), this also drives inflation because you still have to buy those things in order to basically exist and/or be a productive member of society. Other things you don't have to buy, so if the money supply is increased in aggregate and people don't have to spend it on energy, it could be saved, which would have much lower inflationary pressure. Not to downplay the poor (obscene) government spending, economic, and monetary policies at all, but I think those have been instituted to artificially prop up the perception of a growing economy when it is inherently weak. For a similar reason, both the Great Depression and the Great Recession were unnecessarily prolonged by poor government policies. Get the government policies out of the way, and the market will take care of itself, in my opinion. I suspect that if energy prices weren't rising to quickly, despite the money printing and gov't spending, inflation wouldn't be nearly so high. Think about what the inflation rate would be if gas was $1.50/gallon (or less!). If it were, we might literally have deflation in consumer goods prices, which would be a boon to the middle class and working poor. Employment would skyrocket, and with it real GDP. It doesn't seem that hard, but Democrat economic ideology refuses to recognize this because...equity? Kinda like how Obama said, even if lower tax rates resulted in more revenue, he wouldn't do it because its not 'fair'. This is insanity and a delusional denial of reality resulting from a Marxist economic worldview. Very destructive, as we can see...