ITS THE ECONOMY......!!!

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ALL THINGS PERTAINING TO THE ECONOMY ON THIS PAGE FEEL FREE TO POST VALUABLE INFORMATION SO ALL CAN GET EDUCATED!!!!

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Faber: 'Massive Wealth Destruction' Coming, 'Well-to-Do' May Lose Half

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Bailouts and loose monetary policy won't create lasting economic improvements but will push up inflation rates that will send the economy tanking and wealthy investors seeing half of their investments wiped out, says Marc Faber, publisher of the Gloom, Boom and Doom report.
The Federal Reserve has pumped trillions of dollars into the economy to stimulate it, while the White House has spent heavily to fuel growth as well.
The government, however, won't be able to prop up the economy forever, and all that borrowing will come due.

When that support fades, the economy and markets will retreat and retreat hard, creating massive losses for investors, especially when inflation rates rise due to the sheer volumes of liquidity in the system.
"I think somewhere down the line we will have a massive wealth destruction. That usually happens either through very high inflation or through social unrest or through war or credit-market collapse," Faber tells CNBC.
"I would say that well-to-do people may lose up to 50 percent of their total wealth. They'll still be well-to-do. Instead of $1 billion, they'll have, say, $500 million."
Gold will be the best investment now as will stocks for now, which will continue climbing thanks to loose monetary policies before the collapse.
"I think that people should own some gold, and I think that people should own some equities because before the collapse will happen with Mr. Bernanke at the Fed, they're going to print money and print and print and print. And so what you can get is a bad economy with rising equity price," Faber says.
Federal Reserve Chairman Ben Bernanke has faced a criticism for his handling of the economy in wake of the downturn.
Critics charge his loose monetary policies, including keeping benchmark lending rates to near zero and pumping trillions of dollars into the economy to reanimate it by purchasing assets like bonds from banks will fuel inflation down the road and aren't helping that much anyway.
Bernanke and supporters say such extraordinary measures were necessary to steer the economy away from deflationary decline and deeper contraction.
Bernanke also says he's comfortable with the pace of recovery.
"I think there's a reasonable chance, looking at the long-run history, that the U.S. economy will return to healthy growth, somewhere in the 3 percent range," Bernanke said at a recent lecture to George Washington University students, the Associated Press reports.
Some Federal Reserve officials, however, say inflation is threatening to rise above the Fed's target for an annual rate of 2 percent.
"I'm expecting inflation to be 2 percent this year, and 2.3 percent next year," Minneapolis Fed President Narayana Kocherlakota told the Midwest Economics Association's annual meeting, according to Reuters.
The Federal Reserve has said officially that economic conditions warranting low interest rates will stick around through the end of 2014 although other Federal Reserve officials say rate hikes may be needed before then.
"My estimate is that economic conditions are likely to warrant low rates until sometime in the middle of next year," Federal Reserve Bank of Richmond Jeffrey Lacker tells CNBC.
"If I had to pick a central tendency in the forecast, that's when I'd pick for when rates are likely to rise. That's not a promise, and neither is the committee's statement. It's a forecast of what we're likely to find appropriate in the future."
Bank of St. Louis Fed President James Bullard has said that keeping rates low for too long can do more harm than good.
"Overcommitting to the ultra-easy policy could well have detrimental consequences for the U.S. and, by extension, the global economy," Bullard said at a Credit Suisse Asian Investment Conference in Hong Kong, according to Reuters.

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THE TRUTH ABOUT OBAMACARE- C STEVEN TUCKER

 

Steve Tuckers website every nasty thing that you need to know about this law....REPEAL AND REPLACE NOW!

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Inflation Formula Critics: 'Real' Rate Over 10%, Unemployment Tops 20%

 

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Maggie Humphrey, a price collector for the Bureau of Labor Statistics, visits the same grocery store every month in the Chicago suburbs to punch the cost of a pound of bananas into her Lenovo tablet computer.

“That price has not fluctuated since I’ve been here,” says Humphrey, who started gathering prices for the BLS in 2006 and has checked bananas at this particular establishment for about a year. She records it as 69 cents a pound and includes their country of origin, whether they’re on sale and any applicable sales tax.

Humphrey is among 400 price collectors who visit 23,000 locations in 87 cities every month to determine the cost of 80,000 products and services, from breakfast cereal to haircuts. She and her colleagues feed a database in Washington, where statisticians compile the monthly inflation report, used as benchmark for everything from Social Security payments to the value of Treasury’s inflation-indexed bonds.

The bureau’s price-gathering and statistical methods are standard practice from Japan to Switzerland. That hasn’t averted a lashing from critics who say the government is engaged in a campaign to hide inflation of 10 percent a year or more. Assurances by Federal Reserve policy makers that inflation remains “subdued” also haven’t deterred the skeptics.

“I’m as hawkish and worried about inflation as anybody,” said Stephen Stanley, Chief Economist at Pierpont Securities LLC in Stamford, Connecticut and one of the top forecasters of CPI over the last two years in Bloomberg News surveys. “But the idea that inflation is 10 percent is not a proper reading of the data.”

One Critic

One such critic is John Williams, the author of Shadow Government Statistics, a newsletter that he has run since 2004. Williams says the federal government understates the level of inflation to keep increases in Social Security payments and other costs down.

“The reporting system increasingly succumbed to pressures from miscreant politicians, who were and are intent upon stealing income from Social Security recipients, without ever taking the issue of reduced entitlement payments before the public or Congress for approval,” Williams says on his website, shadowstats.com.

Williams’s alternate measure of inflation was 10.3 percent for the 12 months through March, compared with 2.7 percent for the Consumer Price Index. He calculates unemployment at more than 20 percent rather than the official 8.2 percent in March. His assessment of gross domestic product has clocked negative economic performance in every quarter since 2005. The Department of Commerce’s measure turned negative in 2008 and 2009, recording the worst recession since the Great Depression. The economy is nearing “hyperinflationary Great Depression,” he says on his web site.

Taking Issue

Williams takes issue with statistical methodology adopted by BLS since the early 1980s.

The first is “substitutability,” which accounts for people buying cheaper goods as prices increase. If the cost of two types of chicken breast rises, the BLS assumes consumers buy more of the less expensive one, giving it somewhat greater weight in the index.

The second is “quality adjustment,” which seeks to measure how goods change over time. For example, as ever-more- powerful computers are available for the same price, the BLS records this as a type of deflation. As the amount of fabric in clothing shrinks (think skinny jeans) that is noted as a type of inflation.

The third is “owner’s equivalent rent” which replaces the cost of owning a home with what it would cost to rent it.

Price Level

Had the BLS not altered its statistical practices over the years, Williams says, inflation would be reported about 7 percentage points higher each year, enough that the price level will quadruple in a little over a decade.

Williams sells subscriptions to his website for $175 a year. He declined to give the number of subscribers. “My business has been picking up over the years,” he said in a phone interview. “I don’t know I can attribute it to any one thing other than to say that most people do think that inflation is higher than the government is reporting and economic growth is weaker.”

Williams graduated from Dartmouth College in Hanover, New Hampshire in 1971 with a bachelor’s degree in economics and subsequently earned a master’s in business administration from Dartmouth. The background on his website says he worked as a consulting economist.

Alternative Measure

Some economists favor alternative inflation measures. The Federal Reserve aims for a 2 percent annual rate of inflation based on the Commerce Department’s personal consumption expenditures index, which averages about 0.5 percentage point a year less than the CPI. The Social Security Administration uses an index known as CPI-W, which rose 2.9 percent in March from a year earlier, compared with the main CPI’s 2.9 percent increase.

“These various measures, the CPI and others, PCE index and others, move very closely together,” Fed Chairman Ben S. Bernanke said at a Jan. 25 press conference in Washington. “And you are not going to have a situation where the CPI is 10 percent and the PCE is 2 percent. There may be a few tenths difference, but generally speaking they move very closely together.”

The BLS has responded to Williams’s claims in papers over the years. One such report in 2008 noted the degree of international acceptance of BLS methods, with 13 of the then-30 members of the Organization for Economic Co-Operation and Development using rental equivalence and 12 using the quality adjustment known as hedonics. Eurostat reports that 20 use the CPI’s method of substitution.

‘Could Quibble’

“There are places where you could quibble with what they’ve done to change the CPI,” said Pierpont’s Stanley. “But to say that everything that’s been done over the last 30 years to the CPI is illegitimate and what we should really do is look at the methodology from 30 years ago? Would we want to use the state of the art from 30 years ago for computers?”

The BLS provided details on its methodology because the “myths” about the CPI construction methods “continue to circulate,” BLS economists John Greenlees and Robert McClelland said in an August 2008 rebuttal.

The index has its roots in a World War I-era effort to adjust wages to rising prices. The first cost-of-living measures, published in 1919, concluded that not everyone could afford “all the necessaries, many of the comforts, and a goodly supply of the luxuries of life.”

Boskin Commission

In 1995, Congress created a commission to study the index, headed by Michael Boskin, a Stanford University economics professor and former head of the White House Council of Economic Advisers. Its review concluded that the index was overstating the inflation rate by 1.1 percentage points a year.

Congress authorized the commission during a period when members looked to cut government spending. The panel made 16 recommendations for changes to the index, estimating that they would shave $691 billion off the debt over the next 10 years.

Robert Gordon, an economist at Northwestern University and one of the Boskin commission members, estimated in a 2006 paper that the BLS changes removed only some of the bias, and the index remained about 0.8 percentage points too high per year, a sharp contrast to Williams’s claim that the level is 7 percentage points too low.

The CPI’s methodology drew attention again last summer when a group of senators looking to reach a deal to cut the deficit considered switching government indexing to a CPI measure that, because of a methodology change, would lower reported inflation by 0.3 percentage point per year. Ultimately it wasn’t adopted.

No Opinion

“At BLS, we’re just dealing with the data, not the policies behind the data,” said Gary Steinberg, a press officer and more than 20-year veteran of the bureau. “We don’t have an opinion one way or the other on how the data are used.”

Williams’s criticism of the CPI focuses on the effect of substitution and hedonics.

“I believe Williams is right directionally,” said James Bianco, president of Bianco Research LLC in Chicago. “The measures as they were constructed 30 years ago would show higher inflation if we were using them today.”

Bianco said that the U.S. government does have an incentive to favor lower reported inflation because then it saves money on cost of living adjustments, union contracts and inflation- adjusted bonds that are benchmarked to the index.

“The current measures might only be a few percentage points different but even a few percentage points is still pretty significant,” Bianco said. “Lots of money rides on these numbers.”

Substitution Adjustment

The BLS doesn’t dispute that its adjustment for substitution tends to lower the index. Yet the size of the BLS changes is nowhere near the 7 percentage point difference that Williams claims, BLS officials said.

On average, the hedonic quality adjustment has increased, not decreased, the reported rate of inflation, the BLS says.

Ken Stewart, a BLS economist, compared the old and new methodologies over a 21-year period and has said the current procedure produces an annual rate of inflation about 0.45 percentage points lower.

“Hedonic adjustment makes sense to me,” said Michael Pond, an expert in inflation-indexed bonds at Barclays Plc in New York. “If I’m paying the same price for a good that is better, then I’m getting a better deal, getting more value for my money.”

Old Methods

From 1977 to 1998, the CPI showed a 141 percent increase in the level of prices. A product or service costing $10 in 1977 ought to have cost $14.10 in 1998. The old methods would have produced a 163.9 percent increase, according to a paper Stewart co-wrote with BLS economist Stephen B. Reed.

Williams draws his estimate of a 7 percentage-point bias per year in part from this paper, he said in a phone interview.

“It’s a simple approach to it,” he said. A complete reconstruction would be “the type of thing that takes extraordinary time and computing ability, which I don’t have the resources to support.”

Independently of Williams, two economists at the Massachusetts Institute of Technology developed their own methodology.

Roberto Rigobon and Alberto Cavallo launched the Billion Prices Project in 2010, which builds on analysis that found Argentina understated its inflation rate. In the U.S. alone the project tracks over 5 million prices, Rigobon said, on pace for a global goal of 1 billion.

Basket of Goods

Rigobon said the project includes about 60 percent of the goods used in the CPI. The study reported inflation about 1 percentage point higher than CPI for much of 2010 and slightly more than 3 percent inflation in 2011, in line with the CPI.

“In a three-to-four month window, the inflation rate we report is almost identical to the CPI,” Rigobon said. That suggests that the CPI measure is accurate, he said.

For her part, price collector Humphrey in Chicago says she never can guess what the total CPI will end up being even after logging hundreds of prices month after month.

“It’s hard to have an intuition for the overall number,” she said. “You see a lot of prices, but it’s such a small part of the nation as a whole.”

Read more: Inflation Formula Critics: 'Real' Rate Over 10%, Unemployment Tops 20%

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be sure to download and look at Senator Coburns waste book this is how GOVERNMENT WASTES YOUR HARD EARNED TAXDOLLARS!!!

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I Overheard a Bookstore Employee Talking About the Economy…

By

 

Admin

 

Published on May 24, 2022

 

The other day I was at my local bookstore when a conversation caught my attention. While I’m normally used to hearing people discuss the horrific state of the economy on television or talking with family and friends, it’s rare that I hear strangers share their thought on it in public. For what it’s worth, what I heard broke my heart, especially because I’m spending the summer in an area that’s rapidly growing area and truly represents the American dream, at least for now.

 

I recall a bookstore employee saying something along the lines of “My family used to be solidly middle class, and now with gas prices and everything going up, we are slowly moving down the economic ladder.”

 

 

She was speaking with a customer, who also seemed to have his own concerns about his wallet. While he did partially blame the corporations–I’m not here to do a deep dive into the man’s political leanings, based on overhearing thirty seconds–but they both seemed to be feeling hopeless.

 

In the United States, if people are staying employed and continue to work hard, there is no excuse for people to be going down the economic ladder. Unfortunately, inflation has turned everyone who is not wealthy into penny pinchers, and even those who are wealthy more cautious. It would be easy to overlook slight price increases, but when they are everywhere someone shops, it does not take a rocket scientist to notice the difference over time.

 

People like this woman at the bookstore are simply doing their jobs, and their families are presumably doing all the right things to stay afloat. There are likely hundreds of thousands of families, if not millions, that are finding themselves sinking to a lower socioeconomic status than they were prior to the Biden administration.

 

Still, many are either unaware or unwilling to admit that these price hikes are largely due to high government spending. While the stimulus checks may have felt good at the time, Americans are essentially paying those back right now. Some opportunist corporations could be using this as a chance to hike their prices up without reason, except that is highly unlikely. In fact, if many places could keep their prices low, it would set them apart from the rest of the market and benefit them. For reference, look no further than In&Out Burger, Arizona Iced Tea, and Costco hotdogs.

Obviously, it’s impossible to know all the details about this random bookstore employee’s financial status. What is obvious though is that her sentiment resonates with many others, and they are left wondering how America got to be like this. Those who do understand have a responsibility to educate about the consequences of absurd government spending, even when it might sound nice temporarily. Fiscal conservatism is not sexy, but it does preserve the American dream and encourage upward mobility, as opposed to a downward spiral.

 

It’s fair to say that the Americans who voted for President Joe Biden were expecting someone like Bill Clinton, and the economy that came along with it. Instead, they got someone that made empty promises on coronavirus and ended up being worse than the Carter administration economically. Whether you’re a bookstore employee, a truck driver, or a white-collar office worker, we’re all feeling the pain of the Biden economy.

[carol ann parisi]

With inflation raging across the American economy, people are wondering what will be done to tackle this economic dilemma. Some policymakers in DC are calling for the government to implement price controls to contain inflation. These are regulations that establish a maximum price a business can charge for a specific good or service. A quick fix, right? Here’s the thing, price controls are the last economic measure any policymaker should pursue. Just look down south to see the kind of damage price controls can do to a nation. From the 1950s to the late 1990s, Venezuela was Latin America’s most prosperous country. However, over the past decade Venezuela has been marked by millions of people waiting in lines at supermarkets to acquire basic goods. Think flour, milk, and toilet paper. Such bizarre imagery has been the norm in Venezuela for well over a decade and has been covered ad nausea across mainstream outlets. You’ll generally hear vague terms such as "corruption", "mismanagement" or even low prices to explain this problem. Here’s the thing, these explanations ignore the elephant in the living room that is government intervention. Namely, price controls. They’ve been a fixture of Venezuelan economic policy in the past few decades. The Venezuelan strongman Hugo Chavez introduced various interventionist measures to prevent capital flight following a coup attempt against his regime in 2002.  Some of the measures included the expropriation of key industries, the implementation of exchange controls, and price controls. The flow of petrodollars, owing to high oil prices, gave Venezuelan businesses the luxury of importing basic goods and raw materials as a short-term fix, which temporarily masked the harmful aspect of these policies. Despite the high oil prices, shortages of price controlled goods began to slowly surface in 2006 because of exchange and price controls. The whole party crashed when oil prices fell. Scarcity would then become a widespread reality in Venezuela due to a price control system that prevented the price system from working in an efficient manner. When inflation entered the mix, Venezuela would double down on its price controls. By passing the Fair Prices Act in 2014, the Venezuelan government attempted to curtail shortages by prohibiting profit margins over 30% and strengthening price ceilings on basic goods. Throughout this period, the Venezuelan regime flunked basic economics. Under normal market circumstances, prices serve as signals to consumers and producers. They tell them how much of a given product is in demand or supply, respectively.  But when price ceilings enter the picture, the entire price system is thrown out of whack. A low price that is artificially created via price controls incentivizes consumers to demand more of a good than producers can supply. In the case of demand outstripping supply, shortages invariably emerge. Venezuela's experience with shortages should serve as a lesson to other countries about what happens when the state oversteps its economic boundaries. Sadly, the West may fall down that path.

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The "Scariest Paper Of 2022" Reveals The Terrifying Fate Of Biden's Economy: Millions Are About To Lose Their Job

BY TYLER DURDEN

SATURDAY, SEP 10, 2022 - 12:11 PM

For much of the past year (and certainly at the time, more than a year ago, when the so-called experts, central bankers and macrotourists were still yapping about "transitory inflation" and other things they were wrong about and do not understand), we were warning that at some point the Fed will realize that it is simply impossible to contain supply-driven inflation through stubborn rate hikes which instead would lead to a dire alternative - millions in mass layoffs and newly unemployed workers ...

 

 

... and will revise its 2% inflation target higher, a move which will send every risk asset - from high-beta trash and meme stonks, to blue-chip icons, to bitcoin and cryptos limit up.

 

 

 

Investors Have Given Up on a V-Shaped Recovery, BNY's Young Cautions

To remind readers of this coming phase shift, we most recently warned in June that "at some point Fed will concede it has no control over supply. That's when we will start getting leaks of raising the inflation target"...

 

 

Well, it turns out that we were right, and not just about the coming mass layoffs, but also about the inflation target leaks. But first, lets back up a bit.

 

A little over one year after nobody expected the Fed would be hiking rates like a drunken sailor until some time in late 2023 or 2024, it has now become fashionable to not only predict that the Fed will keep hiking rates at every FOMC meeting and at the fastest pace since the near-hyperinflation of the 1980s, but that the central bank will somehow manage to avoid a hard landing (i.e., the hiking cycle won't end in a recession or depression), even though every single Fed tightening cycle since 1913 has ended in disaster.

 

An example of this was the statement by former Fed vice chair (and PIMCO's "twice-revolving door") Rich Clarida, who told CNBC that "failure is not an option for Jay Powell," adding that "I think they're going to 4% hell or high water. Until inflation comes down a lot, the Fed is really a single mandate central bank."

 

 

 

Of course, if one could hike rates in a vacuum that could work - after all, Clarida himself, who admits he got this year's soaring inflation dead wrong when he was still a daytrading god and part oft he Fed in 2021, said that the Fed may as well have just one mandate, namely to tame inflation. But what so few seem to recall is that the Fed is "hiking to spark a recession", or as CNBC's Steve Liesman put it, there is no such thing as "immaculate rate hikes" meaning that rate hikes have dire tradeoffs in other sectors of the economy. In other words, if the Fed's intention is to spark a recession, it will spark a recession... leading to millions of Americans losing their jobs, something which even Elizabeth Warren appears to have grasped.

 

 

Yet due to the recency bias of Biden's trillions in stimmies, and a world where workers - whether working form home or the office - have virtually all the leverage, few today can conceive of a world where inflation is zero or negative and is instead replaced with millions in unemployed workers, an outcome which one could (or rather should) say is even worse for the ruling democrats than roaring inflation. At least, with runaway prices, most people have a job and their wages are rising (at least nominally, if not in real terms).

 

However, the higher rates rise, the closer we get to that inevitable moment when the BLS - unable to kick the can any longer - admits what has been obvious to so many for months: the US is facing a labor crisis of epic proportions with millions and millions of mass layoffs. And for those to whom it is not yet obvious, we urge to read a WSJ op-ed published by none other than Jason Furman, who is not some crackpot republican but Obama's own top Economic Adviser from 2013-2017 and currently economic policy professor at Harvard.

 

In "Inflation and the Scariest Economics Paper of 2022", Furman summarizes a paper written by Johns Hopkins macroeconomist Larry Ball with co-authors Daniel Leigh and Prachi Mishra of the International Monetary Fund released by the Brookings Papers on Economic Activity, whose conclusion is as follows: "To bring price increases down to 2%, we may need to tolerate unemployment of 6.5% for two years."

 

In other words, just as we said, inflation - much of which is supply-driven, which the Fed can do nothing about - will force the Fed to crush the economy by keeping rates for much longer, the result of which will be many millions in unemployed workers, or as Furman puts it, the paper "shows why the Federal Reserve will likely need to maintain its war on inflation, even if unemployment continues to rise."

 

What is more remarkable about Furman's read of the economist paper is that in addition to its primary theme (the lack of labor slack, or labor tightness, is responsible for some 3.4% of underlying inflation in July 2022), the paper admits precisely what we have been saying all along - that the Fed can't control supply-side variables:

 

 

The paper also argues, convincingly in my view, for a different measure of underlying inflation. Fluctuations in energy and food prices are generally due to factors outside the control of macroeconomic policy makers. Geopolitics and weather have elevated the inflation rate in recent years. Plunging gasoline prices are temporarily lowering the inflation rate now. That’s why economists since the 1970s have focused on “core” inflation, which excludes food and energy.

 

But food and energy aren’t the only things people buy that are subject to supply-side volatility. Prices of new and used cars, for example, have gyrated over the past two years for reasons that are mostly unrelated to the strength of the overall economy. Both regular and core inflation are based on taking averages of price increases and can be distorted by large changes in outlier categories. The median inflation rate calculated by the Federal Reserve Bank of Cleveland drops outliers to remove these distortions.

 

According to Furman, median inflation - which is a statistically better measure of the underlying inflation that policy makers can actually control - is well above the Fed’s preferred headline inflation print (which fell to zero in July on a sequential basis and has stabilize) and shows no sign of moderating and has run at a 6.6% annual rate in the last three months.

 

But the "scariest" part of the new paper, Furman reveals, is when the authors use their model to forecast the unemployment rate that would be needed to bring inflation down to the Fed’s 2% target. He explains why this is so scary:

 

The authors present a range of scenarios, so I ran their model using my own assumptions...  Under these assumptions, which are more optimistic than the authors’ midpoint scenario, if the unemployment rate follows the Federal Open Market Committee’s median economic projection from June that the unemployment will rise to only 4.1%, then the inflation rate will still be about 4% at the end of 2025. To get the inflation rate to the Fed’s target of 2% by then would require an average unemployment rate of about 6.5% in 2023 and 2024.

 

 

Where is unemployment now: it's 3.7% (6.014 million unemployed workers vs 164.746 million civilian labor force). This matters, because according to one of the most erudite economist Democrats, by the end of the Biden admin in 2024, the unemployment will have to soar to 6.5% for inflation to plunge to the Fed's historical target of 2.0%

 

 

What does this mean in absolute numbers? Assuming a modest increase in the US labor force, a 6.5% unemployment rate in 2024 would translate into no less than 10.8 million unemployed workers, an 80% increase from the 6 million today!

 

Still think that politicians - and especially Democrats - will sit quietly and blindly ignore how high the Fed is hiking rates if it means that to normalize inflation back to 2% it means nearly doubling the number of unemployed Americans (and a crushing recession to boot). Spoiler alert: no, they won't, and this may be one of the very rare occasions when Elizabeth Warren is actually right to worry about what the coming mass layoff wave means for Democrats... and the 2024 presidential election.

 

So what should the Fed do? Well, according to Furman, the Fed has four options:

 

1. First, place more emphasis on the ratio of job openings to unemployment and median inflation as it assesses the tightness of labor markets and the underlying rate of inflation.
2. Second, the new paper shows how much easier it will be to tackle inflation if expectations remain under control. The Fed should follow up on Chairman Jerome Powell’s tough talk at Jackson Hole with meaningful action such as a 75-basis-point increase at the next meeting.
3. Third, be prepared to accept the unemployment rate rising above 5% if inflation is still out of control.

While we doubt #3 is actionable, what is more remarkable is Furman's final proposal: it's the one that, like the Dude's proverbial rug, ties the room together and sets the stage for what is coming:

 

Finally, stabilizing at a 3% inflation rate is probably healthier for the economy than stabilizing at 2%—so while fighting inflation should be the central bank’s only focus today, at some point the Fed should reassess the meaning of victory in that struggle.

 

And just in case his WSJ proves too complicated for some mainstream experts and economists, here it is in truncated, twitter format:

 

 

And there you have it: remember what we said on June 21: "At some point Fed will concede it has no control over supply. That's when we will start getting leaks of raising the inflation target." Well... there it is.

 

And while mainstream economists and the market may require quite a few months to grasp what is coming, it is the only way out of a crisis of commodities - as Zoltan has repeatedly and correctly put it - and which central banks have no control over, and thus will have to move not only the goalposts but the entire football field to avoid a social revolt or something even scarier.

 

While we wait, we can't help but snicker at what the 79-year-old figurehead in the White House tweeted today...

 

 

... because what Biden calls "the strongest economic recovery in recent history" is - even according to Democrats - about to be the biggest economic disaster in modern history

[carol ann parisi]

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Yes, We’re Heading for a Recession – Here’s How to Protect Yourself

Shah Gilani Mar 31, 2023

There was a time – in fact, it was just three weeks ago – when analysts and economists were debating whether we were heading for a “soft landing” or “no landing.” Recession fears seemed to have melted into the background as more and more economic indicators showed an economy at full tilt.

Then the banking grey swan spread its wings and all hell broke loose, and headlines came bounding right back to doom and gloom.

So, which is it?

Well, I’m here to say it: we’re heading into a recession, and not a “soft landing” kind of recession. And you need to get ready for it now.

In spite of the stock market’s resilience and the chance of a melt-up, there are deep-rooted problems in America’s banks that are exponentially complicated by persistent inflation.

The combination is going to keep rates elevated no matter what the “terminal” rate on fed funds is, and it will lead to another round of bank failures and a credit crunch starting in the second half of this year.

And whenever banks are struggling, the whole economy struggles along with them, sometimes for years to come. So when the next wave of problems hits, a recession will follow immediately on its heels.

But there’s good news: because I’m about to tell you what’s coming down the road, you’ll be able to prepare, protect your capital, and even make money along the way.

Here’s everything you need to know and what you need to do about it right now.

Problem #1: Unmatched Books and Depositor Demand

The first order problem facing banks is that they’re not running matched books. Not that banks have ever run matched books, but the concept is you match the duration of your liabilities (deposits, or CDs, or other funding sources, including equity) with your assets. If you take in a one-year CD and you make a one-year loan against that deposit, you’d be running a matched book.

But what if you take in free deposits, say trillions of dollars’ worth during the COVID-19 pandemic, and buy 10-year Treasuries or make 5- and 10-year loans? You’re not matched, and if those free deposits leave, you’re in big trouble.

That trouble started in 2022 when rising rates made money market funds a lot more attractive than bank deposits. Year-to-date in 2023, money market funds were seeing weekly inflows averaging $23 billion. The week ending March 17 (aka the week Silicon Valley Bank failed), $121 billion flooded into money market funds. The following week saw another $165 billion of inflows, according to Goldman Sachs.

In the digital age, depositor money can exit very quickly, as in a matter of a few clicks, so rule number one is that banks have to have enough money on hand to pay exiting depositors. Rule number two, because most of the assets on banks’ balance sheets are funded with deposits, and because those liabilities become realized liabilities when they leave, they have to be replaced as financing tools supporting assets.

SVB couldn’t meet depositor demands, so it was shut down. It wasn’t even a matter of what was left supporting their balance sheet assets. The panic caused by SVB forced the Federal Reserve to announce a new lending program from its Discount Window, the Bank Term Funding Program. The program was a crisis response to immediately fund banks experiencing massive depositor withdrawals.

But when you get into the fine print, it’s not as good a deal as it sounds like it is, and it’s not even a real solution for what banks are facing.

Problem #2: Overborrowing and the Credit Crunch

The BTFP allows banks to get loans up to a year on the collateral they post. Because of the crisis, the Fed said that collateral would be valued at 100 cents on the dollar, as opposed to only being able to borrow as much as your diminished value collateral allows.

Discount Window borrowing totaled $308 billion in the week ending March 17, up from only $5 billion a week earlier. Of that $308 billion, $233 billion was borrowed from the San Francisco Federal Reserve Bank.

Banks also scrambled for “advances” from their regional Federal Home Loan Banks to the tune of $304 billion the week SVB collapsed, not only to meet depositor outflows, but as is the case with Discount Window borrowing, to backstop assets on balance sheets.

Thing is, none of that borrowed money is cheap.

The fed funds target range is now 4.75%-5%, it was 0%-0.5% during the pandemic. That means the cheapest that banks can borrow from the Discount Window is somewhere within the range of fed funds. Last week the cost averaged 4.85% at the Window – that’s very expensive considering the cost to borrow from depositors was zero.

FHL Banks are owned by the constituent banks they serve and borrow money in global capital markets at favorable rates because they’re considered a Government Sponsored Enterprise, though they’re not explicitly backstopped by the government or the Fed. Still, they make advances to their member banks at rates priced at a premium over the cost of their consolidated obligations. Currently banks are paying interest north of 5% on the shortest advances (30 days) they’re taking and a lot more for longer term borrowing.

Just because there’s money to pay depositors and money to shore up capital needed to support assets, which are mostly underwater, it doesn’t mean banks are out of the woods, not by a longshot.

The cost of all the borrowing banks are forced to avail themselves of will seriously impair their net interest income, their net interest margin, their earnings, profitability, their capital… and of course, excess or retained earnings they’d use for share buybacks.

Higher costs of funding at banks will be passed along to borrowers, which will tighten lending. On top of that (or maybe I should say “underneath that” because I’m referring to what underlies assets), diminished loan valuations will be a problem for borrowers trying to refinance, which will cause banks to raise credit standards and impart tougher covenants on borrowers.

And that’s if the banking crisis is over. If it isn’t (and I’m saying it isn’t; it’s only starting to show up), share prices of banks could get further decimated, lowering their vital TCE (tangible common equity), and other capital ratios which will force them to either sell underwater balance sheet assets at a loss or raise equity in an unfavorable capital markets environment.

That’s why we’re headed into a recession, and it won’t be a “soft landing” kind of recession.

What You Need to Do Now

So this is what we’re facing. The first step to protecting yourself is a very simple one: any profits you garner in the current rally we’re having, you need to backstop by employing tight trailing stops. I’m talking about a range of no more than 5-10%, but you’ll need to take volatility into account – the bigger the movements in the stock price are, the more room you need in order to give it a chance to ebb and flow.

Second, be careful about betting on banks recovering and getting drawn into their “cheap” shares when they look like they’re bouncing. It’s a head fake, and if you play it straight, you’ll lose.

Instead, use options to bet against whatever short-term direction you see them moving in. SPDR S&P Regional Banking ETF (KRE) is a great instrument for buying put options whenever you see it spike, and likewise, buy calls on ProShares UltraShort Financials ETF (SKF) whenever it dips.

The biggest potential profits here, however, are going to come from targeting individual banks with put spreads as they fall. I’ve been building a list of the worst of these guys, and I’m lining up a lot of trades for my subscribers right now.

[carol ann parisi]

[carol ann parisi]

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INSIDER BUYING, POSTCARDS, RED MOMENTUM

Here's the Secret to Timing the Market Perfectly

By GARRETT BALDWIN, Executive Producer, Money Morning • August 13, 2023

GARRETT BALDWIN

Postcards from the florida republic

An independent and profitable state of mind.

 

 

I give away these Momentum readings for free every day.

These are the ultimate equalizer for retail investors against big, greedy institutions.

No guessing. No silliness. No chasing headlines from journalism majors who don’t understand finance.

When momentum goes RED, it aligns with the START of major net outflows in equity markets (read: there’s MORE HEAVY selling than buying). Could last a day… could last two months…

The reading also suggests that a major liquidity event is happening in major economies.

Best of all, it indicates that a very important pattern of behavior is on our radar — and a very profitable one.

Today – I’ll let you in on this secret.

Then, you’ll see the exact chart telling you when to load up on equities.

Listen up.

We’ve Seen This Before… A LOT.

The last time momentum went red across the board (all three readings) was March 7 - just before the Regional Banking crisis.

The markets sold off, we largely moved to cash, and we waited to reenter new positions.

After Silicon Valley Bank collapsed – the Federal Reserve bailed out the banks swapped capital for long-duration bonds to its member banks. This shored up the financial sector (for now).

After this bailout policy direction… a subset of “in-the-know” investors piled into their “favorite” stocks.

Those stocks then took off like a rocket.

The same pattern happened during a crisis in September 2022.

Red momentum, then a major global event (England’s Gilt Crisis), a policy reaction from central banks, and then the same activity among the same group of investors.

It also happened in June 2022. And March 2020. And December 2018. And August 2011. And March 2009. And October 2008.

Again… each time… four steps.

1) Big adverse market event…

2) Big move by policymakers.

3) Big buying by the same group of investors.

4) The markets rebounded – and these investors got rich.

There is ONE more VERY important month that I didn’t mention…

It might be the most important today.

It aligns with why markets have sold off in the last two weeks.

What Causes Such Outflows?

I’ll admit: When momentum turns red and outflows accelerate, no one tends to know right away why it has happened.

The selling took us negative on March 7. But we’d been in a choppy sideways market since a top on February 2, which accompanied an early signal to start taking gains.

We didn’t know why it went negative until a week later:

The regional banking crisis.

Do a Google News search for “regional banks” on and before March 7, 2023.

You won’t find much mention of regional banking problems.

The following week – however – you couldn’t shake the story.

Every financial publication wrote about it, setting off a panic in regional banking stocks.

We got out of the way… a week prior. From March 7 to March 24, the SPDR S&P Regional Banking ETF (KRE) fell more than 30%. At that point, those buyers loaded up on their favorite stocks.

The same pattern happened on June 8 of last year.

Our reading turned Red, and suddenly the market collapsed.

We wouldn’t know until a week later that it was the largest hedge fund selloff in 15 years.

The S&P 500 fell about 12% in nine days.

Sometimes the situation was more obvious.

When this went red on February 21, 2020, and we sold many equities, it was COVID.

The market would crash by 33% not long after it went red.

We’d buy back – based on the reading – on April 6, 2023. Of course, that curious subset of investors was also buying BIG.

And they made a killing while most people were afraid to buy.

That should capture your attention.

Who the heck are these people?

Why Is Momentum Red Now?

Before we get to them, let’s discuss recent events.

This week’s negative turn has been a bit more questionable…

As I’ve noted, there are many negative stories in the markets.

Japan’s Yield Curve Control could spell trouble for U.S. bonds. In the U.S., inflation is running hot again. In addition, the Treasury Department is facing problems as it needs to get investors to buy long-term bonds and not load up on short-term debt that needs to be rolled over in two years.

And then, there is the recent downgrade by Moody’s of one-seventh of the American banking system.

Bond markets tell us that the Fed isn’t done hiking, that inflation is likely heading higher, and that the Treasury Department faces problems getting people into long-term bonds.

But the other BIG problem we’ve highlighted here is China.

On June 1, China’s central bank eased – helping propel an undeniable market rally.

The same thing happened in January this year. See the yellow boxes for moves on the S&P 500 SPDR ETF (SPY).

But in mid-July –when a U.S. Senator hedged his portfolio against the Nasdaq 100 – China tightened by more than what they had eased in June.

The nation was trying to provide support for its currency.

That’s how you end up with a big drop in global liquidity – as referenced by CrossBorder Capital in this recent chart. Behind this paywall, authors point to a sizeable reduction in their Global Liquidity Index from June to July.

China is facing renewed problems.

The financial press is starting to pay attention.

Stories are trickling out from this notoriously censorious nation. They show two serious issues.

First, China’s Consumer Price Index (CPI) came in at NEGATIVE 0.3% for July. Bloomberg noted Friday that deflation is now the nation’s greater market risk. That was Friday.

Second, there’s a big problem in China’s real estate market.

The Wall Street Journal noted August 5 the following:

Shares and bonds of property giant Country Garden Holdings dollar-denominated bonds maturing in January 2024 are trading at 25% of their notional value, compared with 81% as recently as mid-June.

This is a big deal.

We’re now two years past a huge debacle involving China’s property giant Evergrande. And… eight years after another crisis nearly tore down the nation’s economy.

On Thursday, Mike Shedlock (FREE required reading) noted again that China has a serious demographic issue that will weigh on them. The nation has been trying to achieve rapid growth – and the only way to do so has been through massive government spending and debt. The entire situation is very similar to Japan’s long-deflationary challenges.

Now – here’s the thing. China’s problems can and will weigh on global equity markets. And China has two choices – pretty much the same choices that all major central banks have today.

Because they are so debt-heavy, China can allow assets to crash.

Yet, the Chinese Communist Party (CCP) risks having the nation’s real estate market take them down with it (talk about a Black Swan event).

Or – the People’s Bank of China (PBOC) can “print” more money.

After all, this is the way that central banks try to tackle deflation by easing policy.

Yeah!

Maintain power and keep pumping asset prices higher and higher so that they end up pricing out the youngest members of society from owning real assets like housing.

Do those two things sound familiar?

They should. Both are happening in the United States as the same cabal that created the problems for 30 years cling to power.

How to Address China

Momentum is negative.

We’re mainly sitting in cash over in the Republic.

We’re going to the northern beaches.

We’re floating around in the backyard pool.

This could get rocky over the next few weeks.

But I anticipate that China’s central bank will return to its usual ways – providing more support to its economy and keeping the shell game running.

We want to see two things happen.

First, we’ll pay close attention to the policy response from the PBOC. That response, however, might not be immediate.

It could require another trip to Beijing for Janet Yellen – or broader questions about China’s plan for the BRICS currency.

Could, for example, China work with Saudi Arabia to provide some support for its currency?

I’m not a Chinese policy expert, though.

So, I don’t care what they do… just that something’s done.

I’m watching the news feed and waiting for a positive response from the Direxion Daily FTSE China Bull 3X Shares ETF (YINN). More on that ETF this week, but it will provide clues that something happened, and we are on the verge of rebounding.

Second, if things get nasty for the global markets, we want to monitor that specific subset of investors that BUY when we see major policy changes.

Those investors are corporate insiders (CEOs, CFOs, 10% owners, board directors, and Chairpersons) at S&P 500 companies.

How to Address U.S. Markets

Look at this chart.

This is the insider buying-to-selling ratio of S&P 500 stocks.

It shows the actions of executives buying their stock in periods of turmoil.

When that insider buying ratio is HEAVILY tilted to the buyers, it signals they are collectively calling a bottom on the market.

When the BLUE LINE is at the top and moves higher – it’s time to buy, even if it’s just for a few weeks or months.

Look at January 2016.

That was the marked end of the Chinese market turbulence period that had lasted months.

In January 2016, central banks around the globe announced intentions to keep interest rates low in response to weak Chinese growth. The markets had just experienced about a 14% drop from mid-December 2015 to the lows of January 2016.

After markets cratered that month, central banks accommodated policy changes… including actions from the PBOC and the Bank of England.

Well, wouldn’t you know it?

Corporate insiders loaded up on stocks faster since the start of the Fed’s Quantitative Easing in March 2009. It’s RIGHT THERE.

After that HUGE round of insider buying, the S&P 500 gained more than 16% from the bottom of January 2016 until September 2016.

Well-timed buying, indeed.

But look at the other periods on this chart.

You’ll see – again – periods of turmoil, followed by a policy response and heavy amounts of insider buying.

This Isn’t a One Time Pattern

October 2008

• Event: Lehman Brothers collapsed, creating a global credit crisis.
• Policy Response: The U.S. government authorized its first bailout plans.
• Insiders: loaded up on their stock.

March 2009

• Event: Global credit crisis accelerates.
• Response: The Federal Reserve announced its first Quantitative Easing (QE) program that injected a massive amount of capital into the system.
• Insiders: Doubled down off the October period.

August 2011 —

• Event: Black Monday, a major market downturn after a downgrade to the U.S. credit system by S&P Global due to the U.S. debt ceiling crisis. Followed QE2 period.
• Policy Response: Debt ceiling raised. European bailouts.
• Insiders: Loaded up.

December 2018 —

• Event: Bond markets panicked in October, with a frenzy spilling into the final weeks. The S&P 500 lost 20% in a month.
• Policy Response: Federal Reserve pivoted, cut interest rates, and began increasing its balance sheet.
• Insiders: Loaded up.

March 2020

• Event: COVID lockdowns.
• Policy Response: U.S. created 1/3 of all dollars in existence—massive Congressional stimulus.
• Insiders: Loaded up on their stock.

January 2022

• Event: After the selloff from November 2021.
• Policy Response: Fed and Treasury Department attempted to argue that inflation was transitory. It wasn’t.
• Insiders: Loaded up that month. S&P 500 rebounded 7% despite chopping into April.

October 2022

• Event: Rising interest rates hammer central banks around the world. Markets elicit concerns about England’s GILT.
• Policy Response: Over the next few weeks, we saw large policy changes from the Bank of England, the U.S. Federal Reserve, the People’s Bank of China, and the Bank of Japan.
• Insiders: Bought the bottom, doubling down on January purchases. This coincided with the lows of the last two years in terms of global liquidity.

Why We Watch the Insiders

There are no guarantees that this market will crater in the weeks ahead – but this is a seasonal period of weakness. The last thing I want is for retail investors to start panicking… without understanding how policy impacts markets…

There remain many questions about inflation, Fed policy, and more. And as far as I’m concerned – there may be another major factor in the markets that is driving this negative momentum – and it just hasn’t hit the news cycle yet.

But we can take away one important factor from these periods of volatility and uncertainty.

If there is a deep selloff and changes in central bank policy to soften the blow, the insiders will tell us when to buy.

If we see a BIG spike in the coming weeks in buying – to complement a central bank pivot – we will start buying too.

Until then, hit the beach, have a drink, and maybe get away from your computer. There’s more to life than this stuff.

That’s why we aim to keep it simple in the Republic.

Stay positive,

Garrett Baldwin