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For all intents and purposes, the 2024 presidential election campaign is off and running.
In fact, some pundits say it started the day after the midterm congressional elections two months ago. Others say Donald Trump lit the fuse a week later when he announced another run for political gold.
And now, former South Carolina governor – and Trump’s ambassador to the UN – Niki Haley has announced. And former President Trump has already dubbed his presumed toughest Republican competitor, Florida governor Ron DeSantis, as “Meatball Ron.”
On the democratic side, virtually all of America is waiting for President Joe Biden to officially announce his candidacy for reelection – after a bully pulpit-like State of the Union address last week.
Thus, once again, with so much policy, legal action and geopolitical volatility in flux, Americans will soon face another spirited debate over not just who we should vote for but how we even should choose our presidents.
To Campaign or Not to Campaign
One thing is certain, however: 41 states and the District of Columbia are already in the bag for either the 2024 Republican or Democratic presidential nominee.
Why? Because of the state-by-state, winner-take-all method of awarding electoral votes for president and vice president. Remember, 270 or more electoral votes are needed to win the presidency.
According to the National Popular Vote, a 501(c)(4) nonprofit organization (NPV), the Republican nominee can count on 218 electoral votes from 24 states (red on the map above).
The Democratic nominee can count on just about the same – 211 electoral votes from 17 states and DC (blue on the map).
NPV says the 2024 campaign will be concentrated in just 9 states (yellow on the map), which (together with one competitive congressional district in Maine and in Nebraska) have a combined total of 109 electoral votes.
Close analysis shows that presidential candidates only campaign in closely divided states where they have something to gain or lose. In practice, this has meant that the candidates are separated by no more than eight percentage points in polls.
Because Iowa, Ohio, and Florida are no longer in this competitive range, the number of spectator states will reach a high of 41 in 2024.
Ambrose Evans Ambrose-Pritchard writes in The Telegraph that “monetary tightening is like pulling a brick across a rough table with a piece of elastic.
“Central banks tug and tug: nothing happens. They tug again: the brick leaps off the surface into their faces.”
Or as economist Paul Krugman puts it, the task is like trying to operate complex machinery in a dark room wearing thick mittens.
Lag times, blunt tools, and bad data all make it impossible to execute a beautiful soft-landing.
Way back in late 2007, the economy went into recession, a lot earlier than originally thought and almost a year before the demise of not-too-big-to-fail Lehman Brothers.
But the Federal Reserve apparently didn’t know – or acknowledge – that at the time.
The initial data release was way off base, as it frequently is at certain points in the business cycle.
The Fed’s main predictive model was showing an 8% risk of recession at the time. Today, by the way, it’s under 5%. Evans-Pritchard remarks, “It never catches recessions and is beyond useless.”
Fed officials later complained they wouldn’t have taken their hawkish stance on inflation the next year had the data told them what was accurately happening in real time.
And, more importantly, they wouldn’t have set off the chain reaction leading the global financial system to come crashing down.
Evans-Pritchard, however, ponders that had the Fed and its peers overseas paid more attention – or any attention for that matter – to the quickly evolving slowdown in the first half of 2008, they would have seen what was coming.
So, where does that leave us today as the Fed, European Central Bank and Bank of England hike rates at the fastest pace and more aggressively in four decades, with massive QT as icing on their cake?
According to Evans-Pritchard, the monetarists are again crying the apocalypse is coming! They’re accusing central banks of inexcusable errors:
First, they unleashed the high inflation of the early 2020s with an explosive monetary expansion.
Then, they swung to the other extreme of monetary contraction – disregarding both times the standard quantity theory of money.
Eternal optimist Treasury Secretary Janet Yellen says she sees a path for avoiding a recession, with inflation down significantly and the economy remaining strong, given a strong jobs market.
"You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years," Yellen exclaimed.
"What I see is a path in which inflation is declining significantly and the economy is remaining strong."
Of course, being the team player she is, Yellen said inflation remains too high.
But she believes it could fall a lot more because of action taken by the Biden administration, including steps to reduce the cost of gasoline and prescription drugs.
Labor Department data out last Friday showed job growth jumped up steeply in January – nonfarm payrolls leaped by 517,000 jobs and the headline unemployment rate dropped to a 53-and-a-half-year low of 3.4%.
The strength in hiring, despite growing layoffs in tech, overnight reduced investor expectations that the Federal Reserve was close to pausing its cycle of hiking interest rates.
Unemployment is Higher Than What They Tell Us
The Fed, the Bank of England and the European Central Bank all raised interest rates this week again to fresh multi-year highs.
They just can’t seem to help themselves.
At the same, they each suggested or explicitly warned that there is more tightening coming plus a willingness to hold their policies at hawkish levels for a while.
They just can’t seem to help themselves.
Let’s focus on the Fed. Inflation and all of its major drivers fell in the last half of 2022.
I’m not going to say it fell sharply, steeply or significantly, because some prices have come down – some even sharply, some just a tad – and some have not at all.
The so-called price deceleration occurred despite the pace of economic growth, which picked up in the second half of the year and unemployment remained fairly static.
We know that the goal of the Fed’s statutory dual mandate is to balance the risks of inflation versus the benefits of solid economic growth and maximum unemployment.
Jeremy Bivens points out that currently, “the benefits of low unemployment are enormous, and the risks of inflation are retreating rapidly.”
Here’s what he wrote before the Fed’s 25-basis point rate hike on Wednesday:
“If the Fed lets the current recovery continue [quickly] by not raising interest rates further at this week’s meeting, 2023 could turn out to be a great year for the economic fortunes of American families.
“It is time for the Fed to stand pat on interest rate increases and wait to see how the lagged effects of past increases enacted in 2022 will filter through to the economy.
“Continuing to raise rates in the early stretches of 2023 will be a clear mistake and pose an unneeded threat to growth in the next year.”
He envisioned a Powell press conference after a meeting at which the Fed decided to leave rates alone, emphasizing these points:
Last fall, on a Financial Survival podcast, Discount Gold and Silver Trading CEO Melody Cedarstrom and I talked about a study showing that top CEOs made 399 times more than the average worker.
According to the Economic Policy Institute report, written by Josh Bivens and Jori Kandra, CEOs of the largest firms (in the U.S.) earn far more today than they did in the mid-1990s and many times what they earned in the 1960s and 70s.
The average pay for top CEOs was $15.6 million in 2021, up about 10% over 2020.
The ratio of CEO-to-typical-worker compensation has grown to an astounding 399-to-1.
That’s up from 366-to-1 in 2020 and a big increase from 20-to-1 in 1965 and 59-to-1 in 1989.
CEOs are even making a lot more than other wage earners in the top 0.1% – almost seven times as much.
In fact, from 1978-2021, CEO pay based on realized compensation grew by 1,460%. That far outstrips S&P stock market growth (1,063%) and top 0.1% earnings growth (385% between 1978 and 2020).
On the other far side of the continuum, compensation for the everyday American worker grew by just 18.1% from 1978 to 2021.
CEO Pay vs. Layoffs Not a Good Optic
Well maybe a few more than two. But first off, did you all see Biden promising 31 more tanks to Ukraine? I watched his 20 minute word salad speech and I was speechless. They want this war to go on and on and on. They want all the spending they can squeeze out of this, and boy the money is flowing.
It took me a long time…over two hours. But I wanted to look up the first time I said that when the economy is in the toilet, they will spark a war, open the debt gates and spend their way out of the hole. Well it was all the way back during the NASDAQ meltdown, and sure enough, we went into Iraq over the BS of weapons of mass destruction. 20 years ago. I probably said it sometime in the 90’s also, but got tired of searching.
Once the war time spending hits, they can spend their way out of most recessions. Well, they’ve done it again. They set up the Ukraine since 2013 to be the area ( patsy) for the next multi billion dollar war spending spree. So it worked. They pushed and pushed Russia to the point where Putin did what any world leader would do…he snapped and pushed back.
That was and is the plan and the reason all these politicians are saying things like “what ever it takes” concerning helping Ukraine win. Listen folks, these people don’t give a rats ass about the Ukrainian people. They do like the Ukrainian chemicals, rare earths, and oil and gas…but the people? To the politicians they’re just as expendable as the people in Libya, Iraq, Sudan, Yemen, Palestine, and a hundred other places. Cannon fodder, nothing more. Oh and a good place to launder their millions of dollars…they do like that too.
But they’re playing a very dangerous game this time around. Russia isn’t Iraq or Libya. Russia isn’t Vietnam or Afghanistan. Russia is a very formidable opponent. So, while they’re all in on this war because of the debt that the Central banks can create and the money that gets spent on more armaments…if it gets out of control, we are in WWIII, with the death and destruction that brings. War is a racket, as quoted by Gen. Smedly Butler so long ago. Well this is one of their biggest rackets ever.
Okay, so lets me get back to market land. This coming week is yet another two day FOMC meeting, where they will determine what they’re going to do with interest rates. Then, on the second day of the meeting, Powell himself will give a Q&A press conference, where he’ll get asked 25 times “when are you going to pause and when are you going to cut rates.” Both of which he will dance around in Fed speak. He’s not as good as Mumbles Greenspan, but he’s pretty deft at it.
Matt Phillips is right when he observes that “the debt ceiling circus has arrived in D.C.” and it’s not going away anytime soon.
He writes today that the closer the federal government gets to “stiffing creditors” and going into an unprecedented default, “the bigger the implications will be for the markets and the economy.”
As I wrote in Friday’s article, the government hit its $31.4 trillion debt limit last Thursday.
While that’s a big deal, it’s nothing compared to what will happen to financial markets if the government defaults sometime mid-year.
For now, it just means the Treasury Department has to start using "extraordinary measures" – like drawing down its cash balances and deferring contributions to government pension funds – to keep paying its bills.
Treasury Secretary Janet Yellen told Congress that her department can keep juggling payments at least until June.
Markets don't appear to be overly worried at this point. But just wait. As Phillips points out, the longer the debt ceiling drama plays out — and the closer the government comes to default — the crazier markets will get.
That's exactly what happened in the summer of 2011, when we last came perilously close to the Thelma & Louise Driving Over the Edge moment into the abyss.
That year, as the crisis got worse into July and early August, the S&P 500 plummeted 15% and credit spreads that determined costs for home mortgages and corporate borrowings surged.
That jump came as investors grew leery of lending in the face of growing risk and uncertainty.
On the other side, those who say they want to cut government debt levels will likely claim that the turmoil the debt fight raised over a decade ago was worth it – despite the U.S.’s lowered credit rating.
They point to the Budget Control Act of 2011 that resulted from that debt limit fight, which helped cut federal budget deficits in subsequent years (note that it hasn’t actually helped cut the national debt, an important distinction).
So, however it turns out, the fight over raising the debt ceiling and avoiding default is going to hang over the markets for a good chunk of the year.
And, at least for investors, according to Phillips, “it's likely to be a bummer.”
After exploding out of the starting gate a few weeks ago, the paper markets are getting a big smack in the face this week.
Stocks slumped for a third straight session yesterday, as the S&P declined by 0.8%, and it’s now down 2.5% for the week – on track for the first negative week of the year.
On the other hand, Treasuries have done well this week. Remember that bond prices move in the opposite direction of their yields (thus, falling yields mean rising prices).
The benchmark 10-year yield, which started this holiday-shortened week at just shy of 3.5%, took a nosedive on Wednesday and is now poised to finish the week about 10 basis points lower – at 3.4%.
Notably, the 10-year vs. the 2-year yield curve inversion (3.4% vs. 4.2%) continue to signal that investors at best see the Fed reversing course over the coming year and reducing rates. At worst, they see a coming recession.
The 10-year vs. 90-day yield inversion is even greater.
In the precious metals market, gold is up 0.7% for the week and is up 5.6% since January 1st. Silver is slightly up for the week (0.2%) but is slightly down since the start of the year (0.3%).
People now fear for their economic future without a trust[worthy] safety net. Only 40% of respondents say they and their families will be better off in five years, a 10-point decline from 2022.”
So summarizes one of the major findings of the 2023 Edelman Trust Barometer, which adds:
“A lack of faith in societal institutions triggered by economic anxiety, disinformation, mass-class divide and a failure of leadership has brought us to where we are today – deeply and dangerously polarized.”
The latest Edelman Trust Barometer is the Edelman organization’s 23rd annual trust and credibility survey since its founding in 1952.
Edelman, in its own words, is a “global communications firm that partners with businesses and organizations to evolve, promote and protect their brands and reputations.”
The report’s release is intended to coincide with the start of this year’s annual World Economic Forum in Davos, Switzerland.
The research was conducted by the Edelman Trust Institute through 30-minute online interviews with over 32,000 respondents in 28 countries.
Among the principal findings and opinions contained in the 2023 survey are:
I had way more responses to my article about silver the other day than I expected. Why? Well, it’s not like I haven’t written about the stuff like a zillion times in the past, so I figured most folks knew my stance on things, and why I still think it’s one of the most undervalued commodities on earth.
But, as I said I got a lot of emails, a lot of questions and so I think I’ll use today to talk about them.
First off, the silver/gold miner stocks. Yes I like them. But NEVER get it in your head that any stock is safe. I repeat, any stock. Companies blow up, CEO’s get caught fondling kids, probable ounces in the ground get proven to be less than thought, their debt could catch up with them, I could go on and on. We “TRADE” the mining stocks. But they are not the same as having physical metal. You don’t “set it and forget it” with the miners. For maximum safety, you want physical.
Which of course brought up another question.
I appreciate your emails/articles about finance, life and more. I read your recent email on silver and while I would like to have more silver in my portfolio my issue is where do I store it?
I am not comfortable keeping large amounts of silver in the house. Not comfortable having large amounts in a safety deposit box in a bank so where? I would prefer my home not be a target for thieves if I can prevent it.
Lewis
Well Lewis, it’s like this. Anything you can’t stand over and protect with a gun in your hand…do you really own it? Safe deposit boxes are NO good. First off, most banks say you can’t store precious metals in them and secondly, what happens if the system goes down, and banks fold up? Did you know they’re legally allowed to go through your deposit box? Indeed.
Yes there are silver and gold storage companies, with mega high tech security, and each ounce you send there is registered, etc. But is that ideal? Do you want your silver sitting in a guarded establishment in say Nebraska, but you live in Florida? What if this whole world goes mad max, there’s no postal service/no UPS, no gasoline to drive there?
The secret to storing metals at “home” is you have to be concerned about 1) theft, and 2) especially if you have some cash along with your metals, is fire. So, how do we get around this? The theft part is relatively easy. First off, tell NO ONE that you own any. Why would anyone suspect that you’ve got enough precious metal, to want to come to your house? Don’t tell a soul you have metal at home. No one, including your kids. Secondly, consider shipping it to an elderly relatives place instead of yours. Even they don’t need to know what you’ve been sent, you can tell them it’s a heavy box of ammo or what have you. When it shows up, you go get it. That way, even if the UPS driver took note of a precious metal deliver and told his friends, it wouldn’t be “there.”
That's it, that's the story. Okay, so what am I going off about here? Let's chat...
As any of you who have read my rantings for any length of time knows, I still have a masochistic love for gold and silver. I say that jokingly, since in reality, both have done pretty darned well if your time horizon is long enough.
When we first started pushing the idea for gold, back in the early 2000's it was under 300 bucks an ounce. So seeing it 20 years later at 1800, isn't a bad return. I was later to the silver party, getting involved there in the 07-09 area. But there too, we've done pretty well.
Many of you longer term readers will remember the two "Vegas plays" we did. By using a ladder of silver miners, the first play took 30 grand to 1.2 million. The second one several years later took 19 grand to 246 thousand. They were nice and boy I'd sure love to see the silver situation allow for a repeat of those good times.
I am not at all suggesting we're ready to whip up another Vegas play here, not yet. But I do think the building blocks are being assembled as we speak. I want you to consider a few things.
First off, silver has indeed done fairly well over the past several months. It was trading in the 18's in September and has recently flirted with 24. So it's been fairly perky. But it isn't the price that's got me the most interested, no it's the demand. We'll get back to that in a minute....
Gold has also done well lately. In October gold was trading in the 1600's and has recently flirted with 1900. Now, gold is the one that always gets the catchy headlines. When it was reported that China had bought up a whopping 30 tonnes of the stuff in December, after buying 32 tonnes of it in November, it made headlines from Bloomberg to Forbes.
Why are they buying it? What's China's angle? Is China trying to make its yuan convertible to gold, etc etc. The articles were fast and furious.
The equities market is a very strange beast, it truly is. Let's take Friday for example.
The fed has been pretty straight forward in telling you that they are going to hike rates until they get up and over 5%. Despite the howls from the market participants, Powell has also said that there would be no rate cuts in 2023.
But Wall street doesn't believe him. See, they've got all this history about the Fed, and for decades the play was always the same. Fed hikes rates to cool down an economy, overshoots, panics and then starts cutting rates.
When rates are being cut, stocks move higher. Why? Companies can borrow more money at a cheaper price. They can use that money to buy up their own shares, and thus reduce the float and therefore push the stock price higher.
Wall street LOVES low rates and the evidence is easy to see. Look at what the DOW has done since 2010. After the 08/09 financial crisis, the fed went into panic mode and printed money like madmen. Do you know where the DOW was in 2010?
No, really.... think about this for a minute. The DOW Jones has been in existence since 1896. Did you know it was that old? Yessirree it is. And from 1896 all the way to 2010 the best it could do, was end the year at 10,600. That's it. 10K in over 100 years.
From 2010 to 2022 it made it to 34,561. Now the back of the cocktail napkin tells me that this is a gain of about 24,000 points.
So, if it took 114 years to go from its humble beginning of 12 stocks, to the current 30 stocks in 2010 and only gained 10K points... why did we gain 24K points in just 12 years? What changed?
You all know the answer to this riddle. Zero interest rates and trillions of freshly minted/printed dollars, that's what. If the fed is cutting rates, and/or keeping them there, AND printing trillions at the same time, the market gets orgasmic and up it goes. We have the proof, it's there in black and white.
But the fed has changed course now, and has been aggressively hiking rates. Well that's sort of peeing in their punchbowl and they hate it. That's why in 2022 we saw the S&P down 20% and the debt heavy NASDAQ down 34%.
Sorry for the cliché, but the more things change, the more they remain the same.
Nowhere is this more painfully obvious than in the financial industry – where cracks are expanding in already porous credit dykes all over the world.
You think we'd have learned from the disastrous effects of the Great Recession 15 years ago.
But after additional years of excess from banks stuck with piles of buyout debt, a pension blow-up in the UK and real-estate troubles in China, South Korea and more recently the U.S., we’re finding again that what’s past is prologue.
Thanks to global central bank rate hiking, cheap money is quickly becoming a thing of the past.
Distressed debt in the U.S. alone jumped more than 300% in 12 months, according to Bloomberg News.
Plus, high-yield issuance is much more challenging in places like Europe, and leverage ratios have reached record levels.
The aggressive rate hikes have dramatically changed the landscape for lending – stressing credit markets and pushing economies toward recessions, a scenario that markets have yet to price in.
Nearly $650 billion of bonds and loans are distressed, according to Bloomberg.
It’s all adding up to the biggest test of the stress tolerance of corporate credit since the 2008 financial crisis and may be the spark for a wave of coming defaults.
Will Nicoll, chief investment officer at M&G, said, “It is very difficult to see how the default cycle will not run its course, given the level of interest rates.”
Banks say their wider credit models are proving robust so far, but they’ve begun setting aside more money for missed payments.
Loan-loss provisions at systematically important banks surged 75% in the 3rd quarter compared to 2021 – a clear indication they’re preparing for payment issues and defaults.
Most economists see at least a moderate GDP slump over the coming year.
Some, like Paul Singer of Elliott Management, however, fear a deep recession could cause significant credit issues because the global financial system is “vastly over-leveraged.”
Citigroup economists believe rolling recessions are likely across the globe next year, with the U.S. likely to slip into one by the middle of next year.
Mike Scott at Man GLG warned that “markets seem to be expecting a soft landing in the U.S. that may not happen.”
Critics, second guessers and Monday morning quarterbacks are speaking out en masse since the Fed’s 50 basis point rate hike on Wednesday.
In perusing mainstream headlines and articles since then, I’ve found that 9.5 out of 10 of op-ed writers, economists and other pundits believe that Chair Jerome Powell and his policymaking colleagues are on the verge of sending the economy into a recession.
They say, no ifs, ands or buts about it. The only question is, How deep and prolonged will the downturn and resulting pain be? In other words, forget about any soft landing.
The consensus of the naysayers is that the Fed started their quantitative tightening too little, too late. This side also argues that:
(1) The Fed’s projection of last year’s inflation surge being transitory was naïve (at best) and potentially catastrophic (at worst); and
(2) As a result, they kept interest rates too low for too long and kept buying Treasuries and mortgage-backed securities when they should have stopped that much earlier.
As the Federal Reserve converges on the nation’s capital this week for its last policymaking meeting of 2022, consumer inflation expectations are falling again.
According to the New York Fed’s latest Survey of Consumer Expectations, consumers expect a median inflation rate of 5.2% in the year ahead. That’s almost 0.75 percentage points lower than what they expected in October.
Over the next three years, consumers expect a median rate of 3% – a tenth of a percentage point lower than in October. And their median expectation over 5 years is slightly down at 2.3%.
The move downward reverses an increase in expectations shown in the prior month that, if unbroken, would certainly have given the Fed an excuse to continue with their 75 basis point rate hikes well into the new year.
The NYFed’s monthly survey is “a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads.”
According to the NYFed, “Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month.”
As it is, there’s no guarantee that Powell & Co. will step down their aggressive tightening on Wednesday with a presumed 50bp increase – although Fed Funds futures traders believe there’s 75% chance of that.
That would take rates to a range of 4.25%-4.50% – up from 0%-0.25% before the campaign to rein in non-transitory inflation began in March.
As Courtenay Brown and Neil Irwin point out, perception is usually reality – that is, if consumers believe high prices will stick around, they can (and usually do) become a reality; the same goes for expected lower inflation.
Turns out that October's jump now appears to have been a blip on the radar screen of an otherwise months-long downward trend of inflation expectations – consistent with rising prices at the gas pump.
Fortunately, for consumers, the cost of crude oil and gas has been falling since late spring/early summer and is now an average $3.26 a gallon across the country (it was $4.99 in mid-June), according to AAA.