Get Ready to Embrace the Crazy

 As I feared (and projected), the Blue Wave has rolled across the country in the Mid-Term Election cycle.  From where I sit, POTUS made good on one election promise (turning back illegal immigration) but failed to deliver on the others (no long term bullshit wars and a return to affordability in the prices of everyday living for the majority of the U. S. population).

Baby boomers are on the way out and a younger generation is beginning to gain traction in the American political arena (for better or worse).  States that have been reliably Republican, like Texas, are shifting Democrat.  Texas elected itself a Hot Latina Mama for Governor over the incumbent, wheel chair bound white male and affordability in prices was a major factor.  James Carville once famously said "It's the Economy, Stupid!" and over the summer I thought to myself (and said to relatives), "It's the price of diesel fuel, Stupid!".  I've no idea what this will do for prices generally but the Sacred Dow Jones Futures Index is up HUUUUUGGGE! over the Blue Wave results - we'll see how that shakes out over time.

Get ready for Woke 2.0, a return to "the welcome mat being rolled out on the Southern Border" (hat tip to newly elected Senator and boy wonder from Texas, James Talarico for that gem of wisdom), impeachments out the wazoo for the next two years and maybe, just maybe, the creation of a National Holiday to honor Saint George Floyd.

Some Republicans and out of touch DJT apologists brought this upon themselves but the alternative doesn't look very promising from where your Old Uncle Kenny sits.  I am probably an idiot for doing so but I do still vote - usually, I hold my nose when entering the voting booth and vote for the least of the two evils I see on the ballot (think Ken Paxton).  I can tell you that I have been a Ron Paul and Ross Perot and Thomas Massie supporter and I generally agree with Ann Coulter's assessments of politicians.  It's lonely out there.  Oh well, fuck it - I have but a few short years left on this rock and after that, it will be someone else's shit show to endure.

One piece of advice I would give DJT - tell Warsh to "go nuts with the inflation fight".  You want low prices, America?  You got 'em.  Make changes that would make cigar chomping Paul Volker blush and jack rates to the fucking moon.  Tighten down credit like a sadistic religious zealot tightens down thumbscrews during an inquisition while creaming his robes.  Hint to foreign central banks that they might get their bonds redeemed at face value and then again, maybe they won't....who knows?  Get on the hotline with your pals at Moody's, Standard and Poors and Fitch and hint that those triple A ratings are maybe not so triple A after all....who knows?

The silver lining on this cloud - maybe a full and unredacted disclosure of what Jeffery Epstein and his homies were up to for all of those years will be delivered?  Not holding my breath.

Watching Paint Dry

Think of Treasury bills, notes and bonds this way - it is an American Express Card.  You know, the stodgy old style AMEX card that had no monthly spending limit?  The card that was issued only to doctors, lawyers, astronauts and Indian Chiefs - serious people.  The one that could be used "to infinity and beyond" because the powers that be saw no problem with it's cardholders' ability to repay any amount and would charge their clients a nominal fee for keeping the ledger straight.

Now, imagine that you as the cardholder and signatory have given your highly prized "AMEX card" to your no account sister-in-law and her equally no account son from her previous marriage and, to sweeten the deal, the son's drug addicted girlfriend because...well, just because.  You were either foolish, overly empathetic, suicidal...who knows why you gave your prized and precious "AMEX card" to those people?  "Those people" are Congress.  Congress is the party that holds the purse strings in our Republic's power structure.  I'm beginning to believe that poor old Ron Paul was out last truly serious Congressman.

Those that provide the funding on that "AMEX card" are becoming concerned.  Considering the risk that they are shouldering, they are no longer satisfied with charging only a nominal fee, particularly at the long end of the yield curve (7 years or longer).  They now want some "juice" to compensate for that growing risk.  Interest rates (represented as yield in the bond market) were far too low for far too long (thanks Bernanke and Yellen and Powell Feds!!) and far too much credit was extended to non-serious people and that will reverse course eventually.  We may be on the cusp of that correction.

In my head, John Lennon's song "Imagine" leaped to mind only in this case the lyric went:

"Imagine there's no buyer...it's easy if you try"

Bond Mania on Deck?

 10 Basis Points in a Day?

We do not normally see these types of swings in long term Treasury bonds and shorter duration bills and notes in normal times but I think we can all agree that we are not living in normal times.  Then again, define normal for me.

Kevin's Mettle Has Not Yet Been Tested

 No change in the overnight rate as of yet but some talk of what a disaster the Bernanke/Yellen/Powell Federal Reserve has been for regular working people when measuring "price stability" for goods and services.

We will not know if Mr. Warsh is just blowing smoke or if he will stick to his conviction that the current situation is not sustainable (it is not) for the largest portion of the country's population.  When I see the overnight rate increased without any "forward guidance" in spite of higher loan delinquency rates, higher unemployment, demand destruction for goods and services that is driven by abundant and artifically cheap credit, higher bankruptcy filings, a (long overdue) stock market correction, etc., then and only then will I know this dude is a serious inflation fighter.  If he caves at the first sign of trouble (a bank failure, a stock market slide lasting more than a few days, a spike in new unemployment claims), we will know that the statement made this month was just more smoke and mirrors.

Hear Me Now and Believe Me Later

Too early in my predictions but not wrong?  I incorrectly assumed that the Federal Reserve would "do the right thing".  Not in my wildest dreams would I have thought that the "Greenspan Put" would morph into "Bernanke Fun Bucks", "Yellen Coddling of the Obama Administration", "Covid-19 Stimmy Checks" and "Powell's Incompetent Policy of Transitionary Inflation".  

But, here we are.  What is not sustainable will not be sustained.   For many over-indebted Americans, the road to recovery goes through the local Bankruptcy Court, just as it has in decades past.

Kevin Warsh was confirmed - we shall see if he follows through with his past convictions on the proper activity of the Federal Reserve.

For many over-indebted Americans, the horse has left the barn.  It is not a question of lower interest rates.  The level of debt that they have voluntarily committed to is simply too great to repay.  Poor loan underwriting and short sighted policies adopted by lenders looking for customers have consequences.

Stay tuned....

Abe said "Where ya' want this killin' done?" God said "Have it out on Highway 61"

 

I took this photograph many moons ago while on a motorcycle trip from Missouri to Mississippi

So many foreign holders of U. S. Treasuries and so little time.  Strangely, some of those investors are Communists.... Talk about a Bizzarro World we are living in today.

When The Wealth Effect Dries Up

 

The Atlanta Federal Reserve recently revised the G.D.P. expectation for the first quarter of 2025 into the negative.  A large part of the economy is being supported by an increasingly smaller and smaller part of the population.  Those with some real wealth continue to spend no matter what the cost.  Those who would like to be presumed as wealthy continue to borrow in order to spend.  A very large part of the population has officially tapped out.  Their borrowing capacity is maxed out.  Their earnings have stagnated against the cost of goods and they purchase only that which is absolutely necessary.

Stocks are said to be "priced to perfection".  The only way to go from here is down.  Housing has "jumped the shark" in many markets and inventory is building.  The only way to go from here is down.  Some people who thought themselves to be bullet proof where their jobs were concerned are having a come to Jesus moment.  A lot of paper wealth is about to go up in flames.  People with gold, cash, silver or easily convertible securities are going to be well positioned to buy some bargains.

It will be interesting to see if the Federal Reserve jumps into the fray again with Q.E., money printing, Z.I.R.P., etc.  If it does, inflation roars.  If it does not, a crash in several areas of the economy as true price discovery takes place.