- Soft landing: You’ve got to be kidding!
- Team Biden slanders U.S. energy producers
- Prepare for a decade of energy scarcity
- (Real ID) When will the feds throw in the towel?
- “Dave… You ROCK, dude!”… Everything is “breaking news”… And more!
You’ve got to be kidding, Wall Street Journal…
“Mutual funds and hedge funds managing roughly $4.8 trillion in assets have been putting money into stocks that stand to benefit from inflation cooling, interest rates going down and the U.S. economy avoiding a recession,” reports the paper — citing an analysis from Goldman Sachs.
“The investors have larger-than-average positions in shares of industrial, materials and energy companies, Goldman’s analysis found. All three groups tend to be sensitive to changes in the economy, meaning investors’ bets should eventually pay off if the U.S. can avoid a deep and prolonged downturn, or a ‘hard landing.’”
Ah, the old “soft landing” — the idea that the Federal Reserve can raise interest rates just enough to cool the economy, but not so much to wreck the economy.
As we’ve mentioned before, the Fed has embarked on a dozen or so rate-raising cycles since the end of World War II. Only once did it perform a soft landing — in 1994.
This time, there’s no chance — for reasons Paradigm’s macro maven Jim Rickards made clear this afternoon during his 10X Crash Trade Summit. (If you missed it, you can watch the replay right here.)
One reason these “soft landing” expectations are rising: Fed chair Jerome Powell invoked the phrase himself during a big speech he gave on Nov. 30.
“The conventional narrative,” says Jim Rickards, “is that the Fed has done enough, the economy is slowing, inflation is coming down and the Fed will pause on rate hikes and then begin to cut rates sooner rather than later. This is part of what has been driving stocks higher lately. Rates down, stocks up!”
That’s the narrative, anyway. The reality as Jim sees it is that the Fed will raise rates this Wednesday… again in early February… and probably once more in mid-March.
“But then the Fed will slam on the brakes on rate hikes and will probably have to cut rates by June 2023” — precisely because it won’t have engineered a soft landing. It will crash the plane. We’re headed for a severe recession in 2023.
“Once we’re in a recession, rate cuts won’t do any good. Nor will QE. The recession will happen in a context of higher energy prices, supply chain disruption (it’s baaack) and a Chinese collapse. Good luck getting through that.”
Result: “Markets could fall 30% or more from current levels,” says Jim. And the tumble could easily begin tomorrow and Wednesday.
Tomorrow the Labor Department releases the November inflation numbers. If they run hotter than expected, that means the Fed will keep raising interest rates longer than the Wall Street consensus is counting on.
Then on Wednesday, the Fed will issue its latest policy statement at the conclusion of a two-day meeting. In all likelihood, the Fed will raise the fed funds rate from 4% to 4.5%. No surprise there. What might come as a surprise, however, will be the Fed’s projections for how high it might raise the rate next year.
So… a bad market reaction now, or a bad market reaction later.
Either way, forget the soft landing. Brace for impact. Follow the recommendations Jim just described this afternoon during his 10X Crash Trade Summit. As the name suggests, Jim will lay out a trade that could make you 10 times your money in the midst of a market crash.
What’s more, he’s putting $10,000 of his own money into this trade. You prosper as he prospers.
But there’s no time to waste — not with the inflation numbers tomorrow and the Fed statement Wednesday. Follow this link to heed Jim’s warning right away.
In the meantime, Wall Street begins a new week on the rally tracks after two straight losing weeks.
The Dow is faring best, up three quarters of a percent at last check to 33,726. The S&P 500 is up nearly a half percent to 3,951. The Nasdaq is looking weakest, bouncing off the 11,000 level by a quarter percent. Treasury rates are rising, the 10-year note at 3.58%.
Crude is up big, more than 3.5% to $73.62, after touching 12-month lows on Friday.
Gold is off $16 to $1,782… while silver is down 32 cents but still holding firm on the $23 level.
We’d like to think those moves in precious metals will stick… but we reiterate: If stocks sell off to, say, 3,200–3,400 on the S&P 500, gold and silver are sure to give ground as well. That said, we’d venture that the autumn 2022 lows will hold — roughly $1,620 on gold and $18 on silver. From there, it’ll be up, up and away.
Energy madness: The reluctance of U.S. energy producers to step up drilling is “not only un-American, it is so unfair to the American public,” says Amos Hochstein, who holds the title of “energy security envoy” at the White House.
U.S. energy firms are booking record profits this year… and in many cases, returning them to investors in the forms of dividends and share buybacks. Often the decision to forgo drilling in favor of dividends and buybacks has come at the behest of Wall Street.
“I think that the idea that financiers would tell companies in the United States not to increase production and to buy back shares and increase dividends when the profits are at all-time highs is outrageous,” Hochstein tells the Financial Times.
But if we may borrow the words of Paradigm’s energy specialist Byron King last month, where’s the incentive to drill in the face of “political and cultural hatred toward oil and the traditional energy industry”?
Besides, Wall Street giants like BlackRock are actively discouraging investment in fossil fuel production — part of their devotion to the cult of ESG, or “environmental, social and governance” standards.
Well, OK, not every Wall Street giant.
In an under-the-radar development, Vanguard — the world’s second-biggest asset manager behind BlackRock — has pulled out of an outfit formed in late 2020 called the Net Zero Asset Managers Initiative.
Members of NZAMI are all committed to achieving net zero carbon emissions by 2050. Vanguard says its membership has become a source of “confusion.”
“We have decided to withdraw from NZAMI so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks — and to make clear that Vanguard speaks independently on matters of importance to our investors.”
As we noticed over the summer, even BlackRock’s carbon obsession is waning — with the firm voting for only 24% of companies’ ESG shareholder proposals, down from 43% the year before.
No, these developments alone won’t encourage more drilling: Why sink money into projects with lead times of five or 10 years when huge and influential factions in the U.S. government are dead-set against such projects?
Bottom line: Prepare for a decade of energy scarcity.
At what point does the federal government just throw up its collective hands?
Last week, the Department of Homeland Security announced it’s pushing back the enforcement deadline for the Real ID Act by two more years to May 7, 2025 — nearly 20 years after the act was signed into law by Dubya Bush.
The law was a post-9/11 thing — requiring that you have a driver’s license or other form of ID compliant with the law’s requirements to board a domestic flight.
That is, the photo must be compatible with facial-recognition software and the feds must be allowed access to state driver’s license databases.
For any number of reasons, state governments have dragged their feet. (Hey, who says we’re all bad news around here?)
The first deadline to comply was 2008. This latest delay will be the seventh. It wasn’t until 2020 that all 50 states began issuing compliant IDs… but it’s not as if they’re ordering people to trudge into the DMV to replace their old IDs. Thus, as of last year, Homeland Security says only 43% of state-issued IDs are Real-ID compliant.
“The continued delay of the Real ID Act’s enforcement — a delay that threatens to stretch into two decades — indicates how pointless the law is in the first place,” writes Emma Camp at Reason.
“While the Real ID Act was presented as a solution to an urgent national security problem, there is precious little in way of evidence supporting the idea that this additional hurdle could prevent terrorism.”
Heh… who said preventing terrorism was the point? Seems as if it’s all about bureaucratic nest-feathering, no?
After we reran last summer’s piece on my daily news intake, a reader writes: “Dave, primarily I just wish to express my appreciation for your journalistic integrity and dedication. You ROCK, dude!!
“I consult many of the same people as you. I’ll throw out a few additional names: Russians With Attitude’s Twitter for the war. If you have RT and the Chinese news perhaps you don’t need that source. Moon of Alabama also is good. Doomberg for energy, and also some finance. You have Byron King, which may be all you need; I recommend you ask him what he thinks of Doomberg. Javier Blas is an honest liberal, despite drinking some of the Kool-Aid re Ukraine, and works hard to stay on top of the energy markets.
“Are you interested in climate change? Net Zero Watch’s free daily aggregation of mostly European news is hard-hitting and excellent. Roger Pielke Jr. and Judith Curry are the best and most judicious scientists in that arena.
“One conservative I check out regularly is Pegobry, a Frenchman living in the U.S. He is good mainly for social debates such as transgender, and for occasional scientific studies that I might not be aware of otherwise. I’m not conservative myself – radical centrist is more like it – but I don’t let the fact that someone has different views from me interfere with listening to them.”
The 5: We’re familiar with most of the foreign-policy and energy names you describe. The climate-change and other names are new — thanks for the suggestions.
On the related subject of breaking news reaching our phones, a reader writes: “When my TV screen first lit up with Breaking News it was for the Iraq War and justified. I find that now everything is breaking news, with a red headline.
“This is tongue in cheek, but gives my feeling of how it runs these days: Breaking News, man dropped paper clip, details at 11:00. Breaking news, Man did not flush, expose of what was not flushed to come later. You get my drift.
“I do not pay attention to breaking news anymore. They use the headline too much, too often.”
The 5: The “Breaking News” graphic treatment dates back to the mid-1990s in local news. I would know, having still been in the racket at the time.
By the late ’90s, some stations actually had “planned Breaking News.” That is, they designated a story in the rundown for each newscast that would be played up with the Breaking News treatment even though — obviously! — it was no longer breaking. Evolving, perhaps — but not breaking.
I’m pleased to say I never participated in the frenzy to that extent!
Best regards,
Dave Gonigam
The 5 Min. Forecast
