Careening From Crisis to Crisis

  • Trump: Everything you need to know about elites’ priorities
  • By one measure, the bank crisis is over
  • By Jim Rickards’ measure, the bank crisis ISN’T over
  • Inflation slows at a snail’s pace
  • Wall Street bonuses capsize… The most 2023 story ever… And more!

There isn’t much to say about the indictment of Donald Trump — and the financial implications thereof — that I didn’t say amid a different Trump scandal last summer.

OK, maybe this: Going after Trump for “porn star hush money” and not the Warp Speed deaths and injuries? It’s like going after Richard Nixon for “a third-rate burglary” and not the secret bombing of Cambodia. Says everything you need to know about the power elite’s priorities.

The rest of the world doesn’t much care, judging by the story’s absence on the front page of the Financial Times’ international edition.

There, the top story is an exclusive interview with China’s ambassador to the European Union, Fu Cong — in which he urges European leaders to reject Washington’s demands to curtail their trade with China. “Who in their right mind would abandon such a thriving market as big as China?”

Colleague Sean Ring calls the FT “the Pinko Paper” — but all the same, it’s a good reminder that it’s a big world out there that doesn’t always revolve around America.

[Fair warning: There’s no “main topic” in today’s edition. We’ll be hopscotching from one thing to another.]

“Wall Street Gains on Easing Bank Crisis Fears, Hopes of Fed Rate-Hike Pause,” says a Reuters headline.

Excuse me? I understand how each of those two things could propel the stock market higher… but how can both be true at the same time?

If the bank crisis is easing… what’s stopping the Federal Reserve from jacking up interest rates one or two more times?

Conversely, why would the Fed pause its interest rate increases… unless the bank crisis isn’t over yet?

By one measure, the bank crisis is over — at least until another shoe drops.

With no new bank rescues, the Federal Reserve’s balance sheet managed to shrink a bit in the week ended Wednesday afternoon — after a two-week leap that was unprecedented except for the early COVID panic three years ago.


Meanwhile, bank customers continue to earn next to nothing on their deposits… so they continue to move that cash out of the banks into money market funds and Treasury bills.

Paradigm’s macro maven Jim Rickards says the bank crisis is not over — not least because of what the economic historian Robert Higgs calls “regime uncertainty.”

That is, none of us has any idea what damn fool thing the authorities will do next.

Not after watching them careening from crisis to crisis the last three weeks.

As Jim reminded readers of The Situation Report yesterday, “The FDIC abandoned its $250,000 deposit insurance limit and effectively guaranteed all the depositors in Silicon Valley Bank and Signature Bank, a guarantee of over $200 billion in deposits. This will deplete the FDIC insurance fund and require higher insurance premiums from solvent banks, the cost of which will ultimately be borne by consumers.

“The Federal Reserve went further and offered to lend money at par for any government securities tendered as collateral by member banks even if the collateral was worth only 80% or 90% of par. These collateralized loans will be financed with newly printed money, which might exceed $1 trillion.

“These actions have thrown the U.S. banking system and bank depositors into utter confusion.

“Are all bank deposits now insured or just the ones Janet Yellen decides are ‘systemically important’? What’s the basis for that decision? What about the fact that unrealized losses on U.S. bank portfolios of government securities now exceed $700 billion? If those losses are realized to provide cash to fleeing depositors, it could wipe out much of the capital of the banking system.”

➢ Further illustrating Jim’s point about “utter confusion”: The White House is calling for “tougher rules for midsize banks,” as The Wall Street Journal But as Jim pointed out here on Tuesday, the existing rules were more than enough to prevent the failure of Silicon Valley Bank — if only the Fed and other agencies bothered to enforce them. So now, responsibly run banks will face costly and cumbersome new rules to cover up for the authorities’ failures.

If the crisis isn’t over, then the Fed remains stuck between the proverbial rock and a hard place — because inflation is slowing at only a glacial rate.

The Commerce Department is out this morning with “core PCE,” the Fed’s preferred measure of inflation. It’s running 4.6% year-over-year, down barely from 4.7% the month before and still well ahead of the Fed’s 2% inflation target.

Personal Consumption

So which will it be: More rate increases to curb inflation, or a pause to help out the banks?

For whatever it’s worth, the trade in the futures markets this morning suggests only a 54% probability the Fed will raise rates at its next meeting on May 3… and a 42% probability it will stand pat, leaving the fed funds rate at 5%.

Uncertainty notwithstanding, Wall Street is set to notch two straight quarters of gains at day’s end.

Checking our screens, the Dow is up 0.8% and comfortably above 33,000 again… the S&P 500 is up nearly 1% and only 13 points away from 4,100… and the Nasdaq is up 1.2% after cresting 12,000 at yesterday’s close.

The S&P is up 14% in six months amid a falling dollar and falling volatility. As Paradigm trading pro Alan Knuckman told readers of The Profit Wire yesterday, “I know the psychology is not there, but that’s the price. The price is positive.”

Gold is on track to set an end-of-the-month record… and from the vantage point of people who look at monthly charts, that would be a huge positive catalyst. The previous monthly closing high is $1,966 and at last check the bid is $1,977. Silver, meanwhile, has crossed the $24 level.

Crude is up more than a buck to $75.56. The rebound from the $66 level less than two weeks ago has been staggering. Some of that is the reopening of China… but another factor is an arcane legal dispute between Iraq and Turkey. The upshot is that for the time being, oil exports through Iraqi Kurdistan to Turkey have been cut off.

➢ One more economic number worth a mention: Revised statistics show the United Kingdom’s GDP grew 0.1% during the fourth quarter last year. Thus, “the U.K. economy avoided falling into recession at the end of 2022,” says the BBC. As if folks coping with 10.4% inflation remotely care. Once again, GDP is a statistical abstraction that has absolutely nothing to do with your well-being or your standard of living.

Statistical oddity: Rising interest rates have had the effect of suppressing Wall Street bonuses.

A report from the New York state comptroller says financial employees collected an average bonus of $176,000 last year — down from the previous year’s record of $240,000.

The report attributes the drop to the effect of rising interest rates suppressing all of the deal-making that was the hallmark of 2021.

If you’re wondering, the state comptroller collects these numbers because they do have a measurable impact on New York state’s tax revenue.

Well, if this isn’t just the most 2023 story ever. It’s got everything — Ukraine, “green” energy, TikTok…

The Guardian

“One of Europe’s largest manufacturers of ammunition is facing a roadblock to the planned expansion of its largest factory,” says the Financial Times, “because a new data center for TikTok is using up all the spare electricity in the area.”

Nammo is a joint venture of the Norwegian government and a Finnish state-controlled defense company. Because of Ukraine’s need for munitions, demand for Nammo’s artillery rounds at its factory in central Norway is running 15 times normal. But CEO Morten Brandtzæg says he’s been told there’s no surplus power for his factory because of TikTok’s presence.

“We are concerned because we see our future growth is challenged by the storage of cat videos,” he tells the FT.

The local power utility says it’s first come, first served… and there’s only so much to go around.

It seems data centers have flocked to the Nordic countries. The colder climate keeps cooling costs down… and until now, electricity has been cheap and plentiful.

But no longer: Industries positioning themselves for “clean energy” are migrating to the Nordics as well. “It will be a big fight,” according to an anonymous factory manager in Sweden quoted by the FT. “Do we want green steel or data centers for Facebook?”

Yeah, and we’re pretty sure European leaders aren’t going to let the free market figure it out…

“You are absolutely right,” says a reader — getting today’s mailbag off to an outstanding start.

“Shutting down TikTok is akin to the intel community setting up a front for censorship of malinformation and the dissemination of misinformation at Twitter.

“Imagine in a grave government-created crisis how important it would be for young Americans to call out government BS when they see it. Without TikTok the government can shut them up.”

“Fed’s incompetence vs. malevolence,” says the subject line of a reader’s email keying off Wednesday’s mailbag.

“We can’t know for sure what drives the Fed’s actions.

“But consider the question: If the Fed’s aim were to deliberately undermine the system, what would they have done/be doing any differently?

“I can’t think of anything substantive. That causes a thinking person to certain unsavory conclusions, whether justified or not.”

The reader who started the discussion clarifies: “I have never accepted the [deliberately engineered collapse] narrative either. Hopefully I didn’t imply that I did in my last message.

“I’m just struggling to see the Fed’s purpose as anything other than wealth transfer and debt enslavement. From inception 110 years ago, its raison d’être seems to be engineered usury. Ditto re: other central banks and fiat currency regimes.

“Collapse doesn’t fit that purpose; whereas deliberate management does.

“From time to time — when civil unrest perks up — they’ll step back from their standard operating procedure and pretend to care about price/unemployment volatility (which they exacerbate). But as soon as they think that’s under control, it’s back to business and jawboning as usual.

“Malice has a signature. Evidence of the banksters’ bad intent is everywhere.

“Proof of good intentions, results or truthfulness? Not so much.

“P.S. I wonder why we have a) inflation as well as b) inflation targets. I’ve read that sound money systems have no such issues, and instead prices tend to deflate as economies and technologies advance. However, I can’t speak from experience!”

The 5: There’s a line of thought, developed most thoroughly by Murray Rothbard, that says the Federal Reserve’s true purpose is to finance America’s warfare state.

Maybe it wasn’t designed at Jekyll Island in 1910 with the intent of funding American entry into a war in Europe a few years later… but that’s how it worked out. Alas, it’s served the purpose ever since.

Have a good weekend,

Dave Gonigam




Dave Gonigam
The 5 Min. Forecast

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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