- Don’t fight the Fed?: Analyzing every belch and sigh
- The force that’s fed consumer price inflation
- Precious metals IRAs (a worst-case scenario)
- A divorced “Karen” asks to speak to the manager
- The energy of the future… and always will be.
This is all so, so tiresome. From just after the market open this morning…
We’ll get to the inflation numbers momentarily. The point right now is that as far as CNBC and Wall Street are concerned, it’s not really about the inflation numbers. It’s about what the Federal Reserve might do in light of the inflation numbers.
“U.S. Inflation Shows Signs of Moderating, Giving Fed Room to Pause” is the Bloomberg headline.
If the inflation rate continues to tick down, it’s more likely the Fed will decide to call an end to its rate-raising cycle next month. Once that happens, the media/market narrative can then shift to when the Fed will start lowering rates and resuming Wall Street’s EZ-money heroin fixes.
Tomorrow, Fed Governor Christopher Waller will deliver a speech on the topic Financial Stability and Climate Change. But you can be sure Wall Street will be parsing his remarks for any clues about monetary policy.
Then on Friday, two regional Fed presidents will deliver speeches — San Francisco’s Mary Daly and St. Louis’ James Bullard. Next week, Fed officials are scheduled to deliver no less than eight speeches. And so on, and so on…
As I complained in 2019, finance pros nowadays analyze every belch and wheeze that emanates from every Fed official — desperately seeking clues to future Fed policy.
It wasn’t always like this. As recovering finance pro and Epsilon Theory blogger Ben Hunt observed, the turning point was the 2008 financial crisis. Fed jawboning began to matter more to asset prices than traditional metrics like supply and demand, or sales and profits. “It’s the use of words and narratives. There are no fundamentals for markets now.”
The Fed cultivated this atmosphere on purpose. The words that go into its statements and speeches are “carefully promulgated and distributed in order to achieve some sort of effect in investor behavior,” said Hunt on the Hidden Forces podcast.
But words and narratives go only so far. Eventually, reality reasserts itself.
All those new dollars the Fed conjured into existence after 2008? Most of them went into financial assets — stocks, bonds, you name it.
But the new dollars the Fed conjured into existence to combat the effects of lockdown in 2020–21? Most of those fed directly into consumer price inflation. And no amount of Jerome Powell invoking the word “transitory” during 2021 could change that.
So in 2022, Powell had to start jacking up short-term interest rates at the fastest pace in 40 years. Yes, that’s causing economic pain… and the pain is only starting to make itself felt.
But as even the Fed’s most vociferous critics would tell you, there’s no other choice.
Which brings us to the present, delicate, moment.
One week from today, Paradigm macroeconomics authority Jim Rickards will be at Jekyll Island, Georgia — which as you might know, is the place where some of the heaviest hitters in America’s power elite met in 1910 to plot the creation of the Fed.
Jim will be joined by former Fed insider Danielle DiMartino Booth for a live event next Wednesday, May 17, at 1:00 p.m. EDT. Together, they’ll walk you through the events that will move markets during the rest of 2023 — events that aren’t even on the mainstream’s radar right now.
Among the topics they’ll cover…
- The “CBDC Bombshell” that could erase American freedoms as soon as July 1, 2023. The time to prepare is now
- Urgent insight on why gold could run to $3,000 and beyond in the coming months. Plus we’ll show you the #1 way to play gold and silver in 2023
- The surprising endgame for the U.S. dollar and why the USD will cease to exist as we know it.
Again, this is a week from today — Wednesday, May 17, at 1:00 p.m. EDT. You can look in on this event as it happens. All we ask is that you sign up in advance at this link.
➢ Important: There will not be a hardcore sales pitch attached to this event — just a frank discussion with two of the most knowledgeable macro minds about the dangers and the opportunities you face right now. Click here to secure your spot.
As the day wears on, that 100-point gain in the Dow has turned to a 150-point loss. What happened to that “cheer” about the “better-than-expected inflation data”?
This is why, unlike the corporate media, we don’t usually attribute every little market movement to a catalyst. Unless there’s something glaringly obvious, there’s rarely a “reason” the market is up or down on any given day.
In any event, the Dow is down about a half percent as we write to 33,404. The S&P 500 is barely in the green at 4,122… and the Nasdaq is up two-thirds of a percent at 12,263.
Gold has shed eight bucks to $2,026; silver is down a quarter at $25.31. Copper is down three cents to $3.82 a pound, near a four-month low. Crude is down about 80 cents to $79.92 a barrel.
So yes, the official inflation rate has receded 10 straight months now — back to levels of two years ago.
It’s 4.9%, a hair better than the typical Wall Street analyst’s expectation of 5.0%. Another promising sign from the Fed’s perspective is that there’s little sign of a “wage-price spiral” — in which rising pay and rising prices feed on each other. Wages rose only as fast as prices last month, not more.
And on closer inspection, wages overall are falling when you consider the average workweek shrank 0.3% last month. In other words, employers are cutting hours.
We saw last week how they’re also cutting temp jobs. Both of these developments tell us the “tight” labor market is starting to loosen. Alas, both of these developments also tend to take place once a recession is already underway.
By the way, the real-world inflation rate from Shadow Government Statistics — which runs the numbers the way the government did back in Jimmy Carter’s day — is 12.9%. It’s been climbing down steadily from a peak of 17.3% in June of last year.
Let’s talk about precious-metals IRAs… and worst-case scenarios.
One of Jim Rickards’ Strategic Intelligence readers wrote in recently, and we thought the inquiry was worth sharing with a broader readership…
“As things continue to go south in the once-free US of A, do you think that there would be restrictions in accessing my IRA precious metals? Since mine are stored in a U.S. vault, I am concerned that they could either be confiscated or become unavailable for withdrawal.”
The risk is remote… but nonetheless real.
In the event of a severe financial crisis, “investors tend to sell everything and move to the sidelines with cash,” Jim begins his answer. “They will wait until the crisis is over and then re-enter markets looking for bargains.
“The problem is that such behavior may make sense for an individual but it’s devastating for the markets as a whole. More selling leads to more selling, lower prices and more extreme panic.”
And so the powers that be might very well react by freezing accounts or closing banks. “This is not unprecedented,” Jim points out.
He cites several examples…
- “In April 1933, President Roosevelt closed every bank in America by executive order in response to bank runs during the Great Depression
- “In July 1914, the New York Stock Exchange was closed for four months at the outset of World War I
- “Stock markets were closed for four days after the 9/11 attack
- “In 2022, the U.S. seized the Treasury securities of the Central Bank of Russia.”
Now… outright confiscation of gold would violate the takings clause of the Fifth Amendment. The government would have to provide “just compensation.” Which is what FDR did when private citizens had to turn in their gold in 1933; they got $20.67 in return.
Of course, gold was then immediately revalued at $35 an ounce. “The government pocketed the difference between $20.67 and $35.00,” Jim says, “and used the profits to create the Exchange Stabilization Fund, which still exists and was used recently in the bailout of Silicon Valley Bank.”
Circle of life, huh?
Jim’s bottom line: “The only real safety is to own physical gold bullion in safe storage away from banks and brokers.”
Which, unfortunately, you cannot do in a tax-advantaged retirement account like an IRA.
OK, this is one instance where the customer is not always right.
In South Africa, professional photographer Lance Romeo did a double-take recently when a woman whose wedding he photographed in 2019 asked for a refund.
“You did a wonderful job on them but they went to waste as we are now divorced,” she wrote. “I will need a refund of the amount we paid you because we don’t need them anymore.”
From the text messages that followed, it was quickly evident she was dead serious and she threatened to sic a lawyer on him. But Romeo stood his ground…
Per a Fox News account, Romeo did get a call, “but the legal representative didn’t seem to be serious about the case and laughed when they discussed the details.”
Now that Romeo has posted the exchange on social media, the still-anonymous client is getting torched: “I wonder if she asked for a refund for her dress, cake, venue, catering and all the other services rendered for her wedding as well,” says one comment.
Bonus points: The ex-husband subsequently got in touch with Romeo… to apologize.
To the mailbag, and a comment on alternative energy: “I have read several investment articles advocating investing in hydrogen as the real wave of the future…”
[Not from us, but go ahead…]
“… citing how wonderful it is as its combustion product is water, true.
“However, it was stated that its production cost was approaching that of natural gas; I don’t think so.
“Even more basic, how are you going to produce it, and what energy source are you going to employ? Hydrogen and oxygen form a very strong bond, and the only process that I am aware of is electrolysis that requires a lot of electrical energy that would have to be subtracted from the energy content of the hydrogen produced. So how? Coal, natural gas, atomic power to produce the hydrogen. Certainly not windmills or solar panels.”
The 5: How indeed? In most current use cases, the feedstock is natural gas. So it’s not as “green” as advertised.
You could make a joke about how hydrogen fuel-cell technology is the energy of the future… and always will be.
Way back in 1995, the mayor of Chicago did a photo-op in which he took a sip from a glass of water that had just come out the tailpipe of a prototype hydrogen fuel-cell bus. The Chicago Transit Authority believed the technology “could revolutionize public transit fleets nationwide,” per a Chicago Tribune account at the time.
Yeah, not so much. A decade later I was still commuting to my newsroom job in Chicago aboard a CTA bus that belched prodigious amounts of diesel fumes. As recently as two years ago, the CTA was still acquiring buses running on “clean diesel” — even as the agency promises on its website to adopt an all-electric fleet by 2040.
Any mention of hydrogen? Nowhere to be found…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Life comes at you fast…
But… but… the better-than-expected inflation data! Oh, guess that was so four hours ago…
