The Armageddon Gang

“Don’t spit down my back and tell me it’s raining.”

— Kami Garcia

After the Fed announced a .75 point hike in the overnight rate, the Dow gave market watchers whiplash. In the first 20 minutes the index dropped over 330 points. Twenty five minutes after that it had recovered over 500 points. Then, it tanked again… by the close the DJIA has lost 522 points on the day, down 1.7%.

Just goes to show we’re not out of the riptide, yet. In fact, we’re likely getting sucked into deeper water. Rising interest rates in a world full of debt can be deadly. Especially to the corporate moribund.

“Look at the large debt ratios of corporations and governments,” wrote the perspicacious Nouriel Roubini – the ominous Dr. Doom – in Bloomberg yesterday. “As rates rise and debt servicing costs increase, many zombie institutions, zombie households, corporates, banks, shadow banks and zombie countries are going to die.”

Persistent inflation in wages and the service sector will mean the Fed will “probably have no choice” but to hike more.

“We’ll see who’s swimming naked,” Roubini paraphrases the oft-referenced Warren Buffet.

Click here to learn more

Investors collectively holding their breath. (source: Dave Smith)

Not long after the 2008 financial crisis, Bethany McClean, then writing for Fortune magazine, called me on the telephone.

Mrs. McClean wanted to know, after the collapse of the housing market, how we fared through it all. She was doing a feature on those who got the story right. One example she used to illustrate her angle was the noteworthy parties Nouriel Roubini was throwing in New York City. Plus, my book, The Empire of Debt.

Roubini is now forecasting a similar collapse. Only this time it’s worse. Time to giddy-up “The Armageddon Gang.”

“At some point, America’s debts will be incinerated by inflation,” Bill Bonner and I surmised in our co-authored book Empire of Debt.

Of course, we thought the incineration would begin long before 2022.

But, as the saying goes, “What comes around goes around.” In financial markets – like politics and love and other all-too-human relationships – people make the same mistakes over and over (and over) again.

The government and the Fed are “running out of fiscal bullets,” says Roubini. And now “if you do fiscal stimulus, you’re overheating the aggregate demand.”

“This is really moving into restrictive monetary policy territory,” comments Diane Swonk, Chief Economist at KPMG US. “We will be moving into no man’s land. Their goal is for a prolonged slowdown that grinds inflation slowly down and only gradually increases the unemployment rate.”

Seems like most economists are hopping on the next wagon out of town.

That being said… one truth remains in America today: The consumer will spend.

I call it “The Recession That Wasn’t” in the Demise of the Dollar. In essence, the Fed cannot control prices. They can only attempt to slow down consumer demand in what is coming to be known by an awful oxymoron – “the Growth Recession.”

The conflict that Roubini presents… despite Fed rate hikes and the like, the spender will spend. And that only drives inflation higher.

So will we see Dow 20,000? And continue to Fed-watch for the next three years?

What a whirlwind Hump Day. More to come this week. Stay tuned.

P.S. Regardless of our short term analysis of the markets, we are suffering from what Bill Bonner calls “inflation psychosis.

“This is something bigger,” Bill continues:

You can’t analyze this phenomenon the same way you can analyze a financial cycle because it’s largely psychological. It’s a group think. It’s collective impulses, and so on.

You end up with a situation where empires inevitably go bad. Then you look to try to find out how they’re going bad, why they’re going bad, when they’re going bad. And that’s what you do. And you still don’t really know.

But you can see the patterns repeating themselves. 

“I mean, theoretically,” Mr. Bonner concludes, “we could control it, but we can’t really because what happens is an empire becomes powerful, and the power corrupts the people who run the empire.”

Addison Wiggin

Addison Wiggin

Addison Wiggin is founder and executive publisher of Agora Financial LLC, an independent economic forecasting and financial research firm. He and Bill Bonner began writing the firm’s flagship Daily Reckoning in the midst of the tech boom and bust. It was one of the first widely distributed email newsletters on the Internet. The publication’s critical eye on finance and economics continues today. He’s also creator and editorial director of Agora Financial’s daily missive The 5 Min. Forecast.

Recent Alerts

Elon Musk: Savior or Fraud?

Can Musk really be trusted as a guardian of free speech? Read More

The Fed: Killing Jobs… and Killing People?

Yikes — the “hopium” that fueled the week’s big stock market rally is already wearing off. Quickly. Read More

Mr. Market Takes a Deep Drag of Hopium

No sooner did Fed chair Jerome Powell open his yap than the media “embargo” on the text of the speech was lifted. Read More

Beware Three “Gotcha” Taxes

The good news is that the 2023 tax brackets have been adjusted considerably higher to reflect inflation. And yes, there’s bad news. Read More

The Bear Market Is Nearly Over (or Just Beginning)

It probably comes as no surprise that Jim Rickards and James Altucher disagree on the prognosis for the stock market going forward. Read More

Your Recession Investing Handbook

How to invest for the economy’s not-so-soft landing… Read More

Elizabeth Holmes and the Culture of Corruption

In 2020, we labeled Elizabeth Holmes “the poster child for the demented decade gone by.” Little did we know SBF – and others – were waiting in the wings… Read More

The German Uprising Against America

Frustration is growing in Europe over blowback from Western economic sanctions against Russia, rising inflation in general and soaring energy prices in particular. Read More

Direct from DC: A Green Energy Trojan Horse

“There’s a new, extensive U.S. industrial and energy policy embedded in recent legislation,” says Paradigm’s geologist and energy expert Byron King. Read More

Financial Tyranny Gets a Trial Run

“This might be just a [CBDC] pilot program, but you can bet that the real McCoy will be here before you know it,” says Paradigm’s macro maven Jim Rickards. Read More