Disinflation is being screamed in commodity prices this morning. Could the Fed Chair be right? Transitory? Lots to cover to sort this out.
If you feel like (pardon this) your economic nuts are in a vise? The explanation takes a minute but it’s worth your while.
We do appear to be Replaying 1929 (the premise of this site since 2001) “close-enough for home use.”
This chart is not perfect and does not constitute “financial advice.”
It simply compares the track of the 1929 Dow run-up and collapse from 1920 to about 1937 (in blue). It then uses our own proprietary Aggregate Index to see where things are in comparison.
Understand that in 1929, the Dow Jones Industrials were a reasonable indicator of how the overall economy was doing. In modern times, we use a little tech, and a broader industrial sampling because life has moved on from the days of the Radio Trust.
Financial Engineering is in style, however, among the rich and manipulative as ever.
The Role of the Trusts in the 1929 debacle cannot be overstated. Trusts came in two waves. With the first being the market trusts (Radio Trust, Steel Trust and so forth). But after the market collapsed (look around you – present day) we saw a major increase in family Trusts circa 1930 as Big Important Families attempted to protect their remaining assets for future generations.
Here’s one of those “quiet drivers” no one really talks about: Many of these Depression era trusts had “expiration dates.” A prescient legal firm website blog here said in 2016:
“Most of the trusts created at that time have mandatory termination dates at which time the trust assets must be distributed to the residual beneficiaries.”
The Depression dynamics have left the Really Rich in a tough spot. Where do you park the Ruling Class’s Intergenerational Wealth in today’s world?
Again. we have another example of the Biden administration lacking the mental acuity to anticipate and then govern effectively. Rollovers and changes in overall investment direction of Big Money is normally something you can follow easily. However, with Tech in its recent blow-down mode, and with food about to become nonlinear on the demand/pricing curves, we see the error in public policy.
What’s not discussed in economic or policy-wonk (daycare) centers, is that when you have a nearly 90-year hollowing out of money (renunciation of purchasing power done slowly enough…) there are only 3-Major Outcomes.
Here’s how these strategies break down:
- Option 1: Hyperinflation. Most famously, this was done in the
Weimar Republic. This is where civil government merely adds zeros and pretends its money is still worth something. The problem with this approach is it gives rises to political demagogues (like Hitler in the German case) and eventually leads to war. Echo: Trump’s rise.
- Option 2: Deflation. The biggie here was the U.S. hyper-deflation called the Great Depression. Which also led to war (WW II) but it helps if you have antagonists who are at the extremes for deflation and inflation around the same time. Helps if they hate each other. Echo: Ukriane-Russia.
- Option 3: America’s Present Delusion. The champion of this middle ground was Ben Bernanke, who in addition to being a former Fed Chair, is also a brilliant historian of the Great Depression. His approach was articulated as “helicopters full of money” to drop on the population. The action path here was an initial deflation followed by a moderate inflation which gets us to the next crossroads for policy where we are right now. I mean like this morning.
Before we talk crossroads, though, we suspiciously observe that the Covid 19 debacle met a large number of economic objectives; enough to be labeled “suspicious in origins.”
- Covid 19 reduced the aging population a bit. Reduced pressure on the government’s Social Security Trust Fund (which is a whole other Zenlensky-level joke) but more important, gave the government an excuse to “give away money” (which is cheaper than helicopter fuel when you think about it!).
- Covid reduced consumption. There are still fewer people working in America today than in the summer of 2019.
- Covid made some rich richer: Quick! Name two or three pharmaceutical companies that screamed higher.
- Borders are open. An insurgency has been started on America and Biden is cooperating. No early – preemptive testing of border jumpers.
The Radio Trust vs. CB Radio Craze
Clearly, the Fed and US government are trying to “thread a needle” in here. Pump so things look normal while your lifestyle falls through the floor!
Which brings us to the crossroads oi of this week: We are in sea-state change.
- Prices are going up all over (inflation)
- While commodity prices have turned disinflationary.
If you click over to FinViz and look at recent commodity pricing, you see lumber is down, most of the food groups are down, while in addition the traditional benchmarks of inflation (gold and silver) are also in decline.
We are today very much in the position of 1929: In our work, last week was equivalent (in pricing) to 10,24, 1929.
Care for a Black Monday?
A thought model to tinker with will likely be useful. Let’s cobble one up.
Imagine that the 1929 collapse was happening. Companies that were driven to the moon – that made radios – were in freefall. Commoditization had collapsed retail prices of product. Consumer super-saturation levels had been met. Demand was ready to fall. (Echo: Tech. Who doesn’t have a phone and too many apps?)
But to imagine the economic problem, let’s pretend that you could launch a new “radio-based consumption crazy” like the CB Radio Fad of the late 1960s through about 1980. If you’re under 60, read Harvest Gold Memories: CB Radio Fad of the Mid 1970’s for a little deeper sense of it.
The mental picture has the two “immoveable forces” of physics opposing: The collapse of radio in this thought exercise is one locomotive. And as we swill the bean, the opposing train would be “lighting up an opposing fad” then standing back and waiting for the problem to “work itself out.”
Thus, to restate: U.S. growth (and consumption) got too high in 2019. Round 1 Covid came along in a disinflationary way in 2020 to present. Excess federal spending continued out of control, yet today we see pricing signs of deflation reasserting.
While we wait for the speeding economic trains to collapse the house of cards, we can now cast the Ukraine War as an insurance war.
Because if we can’t walk the line between deflation and hyperinflation without falling over, we will need to coverup the economic debacle with a plausible scapegoat. War works, right?
Talking Heads, wasn’t it? “Same as it ever was…”
Today: Trendline Standoff
Which gets us to the futures which were pointing down more than 500 (at times) as the morning developed. As you can see in our view of things, a breakdown below trend now would be disastrous:
The decision markets will make today is what to do at the trend line on the lower open.
Should be interesting as hell to watch, Because someone at the Fed knows or Jerome Powell would not have tipped (in prior press avails) that the Fed expected the inflation to be transitory.
We’re about to transit. And as you can see in our first chart, there’s a Big Rally somewhere in the not-too-distant. But there’s more to life than day-trading.
Remember, money is only a medium of EXCHANGE. We look to gain more “net worth and enjoyment” from urban farming than in silly notional paper in months to come.
We now return you to your normally scheduled, hyper-drama day.
In the Shorts
No major economic news (other than opening bummer!). Which, if we get lucky will not turn until tomorrow. It’s the “How Bad Today?” part that’s hard to gauge. Which is why we’re not in the Casino.
While we await the arrival of key insight, here’s what the “senior’s sensors” are picking up:
Firefighting Horror Choice: Use drinking water supplies in a hard drought? Or use the water to quench fires running wild? Fire officials utilize New Mexico’s water supplies to fight multiple wildfires | KOB 4
Drought will be the BIG STORY in a month, or less.
Yet Another Economic “Helicopter” as Biden gives out more “free lunch” in White House says internet providers to discount fee for poor.
Vote and Vote often! Factbox-Races to watch in Nebraska, West Virginia primaries on May 10. Both sides ready to claim victory. I’m pulling for the R’s on the theory they are the less-wrong party at the moment.
While we wait for the NK nuclear test later this month: North Korea fires likely submarine-launched ballistic missile, South Korea says.
Unable to man-up so he sends his wife instead?Or, is this telling us this is more of a safe “policy staged event” and it’s OK for the wives to have girl’s night in Kyiv? Seriously (or nearly so) would you send your wife to Kyiv?
Let’s Keyword Famine
Being huge fans of word frequency analysis (with a nod to Grady):
- German development minister says world may face worst famine since WW2
- Africa: WFP Appeals for Re-Opening of Ukraine Ports to Avert Looming Famine Threat
- And from Qatar; War Will Bring Famine Unless America Acts.
In this last, writers Runge and Johnson lay out how sanctions are bad for everyone:
“Russia and Ukraine combined account for about 30% of global wheat exports, roughly equivalent to the United States and Canada.
Ukraine also accounts for half of global sunflower oil exports, a major source of cooking oil around the world. Russia and Belarus are major global fertilizer exporters, and Black Sea ports are a major source of foods and fertilizers for African, Asian and Middle Eastern destinations.”
They go on to propose that blended fuels requirements to drop mixed-fuels mandates (why force E85 when corn could be used in foodstuffs?) is a clear-headed, data-driven idea. So is Bidemon’s blocking of expanded drilling (and we’d personally add the Biden war on GOM Oil).
Elsewhere, we are now seeing “the dance” between shortages (and broken supply chain) with famine. Take the storyfor example./ Bab y formula shortage is real, here, and it’s not Ukraine.
It’s Biden’s sanction misjudgment. Damn dems. (Damn GOP loser-lippers, to. I want action not promises, you feel me?
ATR: Workstation Week
Before I forget, Amazon has a real good price on Hoppe’s #9 gun solvent over here. One quart sized. However, use discretion. I wouldn’t do more than a couple – we don’t like to get on “lists.”
“OK, what does THIS have to do with Workstations?”
I’m hell-bent-for-leather on recentering as much as I can in life around workstations. Very highly efficient.
One of the “workstations” in the shop that came online this weekend is the “Small Projects and Gun cleaning workstation.
In fact, there’s another whole “mini book” in the works for Peoplenomics on Wednesday (theory and deeper thinking on) while next Sunday’s ShopTalk will take you around our latest shop spree.
Highly productive weekend here – got tons done. Mow, edge, and shop projects galore!
But Summer is early this year, for sure. 91 yesterday. Good bet on 93 today and no sign of rain in the forecast. Not climate change, sillt, Periodic (long wave economics driving) drought.
When I looked at Tyler Texas Weather, the temp at play-time was 74.5 and 90 percent humidity.
Usually, having a productive Monday is in the “no sweat” pile.
Not there today. Plenty or sweat coming…
Write when you get rich,
P.S. If you don’t look at the weather before heading out for the day, you are extremely detached from Nature and natural forces. Might want to have that adjusted while you can do so at your leisure. Weather matters. Food Matters. To little systems like the food chain, for instance…