Month: June 2021

By Joe Carson, former chief economist at Alliance Bernstein

In Q1 2021, the US economy registered double-digit annualized growth in nominal GDP, a rare occurrence. Yet, an even more rare event is that corporate operating profits did not increase in the quarter when GDP growth increased double-digits.

How can companies’ operating earnings be flat when nominal growth is booming? How does the GDP measure of operating square with S&P 500 firms reporting substantial gains in Q1, far exceeding analysts’ estimates?

GDP Growth & Operating Profits

The Bureau of Economic Analysis (BEA) reported that nominal GDP increased at an annual rate of 11% in Q1 2021. Since the Reagan boom of the early 1980s, the US only registered double-digit annualized quarterly growth eight times, not including Q1. Five of those occurred during the 1983-84 period of massive federal tax cuts and defense spending boom.

Rapid gains in GDP generate equally substantial increases in gross domestic income (GDI). GDI has two main components; personal income and corporate profits. BEA reported that Q1 gross domestic income (GDI) jumped 11.4% annualized in Q1, with personal income jumping 59% annualized (helped by record federal stimulus payments) while operating profits showed no gain.

A decline in operating margins helps explain the weak profit performance against a backdrop of rapid nominal growth. Factors that squeezed Q1 margins include private-sector wage and salary cost increasing faster than GDP prices (4.6% versus 4.3%) and a 20% jump in costs for intermediate materials and supplies.

Declines in profits margins are more late-cycle events, so drop the Q1 margins, which comes on the heels of a drop in Q4 2020 as well, bears watching, especially with equity markets trading at record highs with elevated price-to-earnings ratios.

Yet, equity investors are responding to reported earnings for S&P 500 companies. GDP profits and S&P earnings reflect different accounting frameworks. GDP operating profits are extrapolated from tax-return-based accounting, whereas S&P 500 companies report their earnings based on financial accounting.

The financial accounting framework allows companies to include non-operating profits and losses. The most significant non-operating items include capital gain income and losses resulting from trading activities or a revaluation of an asset. GDP profits exclude capital gain income and losses and revaluations of assets (higher or lower). Also, financial accounting allows firms not to record employees’ stock options as an expense, but firms can use the appreciation of securities for specific purposes to boost reported earnings.

Past studies by the Bureau of Economic Analysis (BEA) have found that capital gain income and losses and the mark-to-market of securities holdings can explain much of the difference in the operating profit measures.

At the moment, there seems to be a circular flow going on between equity market gains and reported profits. Equity prices rise based on the expectations of higher reported profits, and it’s the increase in the share prices that enables companies to report strong financial results when profits from operational units are underperforming.

Yet, its core earnings, not capital gain income, that matter the most, something that equity investors, analysts, and strategists are ignoring for the moment.

At the outset of an economic upturn, profit margins expand, and the expansion in margins can run for several years. But operating margins are not expanding today.

Several factors are at work. Labor shortages are forcing wages up much more so than is typical at the early stage of recovery. Also, delayed deliveries because of supply-chain bottlenecks result in higher transportation and logistics costs, and strong demand is lifting material and supplies input costs.

Wage and cost pressures are not dissipating anytime soon. Surveys of manufacturing and services firms for May continue to show relatively high prices paid indexes. Also, with the customer inventories index in the manufacturing surveys at record low levels, it will take several months, if not quarters, before a better balance exists between supply and demand. And a rising percentage of small and big firms have already or are planning to raise wages to attract more labor.

One has to ask why so early in the economic upturn are there general costs and price pressures. The history of business cycles shows a cycle in prices, but many of these cost and price pressures have been missing in recent business cycles and never show up early in the upturn. It is wrong and short-sighted to argue that it is transitory or a blip, especially with the current policy backdrop. Should more inflation be a surprise when fiscal policy runs record deficits to support growth, and monetary policy is the most accommodative on record?

Firms need to raise prices to cover rising costs from all sides and stabilize, if not reverse, shrinking margins. And they are. As this process continues to play out, the inflation cycle runs longer, bringing the Fed into play with the need to raise interest rates at some point. Higher interest rates will not immediately impact the operating results of non-financial firms, but they will pressure the valuations of equity prices.

Shrinking profit margins are never a harbinger of good news for equity investors, nor is the prospect of monetary restraint to dampen rising price pressures.

In its mid-year outlook, published just two weeks ago, Morgan Stanley – while still sticking with an overall bullish outlook – argued that it’s “often better to travel than arrive.” After all, markets are discounting machines and often anticipate changing dynamics long before they become obvious. However, as the bank’s chief equity strategist Michael Wilson writes today, “eventually such changes do become obvious and priced, at which point a reset is required or evidence the higher expectations are not only achievable, but beatable.”

In many ways, Wilson writes, “this year represents such a period when last year’s extraordinary moves in stocks are justified by the fundamentals” and his V-shaped recovery call from last year is now the consensus. Actually, no – Wilson laments that in its eagerness to catch up, the consensus is now ahead of what Morgan Stanley thinks will occur over the next 12 months: “More specifically, post Q1 earnings results, bottom-up 2022 EPS estimates are now ahead of our top forecasts for the first time since the recovery began.”

To be sure, there is some fundamental justification for this euphoria: in Wilson’s review of past earnings surprises, he has never witnessed such a large beat rate over a four-quarter period and/or revisions to out-year forecasts (something we predicted would happen ahead of earnings in “Q1 Earnings Will Be Stellar, But Are Fully Priced-In And Only Guidance Will Matter“). And while the results over the past year have been very much in line with Wilson’s call for superior operating leverage coming out of this recession, he is “now concerned that these results have been extrapolated in a way that is too optimistic.” First, over the past 4 quarters, earnings have beaten expectations by over 20%.

Not only is this unprecedented but it also didn’t follow a period of disappointment, which usually occurs during a recession, according to MS. As a reminder, when the economy collapsed due to the lockdown, earnings estimates were slashed overnight. And while Wilson back then argued they were reduced too far and that companies would likely experience record operating leverage during the recovery due to the unprecedented government subsidy for the unemployed – “fast forward to today and that’s what has happened” – the chief equity strategist is turning downright bearish.

One reason for that is Wall Street is basically extrapolating nirvana beyond the foreseeable future, with record earnings surprises resulting in record revisions. According to Wilson, “never before have we observed earnings revisions breadth this high (Exhibit 2), leaving it vulnerable to an inevitable decline.”

And here the infamous Wilson pessimism shines through: “The question is whether it will be a severe enough deceleration for the market to care. We think it could be given our view that NTM EPS forecasts are now too high also.” The chart below shows how extended NTM EPS forecasts are relative to actual LTM results.

Echoing our warning on imminent margin contraction – with profit margins at all time highs just as soaring input prices hammer corporate profits – the Morgan Stanley strategist then cautions that just like his prior work forecasted record incremental margins a year ago, it is now telling us that incremental margins are topping and are likely to disappoint over the next 12 months. That view is based on two areas of concerns in particular that are unique to this cycle: 1) supply constraints/higher input costs and 2) higher corporate taxes next year.

Summarizing the story so far: earnings have been remarkable over the past several quarters, benefiting from trillions in global fiscal stimulus, and have surpassed even Morgan Stanley’s previously optimistic forecasts. While this is undoubtedly a good thing, it’s a “known known” at this point and no longer a surprise. Instead, in Wilson’s view “consensus forecasts are now baking in what appear to be unrealistic margin assumptions given rising cost pressures and the likelihood for higher taxes next year.”

There’s more: in addition to peak profit margins, Wilson also believes Q1 was the peak quarter for both monetary and fiscal policy stimulus (at a time when most companies and investors are extrapolating Q1 results into the future). Exhibit A: the sharp fall in personal income suggests those concerns are warranted, as personal spending is likely to follow in the next few quarters.

To be sure, it’s not like the market is completely oblivious to all this: despite record Q1 earnings, stocks have barely budged with some of the FAAMGs lower now than in early April. As a result, this rather limited follow through to stock prices since earnings were released, suggests that the market is continuing to de-rate lower as Wilson’s mid-cycle transition view dictates. Of course, given the significant earnings revisions after 1Q reporting season, the overall market price has remained flat. In other words, sliding PE multiples are being mostly offset by rising earnings forecasts.

At this point, Wilson cautions, investors must ask themselves if they think valuations will continue to de-rate lower and/or if future earnings revisions can offset it. In Wilson’s own conversations with clients, most don’t have a strong view on where valuations will go from here, “but the majority think valuations are fair at current levels.” In contrast, the chief strategist remains convinced that “the de-rating process is not over and still has about 75% to go or an approximate 15% decline in P/Es from here.”

Finally, in Wilson’s view – which is rapidly emerging as the most bearish on Wall Street – “earnings revisions will not be able to offset that de-rating, leaving the overall market vulnerable to a 10-15 % correction over the next 6 months”

So what’s an investor to do? Simple… if only on paper: According to Wilson, the key for investors will be to find stocks where earnings expectations are likely to rise more than the P/E compresses.  At the sector level, one strategy is to favor those with lower Earnings Revisions Breadth (ERB), like Consumer Staples.  Conversely, we would fade those where ERB is extreme, like Industrials.

One final point from the MS chief strategist has to do with inflation, and here too he spoils the “transitory” party. Writing that inflation is now much more the consensus view  – “in fact, it’s so much the case, we are starting to think expectations may need a bit of a reset before inflation can really embed itself into expectations and force the Fed to move away from it’s “transitory” view” – Wilson writes that inflation has become one of the most talked about concerns by both companies and individuals. Both corporate and consumer surveys are now laden with commentary that suggest higher costs are affecting their behavior. Both the National Purchasing Manager Survey and the Regional Fed surveys…

… suggest prices are getting out of control for many businesses. Commentary from the latest Regional Fed survey (Kansas City) indicate these concerns are becoming more difficult to manage:

• “Pricing of raw materials is up more than 20% with no sign of slowing.”
• “Material and part supply shortages are our current impediment to increasing revenue. If materials and parts were available, we are still over 200 people short to fulfill our back orders. Workforce is and will be manufacturing’s largest hurdle to growth in the U.S.”
• “We are feverishly working to pass on increased prices to reflect rising material prices. Inflation is going to be a big factor this year and beyond.”
• “We are having a really difficult time hiring and keeping quality staff at any wage rate. Everywhere you see help wanted signs, the jobs are going unfilled, exacerbating price increases and shortages.”
• “We are getting daily price increases from vendors everywhere from 4% to 30%.”
• “We do not believe the supply chain conditions are going away any time soon. Problems are going to persist into 2022.”

Inflation expectations have also surged higher from a consumer standpoint, and according to Morgan Stanley “this is the beginning of a new trend that is more sustainable and less transitory than perhaps the Fed thinks.” That said, the bank recognizes these trends can ebb and flow and would not be surprised if there is some demand destruction in the short term and overheating that leads to consumer sentiment cooling a bit in the near term.

Wilson’s Bottom line: investors are positioned for higher inflation at this point in both the stock and bond markets, and as such, any disappointment in the next data series could unleash some pain for very crowded consensus trades – long commodities, TIPs, reflation winners and short dollar and interest rate sensitive assets. Of course, for stocks, this would simply be an accelerant for Morgan Stanley’s bearish, or as it calls it “de-rating” call, as “higher real rates and less ability to pass on higher prices  will a bad cocktail for multiples writ large.”

Authored by Bruce Wilds via Advancing Time blog,

Read Part 1 here…

Any way you view the situation, housing is a complex issue and its future will greatly impact all of us. People have an interesting relationship with their homes, often it is more than just a place to sleep. To many Americans owning a home is part of something great. It is considered a symbol they have achieved the American dream. Houses also speak of a person’s identity, individuality, and some homeowners feel it gives them more control over their future. 

This often boils down to people wanting or having more than one house for their private use or just one or two people living in a house far larger than can be considered logical. This can be counterproductive to the creation of an orderly and efficient life. An oversized or poorly planned home tends to make far greater demands on its owner than necessary. Still, our government continues to push the untested notion that home ownership is good for everyone and it is not.

Not only have we recently witnessed soaring home prices but we are seeing major distortions in home prices in different parts of the country. Much of this may be related to the influx of new money from companies such as, American Homes 4 Rent, which owns 54,000 houses, and historically low interest rates. This combined with concerns flowing from the Covid-19 pandemic has left many people wondering how the future will unfold and wanting to be well-positioned going forward.

High Expectations, A “Hallmark” Image

Then there is also the issue of unrealistic expectations. This tends to cause people to reach out and spend more than they can afford under the idea they will “grow into” a home or they simply deserve a better home. In some ways, this is driven by modern media which often gives society the impression the world is much cleaner than it is and most people live in nice clean homes. This message is subliminally submitted to us each day when news programs or commercials show a person that has been deemed poor or needy arriving home to their clean and tidy abode. 

What might present a clearer image of reality can be found in the comments below which were submitted in reaction to another article;

I bought a short sale as part of the 2008 crash. One of the best financial decisions of my life. I wasted a ton of money on rent before that. Taking care of a house is a tremendous amount of work, though. If we had a functional economy, I’d much rather rent.

Another person wrote;

The supply is terribly mismatched to the population. I live alone in a 4 bedroom house. It’s super expensive to heat and a pain to keep clean. I’d really like a 1 bedroom or 2 bedroom (something about 25% the size of what I have). But, I’m surrounded by 4-6 bedroom $750,000USD McMansions with pools and 3 car garages.

The advantages of owning your own home have been touted as a sign of success and coming of age. In reality, because of the high bar of entry and other uncertainties, buying a home is not always a great or even good investment. If every coin has two sides, the flip side of this is, a house can be an albatross around the neck of its owner. More than a few homeowners have found their homes to be a huge money pit. 

In a prior article, the idea that many first-time buyers approach the decision of buying a house in a rather nonchalant manner was explored. Too many inexperienced or first-time buyers seem to discount the importance of how, what may be the biggest purchase they ever make, will impact their life. The cost and a number of fees can make buying and selling a house a very expensive and at times a rather illiquid transaction with a huge impact on a person’s net worth. 

That is why it is difficult to believe in this market some buyers are silly enough to offer well above the asking price or looking at a house for only a few minutes before rushing to place an offer. The “fear of missing out” has become such a large factor in the lives of many people that they have lost touch with reality. This means they often brush aside the cost of necessary repairs and changes needed to make a house fit their needs. All this underlines why it is stupid that our government is busy encouraging people who have no business owning a house to buy one regardless if they have any idea of how to maintain it. 

Government Mucks Up The Market

When it comes to housing for the poor government again mucks up things. Considering the way our government meddles in housing it is little wonder that roughly 80% of new apartment construction is for the high-end market. The government holds huge responsibility for a rising share of our housing problems in low-income situations because its policies avoid dealing with the growing number of people that are irresponsible or creating the type of housing that is suitable for them. If the government was truly interested in preventing homelessness they would focus on those that are always being  evicted for non-payment or breaking the rules. 

Giving simple “housing vouchers” to those unable to pay their rent would also move some of these people back to the private sector. Instead, government-subsidized housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments. This dumps the “less stellar” of those seeking shelter onto the private sector. This discourages landlords from wanting to service this challenging part of society. This creates a problem that is exacerbated by a legal and political system that often favors tenants over landlords. The rising cost of evictions and even a moratorium on them due to Covid-19 is evidence of this skewed attitude.

In a recent article published on Wolfstreet.com, the author, Wolf Richter claims this may be the most distorted and perverse housing market ever. He points out that we are currently living in a world of unprecedented Fed intervention, government stimulus, and inflation that has turned red-hot. He goes on to say, this has created a weird phenomenon of companies complaining about a labor shortage, while nearly 10 million people are deemed “unemployed” and 16 million people are claiming some sort of unemployment insurance. Adding to the confusion, 2.1 million mortgages are still in forbearance programs, investors have flooded the housing market, including individual buyers grabbing a second home in crazy bidding wars.

This underlines the issue that while the market has responded to the housing needs of higher-income households, trends suggest a growing inability or desire to supply housing that is affordable for middle and working-class people. It appears developers have little interest or simply can’t afford to add anything but luxury units. Simply put, there’s a huge unhealthy disparity in high-end rents versus low-end rents across the country, and with it not costing a great deal more to construct high-end versus low-income units why would anyone want to deal with the low end of the market and all the trash that comes with it.

Chart: U.S. home values Source: Zillow.com

Even with super low-interest-rate mortgages, it is difficult for me to get excited about the future of America’s housing market. This topic has been subject to a great deal of debate and can be somewhat confusing. Part of the reason is that we constantly hear about the need for more “affordable housing” and are being told this means increasing the supply by building more units. Unfortunately, this is unlikely to make housing affordable. Ultimately the higher cost for taxes, local fees, utilities, insurance, maintenance cost, general labor, and just about everything flows into the housing market.

A large part of the problems we face in housing is that it is complicated by government policies, meddling, and intervention. This has led to things such as urban sprawl with huge developers maximizing profits by working on large clean slates. Part of this is caused by governments often unintentionally make it difficult to rehab or build new in older established areas. The housing picture is also muddied because it is difficult to get real-time data which creates a “rear-view mirror” effect. While the number of permits and building starts give some indication of the market, it tells only part of the story of what is being built.

People sometimes get caught up in the idea that replacing homes lost in a natural disaster such as the wildfires in California will have a huge and instant impact on new home construction but this is often overblown. This construction is often stretched over years. More important is the fact that America is full of underutilized homes, I was talking about two thousand plus square foot houses occupied with only one or two people. On the other side when six or more people are crammed into a small one-bedroom one-bath house we have just the opposite situation. 

I contend, that people have been pushed to believe bigger and more expensive is always better. In truth, it is just, “bigger and more expensive.” The means higher taxes, insurance, and higher utility bills. All these are become difficult to pay during tough times. In a few months or years, we will know whether the current housing market ends in a whimper. During a time of economic and social devastation, it is difficult to imagine that all the five-bedroom five-bath homes will be well maintained. Instead, we might find that as plumbing problems occur the affected bathroom simply goes unused.  

Part of the solution to providing good housing at affordable prices is using the housing that has been built efficiently and building units that meet our future needs. Over the years our needs have changed, and they will continue to evolve. Clearly, society has done a rather poor job at getting things right when it comes to housing and the cost of building is solidly on the rise. Unless we come up with new solutions this will present a huge challenge for many Americans in the future.

Perhaps finally realizing it can’t turn a profit selling vehicles or perhaps truly between a rock and a semiconductor hard place, Tesla is raising prices (and ditching features) from its vehicles.

CEO Elon Musk took to Twitter late on Memorial Day to explain the hikes, blaming them on the convenient scapegoat of supply chain issues.

“Prices increasing due to major supply chain price pressure industry-wide. Raw materials especially,” Musk wrote in a Tweet late on Memorial Day.

Moving lumbar was removed only in front passenger seat of 3/Y (obv not there in rear seats). Logs showed almost no usage. Not worth cost/mass for everyone when almost never used.

Prices increasing due to major supply chain price pressure industry-wide. Raw materials especially.

— Elon Musk (@elonmusk) May 31, 2021

Musk was responding to a Tweet that was critical of the price hikes. 

 “I really don’t like the direction @tesla is going raising prices of vehicles but removing features like lumbar for the Model Y,” a user complained.

Yet despite placing the blame on supply chain issues now, when asked about these challenges during the company’s April conference call, Musk said “We’re mostly out of that particular problem.”

The automaker hiked the price of its Model 3 and Model Y vehicles in May, marking its “fifth incremental price increase for its vehicles in just a few months”, according to Reuters. 

Musk also claimed on Twitter that the removal of lumbar support in vehicles was based on “logs” showing “almost no usage”. Many social media users questioned whether or not Tesla could even monitor lumbar support usage through its data logs. 

But that’s besides the point. No matter how you slice it, Tesla is ditching features in its vehicles. Among the features Tesla has done away with over the last few weeks has been radar sensors for its vehicles. Recall, less than a week ago we noted that Tesla’s Model 3 had lost “top pick” status from Consumer Reports due to no longer equipping vehicles with radar.

Without the radar sensors, “vehicles may lack some key advanced safety features, including forward collision warning (FCW) and automatic emergency braking (AEB)”, according to Consumer Reports. This has caused these models to lose critical performance designations from testing organizations like the Insurance Institute for Highway Safety.

Vehicles built on or after April 27, 2021 are no longer going to receive the NHTSA’s “check mark” for FCW and AEB. The agency rescinded the check marks “after Tesla briefed the agency on production changes due to the transition to Tesla Vision from radar.”

“Because of the change, Consumer Reports no longer lists the Model 3 as a Top Pick, and IIHS plans to remove the Model 3’s Top Safety Pick+ designation,” CR wrote.

Days prior to losing the designation, Tesla said it was ditching radar in favor of cameras. The company said it is replacing radar with a “camera-focused Autopilot system” and that the change is going to apply to both Model 3 and Model Y vehicles in North America, starting this month.

Authored by Matthew Piepenburg via GoldSwitzerland.com,

Sensationalism, like central bankers and policy makers, has many faces, views and voices.

This may explain why so many want to hold their ears, hug their knees and beg the heavens for a beacon of guiding light amidst a 24/7 fog of info-cycle pablum masquerading as information.

Facts in a Fog of Sensationalism

With so many opposing ideas, movements, policies, parties, and personalities buzzing galvanically for attention, dollars or votes (in a world rightly or wrongly brought to its pandemic-accelerated knees), it’s becoming increasingly difficult to believe anything or anyone.

And this is likely because just about everything and everyone (from defective Fed chairmen to defecting royal princes and politicized prompt readers) has become, well—sensationalized.

Yet perhaps perspectives like mine are no exception. The title of my 2020 best-selling Amazon book on global markets, “Rigged to Fail,” sure sounds sensational, doesn’t it?

Was it just another doom & gloom scare-book with a catchy title for profitable “info-tainment”? Just another sensational voice joining the choir of omni-present crazy?

I’ll admit it’s a fair question.

But what if…

What if… these markets truly are rigged, and what if they (and economies) truly do fail? What if the evidence, rather than just the title, of that multi-chaptered observation is objective rather than, well…sensational?

Cynics (and I’m one of them) could say I’m plugging a book or exploiting a meme.

Fair enough.

But facts are stubborn things, and as Goethe wrote long ago: Some books are meant to show off what an author thinks he knows, while others (thankfully) are simply meant to be useful.

Something Useful

As for the open secret on the Wall Street I’ve known, it was no mystery to any of us Bloomberg jockeys that the Federal Reserve (like all the major central—and private—banks of similar ilk) were not-so immaculately conceived to serve themselves rather than transparently heed the real economy or the average Joe or Jane.

And rather than just declare this “sensationally,” I put page after page after page of facts, figures and embarrassing biographies (from Nelson Aldrich to Larry Summers, Richard Nixon to Alan Greenspan) to objectively reveal the same.

As for the far fewer paragraphs below, let’s look at further (and factual) evidence of this “rigged to fail” characterization.

Let’s look beyond what I’ve already written elsewhere about price-fixing COMEX markets, fake inflation reporting, openly fraudulent Fed counterfeiting or just plain cancerous derivatives trading.

Instead, let’s focus on one simple, albeit “sensational,” fact, viz: That the global monetary system in general, and the fiat currency in your pocket in particular, is indeed “rigged to fail.”

Pretending at Exceptional

The U.S. dollar with its mighty history, symbolic shape and laudable backing by the “full faith and credit” of the U.S. Treasury is not the store of value it pretends to be.

Needless to say, that dollar is certainly important to the alleged “Annuit Coeptis” (God-favored?) of the leadership in DC and the “Prima Mea” (me first) ambitions of Wall Street.

In short, the USD is the sacred cow (rather than golden calf, post-Nixon) of power itself; it’s literally what keeps these two mythical prongs (money and politics) of so-called American exceptionalism going.

Thus, if power loves the dollar, then power will attack anything (from Bitcoin to gold coins) that gets in its increasingly discredited/debased way.

In the last 100+ years since insider bankers invented the privately-managed Fed (and in the last 50 years since Nixon neutered the Greenback), Uncle Sam’s favorite central bank and its spoiled (and complicit) nephews on Wall Street have done a masterful job of pretending the dollar still has power, despite the fact that the dollar index has fallen from 1000 in the “roaring 20’s” to just 37 today.

That’s a fact, not sensationalism.

In just the last year of unlimited QE, that same Fed has created more fake digital dollars than all the trillions of previously and “quantitatively eased” dollars it mouse-clicked out of thin air in the QE1-QE4 of era 2009-2014.

That’s a fact, not sensationalism.

Of course, creating more dollars is the very definition of inflation, but that same Fed says it has inflation under control, despite a rigged CPI scale that literally no one respects and an M2 money supply now parabolically surpassing the $20T marker and rising.

Thus, if you want to buy anything today or tomorrow, it’s gonna cost you a lot more inflated dollars than Powell will admit, despite a carefully-hidden urban CPI that literally screams “Uh-oh” for the dollar and “hell yes” for inflation.

That’s a fact, not sensationalism.

Running Uphill in Roller Skates

Inflation, moreover, is an open and obvious tax on capital which discourages investing; it literally eats away at market returns, for even if stocks can rise with inflation, their inflation-adjusted returns are ultimately as impotent as the dollars which measure them.

Investors chasing historically over-priced stocks to beat inflation (or seeking historically negative bond yields to hide from volatility) are doing nothing more than running uphill in roller skates.

They are counting their rich returns with increasingly poorer dollars.

That’s a fact, not sensationalism.

And with all these inflationary facts and dollar debasing realities now before us, even the players who rigged this game are running out of lies, excuses or false narratives to keep their retail and loyal servants in line.

In short, the loyal are becoming less loyal.

Pension Funds Slowly Abandoning a Rigged Ship

The Fed’s playbook of fiduciary form over insider-substance, of course, has been adopted by all the other central banks of the world

Pension funds, for example, like commercial banks and their Private Wealth Management arms (or the financial-advisory-industrial complex which serve beneath and within them) have always towed the line of their central banks and Wall Street “advisors.”

For such rigged players, it was an unspoken truth to play along, invest as a pack, think as a pack, advise as pack, get richer as pack, and when things blow up, blame something other than themselves as a pack.

And to be fully and safely embraced by such a pack, it was equally understood not to invest in anything that threatened Wall Street’s plan or their sacred world-reserve currency—the mighty dollar.

Of course, the one asset which threatened the U.S. dollar (and hence the pack) more than anything was that old barbaric relic: Gold.

For decades, pension fund investment policy statements literally forbid allocations to this dangerous, dollar-threatening asset.

No one would or could touch it. The big funds bowed to their master.

In the meantime, that “master” completely (yet with just enough complexity to keep the masses unaware or bored) rigged the uber-levered COMEX market to keep a permanent boot (and short) to the neck of gold’s paper price, thus artificially preventing this precious metal from naturally humiliating the not-so-precious dollar.

I know. I was there.

But as the above inflationary facts and graphs (including an annualized CPI surpassing 4% and a PPI surpassing 6%) reveal, it’s getting harder and harder for those colluding members of the consensus pack to keep towing the Wall Street line.

Even the most loyal servants of this rigged casino can’t ignore a global bond market now openly bloated to $120T in size, $90T of which is saturated with unpayable sovereign bonds–of which $20T are negative yielding.

Not even the COVID “excuse” works anymore in a world drowning in over $280T of global debt paid with fake money.

Pre-COVID, $4 bought us $1 of GDP; today it buys far less.

Since March of last year, macro conditions have become so bad that pack thinking—and pack loyalty—began to shift.

In short, fund managers can’t ignore that currency debasement has now reached extreme levels, 5X the depth seen post Lehman.

Neither can they ignore the fact that commodity price inflation is at double-digits.

Those are facts, not sensationalism.

In other words, there’s going to be less and less whistling past the graveyard of rising inflation and currency debasement by pension fund managers.

The servants are questioning the master.

In such a monstrously and historically unprecedented backdrop of monetary expansion and price distorted risk assets, the once-faithful are catching on to the fact that they’ll need to start thinking seriously about tail risk and inflation hedging.

Imagine that?

This means that beautifully scarce ($10T) little corner of the commodity market known as gold can no longer be ignored, banned or downplayed by the master or its servants.

That’s a fact, not sensationalism.

A Revolutionary Middle Finger

Unbeknownst to the Wall Street media or the advisor down the street, for example, a once all-too-pack-loyal Dutch pension fund for a local chemical company (DSM) has just become the latest institutional player (following the Ohio Police and Fire fund) to break ranks with its consensus-think Wall Street master.

In 2020, DSM made a 5% allocation to gold—and even better, to physical gold in a vault rather than paper gold in a levered ETF…

This may seem like a small story, but given the nature of the rigged “pack” discussed above, such an institutional move is nothing short of revolutionary.

The allocation made by DSM represents an open middle finger to the openly debased U.S. dollar in particular and an increasingly discredited Wall Street narrative in general.

Of course, such brave middle fingers aren’t easy to wield in this rigged game.

Believe it or not, a humble little fund for glass manufacturers in that same country tried to make a 13% allocation to gold after Wall Street’s not-so-sacred Lehman imploded in 2008.

Unfortunately, these farsighted glass makers were then approached by the Dutch Central Bank (loyal to its global pack) and were literally forced to reduce their allocation from 13% down to 3% gold.

That’s a fact, not sensationalism.

But going forward, more pension funds are likely to leave the old fold and lift their middle fingers.

The World Gold Council recently revealed that upwards of 30% of UK-based pension funds are considering breaking ranks with consensus and turning toward this “barbaric relic.”

That’s a fact, not sensationalism.

This slow, but revolutionary mutiny by pension funds is a direct threat to the rigged system and the dying dollar.

Although the kind of repressive tactics used in the past by the Dutch Central Bank to curb gold enthusiasm and fund allocations in 2009 may seem like outliers, they nevertheless reveal the extraordinary level of fear the rigged-players have for gold.

Again: Rising institutional gold demand is the ultimate indicator of the rising failure of the international (fiat) monetary system.

In other words, the Master’s plan is failing, and they’re having an impossible time admitting this. Instead, they are doubling down on more fantasy and more controls.

As to such rigged controls, I wrote earlier this year of the hidden-in-plain-sight moves by international governments to guarantee the loans of commercial banks.

This subtle (yet desperate) policy move is a warning sign that governments will seek greater and greater control over how banks and institutions spend their money.

Needless to say, those controls will be unfavorable to commercial banks otherwise seeking to invest in the anti-dollar that is gold.

Again, this is because this precious metal is the natural enemy to an unnatural and rigged-to-fail currency game.

Fortunately, individual investors, at least for now, won’t be under such capital controls.  Currently, the global policy makers’ focus is on trying (and failing) to quell gold’s institutional demand.

Inevitably, however, central banks and their currency system will finally fail from an abundance of un-hidable bad data and lack of monetary faith—something impossible to time.

That’s a fact, not sensationalism.

Change is Coming

In the interim, the same central banks will eventually act to quash even retail demand for gold by outpricing this asset once inflationary conditions get too absurd to control or publicly downplay.

The players to this rigged game may be corrupt but they aren’t stupid. They may hate gold in public, but they own a lot of it in private.

In a rigged game, it’s all about the house controlling the casino.

That is, failed policy makers recognize that once faith in the global fiat system implodes, as it will, whatever new SDR or Digital Central Bank Currency (DCBC) the IMF, BIS and other rigged players impose upon us in the inevitable “re-set” to come, the new “digital solution” will have zero credibility unless it includes some form of recalibration to a much higher-priced gold.

That’s why countries like Russia and China and central banks around the world are playing the long game and buying gold today at artificially repressed prices; but once those prices multiply, the retail investor could be easily priced out of this rising asset.  

Rigged or not, the smart money knows gold follows 1) the broad increase in the money supply per capita and 2) increasingly negative real rates.

As inflation and money supply rises naturally from smoking money printers, and as governments repress rates via monetized yield control, the setting for inflation to outpace yields is clear, which means the path ahead for gold is equally so.

Thus, if you still think today’s rising gold price is too high, you ain’t seen nothing yet.

That’s a fact, not sensationalism.

The ceasefire which took effect between Hamas and Israel on May 21 has successfully held now for nearly two weeks, also as PM Netanyahu appears to finally be out the door, and looks to further be leading to another significant potential detente between the warring sides. 

Hamas leader Yahya Sinwar teased a prisoner-exchange agreement in progress with Israel. “There is a real opportunity to achieve progress” on this, he announced after a Monday meeting with Egyptian intelligence chief Abbas Kamel. He said that “in the coming days we will be witnessing a dialogue in Cairo with the aim of reaching agreements on the issues at hand.”

“We are confident that we are able to extract our rights,” he told reporters in Gaza. “I want to tell you something. Remember the number 1,111. What are the details of this number? I can’t say at this moment. But you need to remember this number well,” he added, which was a likely reference to the number of Hamas militants or Palestinian prisoners the group is seeking the release of as part of the possible looming deal.

As for what Israel might receive in return, The Jerusalem Post notes it’s a likely reference to “two Israeli civilians and the bodies of two soldiers held by the Gaza-based terrorist group.”

This and other key elements of a lasting ceasefire are expected to be worked out in talks hosted in Cairo between Hamas, Islamic Jihad, and other Palestinian factions in order to “unify the Palestinian position,” according to Sinwar’s words. The issue of a major prisoner exchange has been sporadically negotiated for years but typically gets derailed before much progress can ever get off the ground.

Hamas is demanding that international aid toward reconstruction of the devastated Gaza Strip not be linked to the prisoner exchange issue. This after $500 million has been pledged for reconstruction by the Egyptian government under President Sisi.

However, despite this reported “progress” early this week, there are signs that things could easily unravel, with Hamas now calling for a Palestinian “Day of Rage” to begin Friday.

Hamas calls for ‘day of rage’ in West Bank over Al-Aqsa incursionshttps://t.co/PEKPCYylvx pic.twitter.com/lgjfPpvAtN

— Yeni Şafak English (@yenisafakEN) June 1, 2021

The Times of Israel details of the Hamas statements:

The Hamas terror group urged Palestinians to hold a “Day of Rage” on Friday in order to confront what it called “settlers’ aggression” and the “storming of the Al-Aqsa Mosque” in Jerusalem.

“This aggression will be met by our people with further resistance and confrontation,” the terror group said in a statement.

Despite the ceasefire mostly holding between Israel and the terror group in the Gaza Strip, the Hamas leadership was apparently still pushing for further unrest in the region.

Hamas called upon Palestinians to block Israeli bypass roads in the West Bank and to confront “settlers who are working to impose a fait accompli under the auspices of the occupation government.”

Last month’s flare up in major rocket fire from the strip and corresponding Israeli airstrikes began over intense conflict in Jerusalem, particularly claims of Israeli ethnic cleansing surrounding the Sheik Jarrah neighborhood evictions and Israeli police entering al-Aqsa Mosque. 

And given that Hamas had initially warned that Israeli police must vacate the Aqsa complex or the Gaza-based group would start firing rockets (which they did), the weekend is poised to witness a possible round two of fighting unless further progress is made quickly.

Authored by Thomas Lifson via AmericanThinker.com,

Even a slender volume (80 pages) can make millions of dollars for the man who has become a cult figure to Trump haters when sold for 18 bucks a copy.  The National Pulse reports, and Amazon confirms that Dr. Anthony Fauci will be selling a book to the public next November 2 (in time for the Christmas buying season), titled, Expect the Unexpected: Ten Lessons on Truth, Service, and the Way Forward, all of 80 pages long and selling for $18 a copy in hard cover.

Here is the blurb from Amazon:

In his own words, world-renowned infectious disease specialist Anthony Fauci shares the lessons that have shaped his life philosophy, offering an intimate view of one of the world’s greatest medical minds as well as universal advice to live by.

Before becoming the face of the White House Coronavirus Task Force and America’s most trusted doctor, Dr. Anthony Fauci had already devoted three decades to public service. Those looking to live a more compassionate and purposeful life will find inspiration in his unique perspective on leadership, expecting the unexpected, and finding joy in difficult times.

With more than three decades spent combating some of the most dangerous diseases to strike humankind– AIDS, Ebola, COVID-19–Dr. Fauci has worked in daunting professional conditions and shouldered great responsibility. The earnest reflections in these pages offer a universal message on how to lead in times of crisis and find resilience in the face of disappointments and obstacles.

Sure to strike a chord with readers, the inspiring words of wisdom in this book are centered around life lessons compiled from hours of interviews, offering a concrete path to a bright and hopeful future. [emphasis in original]

It sounds to me as though Fauci is preparing to retire or lose his job, and submitting his version of reality to a public already becoming skeptical about the man whose flip-flops and “noble lies” are finally catching up to him, eroding the secular sainthood conferred upon him by the agitprop media. Even so, there are enough devout believers in the fantasy world offered by the media that Fauci will make millions of dollars from his 80 pages.

(via Amazon)

The book’s cover is a fascinating straddle: is Fauci putting on or taking off his mask? Given his record of lying and flip-flopping on whether to wear masks and how many to wear, visual ambiguity is the only way to go.

If you hate Trump, you probably love Fauci. No need for an inflated advance payment, though I am certain Fauci got a handsome sum. He’s been made a cult figure, and the evidence that he evaded federal restrictions via funding cut-out nonprofit to award money for gain of function research at the Wuhan Institute of Virology will not be enough to dissuade the true believers on the left.

The publisher is National Geographic, the tax-exempt organization that lately seems to have bought into global warming and other aspects of the progressive cult. Amazon’s page offering the book for pre-publication sale reveals that one of the 3 books most viewed by those visiting Fauci’s page is Anita Hill’s forthcoming autobiographcal book, Believing: Our Thirty-Year Journey to End Gender Violence, with yet another cult figure of progressives used to attack a conservative hero, Clarence Thomas.