Month: April 2022

Authored by Allan Stein via The Epoch Times (emphasis ours),

Food scarcity. Food vouchers. Food riots and flash mobs.

All of that’s coming – and soon, says Texas-based food scientist and “Health Ranger” podcaster Mike Adams, who sees dire events unfolding in America in the short term.

His advice: people need to get prepared now.

“The thing to really watch for is the food inflation,” Adams said.

“My position is we’re going to see food riots in America before the end of this year. We’re going to see flash mobs in grocery stores—especially for meat products.

“Grocery stores are going to respond with increased security and checkpoints. At some point, we’re probably going to see an attempt at price controls and rationing. 

“And not on everything—certain types of things. It’s almost certain that the rationing they will attempt to enforce with a vaccine passport app that becomes a food rationing app,” Adams told The Epoch Times.

Adams is not alone in his predictions of hard times coming to America—and the world.

With food production buckling under the weight of runaway inflation, skyrocketing fuel costs, and fertilizer shortages, much of what’s in store is already “built-in.”

Unfertile Ground

In North America two years ago, it cost around $200 an acre to fertilize a 1,000-acre commercial farm, Adams said. Right now, with spring planting, farmers can expect to pay $1,200 to $2,000 an acre.

And consumers will pay for it in higher prices for basic necessities. 

“Many farmers are deciding not to plant. In addition, the diesel fuel prices and diesel fuel scarcity is going into their equation whether they should plant,” Adams said.

The upshot, he said, is that fewer farmers are planting, which means less food to go around.

As a food scientist Adams is a big proponent of clean, organically grown food free of heavy metals, which he makes available through the online sale of “Ranger Buckets.” The demand for his products has seen extremely high since the COVID-19 lockdown began in 2020. 

Adams said it takes on average six to eight weeks to produce 2,000 buckets, which typically sell out within 30 minutes to three hours.

Even before the Russian invasion of Ukraine, the demand for survival food in the United States has been on the increase among a number of national suppliers. 

“The supply chain in the United States continues to crumble. More Americans are realizing it takes four trips to different home improvement stores for parts to make home repairs, instead of all their needs being in one store,” said Lori Hunt at Practical Preppers in South Carolina. 

“That is making folks realize this extends to everything: food, books, solar equipment—and considering Ukraine is a source for critical raw materials in the solar industry, this is going to get much worse in the coming months,” she told The Epoch Times. 

“Many of our customers are moving toward energy independence, and this is making a greater demand and diminishing supply situation. We are urging our customers to be prepared for a 2–4 month wait to amass all parts needed for their systems. Many installers around the United States are telling us they are experiencing the same.”

Byron Walker, Founder and CEO of Survival Frog in Denver, told the Epoch Times, “We have struggled with supply chain issues and things only appear to be getting worse.”

Allied Marketing Research (AMR) reported that the global incident and emergency market, valued at $75.5 billion in 2017, is projected to reach $423 billion by 2025.

“Factors such as rise in need for safety and security solutions, owing to increase in natural calamities and terrorist attacks, implementation of regulatory policies for public safety, and the necessity for emergency preparedness drive the growth of the global incident and emergency management market,” AMR said on its website.

“In addition, the surge in smart cities is expected to drive the adoption of intelligent evacuation systems and surveillance systems, thereby fueling the incident and emergency management market growth.”

Price Hikes ‘Here to Stay’

In recent weeks YouTube survival “preppers” such as City Prepping and Alaska Prepper have been sounding the alarm that hard times are just ahead. 

Matt the “Magic Prepper,” in North Dakota, said being prepared continues to go mainstream as a “financial and scarcity genre” in view of current global events.

“With food production issues, supply chain problems, a slow economic recovery from the pandemic, and the cascading effects of an overseas conflict, it seems rather clear that shortages, disruptions, and price hikes are here to stay,” Matt told The Epoch Times. 

He said the situation in Ukraine has revived interest in preparedness in case of a nuclear, biological, or chemical attack. 

“With the conflict creating volatile rhetoric from multiple global superpowers, we find ourselves closer to such an event than any point in recent history,” Matt said. “I operate under the assumption that there is and will likely always be more time to prepare.”

Still, the state of being prepared is “exponentially limited” by the length of time it takes to get prepared, and other factors, he said. 

“Every dollar spent today is worth less in value toward preparations than a dollar you would have spent three years ago. Therefore, by waiting to begin, you’ll inherently be able to prepare less and less. 

“This is most obviously apparent when you relate it to items such as ammunition. Stocking up on it now provides you with anywhere from 50 percent [to] 75 percent less ammunition for the same amount spent on it three years ago.

“Even if we find ourselves in the midst of a full-on economic collapse or hot conflict, training and learning skills will likely still be accessible,” he said.

Preparedness also requires the ability to network and communication, having supplies in sufficient quantity, a “hardened” location, and knowledge on how to survive an economic collapse. 

“I have suggested to keep moving forward regardless of the events unfolding currently. If things finally fall apart to the point of relying on our preparedness efforts, we will have prepared as best as we could up to that point.

“I am making phone calls, appointments, and plans every day to try and enhance my own personal preparedness,” Matt said. 

Given the economic protectionism of halting food exports from countries like Hungary, Ukraine, Russia, and Belarus, the world supply of grain is going to be severely limited, Adams said.

This, he said, will result in the “most extreme food shortages we’ve seen in our lifetime.”

Better Now Than Never

“It will begin about August and continue until the end of the year. A lot of this depends on [President Joe] Biden’s economic decisions on whether he allows U.S. oil companies to finish pipelines and do more drilling. If he does not we are going to see even more shortages throughout 2023.”

Out of chaos, however, Adams foresees a reawakening of freedom and self-reliance in the way we grow and produce food.

“I think this is a red pill moment for the people of the world that they need to be more self-reliant. We need decentralization of food production. I’m a big proponent of decentralization—food grown locally.”

The bad news is that only about 5 percent of people in the United State are prepared. But “the more people prepare, the less they panic when shortages appear,” Adams said.

After suffering tremendous losses in January and February, March was a very confusing month for hedge funds: as JPMorgan’s Prime Brokerage writes in its monthly note, the start of March was characterized by one of the largest de-grossing episodes among Equity L/S funds in N. America, along with quite significant net selling globally (especially in APAC), and resulted in some marquee names such as Tiger Global suffering massive losses.

So as markets closed out the month and quarter with a very sharp rebound in equities, most funds were again caught by surprise, while few are willing to embrace the recent move higher in risk as a persisting trend.

Commenting on the recent failure of hedge funds to embrace the rally, JPM writes that there are still many concerns to deal with, but the “net selling we’ve seen from HFs into this rebound (4wk global net flows at -2 to -3z) is quite consistent with other market lows (post  Dec 2018 and Mar 2020) and may suggest, from a contrarian perspective, that equity markets could continue to grind higher.”

Looking back to the prior episodes, JPM’s John Schlegel writes that while net flows did turn more positive starting about a month after the market lows, “it wasn’t until net flows reached a significantly positive level (i.e. about +2z), the market was back to highs, and average net positioning levels were back above average that the market saw a more meaningful pullback.”

Well, as of this week, the average positioning level was still around -0.7z and gross/net leverage were still below the 20th %-tiles vs. the past year. Thus, from a positioning/flows perspective, the prime desk believes that the “pain trade” is still higher for now and the rally could persist for a bit longer, given the bias to STR (sell-the-rally), positioning still low, and possibly a lack of incrementally negative news (i.e. we “know” Fed is very hawkish, Russia/Ukraine conflict isn’t new, and expectations are that inflation will remain high).

We’ll do a deeper dive of these points shortly, but before we do a quick tangent: according to JPM, one of the recent areas of focus during the 2H Mar rebound has been the outperformance of High short interest stocks. About 6 months ago (in October) the desk outlined 5 reasons why shorts could continue to work in the medium term. Looking back, that trade indeed worked and we’ve seen quite large underperformance of High SI stocks in the past 6 months — the JPM High SI basket has underperformed the SPX by ~35% since the start of Oct 2021, including the recent rebound.

So looking back at the 5 reasons JPM gave 6 months ago, do they still hold today? The short answer is “somewhat.” I.e., the set up doesn’t appear particularly bad for shorts per se, but it also doesn’t look as clear as it did 6 months ago.

• Reasons why shorts could still work, i.e. underperform: ETFs still a high % of the short book, limited recent shorting of High SI stocks, still relatively few stocks with High SI % float (although this has increased from 6 months ago)
• Reasons why shorts might not work as well going forward: Most of the recent covering has been in ETFs (i.e. potential to cover single-names if funds were to continue to cover shorts), short leverage still low, but net leverage also low (i.e. limited need to hedge directional risk), “risky” factors have already underperformed significantly and might not continue to do so going forward.

With that in mind, let’s go back to some of JPM’s core observations starting with…

1. Selling The Rally… Not as Unusual as One Might Think

As markets have rallied over the past couple weeks, the biggest driver seems to be a reduction of hedges. When looking at the components of the bank’s Tactical Positioning Monitor (TPM) and comparing current levels to those as of mid- March, volatility related metrics (e.g. call/put ratios), HF ETF shorts/covers, and US Asset Manager Futures positioning have seen the biggest positive change in the 4wk scores (all were about -1z to -2z vs. positive levels most recently).

From a HF flow perspective, however, there’s been a fairly strong bias to sell-the-rally (STR) as JPM Prime has seen net selling in 8 of the past 9 days, during which stocks have staged a torrid rally. That said, this is not that unusual, as markets saw similar biases in the flows post the low in Dec 2018 and Mar 2020.

Looking at these periods more closely, if we were to follow the prior pattern then we should see net flows turn to moderate buying if markets grind higher/sideways starting in a couple weeks (e.g. 4wk net flows were positive in Feb 2019 and May 2020, about 2 months after the low). However, HF net flows didn’t reach a significantly positive level (i.e. around 2z) until 4-5 months after the low. Coincidentally, by this time the market was back near ATHs and positioning levels were above average (nearly +0.5-1z), potentially why those peaks in flows/higher positioning proved to be a good time to tactically short the market. In other words, the moment hedge funds finally rush in, that will be the time to short.

Then again, with positioning levels still quite low vs. the past year (i.e. around -0.7z currently), perhaps it’s too early to expect a sharp pullback. Similarly gross and net leverage for HFs remains relatively low vs. the past year (around 20th %-tile across All Strategies and <10th %-tile for Eq. L/S on a 12M lookback). If these conditions change and we see a stronger impulse to chase the rally, then we’d generally be more concerned.

Providing a bit more perspective on HF leverage, for the typical fund across strategies, hedge fund net leverage recently fell back to its median levels and gross is below historical median historical levels. This is down quite a bit from where things stood ~6 months ago, indicative of the fairly broad decline in risk levels. That said, exposures are not necessarily at extreme lows on a longer time frame (i.e. past 3-5 years).

As for what is driving the net and gross flows across strategies and regions, the net selling over the past 1-2 weeks is mostly in N. America and EMEA and strongest among Multi-Strats and Quants. L/S funds have been net buyers of N. Am. recently (although sellers of EMEA). From a gross flows perspective, the recent de-grossing is strongest in EMEA and broad-based across strategies, while the opposite is true in APAC. However, on a 20-day basis, the de-grossing among Eq L/S and Quants in N. Am. is largest.

2. Will Shorts Continue to Rip Higher?

One feature of the market bounce since Mar 14 is the outperformance of High Short Interest stocks in N. America, and generally “riskier” stocks / prior laggards. For context, the JPM High SI basket, JPTASHTE, is up 22% since 3/14 (just over 2x the SPX’s gain) and the top 25 most crowded net shorts in N. Am. are up about 20% over the period vs. a gain of only ~11% for the top 25 most crowded net longs. Additionally, the High Vol basket (JP1HVO) is up 31% and the Momentum shorts (JP1SMO & JP16SMO), i.e. laggards over the past 12M or 6M, are up 28-29% over the period.

In early October last year, JPM wrote a note that outlined why shorts could continue to perform well over the medium term (i.e. 6 months). Looking back at what’s transpired, this has played out fairly well, as evidenced by large underperformance of High SI stocks in the past 6 months—the JPM High SI basket, JPTASHTE, has underperformed the SPX by ~35% since the start of Oct  2021.

As a refresher, in early Oct last year, there was concern as to whether the shorts would continue to work since they had performed quite well since the middle of Feb of last year. Generally speaking, there were still concerns about whether retail investors and so-called meme stocks might cause significant pain to shorts. While that was (and still is) a potential risk to specific shorts, it seemed that there was still ample room for shorts to continue to perform relatively well, which they did. So looking back at the 5 reasons JPM gave 6 months ago, do they still hold today? The short answer is “somewhat.” I.e., the set up doesn’t appear particularly bad for shorts per se, but it also doesn’t look as clear as it did 6 months ago.

One last note on the “risky” factors. One of the main reasons why we thought the “risky” factors weren’t set up to outperform was because the broader market had not yet seen a meaningful drawdown. Given the drawdown we saw this quarter, it’s harder to make the case that these types of stocks won’t start to perform a bit better, but the speed of the rebound has varied quite a lot in the past and we’re not coming off a larger drawdown like post 2000-2002, 2008-2009, or Mar 2020 that triggered the most violent snapbacks.

Authored by Nathan Worcester via The Epoch Times (emphasis ours),

Russ Vought, a critical race theory (CRT) opponent who led the White House Office of Management and Budget under Trump, told The Epoch Times on Thursday that the amount of spending in President Joe Biden’s proposed 2023 budget is “atrocious.”

Vought, who currently heads the anti-CRT organization Center for Renewing America, made the comments at an emergency foreign policy conference, “Up from Chaos: Conserving American Security,” organized by American Moment and The American Conservative.

Vought also spoke about the disconnect between the views that got Trump elected and decision-making in the Trump White House as part of a conference panel, “Rotten Branches: How Congress, The Military, and Executive Bureaucracy Fail Our Foreign Policy.”

He said the policy process was “completely disconnected from the views of the President,” prioritizing defenders of the status quo and avoiding what he described as “paradigm-shifting questions,” including on decades of U.S. military spending:

“Why are we still in Afghanistan? Why are we on a collision course with Russia? Why haven’t you brought our troops home from Europe? Shouldn’t we prioritize a China fight above all else? Are Japan and Taiwan ready to defend themselves? Why is it the Army, the Navy, and the Air Force just so happen to have the same share of the budget?”

Vought told The Epoch Times that today’s raging inflation cannot be an excuse for indefinite budget expansion.

“You’ve got to have an ability to stop spending,” he said. “We should increase defense spending. I definitely think we should increase the Navy’s budget. But this notion that the bar has to be 8 percent when inflation is 8 percent is just nonsense.”

“We all know that there’s an extensive network of foreign policy elites that have a unified view of the world, and America’s role in it, that is essentially imperialist,” Vought said during his panel talk. He later added that policy officials deferred to the network of insiders in part to avoid looking stupid, and that national security agencies capitalized on secrecy and their ability to over-classify information to shut out people who ask inconvenient questions.

Like others at “Up From Chaos,” Vought invoked George Washington’s Farewell Address, in which the founding father warned his countrymen to steer clear of foreign entanglements or permanent alliances.

Another lodestar was America’s sixth president, John Quincy Adams, who said that the nation “goes not abroad, in search of monsters to destroy.”

Vought told the audience that D.C.’s current foreign policy elites see Washington’s and Adams’ counsel as “quaint advice”—the thinking of a bygone era, before the United States became “a big country,” often dictating the terms of the world order established after World War II.

In Vought’s view, a foreign policy that does not take the aspirations of other nations seriously could make it harder to understand the factors that spark conflicts overseas.

“I think we have suffered from that with Russia—never thinking through, ‘What are their interests?’ vs. ‘What are our interests?’” he said.

Vought believes that tackling D.C.’s entrenched opposition to Trump-style foreign policy will require a new expert class, capable of steering pliable officials in a different direction.

“We need new institutions to credential people, to allow people to think through the pros and cons of different policies,” he told The Epoch Times.

He thinks such institutions offer an important foundation for practical politics, including on the sort of budgeting he oversaw as OMB director.

“It’s time we engage them on the battlefield of ideas,” Vought said. “Once you’ve got that, then you can go to battle and win funding fights and turf war battles.”

He told The Epoch Times he does not worry about any labels that may be applied to him because of his participation in ‘Up From Chaos.’

Words like “appeaser” or “stooge,” he said, may be losing their sting from overuse.

“As we’ve seen in the woke area, where they call you a racist, Islamophobe, bigot, that comes at a cost where people stop caring anymore, and you learn to have these conversations, come what may,” he said.

Evergreen Marine, the owner of the massive container ship, Ever Forward, stuck in the Chesapeake Bay, declared “General Average” after multiple unsuccessful refloating attempts, according to maritime news website gCaptain

The latest refloating attempt took place last Wednesday and was unsuccessful even though tides in the Chesapeake Bay, just outside of Baltimore, were about a foot higher than average. 

“Evergreen Line has been making every effort to refloat the stranded ship on behalf of the common interests of cargo owners and the safety of all involved,” Evergreen Marine said in a statement on Thursday.

It added: “In light of the increasing costs arising from the continued attempts to refloat the vessel, Evergreen declared General Average today.”

Declarations of General Average require all parties, including the shipowner and cargo owners, to bear some responsibility in the refloating process. If readers remember, Evergreen also declared General Average about a year ago when another of its vessels, the Ever Given, ran aground in the Suez Canal. 

Ever Forward ran aground on March 13 after it veered off the course of a shipping channel outside the Port of Baltimore and came to a dead stop in about 25 feet of water. The vessel’s draft is 42.6 feet, outlining that the ship is seriously stuck. 

It’s unclear what the next steps Evergreen will take after two refloating attempts have failed. There could be moves to remove fuel and cargo, but nothing has been publicly discussed.

Concerns are mounting the ship, buried in 20 feet of mud, could be experiencing stress on the hull due to the weight of containers and may lead to a fuel leak disaster. 

Authored by Jonathan Turley,

“The illegality of the plan was obvious.”

Those words of Judge David O. Carter in the U.S. District Court for the Central District of California this week have electrified commentators across the networks and the Internet.

Judge Carter was praised for his “simple clarity” in declaring that “it is more likely than not that President Trump corruptly attempted to obstruct the Joint Session of Congress on January 6, 2021.”  The declarations by the court have led to a frenzy in the media and renewed calls for the prosecution of the former president.

However, there are elements to the decision that are deeply concerning on issues ranging from free speech to attorney-client privilege.

The Washington Post was quick to breathlessly declare that the time had finally come . . . again. Given the Posts long record of running professed slam dunk criminal charges against Trump that amounted to nothing, that is hardly a surprise. However, Carter’s opinion was immediately portrayed as ending all speculation. It seems now like little more than an administrative matter before Trump is marched off to the slammer.

Post columnist Jennifer Rubin declared “Carter has issued a clear invitation — almost a plea — for the Justice Department to pursue charges against both Eastman and Trump . . . [Attorney General Merrick] Garland will have an exceptionally hard time justifying a decision not to prosecute.”

If you read such columns, it is difficult to see why Trump has not been charged after two years. After all, the media heralded the statements of D.C. Attorney General Racine that he was pursuing possible charges. Yet, neither Racine nor the Biden Administration have charged Trump. Why?

The reason that hasn’t happened is that Judge Carter’s “invitation” is strikingly short of clear evidence of such criminal conduct.

Judge Carter was ruling on the disclosure of material claimed as privileged by Eastman, who advised Trump after he spoke at the Jan. 6, 2021, rally near the White House. Eastman believed Vice President Mike Pence could refuse to certify the election and send the electoral votes back to the states. Carter ruled that such legal advice failed under the “crime/fraud exception” because the president knew there was no basis for such a challenge.

As legal experts celebrate Carter’s decision as a great victory against Trump, it is important to consider the implications for both free speech and attorney-client privilege. That is not because I agree with Eastman’s claims; to the contrary, I criticized Trump’s speech as he gave it and later called for Congress to censure him. I also supported Vice President Pence’s interpretation of federal law and disagreed with Eastman’s interpretation.

Moreover, as I have repeated stated, Congress has a legitimate interest in getting a full record of what occurred on Jan. 6th.  However, none of that should blind us to the dangerous elements of this decision.

Judge Carter notes that Eastman still believes that the statute is unconstitutional as written. The court simply brushes that aside and states the “ignorance of the law is no excuse” and “believing the Electoral Count Act was unconstitutional did not give President Trump license to violate it.”

More importantly, the court simply declares that Trump knew that the election was not stolen and thus “the illegality of the plan was obvious.”

Putting aside the court’s assumption of what Trump secretly concluded on the election, a sizable number of Americans still do not view Biden as legitimately elected. The court is not simply saying that they are wrong in that view but, because they are wrong, legislative challenges amounted to criminal obstruction of Congress.

In 2005, it was Democrats who alleged that a presidential election was stolen and challenged the certification in Congress of the votes in Ohio. The claim was equally frivolous but Democratic leadership praised the effort, including Speaker Nancy Pelosi who praised Sen. Barbara Boxer’s challenge and insisted that “this debate is fundamental to our democracy.”

The Democrats did not, however, demand that Vice President Dick Cheney refuse to certify, an important distinction to be sure. Jan. 6th was a desecration of our constitutional process and one of the most disgraceful days in our history.

However, the lack of factual foundation for the challenge (cited repeatedly by Judge Carter in the Trump challenge) did not make this a criminal or fraudulent effort.

Some attorneys believed (and still believe) that it was possible for Pence to refuse to certify. Holding such a legal view is not a crime and sharing that view with the White House is not a conspiracy. Indeed, Eastman and others were publicly stating essentially the same thing. That is what triggered the debate as many of us who challenged their interpretation.

Yet, Carter is conclusory and dismissive on this critical point in declaring “President Trump and Dr. Eastman justified the plan with allegations of election fraud — but President Trump likely knew the justification was baseless, and therefore that the entire plan was unlawful.” Trump is still insisting that he believes the opposite. The question is why arguing that point with Pence and others amounted to a criminal act. In the end, wiser minds prevailed and the theory was not used by Pence.

There were crimes that day, of course. Some of those at the rally rioted and were charged largely with trespass and unlawful entry. A handful have been charged with seditious conspiracy. The court does not cite any evidence that Trump directly advocated violence while noting that Trump told the crowd to peacefully go to the Hill.

Consider the implications of Carter’s opinion. There was rioting when President Trump was elected while various Democratic leaders continued to claim that he was not the legitimately elected president, a view echoed by Hillary Clinton. While they did not riot in Congress, they committed other crimes.

Under Carter’s theory, the baseless claims that Trump was not legitimately elected have been used by the Trump Administration to seize confidential legal material given to the 2005 leaders. After all, there was not a solid factual basis for these claims and they knew it. They further fueled the mob but making these claims in public.

What is particularly concerning is that none of this was necessary. The Congress has every right, indeed it has a duty, to investigate if there was a criminal conspiracy.  Yet, it already knows the legal advice given by Eastman and other witnesses have testified as to what he said in critical meetings.

In the Post column, Rubin reminds readers “this is a federal court, not a pundit or politician.” Yet, at points it was hard to tell the difference. Judge Carter seemed intent on rendering judgment on what he described as a “coup” rather than a riot: “Dr. Eastman and President Trump launched a campaign to overturn a democratic election . . . Their campaign was not confined to the ivory tower — it was a coup in search of a legal theory.”

That last comment was particularly interesting because it suggests that Eastman, who was dean and on the faculty of Chapman Law School, could have made the same articles as a professor. However, when he took his academic views and applied them as counsel, it somehow became part of a criminal conspiracy and attempted coup.

That is what is so disturbing about Carter’s opinion. While I agree with many aspects of Judge Carter’s decision, there is no clear limiting principle of when a legal opinion becomes a criminal conspiracy beyond the court’s predisposition of the meaning of these facts.

Apparently, real rates approaching -10% doesn’t necessarily mean it’s time to hike interest rates. That is, of course, according to “visionary” Cathie Wood, who spewed what can only be described as this incredibly hot take on Saturday.

Better yet, Wood said the Fed raising rates while the yield curve is inverted would be a “mistake”, according to Bloomberg. It certainly would be for Wood’s flagship ARK Innovation Fund (ARKK), that’s for certain. 

On Friday, after a strong jobs report, the two year bond yield rose above that of the 30 year for the first time since 2007, while other parts of the curve have already been inverting over the last several trading sessions. 

Cathie Wood offered up a take that was…well…commensurate with her investing style. The portfolio manager, who never met a cash burning “innovative” tech company she didn’t appear to instantly love, Tweeted out on Saturday: “Yesterday, the yield curve – as measured by the difference between the 10 year Treasury and 2 year Treasury yields – inverted, suggesting that the Fed is going to raise interest rates as growth and/or inflation surprise on the low side of expectations…which will be a mistake.”

Yesterday, the yield curve – as measured by the difference between the 10 year Treasury and 2 year Treasury yields – inverted, suggesting that the Fed is going to raise interest rates as growth and/or inflation surprise on the low side of expectations…which will be a mistake. https://t.co/5QNZeDWTn4

— Cathie Wood (@CathieDWood) April 2, 2022

In a thread that followed, Wood wrote that “Economists have learned over many cycles that the 10-2 year measure of the yield curve leads another one: the difference between the 10 year Treasury yield and the 3 month Treasury rate. I have no idea why many strategists and economists are reverting to the latter one now.”

“The 10-year to 3 month yield curve is steep because the Fed is telegraphing aggressive interest rate hikes in the face of inflation that has been stoked by supply shocks. Inflation is a highly aggressive tax that is killing purchasing power and consumer sentiment,” she continued.

Then, she made the astute argument that consumer sentiment is waning, which is correct. Unfortunately, Wood doesn’t seem to realize that the Fed has its hands tied behind its back and has officially run out of options for dealing with the inflation she is referencing. She wrote: “US consumer sentiment, as measured by the University of Michigan, is lower today than it was at the depths of the coronavirus crisis. It has entered 2008-09 territory and is not far from the all time lows in the 80’s when inflation and interest rates hit double digits.”

“The economy succumbed to recession in each of those periods. Europe and China also are in difficult straits. The Fed seems to be playing with fire,” she concluded. 

Wood’s flagship ARKK fund is down -28.6% this year so far. Its benchmark NASDAQ ETF, the QQQ, is down -9%. 

 

By Larry McDonald, author of the Bear Traps report

When we think about the hard assets vs. financial assets debate — clearly, we can see a “first-second inning” shift in play — but what takes the trade to the next level? We still have not seen even the slightest indication of real financial asset selling. What will give the hard asset value equity thesis real, sustainable legs? It all comes down to the dollar. As we stressed in our March 10th note —“a Secular C change for the Greenback” – for much of the last 20 years the U.S. political leadership has been weaponizing its currency. One could say they have –“gone to this well” too many times, indeed. Keep in mind, today ´s sanctions roulette has a far different gene pool.

BEFORE the war in Ukraine — inflation in the U.S. was already running near 8%. Now the United States has chosen to bring out its sanction’s sword yet again — but this time up against a country that has regional control — influence over 10-15% of the global commodity complex.

We are NOT sure the risk-reward has been meticulously thought through here. The risks of a self-inflicted wound are sky high and complacency around these risks is even higher. At the very end of the day, U.S. sanctions and counter attacks from Putin – push inflation’s roots much deeper below the surface and make higher price pressures far more sustainable than any time in recent memory. This mess gives “unintended consequences” a whole new meaning.

As we stressed in the summer of 2020 the “Cobra Effect” coming from a fiscal and monetary policy overdose delivers many surprises wrapped in inflationary pressures. But sanction games raise these stakes to a whole new level. “Our currency your problem” becomes “our commodities your problem” (to paraphrase Zoltan Pozsar).

Globally, the lights on the “USD weaponization” stage have NEVER been brighter. Even one of the U.S.’s most trusted allies – The Kingdom of Saudi Arabia – is looking at ways to lay off dollar risks and possibly trade their dark crude in red China yuan (CNH). We are NOT saying the U.S. dollar will lose its world’s reserve currency status this decade – that is absurd – but make NO MISTAKE a near term diversification away from the greenback is certain – all coming with HIGH impact on rates, inflation and hard assets.

* * *

There are times when developments pile up so fast late in the week that the street doesn’t have time to process the significance of the data. The Wall Street research community has always been “slow on the draw” – but we believe strategists and analysts will be confronted with a “come to Jesus” moment in the weeks ahead.

What is the state of play you ask? We have a U.S. equity market that has been led by Utilities (XLU up 15% since late November vs. 3% for the S&P 500 over the same period) and Consumer Staples XLP for nearly five months now.

In the U.S., ISM Manufacturing fell in March to 57.1 vs. 59 est. and 58.6 in prior month lowest since September 2020. Above all, new orders light blue above) plunged from 61.7 to 53.8 At the same time, the Dow Jones Transports had one of the sharpest one day declines in years on Friday following a warning from FreightWaves CEO that a freight recession looms. Classic economic bellwethers like Union Pacific UNP dropped 8% day over day at one point; US banks (Citi) and consumer plays (GM and Home Depot) are 30-35% off their highs with the U.S. Treasury curve moving deeper into inversion territory.

CLEARLY this is NOT all about 2s-10s and the rates curve. There is FAR FAR FAR more going on.  AND the divergence between UMichigan and the Conference Board consumer data is screaming “stagflationary recession” as well. We see 20 30% near term downside for the Nasdaq.

 

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The Fed Has to Convince the Market of What?

In essence, the Federal Reserve has convinced the market of two things: 1) rate raises will be higher than formerly believed; 2) such raises will do little to cure inflation, at least over the near term. Breakevens (the yield of an inflation-protected bond minus the yield of a non-inflation-protected bond of the same maturity) were at 3.42% at the start of the Fed’s March meeting. On Friday, that got to 3.57%.

So, traders decided that inflation was actually worse after the Fed meeting than before the Fed meeting. It is now at a record high, in fact.

Furthermore, the bear market rally shows that the stock traders do not believe they are fighting the Fed. Ultimately, stocks believe that for all the clamor around higher rates, net-net monetary policy is and will continue to be loose, just less loose than it was. Loose money means Fed Funds after inflation are negative. Since inflation is running near 8%, no reasonable person thinks Powell will make Fed Funds actually positive after inflation.

This explains the rise in yields on the 10 year: traders are trying to get more vig given ongoing inflation. It also explains the rise in gold, which in addition to its safe have bid is also an inflation hedge. So yes, the markets were surprised by a more hawkish Fed, but no, the markets don’t believe inflation is going away.

We still think that aggressive tightening will lead to recession, assuming one hasn’t already gotten underway. We still believe we are either in or about to enter stagflation (depending on one’s definition of the term). So faster hikes but inflation still rages – in our view – the S&P 500 will be 20 30% lower in this world.

Dollar Ceiling and Cash at the Treasury

Cash Balances at the Treasury are relatively high at the Treasury vs. prior pre Covid years, and well off the lows of a few months ago. Dollar seems to be near a congestion zone of potential supply.

If Treasury cash balances decline, the dollar may soften up a bit … With the HIGHEST conviction we believe we are in the middle of a secular change for the U.S. dollar. U.S. sanctions are FAR more of a dollar threat then most realize and they make sustained inflation FAR FAR FAR more certain.

UMich – Conference Board Consumer Sentiment Spread

Look at this spread and then look at the dates and events around it historically. The UMich survey is more ‘inflation-sensitive’. There is a higher weighting towards durable goods, whereas job conditions is more important in the Conference Board survey. The  Conference Board survey (correlated with unemployment rate) tends to stay optimistic for much longer than the U Michigan survey, which is more about affordability and people’s perceptions of job security. So, the U of Mich survey is more of a leading indicator and the Conference Board survey is more of a real time coincident indicator. The UMich survey usually leads the Conference Board survey down into recession.

As anybody who lived through the oil crisis of the 1970s (and the stagflation that resulted) will likely tell you, using price controls to try and alleviate Americans’ pain at the pump (and with their heating bills, and their grocery bills and, well, all their other bills) is, at best, a band-aid on a bullet wound, and at worst, a hair-brained policy response that does nothing to solve the underlying problem (in fact, it only exacerbates the problem).

While America’s left-leaning millennials weren’t around for the 1970s, some of the people who served in government during the 1970s are still around, and one of them is Philip Verleger, president of PKVerleger and an analyst who specializes in commodity markets. Over the years, Verleger has authored more than 100 articles and books about commodities. He also worked on energy policy during the Ford and Carter Administrations after getting his PhD in 1971.

It’s this first-hand experience that gives him special insight into why price controls don’t work, and also why it’s only a matter of time before the Biden Administration brain trust moves to bring them back.

The problem with price controls, as Verleger explained during a recent MacroVoices interview with Erik Townsend, is that they create “distortions” in the market which feed through and influence producers’ willingness to ramp up production, effectively exacerbating the underlying cause of high prices in the first place.

Here’s more on that in an excerpt from their interview:

Erik: Now, there are a lot of people that are beginning to talk about price controls. I personally have a pretty strong bias that that’s never the right way to solve a problem. But a lot of people think it is. Are price controls potentially a good idea and regardless of whether they’re a good idea, are they likely coming or not?

Philip: Oh, God. Oh, God. So when I had color in my hair. It is very gray now. I went to work in the Ford administration at the Council of Economic Advisers. And the focus and the reason I went there was to get us out of price controls. I stayed at the US Treasury in the Carter administration because I got asked by the Secretary of Treasury to help get rid of crude oil price controls and I managed to help lead the effort to get us out of price controls. The Energy Department’s didn’t. And as for getting us out of it, I was rewarded by being asked to draft and think of a windfall profit tax. These are not good ideas. Matter of fact, they’re terribly bad ideas. The distortions they caused if you go back and look at the World War Two experience and and I got into this business because my grandfather’s good friend had been a senior official in the Roosevelt administration had in fact run the price control programs for well had been ahead of the descent of St. Louis Federal Reserve.

And he, you know, told me all when I was in high school, all the problems with price controls. I cannot I can’t screen but I don’t, you don’t want them. Now, so that is a terrible idea. There are some controls that might help. One of the things and there’s the report I sent you. I sent for Notes at the Margin. I’ve been following very closely how hedging of call options on crude and on crude oil has exacerbated the volatility of oil prices. One of the steps that one could take is to require people who write calls on these say $300 call on oil be fully covered. That is if a firm writes a calls on 100 contracts, it must be long 100 contracts under all our modern derivatives models. If I write a call today on $300 oil for 100 contracts, I only have to have about a third of a contract. 1/3 of a contract I need to cover that to hedge it.

And if price goes up, I have to buy more. S, and Javier Blas wrote a great piece for Bloomberg in January 18 saying Wall Street was about to take the oil market on a wild ride. And it has because as I do the numbers, the number of calls out there are so large that every time somebody says well, oil prices might maybe should go up about 50 cents or something like that, it gets magnified to $5. So you don’t want price controls. The financial markets are out of control. And as Blas said, people are buying lottery tickets on oil. It’s you know, it’s the odds are better buying call options on oil right now or call options on natural gas in Europe than they are on betting on a sporting event. You know, you just look at the handle in the sporting events and how much it goes back to the better versus what oil is and oils earning much better returns. That needs to change. That could change. But you don’t want to tax and you don’t want just sudden taxes on oil and you don’t want price controls.

So, why are policy makers and academics still kicking around a revival of price controls? At the risk of sounding excessively cynical, Townsend and Verleger put it succinctly enough: It’s the policy corollary to Murphy’s Law. The best policy ideas are impossible to push through. And the worst ideas…will inevitably be put into practice.

Erik: I couldn’t possibly agree more Phil that we don’t want price controls. But the very fact that it’s such a bad idea almost tells my cynical mind that it’s more likely to happen if government’s in charge. You’ve been through this once before in the 1970s event for some of us that are a little bit younger than you are. Tell us a little bit more about maybe what people have forgotten about price controls. How that went and why it’s such a bad idea but also for fatalists like me who think it’s probably coming even though it’s a bad idea. What do we need to be thinking about as investors in terms of getting ready for it?

Philip: We agree 100%. You know, it’s an economic policy. If there’s a really great idea, it’s almost impossible to get it through and if it’s a bad idea, it almost always happens. That seems to be Murphy’s Law or move Murphy’s corollary. The problem with price controls essentially is that… Let me rephrase that the problem with price controls are… this is plural. The Myraid, of details that you have to get into to make them work. When we went into this in 1971 50 years ago. 50 years ago plus six months, they froze them for 90 days. For 90 days okay you can just freeze prices and most things will be fine. But if you go much further, then you start to say well we have a problem here. We’ve lost some capacity here or something else and we start having to make adjustments. And it means you have to start building a bureaucracy. And we built a bureaucracy called the Cost of Living Council in the 70s. And they were looking into everything, and everybody had to file all this information. And then you had to, you know, if you had a problem, then you can apply to get a special exemption. We had special courts, temporary court, emergency Court of Appeals which was not very temporary. You know, it’s a rabbit hole once you go down it. There’s so many details that you have to start looking at, that’s a problem.

Perhaps another clue lies in the analysis of Credit Suisse’s Zoltan Pozsar, who has in a series of notes published this year theorized about the birth of a new commodities-focused monetary regime which he has christened “Bretton Woods III”. While contemporary central bankers are accustomed to controlling the money supply via balance-sheet expansion and NIRP, they’re mostly powerless to counter soaring commodity prices (short of engineering a brutal recession that succeeds in crushing the ‘demand’ side of the supply vs. demand equation).

Once President Biden’s latest attempt at countering sky-high oil prices proves to be a failure, the only options left will be 1) gas stimmies, followed inexorably by 2) price controls.

Readers can listen to the full MacroVoices interview with Verleger below:

Authored by MN Gordon via EconomicPrism.com,

Central Bank Digital Currencies (CBDC) are coming.  And they’re coming much faster than most people care to think about.  Are you ready?

At the moment, roughly 90 central banks – including the European Central Banks and the Federal Reserve – are either experimenting with, or are in varying stages of CBDC implementation.  Moreover, these CBDC friendly central banks include all G20 economies.  And together, represent more than 90 percent of global GDP.

What’s important to understand is the adoption of a CBDC in your country of residence would accompany the abolition of cash.  This would be for your own good, of course.  To eliminate nefarious transactions and black markets.

If you value financial privacy and the liberty to spend your money as you please, then the rapidly approaching rollout of CBDCs is a major red flag.  Compulsory use of a CBDC, like a digital dollar for example, would give central planners complete oversight and control over your finances.

You see, under a CBDC regime – free of cash – all of your transactions would be subject to government surveillance.  All remnants of financial freedom, privacy, and anonymity would be destroyed.  But that’s not all…

CBDCs would allow control freak, power mad central planners to do much more than spy and surveil your financial transactions.  CBDCs would allow them to control how and when you spend your money.

This may sound crazy to a sane person, who operates with a modicum of modesty and integrity.  But, in truth, this is one of the main intents of CBDCs.  In fact, several years ago Bank for International Settlements General Manager Agustin Carstens outlined the extraordinary powers CBDCs would afford central planners.  Here are the particulars from Carstens himself:

“There is a huge difference [between CBDC and cash].  For example, with cash we don’t know who’s using a 100 dollar bill today.  We don’t know who’s using a 1,000 peso bill today.  A key difference with the CBDC is the central bank will have absolute control under rules and regulations that will determine the use of that expression of central bank liability, and we will have the technology to enforce that.”

Do you get it?  The central planners want absolute control over how you spend your money.  This includes the U.S. government too…

Traceable And Programmable

On March 9, the Biden administration released an executive order (EO) requiring several federal agencies to study digital currencies and to identify ways to regulate them.  A big part of the EO is focused on blockchain based cryptocurrencies like bitcoin and ethereum.

However, within the EO, Biden also directs the federal government and Federal Reserve to lay the foundation for a potential new U.S. currency, a CBDC – perhaps, a digital dollar.

Specifically, the EO directs the U.S. Treasury, and other federal agencies, to study the development of the new CBDC and report back within 180 days of the potential risks and benefits of a digital dollar.  The EO also directs the Treasury Department, Office of the Attorney General and Federal Reserve to produce a ‘legislative proposal’ to create a digital currency within 210 days, about seven months.

The digital dollar is coming, and it’s coming quick.

To be clear, the adoption of a digital dollar by the U.S. government, as Biden intends, would be one of the greatest expansions of federal power ever made.  The digital dollar would be much different than a digital version of the existing U.S. dollar.  It would also be much different than cryptocurrencies like bitcoin and ethereum, which are decentralized.

Digital dollars would be traceable and programmable. The Federal Reserve, or some other government agency, would have the ability to create digital dollars at whim.  Moreover, the digital dollars could be programmed to have various rules and restrictions governing how and when they are spent.

Earlier this year, in Federal Reserve published report about the development of a CBDC, the Fed provided examples of possible ‘design choices’ for a digital dollar, including that “a central bank might limit the amount of CBDC an end user could hold.”

Biden’s EO plan for a digital dollar also includes design choices that will give the federal government total control over financial freedom and the economy.  The EO even states the CBDC and other policies governing digital assets must mitigate “climate change and pollution” and promote “financial inclusion and equity.”  This is a major focus.

From this, we can speculate that financial inclusion and equity means wealth redistribution.  And climate change mitigation means restrictions to fossil-fuel use.  These, and other government dictates, like the direct subtraction of taxes and fees from your account, would be programmed into the digital dollar.

Why now…

Blowback

U.S. and European Union sanctions against Russia, including cutting Russian financial institutions off from SWIFT and preventing the Russian Central Banks from using its foreign currency reserves, may prove to be a strategic blunder.  The blowback potential is real, and is already happening.

Europe, which depends on Russia for 40 percent of its natural gas, is now reaping the whirlwind.  According to Bloomberg, Putin has signed a decree demanding payment in rubles for Russian gas supplies starting April 1 (today).  Will Europe submit?

There are rumors European nations are already covertly buying rubles.  The ruble’s increase on the foreign exchange market to pre-invasion levels certainly hints something is in the works.

Regardless, the U.S. is losing control over the international financial and payment system.  By freezing Russia out SWIFT, Putin is being forced to look for other alternatives.  Specifically, China has been developing its own Cross-Border Interbank Payment System (CIPS) as an alternative to SWIFT.

Sanctions against Russia may further accelerate the use and adoption of CIPS by nations that are opposed to western influence.  Cryptocurrencies and blockchain technology also offer banks and individuals ways to move payments without using dollars or SWIFT.

The very success of the weaponization of the legacy financial system by the U.S. and Europe is driving Russia and others into such alternatives.  Hence, fewer international transactions in dollars could undermine the dollar’s reserve currency status.  This would have serious implications for the U.S. economy, as the dollar would likely suffer a significant devaluation.

In the U.S. consumer price inflation (official) is already at a 40 year high.  Unofficially, it’s higher than it has been in over 100 years.

Between the financial war being waged, raging consumer price inflation, a $30 trillion national debt, trillion dollar deficits, and unfunded liabilities running into the hundreds of trillions, something’s got to give…

…namely, the U.S. dollar.

Countdown to U.S. Government Default

The popular American myth is that the U.S. government has never defaulted on its debt. 

Quite frankly, that’s unadulterated hogwash. 

The U.S. government has (unofficially) defaulted on its debt twice within the last hundred years.

Executive Order 6102 of 1933, which forced all American citizens to turn in gold coins and bars, was, in fact, a default.  Gold ownership in the United States, with some small limitations, was illegal for the next 40 years.

Under EO 6102, Americans were compensated $20.67 per troy ounce of gold.  They were paid with paper dollars.  Immediately following the government’s gold confiscation, the price of gold was raised by the Gold Reserve Act of 1934 to $35 per ounce.  Just like that, American citizens were robbed of over 40 percent of their wealth.

The second default occurred in 1971, when President Nixon “temporarily” suspended the convertibility of the dollar into gold.

Prior to 1971, as determined by the Bretton Woods international monetary system, which was agreed to in Bretton Woods, New Hampshire, in July 1944, a foreign bank could exchange $35 with the U.S. Treasury for one troy ounce of gold.  After the U.S. reneged on this established exchange rate, when foreign banks handed the U.S. Treasury $35, they received $35 in exchange.

In both instances, the U.S. government didn’t overtly default on the debt.  Instead, it changed the fundamentals – the terms and conditions – of the dollar.  By all honest accounts, these are defaults.

Similarly, the issuance of a digital dollar (a Fed issued CBDC), which is traceable and programmable, changes the terms and conditions of the cash dollar.

Make no mistake.  This is a default…and you won’t like it.

Moreover, per Biden’s EO, this default could happen as soon as T-minus 210 days from March 9 – or as soon as October 4th.

If that doesn’t give you a warm and fuzzy, we don’t know what will.

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The window to protect your wealth and financial privacy is closing.  And it’s closing quick.  I don’t like it one bit.  But I’m not going to stand around powerless as Washington’s control freak sociopaths destroy everything I’ve worked so hard for.  For this reason, I’ve dedicated the past 6-months to researching and identifying simple, practical steps everyday Americans can take to protect their wealth and financial privacy.  The findings of my work are documented in the Financial First Aid Kit.  If you’d like to find out more about this important and unique publication, and how to acquire a copy, stop by here today!]