Month: May 2022

Authored by Brandon Smith via Alt-Market.us,

In mid 2007 the Bank for International Settlements (The central bank of central banks) released a statement predicting an impending “Great Depression” caused by a credit market implosion. That same year the International Monetary Fund also published warnings of “subprime woes” leading to wider economic strife. I started writing alternative economic analysis only a year earlier in 2006 and I immediately thought it was strange that these massive globalist institutions with far reaching influence on the financial world were suddenly starting to sound a lot like those of us in the liberty movement.

This was 16 years ago, so many people reading this might not even remember, but in 2007 the alternative media had already been warning about an impending deflationary crash in US markets and housing for some time. And, not surprisingly, the mainstream media was always there to deny all of our concerns as “doom mongering” and “conspiracy theory.” Less than a year later the first companies awash in derivatives began to announce they were on the verge of bankruptcy and everything tanked.

The media response? They made two very bizarre claims simultaneously: “No one could have seen it coming” and “We saw this coming a mile away.” Mainstream journalists scrambled to position themselves as the soothsayers of the day as if they said all along that the crash was imminent, yet, there were only a handful of people who actually did call it and none of them were in the MSM. Also ignored was the fact that the BIS and IMF had published their own “predictions” well before the crash; the media pretended as if they did not exist.

In the alternative media we watch the statements and open admissions of the globalists VERY carefully because they are not in the business of threat analysis; rather, they are in the business of threat synthesis. That is to say, if something goes very wrong in the world economically, central bankers and money elites with aspirations of a single centralized economic authority for the world are ALWAYS found to have a hand in that disaster.

For some reason, they like to tell us what they are about to do before they do it.

The idea that globalists artificially create economic collapse events will of course be criticized as “conspiracy theory,” but it is a FACT. For more information on the reality of deliberate financial sabotage and the “order out of chaos” ideology of globalists please read my articles ‘Fed One Meeting Away From Creating A Doomsday Sinkhole’ and ‘What Is The Great Reset And What Do The Globalists Actually Want?’

The Great Reset agenda proposed by WEF head Klaus Schwab is just one example of the many discussions hidden in plain sight by globalists concerning their plans to use economic and social decline as an “opportunity” to quickly establish a new one world system based on socialism and technocracy.

The primary problem with discerning what the globalists are planning is not in uncovering secret agendas – They tend to openly discuss their agendas if you know where to look. No, the problem is in separating the admissions from the disinformation, the lies from the truth. This requires matching up globalist white papers and statements to the facts and evidence at hand in the real world.

Let’s look specifically at the food shortage problem in detail…

Food Shortages In Six Months

A week ago there was a torrent of press releases from global institutions all mentioning the same exact same concern: Food shortages within the next 3 to 6 months. These statements line up very closely with my own estimates, as I have been warning regularly about impending dangers of inflation leading to food rationing and supply chain disruptions.

The IMF, the BIS, World Bank, The UN, the Rockefeller Foundation, the World Economic Forum, Bank of America and even Biden himself are all predicting a major food crisis in the near term, and it is not a coincidence that the policies of these very institutions and the actions of puppet politicians that work with them are causing the crisis they are now predicting. That is to say, it’s easy to predict a disaster when you created the disaster.

The claim is that Russia’s invasion of Ukraine is the primary cause, but this is a distraction from the real issue. Yes, sanctions against Russia will eventually lead to less food supply, but the globalists and the media are purposely ignoring the bigger threat, which is currency devaluation and price inflation created by central banks pumping out tens of trillions of dollars in stimulus packages to prop up “too big to fail” corporate partners.

In 2020 alone, the Fed created over $6 trillion from nothing and air dropped it into the economy through covid welfare programs. Add that to the many trillions of dollars that the Fed has printed since the credit crash in 2008 – It has been a nonstop dollar destruction party and now the public is starting to feel the consequences. Lucky for the central bankers that covid struck and Russia invaded Ukraine, because now they can deflect all the blame for the inflationary calamity they have engineered onto the pandemic and onto Putin.

Inflation hit 40 year highs in the US well before Russia invaded Ukraine, but let’s consider the ramifications of that war and how it affects the food supply.

The Russian invasion certainly disrupts Ukrainian grain production, which makes up around 11% of the total world wheat market. Russia also maintains a 17% share and together these two nations feed a large swath of third world nations and parts of Europe with 30% of wheat and barley exports, 19% of corn exports, 23% of canola exports, and 78% of sunflower exports.

It is the sanctions on Russia that are a problem well beyond Ukraine, however, as Russia also produces around 20% of global ammonia and 20% of global potash supplies. These are key ingredients to fertilizers used in large scale industrial farming. Farmers are estimating an overall price spike of around 10% in food markets, but I believe this is very conservative. I am already seeing overall price increases of at least 20% from six months ago, and I expect there to be another 30% in price hikes before this year is over. In other words, we are looking at 50% in average increases in 2022.

Official government inflation data and CPI cannot be trusted. Double whatever numbers they give and you will be much closer to the truth. The inflation rate used by Shadowstats.com, calculated using methods once applied by the US government in the 1980s before they “adjusted” their models to hide the data, supports my position so far.

The expectation among US agricultural experts is that China will fill the void where Russian supplies disappear, but it’s a mistake to make this assumption.

Something Weird Is Going On In China

China’s crackdown on covid infections has reached levels so bizarre I have to ask the question: Are their lockdowns really about covid, or are they hiding something else?

The death rate of covid in China is impossible to calculate accurately because they have never released proper data that can be confirmed. However, almost everywhere else in the world we see a median infection fatality rate of 0.27% for covid; meaning, over 99.7% of people in the world on average have nothing to fear in terms of dying from the virus. But in China, the CCP is acting as if they are dealing with the Black Plague. Why?

Lockdowns have resulted in food shortages across the country as supply chains become strained and manufacturing remains shut in many cases. The story many westerners are not hearing much about, though, is the fact that Chinese exports have essentially been frozen. This is very important so I think it needs emphasis – Over 1 IN 5 container ships IN THE WORLD are now backed up in Chinese ports due to their covid lockdowns. This is incredible.

Why would China do this over a virus we all know is not dangerous to the vast majority of people? Why institute the worst lockdown in the country so far and starve their own people when the majority of Western governments have now given up on their pandemic fear mongering and the forced vaccination agenda?

I would suggest the possibility that China might already be engaging in an economic war that many Americans and Europeans don’t even realize is going on. This may be a beta test for a shut down of exports to the US and Europe, or it is an incremental shutdown that is meant to become permanent. The bottleneck on trade may also be a precursor to a Chinese invasion of Taiwan.

Taiwan is actually more dependent and intertwined with China’s economy than many people know. China is the biggest buyer of Taiwan’s exports and those exports account for 10% of Taiwan’s GDP. Taiwan has hundreds of thousands of workers and businessmen that travel regularly to China to work, another economic factor that is now strained by lockdowns. Furthermore, Taiwan has multiple corporations that operate their factories on mainland China, all of which could be closed due to covid lockdowns.

All I’m saying is, if I was China planning on invading Taiwan in the near future, I might consider using covid as a cover for damaging their economy first and disrupting their export model. Communists see the population as a utility that can be sacrificed if necessary, and China is perfectly willing to cause short term suffering to their people if it means long term gains for the party. Beyond that, if I was going to engage in economic warfare with the west covertly, what better way than to tie up 20% of the world’s cargo ships and disrupt supply chains in the name of protecting the country form a “pandemic?”

The bottom line? Don’t rely on China to fill export needs for fertilizer ingredients or anything else as sanctions on Russia continue.

Inflation vs. Supply vs. Control

It’s not just globalist organizations talking about incoming food shortages; the CEO of international food corporation Goya has also recently warned we are on the precipice of a food crisis. As I have noted in the past, inflation leads to government price controls, price controls lead to lack of production incentives (profits), lack of profits leads to loss of production, loss of production leads to shortages, and shortages lead to government rationing (control over all large food sources).

As we have seen with almost every authoritarian regime in modern history, control over the food supply is key to controlling the population. It is only surpassed as a strategic concern by control over energy (which we will also see shortages of soon as Europe sanctions Russian oil and gas and starts eating up supplies from other exporters). The food issue hits closest to home because we can see the effects immediately on our wallets and on our families. There is nothing worse for many parents than the prospect of their children going hungry.

The mainstream media is once again ignoring any potential economic threat, specifically they are denying the notion of food shortages as something to be worried about. I say, why listen to a group of people that are always wrong on these types of events? If anything, I would at least take the words of the globalists seriously when it comes to economic collapse; they benefit the most from such disasters after all, and they also have the most influence when it comes to triggering crisis.

Preparedness today costs nothing tomorrow. Lack of preparedness today costs EVERYTHING tomorrow. The choice for anyone with a brain is simple – Get prepared for the end of affordable and easily available food before this year is out.

*  *  *

If you would like to support the work that Alt-Market does while also receiving content on advanced tactics for defeating the globalist agenda, subscribe to our exclusive newsletter The Wild Bunch Dispatch.  Learn more about it HERE.

You can also follow me at – Parler: @AltMarket Gettr:  @Altmarket1

Inflation doesn’t strike the whole economy evenly. Some metropolitan areas across the U.S. recorded hotter inflation than others. Democratic lawmakers in these regions, up for re-election, could be in jeopardy come midterms. 

Bloomberg found the four top metro areas where consumer prices cracked above the 10% barrier in February. Phoenix-Mesa-Scottsdale, Arizona, had the highest inflation of any urban region at 10.9%. 

Inflation is so rampant in the metro area that Arizona Democratic Senator Mark Kelly’s re-election bid could be at risk as the high cost of living has crushed residents. 

Evangelina Diaz, 56, drives about an hour from Maricopa, Arizona, to her job in central Phoenix. Gasoline prices hit particularly hard in the state, where workers drive further and more often than the average American. She says filling her tank now costs up to $50. 

“We’re working to put gas in our car,” Diaz said. “It’s real ridiculous.”

Stan Barnes, a former Arizona state senator and GOP political consultant, said Kelly is a “likable person who’s married to one of the most important and admired people in Arizona [Gabby Giffords]. But this time, he needs to carry Joe Biden around like a sack of bricks and somehow explain his record.” 

Biden’s presidency depends on campaigns like Kelly’s. Republicans are expected to win a majority in the U.S. House in November. 

“It’s one of the most critical races,” said Jennifer Duffy, Senate editor of the Cook Political Report. “If Democrats lose him [Kelly], they’re on very shaky ground.”

Vulnerable Democrats in other metro areas where inflation is running hot could also be in trouble.

The other cities, Atlanta-Sandy Springs-Roswell, Georgia; Miami-Fort Lauderdale-West Palm Beach, Florida; and Baltimore-Columbia-Towson, Maryland, have hit 10% or are close to double-digit inflation.

When it comes time to vote in the upcoming midterms, many people will be voting with their depleted wallets, which could be a “biblical disaster” for Democrats. Perhaps that’s why the Biden adminstration created a “Disinformation Governance Board” to control narratives combat whatever they deem ‘misinformation’ before the 2022 midterms and beyond. 

By Eric Peters, CIO of One River Asset Management

“While central banks in the U.S. and Europe are moving toward monetary tightening or rate increases, the Japanese economy is still on the road to recovery,” said the Bank of Japan Governor. “It is most important to support economic recovery by patiently continuing monetary easing,” added Kuroda-san.

The Bank of Japan first cut interest rates to zero 23yrs ago, and ignoring a couple aborted attempts to briefly normalize policy they have remained at zero or lower ever since.

Government debt exploded in that time, with annual deficits and stimulus packages becoming so commonplace they lost their effectiveness.  The central bank bought nearly half the 1.4 quadrillion Yen of government debt that mounted, a stunning 260% of GDP. And yet, through it all, core prices in Japan’s economy remain almost identical today as they were when its zero-interest-rate experiment began.

For decades, it seemed everyone lost money trading Japanese bonds, which moved in counter-intuitive ways. They called the inexorable government bond rally the “Widow-Maker.” Traders with the highest IQs tend to have the least-disciplined risk management, so they suffered most profoundly.

In the years preceding the pandemic, economists claimed they definitively understood how and why Japan’s disinflation developed, persisted, and then manifested in other nations. Secular Stagnation.

Perhaps they did actually figure it out. But no sooner had the economists named their magnificent mental model then the world started to change — which of course is the only durable model in all of economics. There are others that tend to work too. Like when major central banks are tightening, while others are easing, volatility rises until something breaks badly, at which point policy makers panic (for more on this topic, see “The Biggest Story No-One Is Talking About”: Why Albert Edwards Expects “Something In The Market Is About To Snap“).

Another model that seems to hold is that highly intelligent economists and central bankers generally believe they understand inflation, as if it is a mathematical equation. And even though inflation appears when they least expect it, and fails to manifest when they most anticipate it, they remain remarkably confident in their ability to predict it.

Anecdote:

The more you think about money, the less it makes sense. That is why the topic is so alluring for the masochists amongst us, attempting to solve the unsolvable, climb the unclimbable, conquer the unconquerable.

We engineer thought experiments and mental models in the hope of gaining a glimpse of some truth, the scent of something real, a money-making opportunity. Japan provides an enigma to explore. It once had a bubble so big the Emperor’s Palace was worth more than the state of California. Unreal. Impossible. But so it was.

When that bubble burst, real estate and equity prices utterly collapsed. The Yen strengthened for decades. It remains stronger today than back then. Japan’s exporters carried on, managing costs lower, maintaining competitiveness. The government supported the system, running persistent deficits and in each recession announced a special stimulus.

The central bank stimulated too. In 1999 the Bank of Japan reduced rates to zero, unsuccessfully lifted them a couple times, and in 2015 cut them to -0.10% where they remain. The level of government debt expanded in ways that almost everyone agreed would lead to an inflationary collapse. It did not. The Bank of Japan bought bonds, and now owns roughly 130% of GDP worth of government debt, which is half of the 260% outstanding.

It also pledged yield curve control, bidding for an unlimited quantity of 10yr government bonds at a 0.25% yield. Could the central bank create money, buy all the outstanding bonds, and simply burn them? Execute a modern version of an Old Testament debt jubilee? The currency of a nation that chooses this path should weaken, as it is now doing in Japan.

But might it be possible for a country to pull off such a feat without full monetary collapse? We don’t know, yet. What seems certain though, is that if you were to attempt such a bold maneuver, you would absolutely want to be the first nation to try. 

Texas Governor Greg Abbott (R) is considering invoking war powers to expand the state’s authority to manage the southern border by officially declaring an “invasion” – verbiage which would comply with a clause in the US Constitution that says states are prohibited from engaging in war except when “actually invaded.”

Top lawyers for Mr. Abbott and for the Texas attorney general, Ken Paxton, met this month to debate the move, which would put the state in a head-on collision with the federal government by allowing state police to arrest and deport migrants, according to two people familiar with the discussions. Mr. Abbott says he remains open to the approach, but he has expressed concern about unintended consequences. -NYT

“If we do use this strategy, it could expose law enforcement in the state of Texas to being prosecuted,” said Abbott during a recent press converence. “Is it something we’re looking into? Yes,” he added.

Abbott has already mobilized thousands of National Guard troops to patrol the border, and ordered safety inspections of incoming trucks from Mexico – a short-lived program after it caused massive gridlock and disrupted international trade. He’s also overseen the construction of around 20 miles of new border fencing at key ares. What’s more, Abbott repurposed several state prisons to hold migrants charged with trespassing.

Perhaps most famously, Abbott recently began busing migrants from Texas to Washington DC.

The New York Times echoes the Biden administration, which has framed Abbott’s immigration policy as nothing more than a political stunt, writing that his “aggressive posture has done little to stem the tide and also exposed him to fierce criticism that he is using his authority to meddle in a policy area that belongs to the federal government,” however they acknowledge that his attempts to tighten border security along the state’s 1,254 mile border have helped him hold off political challengers.

Federal agents recorded nearly 129,000 crossings into Texas in March, about 11,000 more than during the same month last year, when Mr. Abbott began the effort known as Operation Lone Star. The biggest increase occurred in an area of the border that includes Eagle Pass, a sun-faded city of 28,000 people, numerous stray cats and dogs and few resources to spare.

Costs have been mounting. Just maintaining the National Guard deployment through the summer will require another $531 million, state officials said this month. A 22-year-old soldier assigned to the mission drowned last week while attempting to rescue two migrants in swift water. -NYT

INCOMING

While immigration levels have been out of control in recent years, Texas officials are bracing for an even larger influx of illegal immigrants when the Biden administration ends a Trump-era policy known as Title 42 – which used the pandemic to justify turning back hordes of asylum seekers.

The current surge in migrants kicked off with the election of President Biden, which was taken as a virtual green light to flood into the country without the same level of border security as former President Donald Trump employed.

Now, Abbott is under pressure to do more as Biden pull back.

“Lone Star hasn’t moved the needle one iota for the simple reason that they’re not returning people to Mexico,” said former Trump DHS official Ken Cuccinelli, a vocal proponent of declaring an invasion.

The White House has pushed back against Texas, with Press Secretary Jen Psaki saying that the state “does not need to replace C.B.P. at the southern border,” referring to the federal Customs and Border Protection Agency.

We wonder which political party the immigrants will support, should they be granted amnesty at some point in the future?

By Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley

It’s a funny year. Returns are awful, with significant losses in almost every asset class not labelled ‘commodities’. Investors still face wide-ranging uncertainties, from how fast the Fed tightens, to whether Europe sees an energy crisis, to how China addresses Covid, to the ongoing fall of the yen. Cross-asset performance feels confused, with defensive equities unusually strong while government bonds are unusually weak.

But step back a bit, and 2022, in hindsight, is also kind of simple. Valuations were high and policy is tightening and growth is slowing…and prices have fallen. Cheaper stocks are (finally) outperforming more expensive ones. Bond yields were very low and are (finally) rising. Credit and MBS spreads were tight, and have widened. The UK has weak growth, a large current account deficit and world-beating negative real yields, and has seen its currency weaken substantially. It’s not exactly Fermat’s Last Theorem.

So what should investors do, given a complex set of challenges, but also signs of underlying rationality? This can be a good time to step back and look at what rules-based indicators are telling us.

Let’s start by focusing on what these indicators say about where we are in the cycle, and what that means for investment strategy. Our cycle indicator looks at a range of economic indicators and tries to map them to historical patterns of cross-asset performance.

Our indicator sees the data as highly extended versus trend. We call this ‘late cycle’ because, historically, readings sharply above trend have often (but not always) occurred later in an economic expansion. This statement is not about predicting a recession, necessarily, but our economists are convicted that we are seeing a meaningful deceleration. And thinking probabilistically, that type of deceleration almost surely increases the chances of a downturn. Whether the contraction materializes or not, it will affect cross-asset performance today.

At present, the late-cycle indicator is consistent with underperformance of high yield credit relative to both equities and bonds, the outperformance of defensive equities, a flatter curve and fewer headwinds to long-end duration.

Of course, our cycle indicator isn’t alone in flagging caution. With the risks to the market so obvious, sentiment is negative. Which brings us to the next question – despite the macro challenges, is sentiment now extreme enough to boost markets?

It’s possible. But our best attempts to statistically quantify a sentiment signal say ‘not yet’. In a recent report led by my colleague Naomi Poole, we explored the efficacy of different measures of ‘sentiment’ and turning them into a signal. We think that using a composite of sentiment indicators is most powerful, and that level and trend of sentiment matter for creating a signal with good returns and hit rates over time. Our indicator is not yet extreme, and has not yet turned (it is ‘neutral’). We are watching it closely.

Given the swirling mix of storylines and volatility, a third related question is what would a fully rules-based cross-asset strategy do today? For that, we turn to CAST, our Cross-Asset Systematic Trading strategy, developed by my colleague Phani Naraparaju. CAST is the most powerful quantitative instrument in our cross-asset toolkit, evaluating ~1,500 factors across ~150 global assets. For all that complexity, it asks a simple question – what looks most attractive today based on what some of those factors (different measures of carry, valuation, momentum and fundamentals) have meant in the past?

CAST has helped our process so far this year. While it has certainly gotten things wrong, it has gotten more things right, especially a positive view on commodities, a defensive skew in US equities and a negative view on JPY, GBP and global 2yr rates. It has been most successful with cross-asset relative value, while struggling more with directional views, a not-so-subtle hint that this is a better market for alpha than beta. And while CAST is a completely rules-based tool, we pay special attention where its views align with the bottom-up, fundamental calls of our strategy colleagues. A few things stand out.

CAST is dialling back its beta, especially in commodities, where it has become more negative on copper (but still likes energy). Second, CAST is giving the same signals as our Asia macro strategists, who expect CNY weakness and like receiving CNY rates. And similar to views in equity strategy, it is positive on the Nikkei (FX-hedged) and Healthcare, and negative on the NASDAQ and Russell 2000. CAST has also unwound a large credit compression trade it had been running post-Covid, which lines up with the decompression and dispersion theme our credit strategists expect to be more prominent.

Rules-based tools help in markets that are volatile, emotional and present more storylines than a reasonable investor can process. For the moment, they suggest that cross-asset performance continues to follow the late-cycle playbook, sentiment has not yet given a conclusive tactical signal, and following historical factor-based patterns is helping to trade relative value. They won’t solve everything, but given the challenges of 2022 so far, every little bit helps.

Blockchain technology extends far beyond Bitcoin, Dogecoin, and other popular cryptocurrencies, as it provides a foundation for verifiable financial systems and proof of ownership for digital goods and assets.

From privacy concerns to anti-trust issues, big tech has eaten away at the world’s trust in the technology sector. And, as Visual Capitalist’s Niccolo Conte details below, as people search for better and more trustless solutions for their financial services, the blockchain economy is flourishing to meet their needs.

This infographic from MSCI outlines how quickly decentralized solutions and services have grown, and how investors can be a part of this exciting new sector.

The Three Key Trends of Blockchain Adoption

By cutting out the need for a centralized middleman that facilitates transactions, blockchains can provide more efficient systems to power three key trends of the fintech future:

• Digital hard money and assets

• Decentralized finance (DeFi)

• Digital goods and collectibles

As the first cryptocurrency and deflationary monetary asset, Bitcoin is the ambassador for digital hard money. By having a fixed supply of 21 million bitcoin set in code and a decentralized network powering transactions on the network, Bitcoin provides anyone access to a deflationary digital asset that they can transfer in minutes without having to trust centralized intermediaries.

While Bitcoin pioneered the blockchain revolution over the past decade, further functionality built on blockchain technology is enabling digital goods and collectibles with non-fungible tokens (NFTs) along with more equitable and trustless financial systems through decentralized finance.

Decentralized Finance (DeFi) Makes Financial Services Accessible

Along with seeking decentralized hard money assets in the form of cryptocurrencies like Bitcoin, the world is looking for trustless financial services through which they can borrow, lend, and perform other essential financial services.

Decentralized finance (DeFi) enables these services through decentralized applications (Dapps) powered by smart contracts. Today, more than $260 billion is currently “locked” or engaged with some form of smart contract in a DeFi application.

Below are the 10 largest DeFi applications by the amount of value currently “locked” or engaged with the applications’ smart contracts.

 

Source: DeFi Llama
As of Jan 2022

 

From staking tokens within a protocol in exchange for governance votes to providing market liquidity by locking tokens up in exchange for a portion of trading fees, DeFi is providing functionality and incentives for participants in the blockchain economy.

What is the MSCI Blockchain Index?

The MSCI Blockchain Index was developed in collaboration with ARK Invest with the aim of representing the performance of a set of companies associated with the development of products and services for the blockchain economy.

From providing payments services for cryptocurrencies to the actual hardware products used for verifying blockchains, these companies fall into five core segments of the digital blockchain sector:

1. Developers of tech and protocols of decentralized finance like Dapps and smart contracts

2. Products and services for the infrastructure of digital markets like cryptocurrency exchanges and payment gateways

3. Providers of blockchain solutions and services through corporations

4. Hardware and software providers for the verification of blockchains

5. Buyers and sellers of cryptocurrency providing liquidity and facilitating payments

With a broad variety of industries contributing to the blockchain economy, companies like AMD, Visa, and the Intercontinental Exchange (ICE) are among the top constituents of the index.

As decentralized finance and other technologies bring about a trustless revolution for financial systems and the ownership of digital goods, the MSCI Blockchain Index ensures you aren’t left behind.

Authored by Peter Tchir via Academy Securities,

If last Friday’s price action was ugly, this Friday’s can only be described as mega-ugly!

This weekend’s T-Report follows in the footsteps of The Not So Good, The Bad, and The Ugly and Welcome to Thunderdome!!! Sadly, there is a theme emerging in the tone of these T-Reports and the markets – decidedly negative.

On Thursday, we asked the question Is The Worst Behind Us? We decided it was not, which seemed like a horrid decision as stocks skyrocketed ahead of Thursday’s earnings, but hasn’t looked so bad since 3:25pm on Thursday when stocks resumed their downward decent.

Today, we try to figure out where markets and the economy head next and try and identify a bottom!

Geopolitics

Academy published Around the World on Thursday night. This month’s topics include:

• Update on the Russian Invasion of Ukraine.

• China’s Solomon Islands Partnership and Influence in the Region.

• Israeli / Palestinian Violence Escalates.

• Protests in Peru Over Inflation Crisis.

General Spider Marks also discussed the latest on the war on CNN with Wolf Blitzer.

Bad to the Bone

With so much going on, we are going to try to address what’s next by focusing on:

• Markets themselves. Price action and the alleged “capitulation” so many are talking about.

• Earnings. What I think is playing out with earnings.

• Bad Actors Behaving Badly. This will touch on Russia, but go beyond that as we examine risks (that are still a low probability), but are things we should be thinking about.

• Inflation. This section will be brief, which is not actually the case with inflation. Food and Energy.

• The Fed. We get the FOMC announcement and press conference on Wednesday. This will be the first opportunity for the Fed to address the market volatility and the last FOMC meeting set the stage for a strong rally!

What Are Markets Telling Us?

One thing the markets are certainly telling us is that they are as illiquid as heck! The Nasdaq 100 rose 1.5% on Monday, fell almost 4% on Tuesday, started Wednesday up 2%, back to slightly negative then back to up almost 2%, only to finish the day wildly unchanged. On Thursday, it was up 4.25% and finished up 3.5%, only to finish down 4.5% the next day.

It is concerning when the weekly drop of 3.7% doesn’t do justice to just how volatile and crazy the week was.

This “chaotic” trading occurred in almost every market I watch. I picked the Nasdaq 100 because a few of the juggernauts in that index reported earnings this week, but you name a market and “crazy” trading patterns were evident.

CDX IG had some vicious trading and closed the week at 84 bps, the highest since June 2020 (the Bloomberg Corporate Bond OAS isn’t back to mid-March levels, but a lack of liquidity is evident in credit trading as well based on all the reports I’m getting from customers).

These wild oscillations bring back memories of watching the Tacoma Narrows Bridge collapse in some elementary school class. Will the market’s oscillations resolve themselves in the same way as they did with the bridge? I hope not, but that seems to be a non-zero risk. I also must be cautious about getting too bearish as the lack of liquidity is evident in both directions! Rallies like Thursday’s will be just as sharp and vicious as the declines.

Last Week’s Chart – Updated

We have now broken through the 12,570 line I had on the chart. We had broken it on Tuesday and stayed below on Wednesday and made a valiant attempt to bounce on Thursday, but are now below that, and are at the lowest close on the Nasdaq composite since December 2020! I am concerned that we have to fall to the next rough level of support, which is below 11,000 (just over 10% further to fall).

PARA

Bill Hwang was arrested this week so I felt it was appropriate to bring out this chart of PARA, which traded under a different ticker during the time that was highlighted.

Based on the allegations made around the arrest, I think we can assume that at least some part of the rise can be attributed to “flows” (him buying more and more, because he could) and a substantial portion of the fall can also be attributed to “flows” (stop losses, triggering selling). In full disclosure, I own some of this right around current levels (it had been a nice contrarian dip buy for me until the recent plunge started about 2 weeks ago).

The point of this chart is to really hammer home the point about how important flows are, and how illiquid things can become, as that is an important part of my current view on where markets are headed.

I would like the “capitulation” story to be a little more obvious!

Speculative Fund Flows

I am closely watching 3 funds:

• The $13 billion TQQQ, which is a triple leveraged ETF on the Nasdaq 100 (so it represents over $40 billion of “QQQ” purchasing power).

• SQQQ, which is only $3 billion, but is a 3x short fund.

• ARKK, which is just under $9 billion and is invested in “disruptive” companies.

Due to the leverage in the two funds and the volatility of the ARKK fund, I think these give some good insight into whether we are seeing “capitulation” or not.

ARKK, which is down 50% YTD and down 29% in April, had inflows. I appreciate the buy the dip mentality and a lot of the companies in the ETF have interesting valuations here (for full disclosure I am flat as of the close on Friday and am tempted to buy). But, regarding signs of “capitulation,” I just don’t see it.

But the TQQQ story is even more interesting because it got significant inflows last week! Even as the market has been selling off and getting more volatile, money poured into this triple leveraged fund, which was down 12% on the week, down 37% on the month, and down 56% year to date. From a “traditional” view where returns correlate with flows, these things wouldn’t happen. As a contrarian, I’m impressed that they are happening, but I cannot help but wonder if we aren’t nearing a breaking point? Every dollar that has come into TQQQ (and ARKK) this year is underwater, often by significant amounts. If we’d seen “real” capitulation, I would expect fund outflows, rather than inflows last week.

The SQQQ finally got some inflows late last week, so that at least is a sign that we are seeing some hedges.

Yes, there are all sorts of ways to determine positioning, and this sample set is really much more retail focused, but the lesson is:

• Capitulation may be getting talked about a lot more than it is actually occurring.

• In general, the bearish discussions do not seem to be getting backed up by fully bearish positioning (90% of my conversations are about dip buying and finding the bottom).

The Non-Virtuous Cycle

I am going to try and tie the previous charts and stories into a simple narrative. There was a group of people out there who had this happen to them during the pandemic:

• They worked at fun, interesting, disruptive firms and had stock prices soar or were even able to participate in their companies’ IPOs.

• That wealth was heavily tied to their company.

• When they could access this wealth, they “diversified” into:

  • Other disruptive companies because they loved the disruptive mindset and they could relate to it, and the excitement was palpable.

  • Big buyers of crypto. Crypto met the “disruptive” and “change the world” feelings that were often pervasive during the wild rebound post pandemic. Bitcoin hit $60k in March 2021 and then again in November, but is languishing around $40k right now.

I would argue that you had a “virtuous” cycle that started after Covid and has been running out of steam. This “cycle” theory helps explain why crypto is so correlated to some volatile tech sectors (they are owned by the same people).

I cannot tell if this “group” (which I completely believe exists) has managed to properly diversify themselves, or if we have another leg down?

Maybe I’ve picked my charts too narrowly, but I am not getting a good “vibe” from the market itself. And I didn’t even bring up, at least not too much, that the cost of credit is rising and will be a drag on earnings.

Earnings and Multiples

I spend very little time on earnings, but this week was as good as any to pay attention to. What I think about earnings season, especially right now, is that:

• It is not so much about what was made, but what will be made.

• It is far more about the multiple the market is willing to pay, than about the earnings or even the outlook.

Going back to January of this year, we discussed the Valuation Evaluation. This earnings season is still more about what multiple we will pay for future earnings, rather than about the future earnings themselves. We are about to embark on balance sheet reduction and that is influencing what investors will pay for future earnings.

When I look at price action post-earnings, the bigger moves are related to this valuation evaluation, rather than the prospects of future earnings (though that plays a role given the global uncertainty and higher rates). So far earnings haven’t been a help for stocks (though I’d argue that is more about this valuation adjustment than the earnings themselves) and neither have some hefty buyback announcements. The buyback announcements will help over time as they are a flow that is going in the right direction for stocks.

At the moment, earnings and buybacks aren’t enough to create a bounce in stocks and risk assets, but they do set the stage for a nice long rebound once we get to that stage.

Bad Actors Behaving Badly

People keep wondering when China will abandon Russia. I cannot think of a reason for them to do so. Yes, they need us, but we need them far more than they need us, and we’ve already shown our colors (the West that is) by continuing to buy Russian oil. Xi cares about China and their long-term needs. I’m willing to bet that China sells military equipment to Russia long before they stop buying Russian commodities.

Any leader of an autocratic nation, whose behavior goes against what the U.S. stands for, has to be working to establish even better and closer relationships with China, as they have the money (and the need for resources), don’t care about internal politics, and haven’t weaponized their currency the way we did when we froze the Russian Central Bank’s dollar reserves.

On Putin, I spend about 2% of my time thinking about how we come to a peaceful outcome and about 98% of my time thinking about how he can use a nuclear weapon to further his goals. The nuclear threat is there, but it seems so “binary” that it isn’t as powerful as it might be. Putin, of all people, would seem to benefit by making the threat of nuclear attacks more real! Yes, he needs to be careful with India and China to ensure their ongoing purchases in the event he does something. Yes, he has to be extremely careful about our retaliation. No, I haven’t come up with a way that seems plausible, but this is coming up in conversation after conversation. If Putin’s only option is to “win” and he is most definitely not “winning” by any true measure, what will he do to “win”?

Again, no one seems to have come up with a strategy that works for him to elevate his nuclear threat to get more from the West, but we have to believe he is exploring that option. One very sobering thought that came out of some of these discussions is that from the Russian (or Soviet) perspective, the only country to ever use a nuclear weapon was the U.S. I’m not sure what to say about that, other than it is sobering and may well factor into Putin’s thoughts.

On the subject of nuclear, every bad actor (most are already pursuing nuclear weapons, if they don’t already have them) will be aggressively pursuing them now, having seen what a deterrent they are. I believe they aren’t working as well as Putin would like, but there is no argument that they are working.

So far, Russia has held off on a full-scale cyber assault, but that remains a risk. I do have to say that our Geopolitical Intelligence Group has been spot on with their analysis that our defenses are thwarting Russian attempts. There have been a lot more cyber attacks than we hear about because our defenses (at a national and corporate level) have been so good! A big shout-out for the good team, but vigilance is still required.

We live in a world where bad actors feel more emboldened to act badly, which gets me back to my “closeness” of supply chains, which I won’t regurgitate here, but I think is crucial and the direction countries and companies are headed!

Inflation

High energy costs are here for some time as we need to spend to build out sustainable energy sources and we need to re-invest in traditional energy sources that in many cases suffer from underinvestment. Personally, I don’t understand why starting the Keystone Pipeline isn’t on the table, but that is a topic for another day. Food inflation is likely to be worse than energy inflation.

• War in Ukraine. With the war dragging on, it is almost impossible to expect much of a crop out of Ukraine. Russia may get a crop, but how will they ship it? Or even transport it within Russia as the invasion is co-opting their rail system. More problematic is this has the risk of becoming a muti-year problem.

• Fertilizer. Our conversations are literally filled with fertilizer. Nitrates, peat, natural gas, etc. are all working against the cost of fertilizer. That is a major problem and is still getting worse rather than better.

• Equipment. Like with most heavy equipment, there are supply chain issues.

• Farms are expensive to run. Not only is fertilizer expensive, but workers are also expensive and the fuel to power the equipment is expensive.

• Ukrainian refugees. Countries in Europe are finding homes for millions of refugees from Ukraine. That is straining existing supply and delivery systems. The food distribution system will adapt, but the massive displacement of people is not helping the food problem as logistics need to catch up with this shift in consumption.

Since fuel and food inflation are real, I don’t see the politicians backing down on “fighting” inflation. I don’t really think that the Fed is in a great position to fight the type of inflation that we are getting. I also think that subsidies to help people purchase food and fuel are deflationary. They are potentially necessary as the poor are the hardest hit, but policies like that do more to offset the costs of inflation rather than stopping inflation.

The Fed

The Fed meeting is on Wednesday. The last Fed meeting sparked a big rally. There are two things that might be different this time:

• Everyone knows the last Fed meeting sparked a rally, so they might be holding off selling risky assets until after the Fed meeting! I know that as a bear, I am deathly afraid of a post Fed rally, which might mean we don’t get it this time.

• We will get balance sheet reduction and while that seems much more priced in, that could still be a scenario where we sell the news because it becomes real.

I am scared of a post FOMC rally (and that could be the turning point), but it seems almost too obvious to happen again!

On the bright side, I’m on the road for the next two weeks straight seeing customers, investors, and friends in person! That is the best part of this job, and I will enjoy it even if I still cannot get to the point of being bullish! I’m closer to being bullish, but not there yet! Small positions and nimble trading still seem to be the order of the day (and I don’t mind rates – the 10-year was only 3 bps higher on the week). I do hope that “Bad to the Bone” turns out to be a bad title, but that’s where I’m stuck right now.

There is growing concern farmers worldwide are reducing chemical fertilizer, which may threaten yields come harvest time, according to Bloomberg. The repercussions could be huge: Lower yields may exacerbate the food crisis. 

There are alarming signs commercial farmers in top growing areas in the world are decreasing the use of essential nutrients — nitrogen, phosphorus, and potassium. 

Revealed last week, SLC Agricola SA, one of Brazil’s largest farming operations, managing fields of soybeans, corn, and cotton fields in an area larger than the state of Delaware, will reduce the use of fertilizer by 20% and 25%. 

Coffee farmers in Brazil, Nicaragua, Guatemala, and Costa Rica, some of the largest coffee-producing countries, are expected to spread less fertilizer because of high costs and shortages. A coffee cooperative representing 1,200 farmers in Costa Rica predicts coffee output could slip 15% next year because of soaring fertilizer costs. 

The International Fertilizer Development Center (IFDC) warned a reduction in fertilizer use would shrink yields of rice and corn come harvest time. Farmers in China, India, Bangladesh, Indonesia, and Vietnam — the largest rice-producing countries — are spreading less fertilizer, and may result in a 10% reduction in output, equating to about 36 million tons of rice, or enough food to feed a half billion people.

More fertilizer equals more food production; Less fertilizer equals lower food production. It’s a simple concept to understand and may suggest an even larger food crisis is on the horizon. 

The US won’t be spared. Chairman of the Kansas Wheat Commission Gary Millershaski said his “biggest fear” this spring is that farmers in North America skip out on applying nitrogen to wheat plantings. He said, if farmers did, this might suggest harvests would be a “lower class of wheat.”

In March, Tony Will, the chief executive of the world’s largest nitrogen fertilizer company CF Industries Holdings Inc., warned: “My biggest concern is that we end up with a very severe shortage of food in certain areas of the world.” 

Rockefeller Foundation President Rajiv Shah provided Bloomberg Television’s David Westin with a timeline of when the “massive, immediate food crisis” begins. He said, “in the next six months.”