As Wall Street whines about the Fed and seems to only care about getting stock prices higher, very few people we know can connect the dots and understand that the world economy and the post-war global geopolitical order, for that matter, are in the midst of “The Great Reset.”
All things as we have known and have become comfortably numb with, such as zero interest rates, negative real interest rates, quantitative easing (digital money printing), and Pax Americana, are being upended and overturned. Beware of recency bias, folks, as the global structural shifts and changes are now ubiquitous.
Sunday’s election in Italy is just a fractal of the Great Reset, which will usher in the hard-right new prime minister, which, we believe, history will look upon as “Ms. Mussolini.”
The eurozone is in trouble with a capital T.
Giorgia Meloni’s electric performances at political rallies have made her a virtual shoo-in to become Italy’s first female prime minister in Sunday’s ballot. She’ll also be the first to campaign with the flame symbol, evoking the former fascist leader, Benito Mussolini.
The prospect of a charismatic nationalist taking power with almost no government experience has investors and officials on edge. Italy, of course, is wrestling with the fallout from the most serious conflict in Europe since WWII. But the country has been adrift for years, struggling to hit on a formula which can unlock its potential while staying true to its identity. – Bloomberg
Our good friend, Professor Constantin Gurdgiev, in his priceless sense of humor, put it this way,
P.S. My 19-year-old daughter is traveling in Italy and promised she would pick up and bring back a few copies of the major Italian post-election newspapers from Monday morning.
Don’t bank it. Avoiding a recession is not part of the Fed’s explicit dual mandate.
The Federal Reserve System has been given a dual mandate—pursuing the economic goals of maximum employment and price stability. – St Louis Fed
Even after today’s 75 bps hike, the real Fed Funds rate (see chart below) remains at about -5 percent. Note from the chart the economy has never kicked into a recession with a negative real Fed Funds rate. It’s amusing to watch the market watchers muse over how big a recession the Fed will create.
Yes, a recession is highly probable, and the timing is difficult, but markets have a yuuuge “failure of imagination.” There can be, simultaneously, a recession in economic activity, relatively high and sticky inflation, and relatively low unemployment.
Chairman Powell stated in his presser today about moving real rates to positive levels across the yield curve.
You wanna be at a place where real rates are positive across the entire yield curve – Chairman Powell, 18:50 into the video
This time could be different, it is pretty weird out there, making monetary policy very difficult, but we run when we hear those four words.
We don’t think copper has a Ph.D. in economics but possibly is an ABD.
If you are not buying copper hand-over-fist here, at $3.54 per lbs., you should be. We doubt there is enough copper in the world to electrify the transport sector alone.
According to Jim Paulsen, chief investment strategist at the Leuthold Group:
“The copper/gold ratio is nearing a new high! Undeterred by yet another stock market decline, confidence nonetheless appears to be gaining ground over fear. Is Dr. Copper picking up on something positive coming soon?”
Copper, an ubiquitous metal with wide-ranging uses from construction involving wiring and plumbing to being a key ingredient in the transition to green energy, is typically purchased when investors feel good about the economy. This is why Paulsen calls the reddish-brown metal “Dr. Copper” for its purported Ph.D in economics due to an “uncanny ability to predict global-economic turning points.” – Bloomberg
Thew sharp increase in electric-vehicle registrations at the start of 2022 meant that the EV share of the overall market in the U.S. hit a historic 4.6 percent. While places like Norway—where over 86 percent of all new vehicle sales were electric in March—may laugh at that number, EV advocates know that change happens slowly, then all at once, or something like that.
Currently, it’s estimated that around 1 percent of the 250 million cars, SUVs, and light-duty trucks on American roads are electric. However, while it’s difficult to estimate future sales, an analysis by IHS Markit projects that 25–30 percent of new car sales could be electric by 2030 and then 40–45 percent by 2035. Using the rates for those projections, Reuters estimates that by 2050 more than half of the vehicles on U.S. roads could be EVs. – Car & Driver
Don’t be fooled; the 10-year yield is the chart and market indicator to monitor.
The Fed is no longer around to support notes and bonds, the ex-post real yield on the 10-year is still below -3.0 percent, and the spike in yields acts as a double hammer to stocks.
First, through the economic effect of higher borrowing costs, and second, through the valuation effect as a higher interest rate to discount profits lowers stock valuations.
The U.S. 10-year yield is the most important price in the world and has been highly distorted for many years. It has been stunning to watch the markets focus on nominal yields rather than real yields, as they fail to realize how the coupon and TIPs market has been managed for many years. A classic case of recency and confirmation bias.
Stay tuned.
You decide.
The ratio of total US stock market valuation to GDP has been named “The Buffett Indicator” because Warren Buffett – the legendary CEO of Berkshire Hathaway (BRK.A)(BRK.B) – once called it “the best single measure of where valuations stand at any given moment.”
Essentially what it represents is the value of expected future economic activity discounted back to the present compared to the total value of current economic activity. In this sense, it is strikingly similar to the price to earnings ratio that is commonly used to value individual stocks. – Seeking Alpha
In the past six months, inflation has far exceeded December 2021 expectations. In many countries, actual rates have doubled projections. European countries are particularly affected. For example, inflation in Lithuania is running at 15.5 percent annually, nearly five times the rate expected. Poland is at 11 percent and the United Kingdom at 9 percent, both well above projections. At 3 percent, Switzerland is an outlier. Asia is seeing a less severe change: Indian inflation is about 7 percent, only a bit above projections; and South Korea is at 5 percent. In China and Japan, inflation remains muted. – McKinsey & Company
Global Macro Monitor 