While we’re all hoping that a catastrophic war has been sidestepped—at least for the time being—I want to highlight two items that caught my attention today.
The Gell-Mann effect is in play every time I read one of your Sean Foo transcripts. Everything sounds very convincing until Foo stumbles onto something I’ve just experienced. Today’s example is where Foo says:
“…US stocks just broke down yesterday. We had a flash crash that came out of nowhere. Not only did the tech heavy NASDAQ crash, industrial companies also suffered a drop of over 1%.”
Complete nonsense. I was trading the NASDAQ yesterday and there was no “flash crash.” For 2.5 months the NASDAQ has been trading up against a resistance level at 26,000 to 26,100. Yesterday, the NASQAQ traded within a 100 point range for about 4 hours trying to break above 26,000, then the buyers walked away and the market made a typically ordered step down of about 200 points. It was not a flash crash. It was also pretty funny that way he said it “came out of nowhere,” as if we can look up where stock market moves come from!
Thank you Mark, for another interesting post. I have a few comments about the Sean Foo section you extracted. Now in the interest of full disclosure, my education and work experience isn't in international trade and finance so take what I say with a grain of salt (heck, I could be an alpaca writing in from Patagonia for all anyone knows).
Foo always seems a bit "hair on fire" and I think that his bias is to extrapolating systemic noise into long term trends. I'm not going to try to address every point; he seems to be "all over the place" in the excerpt you've provided.
Let's start with a fundamental truism (and one that our leaders don't want to hear): the uni-polar moment in which the US was the undisputed hegemon (roughly 1990 - 2010) is over. And it's not coming back. We are now in a multi-polar world; maybe the US will be first among equals (US + Russia + China) but the US will never dominate in the ways that it did in the past. The US generally made some truly boneheaded decisions in that 1990-2010 period (e.g. post USSR treatment of Russia, de-industrialization, and more) but that's water under the bridge. The Roman Empire reached it's zenith under Trajan; his successor Hadrian realized that they were over-extended and retrenched. It's only a matter of time before the US needs to pull back.
Foo seems to be focused on the rapid increase in gold/silver/commodities and the "decline" in the dollar. No arguing that gold/silver/commodities have had a huge run in the last 12 months but it's not clear if this is a genuine long-term demand change or just short term speculation. Tough to determine right now. Where I think he is partially correct is in the value of the dollar versus other currencies: that the dollar has declined 10% in the last year is a fact. But Foo then extrapolates this as to the demise of the dollar - apocalypse! End of the world!!! However, the dollar is pretty much the same as it was 10 years ago (look at DXY) or a bit higher (look at Fed's Federal Reserve's Broad Trade-Weighted Dollar Index - DTWEXBGS). Seriously - run a 10 year chart.
What is the alternative to the dollar? In the short to intermediate term - more bilateral trade excluding the dollar is a possibility. Otherwise there isn't one. Don't say gold: all the gold ever mined throughout history is roughly equal to one (1) year of US GDP. China isn't in any rush to have the yuan be the reserve currency. For the foreseeable future, the dollar is the cleanest shirt in the dirty laundry (but President's Trump's chaotic approach to governance isn't helping).
I really don't understand the hair on fire commentary on the decline of the dollar in the context of his comments on the Yen and the Won. Both have declined meaningfully vs. the dollar in the past year. Foo speculates that each will sell Treasury bonds to intervene in currency markets which is going to further weaken the dollar. Maybe in the very short term, but freely traded currencies are valued based on long term fundamentals. So they sell some Treasuries and intervene; that doesn't make any change in the long term economic outlook. Maybe some other commentator can help me understand; I just don't get what he's getting at.
I've mentioned this in earlier comments and I'm not going to belabor it but fundamentally the US government doesn't need to borrow money. Period. Stop. But Foo seems to be stuck in a commodity based currency way of thinking. Sure, if you're currency is gold based/backed, then you DO need to borrow to get more. But that hasn't been the case in over 50 years. The "who will loan the US the money" makes no sense with a fiat based currency. Money is either spent into existence by the US Government or loaned into existence by the banking system. And don't forget - the US government's debt is someone else's asset.
Finally, the obsession with lowering interest rates is, in my opinion, the outcome of having real-estate developers and Wall Street traders running the government. For both, the cost of money is THE most important factor in the deals they make. For RE, lower interest rates are always good. And in a financialized economy, cheaper money (which is a cheaper input cost) gooses profits. Notwithstanding top-line growth, the US economy isn't delivering for the vast majority.
Just a few random thoughts. Don't take my comments to wave away many of the issues. I'm not being sanguine: there are enormous problems economically both in the US and globally and there isn't much being done to address them. And again Mark, thanks for these extracts. Helpful to think through the economic questions posed by Foo and others you cite.
Some really good points. You can always find financial doomers playing loose with statistics > they use different time periods according to what would be most shocking and show graphs that are zoomed in on the data. Twenty years is usualy the minmum time period that should be used. One thing that gets left out about how the US dollar became a reserve currency is trade deficits. Our huge trade deficits puts the dollars out there for use for people in other countries. China doesn't run trade deficits so the Yuan isn't plentiful internationally like the dollar is. Use in trade is just a small part of the role of the dollar internationally. It is mostly held as a liquid investment so the declining use in trade hasn't been catastrophic to its value. The primary reason countries are slowly getting out of the dollar is the threat of US sanctions, they all saw what happened to Russia. While they may want a slow weakening of the dollar no country wants the dollar to crash because that will affect the whole world > the US 2008 financial crisis affected the whole world negatively. Anyone that compares the US debt to Wiemar Germany is off basis. All US government debt is in US dollars which the US issues compared to say Argentina which borrows in US dollars that it has to obtain. Obviously, printing too much money will cause inflation but ultimately the US government doesn't need to borrow money to keep printing money. Yes we have many problems financially in the US but the causes and effects aren't nearly as simple as Foo presents.
Re: Canada, how long before the U.S. starts attacking fishing boats off of Vancouver island, claims that Canadian officials and the military are part of the "Cartel of the Maple Leaf," kidnaps Carney and his wife, and declares ownership of the Athabasca tar sands? But no worries, Trump will run the country well "until it can be put back on track."
Last year, Sam Cooper (The Bureau on Substack) estimated that 25-30% of the fentanyl that comes into the US enters from Vancouver, BC. Cooper has spent much of his career writing about the China influence on Canada.
Above link notes the Fed has pumped almost as much liquidity into the Repo Market as the entire 2008 TARP bailout...not good!
The text below is from today's Simplicius's substack. About half way down the story is a graph showing how the value of the dollar and the price of gold started to decouple when the US froze Russia's assets in early 2022.
The dollar found itself in a vulnerable position after the freezing of Russian assets became a primary tool of pressure. This undermined the Bretton Woods system, which had previously made the dollar an integral part of global reserves by effectively equating it with gold.
Previously, holders of US Treasury bonds could rely on their stability, since their returns were comparable to those of gold, and inflation and modest interest rates were easily offset by debt servicing.
Now it has become clear that assets worth hundreds of billions of dollars can simply be frozen by the decision of a single person, even without proper explanations or legal grounds. This has alarmed investors, who have begun pulling capital out of US Treasuries and shifting into gold. The dollar and US Treasuries are no longer seen as a safe haven, and gold is once again becoming a sought after asset.
Mark, I think you just captured the primary problem with Trump's "thinking." Remember, he only trusts his mind and his gut, which have proven to be faulty for decades. His poor handling of COVID was more of the same.
Might is right has been a failing proposition for decades, but that is Trump's go-to strategy. And, of course, tariff is his favorite word.
He has no ability to think beyond his conman transactional view. He doesn't care about cause and effect or the consequences of his decisions. Remember those "If then..." equations in Logic?
Yeah, Trump doesn't think that way. For example, he cut $1 trillion from the healthcare safety net before he even had a plan of his own to offer. His plan just went from a "concept" to an outline. LOL He and the GOP claimed Obamacare was the worst possible plan, but they have never produced an alternative.
A quick comment about the FED: we have trillions in debt coming due that need refinancing. Who's going to buy our debt, especially if they yield next to nothing? It would certainly help lower our debt payments, but we would still have to raise trillions to pay it off. Trump has created a conundrum for Bessent and Powell.
Yes about the upcoming debt needing to be refinanced. This is I think a large part of why Trump and Bessent are so urgently insisting that the Fed lower rates. They plan/want to sell T-Bills at the lower rates, rather than Bonds (whose rates are set by the market), to do the refinancing. Plus, there is the traditional purpose of lowering rates to make borrowing cheaper and bolster economic activity... which has typically also juiced markets (and led to inflation, too).
Last week, Trump was talking about lowering credit card rates so consumers can buy more stuff, but he obviously hasn't been tracking that consumers have already borrowed too much. Personal bankruptcies are on the rise. I don't think lower rates will spur economic activity, because consumer debt resembles government debt, but consumers can't create money out of thin air to make their monthly payments. ;)
Personal and business bankruptcies bottomed in 2022 and have been rising in each of the last three years. The problem with the 10% interest cap is the credit card firms would cut credit limits and reduce credit available to consumers.
Yeah, given the circumstances the lower short term rates won't do much for consumers. But it will certainly help out the banks and the hedge funds and further the financialization of investments.
You don’t want to be a fiat currency in a world without a hegemonic power and a lack of agreement on rules and a path forward.
Cash is always king…except that the US/West has been built upon borrowing and speculation.
Where will this all end up? How about: an entirely different economy and civilization in the West in the next 30 years.
Trump has at times sounded like Jimmy Carter: you will have to enjoy less (unless you are quite wealthy).
The reaction is going to be: people in the West living differently, as in stop thinking about fantasy lives, particularly the young generations.
Spiritually is making a massive comeback around the world. This is changing how people view themselves and the world.
Also, it will be the rest of the world, including those that we have labeled “enemies” that “invest” in the rebuild of the US market: they have the cash and our market has the most potential upside.
This all means that marketing/fantasy is crashing: thus why some are buying up television/movie assets for really not that much. Hollywood and Madison avenue, and commercial real estate, are losses going forward.
Lastly, there is no such thing as conducting real “politics” in this environment: at least not for the US/West. We don’t have a clue how to do it relative to the rest of the world, so we revert to “power” rather than “moral authority.”
I’m not understanding whats going on with the economy.
Guesses:
- lower oil prices are helping keep inflation down.
- private equity / big money / Wall Street has created monopolies and wiped out small businesses as a result of Covid, cheap money, and the defanging of antitrust. This has increased costs in so many areas.
- higher interest rates make currencies higher value.
- lower interest rates cause inflation.
- the issue of stock buybacks outside the defense industry has not been addressed. Same with rewarding outsourcing to keep a low Capital expense rate.
- Canada has de industrialized and I’m not sure has the infrastructure to increase exports to China, including oil. Canada seemed to have become an access point into the U.S. market for Chinese goods.
- college costs and loans not touched yet,
- healthcare still out of control.
- immigration at a negative may help lower in time Americans.
- banning wallstreet from owning single family homes would help, but no details released yet.
We’re removing trade barriers to unlock billions of dollars in business for Canadian farmers, fish harvesters, and workers across agri-food sectors.
By March 1, we expect that China will lower tariffs on Canadian canola from 84% to about 15%, and that Canadian canola meal, peas, lobster and crab will no longer be subject to the anti-discrimination tariffs.
Ray, you are not alone on the economy. Below is an excerpt from John Mauldin's "Thoughts from the Frontline" letter from last Saturday. Mr. Mauldin included the list below from economist Dave Rosenberg of Rosenberg Research, which includes 20 deep imbalances in the US economy and stock market that are unsustainable.
Here’s the full list:
Top ten stocks in the S&P 500 representing 40% of the market cap.
Tech sector industrial production +11.8% YoY; +1.8% for ex. Tech manufacturing.
A real CAPE earnings yield of 2.5% and a 30-year real TIPS yield of 2.6% (as in, a negative equity risk premium).
Real consumer spending +2.6% year-over-year; real personal disposable income +1.5%.
AI and related business spending up +11.0% year-over-year; the rest of capital spending down -4.4%.
Real GDP growth +2.3%; Real Gross Output at +1.5%; and soft survey-based economic data consistent with 0% growth.
Hiring rates (3.2%) tied for a fifteen-year low; layoff rates (1.2%) tied for a five-year high.
Full-time employment +0.6% on a YoY basis; part-time +6.6%.
Unemployment rate for those 25 years and older at 3.7%; and at 8.3% for those in the 20-24 age cohort. [JM - making for a total of 4.4% unemployment as of Friday morning.]
Nonfarm payrolls growth at +0.6% YoY; excluding health/education +0.1%.
Large company employment +2.1% year-over-year; small business jobs down -0.2%.
Year-ahead income growth for those earning $100k and up, +3.2%; for those earning less than $50k, try +2.4%.
The labor share of national income is stuck at a historical low of 55%; down from 58% just before the pandemic hit in early 2020.
Consumer sentiment at its seventh-worst level on record; equity market sentiment at a twelve-month high and in the top 25% readings of all time.
Home sales -1.0% YoY; housing inventory +7.5%; median home price growth YoY down to +1.2% from +4.3% a year ago (and yet, inflation is on everyone’s brain).
Core “sticky” CPI inflation at +3.0%; core “flexible” inflation at a mere +0.7%.
Core inflation ex. shelter running at +2.3%; the nonfarm business sector price deflator down to +2.1% from +2.3% a year back and +3.4% two years ago, and yet most investors still think inflation is a top threat.
An unprecedented seventh straight year of the U.S. fiscal deficit/GDP ratio coming in at roughly 5% or higher (even with the tariff revenues); and coinciding with record portfolio bullish views on the economic outlook.
The Haver Analytics Fed-based recession model is at 74%, versus 71% a year ago. It got as high as 74% as well in late 2022 as investors priced in recession, but it never came; we are now at the same level, but no asset class is priced for the possibility of a downturn.
Yep, so much of the reported "evidence" seems inconsistent as regards both the economy and the markets. Some of this, I think, can be attributed to the "K-shaped economy." And much of it has to do with the U.S. fiscal insanity. Those who have spare cash to invest will continue to buy hard assets as "insurance" against Dollar debasement and because Treasury Bond term premiums no longer reflect the reality of such debasement. In short, we are seeing the death of the USD as the primary "reserve asset" for the world.
Mark wrote: "That’s what’s being threatened, and the threat is so serious that Trump has repeatedly resorted to military force or the threat of military force. He’s working all the levers, but nothing seems to be responding."
Trump is playing a game of whack a mole. He is hoping he can fool everyone that he's got the situation under control until after the mid-terms. Countries know that they must "de-dollarize" since the dollar has been weaponized and any dollar holdings could be sanctioned, confiscated, or made worthless by the US when Trump loses his temper.
"At the same time, China and Russia have nearly erased Western currencies from their bilateral trade. Almost all payments are now in rubles and yuan." and "In November it bought almost $1 billion worth of Russian gold in a single month, setting a new record. That followed October’s already absurd $930 million purchase."
And Rubio is reportedly planning to offer $700B for Greenland. Why - when we can just take it?
UK monarchy of course is Carney's boss and UK is about to approve a massive China "super embassy" in central London at the site of Royal Mint Court. I'm guessing that UK has no choice since it's likely been broke for over a century. Photo of planned Embassy...https://www.ft.com/content/1c85300d-af36-4c49-9a45-8ebcc1c6a006
About the only pushback re this super-Embassy that I've seen in the curated UK media Susan, is the concern that the many subterranean levels will be crammed with spies, and that 'our' fiber optic cables etc might be tapped during the process.
Lots of wealthy new consumers to keep Lundon nightlife ticking over, a vested interest of paramount importance in not having the city bombed to bits, keeping a close eye on the perfidious Albion, it sounds smart to me and mutually beneficial.
I'll take your word for it that London nightlife is booming with new consumers. You mentioned UK media, I get a Times email newsletter every day and they absolutely believe London is rocking and rolling. I still think the country is rotten to the core. The monarchy decides "foreign policy" which means endless US taxpayer funded wars in the belief that this will save them from irrelevancy.
The Gell-Mann effect is in play every time I read one of your Sean Foo transcripts. Everything sounds very convincing until Foo stumbles onto something I’ve just experienced. Today’s example is where Foo says:
“…US stocks just broke down yesterday. We had a flash crash that came out of nowhere. Not only did the tech heavy NASDAQ crash, industrial companies also suffered a drop of over 1%.”
Complete nonsense. I was trading the NASDAQ yesterday and there was no “flash crash.” For 2.5 months the NASDAQ has been trading up against a resistance level at 26,000 to 26,100. Yesterday, the NASQAQ traded within a 100 point range for about 4 hours trying to break above 26,000, then the buyers walked away and the market made a typically ordered step down of about 200 points. It was not a flash crash. It was also pretty funny that way he said it “came out of nowhere,” as if we can look up where stock market moves come from!
I wonder what to make of everything else he says.
I'm passing this on in case you didn't see it.
https://www.zerohedge.com/geopolitical/how-brics-may-deliver-structural-shock-us-dollar-system
Thanks. I saw that but hadn't gotten around to reading it yet. I will.
Thank you Mark, for another interesting post. I have a few comments about the Sean Foo section you extracted. Now in the interest of full disclosure, my education and work experience isn't in international trade and finance so take what I say with a grain of salt (heck, I could be an alpaca writing in from Patagonia for all anyone knows).
Foo always seems a bit "hair on fire" and I think that his bias is to extrapolating systemic noise into long term trends. I'm not going to try to address every point; he seems to be "all over the place" in the excerpt you've provided.
Let's start with a fundamental truism (and one that our leaders don't want to hear): the uni-polar moment in which the US was the undisputed hegemon (roughly 1990 - 2010) is over. And it's not coming back. We are now in a multi-polar world; maybe the US will be first among equals (US + Russia + China) but the US will never dominate in the ways that it did in the past. The US generally made some truly boneheaded decisions in that 1990-2010 period (e.g. post USSR treatment of Russia, de-industrialization, and more) but that's water under the bridge. The Roman Empire reached it's zenith under Trajan; his successor Hadrian realized that they were over-extended and retrenched. It's only a matter of time before the US needs to pull back.
Foo seems to be focused on the rapid increase in gold/silver/commodities and the "decline" in the dollar. No arguing that gold/silver/commodities have had a huge run in the last 12 months but it's not clear if this is a genuine long-term demand change or just short term speculation. Tough to determine right now. Where I think he is partially correct is in the value of the dollar versus other currencies: that the dollar has declined 10% in the last year is a fact. But Foo then extrapolates this as to the demise of the dollar - apocalypse! End of the world!!! However, the dollar is pretty much the same as it was 10 years ago (look at DXY) or a bit higher (look at Fed's Federal Reserve's Broad Trade-Weighted Dollar Index - DTWEXBGS). Seriously - run a 10 year chart.
What is the alternative to the dollar? In the short to intermediate term - more bilateral trade excluding the dollar is a possibility. Otherwise there isn't one. Don't say gold: all the gold ever mined throughout history is roughly equal to one (1) year of US GDP. China isn't in any rush to have the yuan be the reserve currency. For the foreseeable future, the dollar is the cleanest shirt in the dirty laundry (but President's Trump's chaotic approach to governance isn't helping).
I really don't understand the hair on fire commentary on the decline of the dollar in the context of his comments on the Yen and the Won. Both have declined meaningfully vs. the dollar in the past year. Foo speculates that each will sell Treasury bonds to intervene in currency markets which is going to further weaken the dollar. Maybe in the very short term, but freely traded currencies are valued based on long term fundamentals. So they sell some Treasuries and intervene; that doesn't make any change in the long term economic outlook. Maybe some other commentator can help me understand; I just don't get what he's getting at.
I've mentioned this in earlier comments and I'm not going to belabor it but fundamentally the US government doesn't need to borrow money. Period. Stop. But Foo seems to be stuck in a commodity based currency way of thinking. Sure, if you're currency is gold based/backed, then you DO need to borrow to get more. But that hasn't been the case in over 50 years. The "who will loan the US the money" makes no sense with a fiat based currency. Money is either spent into existence by the US Government or loaned into existence by the banking system. And don't forget - the US government's debt is someone else's asset.
Finally, the obsession with lowering interest rates is, in my opinion, the outcome of having real-estate developers and Wall Street traders running the government. For both, the cost of money is THE most important factor in the deals they make. For RE, lower interest rates are always good. And in a financialized economy, cheaper money (which is a cheaper input cost) gooses profits. Notwithstanding top-line growth, the US economy isn't delivering for the vast majority.
Just a few random thoughts. Don't take my comments to wave away many of the issues. I'm not being sanguine: there are enormous problems economically both in the US and globally and there isn't much being done to address them. And again Mark, thanks for these extracts. Helpful to think through the economic questions posed by Foo and others you cite.
Some really good points. You can always find financial doomers playing loose with statistics > they use different time periods according to what would be most shocking and show graphs that are zoomed in on the data. Twenty years is usualy the minmum time period that should be used. One thing that gets left out about how the US dollar became a reserve currency is trade deficits. Our huge trade deficits puts the dollars out there for use for people in other countries. China doesn't run trade deficits so the Yuan isn't plentiful internationally like the dollar is. Use in trade is just a small part of the role of the dollar internationally. It is mostly held as a liquid investment so the declining use in trade hasn't been catastrophic to its value. The primary reason countries are slowly getting out of the dollar is the threat of US sanctions, they all saw what happened to Russia. While they may want a slow weakening of the dollar no country wants the dollar to crash because that will affect the whole world > the US 2008 financial crisis affected the whole world negatively. Anyone that compares the US debt to Wiemar Germany is off basis. All US government debt is in US dollars which the US issues compared to say Argentina which borrows in US dollars that it has to obtain. Obviously, printing too much money will cause inflation but ultimately the US government doesn't need to borrow money to keep printing money. Yes we have many problems financially in the US but the causes and effects aren't nearly as simple as Foo presents.
Re: Canada, how long before the U.S. starts attacking fishing boats off of Vancouver island, claims that Canadian officials and the military are part of the "Cartel of the Maple Leaf," kidnaps Carney and his wife, and declares ownership of the Athabasca tar sands? But no worries, Trump will run the country well "until it can be put back on track."
Just kidding, I think.
It's well known that a lot of drug money is laundered in Canada.
Yes, and drugs are produced in and shipped out of BC, too.
Last year, Sam Cooper (The Bureau on Substack) estimated that 25-30% of the fentanyl that comes into the US enters from Vancouver, BC. Cooper has spent much of his career writing about the China influence on Canada.
https://x.com/HedgieMarkets/status/2011616324150325586
Above link notes the Fed has pumped almost as much liquidity into the Repo Market as the entire 2008 TARP bailout...not good!
The text below is from today's Simplicius's substack. About half way down the story is a graph showing how the value of the dollar and the price of gold started to decouple when the US froze Russia's assets in early 2022.
https://simplicius76.substack.com/p/fantasy-loan-for-ukraine-gets-adjusted
The dollar found itself in a vulnerable position after the freezing of Russian assets became a primary tool of pressure. This undermined the Bretton Woods system, which had previously made the dollar an integral part of global reserves by effectively equating it with gold.
Previously, holders of US Treasury bonds could rely on their stability, since their returns were comparable to those of gold, and inflation and modest interest rates were easily offset by debt servicing.
Now it has become clear that assets worth hundreds of billions of dollars can simply be frozen by the decision of a single person, even without proper explanations or legal grounds. This has alarmed investors, who have begun pulling capital out of US Treasuries and shifting into gold. The dollar and US Treasuries are no longer seen as a safe haven, and gold is once again becoming a sought after asset.
No question that lack of trust is a big factor. Trump is doing nothing that would regain the trust, and coercion certainly won't work.
Mark, I think you just captured the primary problem with Trump's "thinking." Remember, he only trusts his mind and his gut, which have proven to be faulty for decades. His poor handling of COVID was more of the same.
Might is right has been a failing proposition for decades, but that is Trump's go-to strategy. And, of course, tariff is his favorite word.
He has no ability to think beyond his conman transactional view. He doesn't care about cause and effect or the consequences of his decisions. Remember those "If then..." equations in Logic?
Yeah, Trump doesn't think that way. For example, he cut $1 trillion from the healthcare safety net before he even had a plan of his own to offer. His plan just went from a "concept" to an outline. LOL He and the GOP claimed Obamacare was the worst possible plan, but they have never produced an alternative.
A quick comment about the FED: we have trillions in debt coming due that need refinancing. Who's going to buy our debt, especially if they yield next to nothing? It would certainly help lower our debt payments, but we would still have to raise trillions to pay it off. Trump has created a conundrum for Bessent and Powell.
Yes about the upcoming debt needing to be refinanced. This is I think a large part of why Trump and Bessent are so urgently insisting that the Fed lower rates. They plan/want to sell T-Bills at the lower rates, rather than Bonds (whose rates are set by the market), to do the refinancing. Plus, there is the traditional purpose of lowering rates to make borrowing cheaper and bolster economic activity... which has typically also juiced markets (and led to inflation, too).
I agree.
Last week, Trump was talking about lowering credit card rates so consumers can buy more stuff, but he obviously hasn't been tracking that consumers have already borrowed too much. Personal bankruptcies are on the rise. I don't think lower rates will spur economic activity, because consumer debt resembles government debt, but consumers can't create money out of thin air to make their monthly payments. ;)
Personal and business bankruptcies bottomed in 2022 and have been rising in each of the last three years. The problem with the 10% interest cap is the credit card firms would cut credit limits and reduce credit available to consumers.
It definitely showed he's out of touch with his voters.
Yeah, given the circumstances the lower short term rates won't do much for consumers. But it will certainly help out the banks and the hedge funds and further the financialization of investments.
Good post Mark.
You don’t want to be a fiat currency in a world without a hegemonic power and a lack of agreement on rules and a path forward.
Cash is always king…except that the US/West has been built upon borrowing and speculation.
Where will this all end up? How about: an entirely different economy and civilization in the West in the next 30 years.
Trump has at times sounded like Jimmy Carter: you will have to enjoy less (unless you are quite wealthy).
The reaction is going to be: people in the West living differently, as in stop thinking about fantasy lives, particularly the young generations.
Spiritually is making a massive comeback around the world. This is changing how people view themselves and the world.
Also, it will be the rest of the world, including those that we have labeled “enemies” that “invest” in the rebuild of the US market: they have the cash and our market has the most potential upside.
This all means that marketing/fantasy is crashing: thus why some are buying up television/movie assets for really not that much. Hollywood and Madison avenue, and commercial real estate, are losses going forward.
Lastly, there is no such thing as conducting real “politics” in this environment: at least not for the US/West. We don’t have a clue how to do it relative to the rest of the world, so we revert to “power” rather than “moral authority.”
Interesting days…;)
Bingo, Jeff:
"You don’t want to be a fiat currency in a world without a hegemonic power and a lack of agreement on rules and a path forward."
I’m not understanding whats going on with the economy.
Guesses:
- lower oil prices are helping keep inflation down.
- private equity / big money / Wall Street has created monopolies and wiped out small businesses as a result of Covid, cheap money, and the defanging of antitrust. This has increased costs in so many areas.
- higher interest rates make currencies higher value.
- lower interest rates cause inflation.
- the issue of stock buybacks outside the defense industry has not been addressed. Same with rewarding outsourcing to keep a low Capital expense rate.
- Canada has de industrialized and I’m not sure has the infrastructure to increase exports to China, including oil. Canada seemed to have become an access point into the U.S. market for Chinese goods.
- college costs and loans not touched yet,
- healthcare still out of control.
- immigration at a negative may help lower in time Americans.
- banning wallstreet from owning single family homes would help, but no details released yet.
- k-12 education is still mostly horrible
- nuclear in the U.S. takes a long time to build
- de dollarization is accelerating
Mark Carney @MarkJCarney
We’re removing trade barriers to unlock billions of dollars in business for Canadian farmers, fish harvesters, and workers across agri-food sectors.
By March 1, we expect that China will lower tariffs on Canadian canola from 84% to about 15%, and that Canadian canola meal, peas, lobster and crab will no longer be subject to the anti-discrimination tariffs.
Ray, you are not alone on the economy. Below is an excerpt from John Mauldin's "Thoughts from the Frontline" letter from last Saturday. Mr. Mauldin included the list below from economist Dave Rosenberg of Rosenberg Research, which includes 20 deep imbalances in the US economy and stock market that are unsustainable.
Here’s the full list:
Top ten stocks in the S&P 500 representing 40% of the market cap.
Tech sector industrial production +11.8% YoY; +1.8% for ex. Tech manufacturing.
A real CAPE earnings yield of 2.5% and a 30-year real TIPS yield of 2.6% (as in, a negative equity risk premium).
Wage growth +3.5% year-over-year; S&P 500 (operating) earnings growth +23%.
Real consumer spending +2.6% year-over-year; real personal disposable income +1.5%.
AI and related business spending up +11.0% year-over-year; the rest of capital spending down -4.4%.
Real GDP growth +2.3%; Real Gross Output at +1.5%; and soft survey-based economic data consistent with 0% growth.
Hiring rates (3.2%) tied for a fifteen-year low; layoff rates (1.2%) tied for a five-year high.
Full-time employment +0.6% on a YoY basis; part-time +6.6%.
Unemployment rate for those 25 years and older at 3.7%; and at 8.3% for those in the 20-24 age cohort. [JM - making for a total of 4.4% unemployment as of Friday morning.]
Nonfarm payrolls growth at +0.6% YoY; excluding health/education +0.1%.
Large company employment +2.1% year-over-year; small business jobs down -0.2%.
Year-ahead income growth for those earning $100k and up, +3.2%; for those earning less than $50k, try +2.4%.
The labor share of national income is stuck at a historical low of 55%; down from 58% just before the pandemic hit in early 2020.
Consumer sentiment at its seventh-worst level on record; equity market sentiment at a twelve-month high and in the top 25% readings of all time.
Home sales -1.0% YoY; housing inventory +7.5%; median home price growth YoY down to +1.2% from +4.3% a year ago (and yet, inflation is on everyone’s brain).
Core “sticky” CPI inflation at +3.0%; core “flexible” inflation at a mere +0.7%.
Core inflation ex. shelter running at +2.3%; the nonfarm business sector price deflator down to +2.1% from +2.3% a year back and +3.4% two years ago, and yet most investors still think inflation is a top threat.
An unprecedented seventh straight year of the U.S. fiscal deficit/GDP ratio coming in at roughly 5% or higher (even with the tariff revenues); and coinciding with record portfolio bullish views on the economic outlook.
The Haver Analytics Fed-based recession model is at 74%, versus 71% a year ago. It got as high as 74% as well in late 2022 as investors priced in recession, but it never came; we are now at the same level, but no asset class is priced for the possibility of a downturn.
Yep, so much of the reported "evidence" seems inconsistent as regards both the economy and the markets. Some of this, I think, can be attributed to the "K-shaped economy." And much of it has to do with the U.S. fiscal insanity. Those who have spare cash to invest will continue to buy hard assets as "insurance" against Dollar debasement and because Treasury Bond term premiums no longer reflect the reality of such debasement. In short, we are seeing the death of the USD as the primary "reserve asset" for the world.
Hi Mark, Bid is (Buy) and Sell is (Ask). I saw some black buff today when a homeless person’s blanket slipped off 🤷♂️
Mark wrote: "That’s what’s being threatened, and the threat is so serious that Trump has repeatedly resorted to military force or the threat of military force. He’s working all the levers, but nothing seems to be responding."
Trump is playing a game of whack a mole. He is hoping he can fool everyone that he's got the situation under control until after the mid-terms. Countries know that they must "de-dollarize" since the dollar has been weaponized and any dollar holdings could be sanctioned, confiscated, or made worthless by the US when Trump loses his temper.
From https://quoththeraven.substack.com/p/the-dollar-is-fine-says-everyone :
"At the same time, China and Russia have nearly erased Western currencies from their bilateral trade. Almost all payments are now in rubles and yuan." and "In November it bought almost $1 billion worth of Russian gold in a single month, setting a new record. That followed October’s already absurd $930 million purchase."
And Rubio is reportedly planning to offer $700B for Greenland. Why - when we can just take it?
UK monarchy of course is Carney's boss and UK is about to approve a massive China "super embassy" in central London at the site of Royal Mint Court. I'm guessing that UK has no choice since it's likely been broke for over a century. Photo of planned Embassy...https://www.ft.com/content/1c85300d-af36-4c49-9a45-8ebcc1c6a006
About the only pushback re this super-Embassy that I've seen in the curated UK media Susan, is the concern that the many subterranean levels will be crammed with spies, and that 'our' fiber optic cables etc might be tapped during the process.
Lots of wealthy new consumers to keep Lundon nightlife ticking over, a vested interest of paramount importance in not having the city bombed to bits, keeping a close eye on the perfidious Albion, it sounds smart to me and mutually beneficial.
I'll take your word for it that London nightlife is booming with new consumers. You mentioned UK media, I get a Times email newsletter every day and they absolutely believe London is rocking and rolling. I still think the country is rotten to the core. The monarchy decides "foreign policy" which means endless US taxpayer funded wars in the belief that this will save them from irrelevancy.