Washington’s Bias for Continuous Inflationism

Posted on June 23, 2023 by MN Gordon

This week Federal Reserve Chair Jerome Powell delivered his semiannual testimony to Congress.  A main feature of the discussion was the status of rate hikes and the fight against inflation.

In short, Powell’s inflation fight isn’t over.

Core CPI, which excludes food and fuel prices, is increasing at an annual rate of 5.3 percent.  Similarly, core personal consumption expenditure (PCE) prices are up 4.7 percent from a year ago.

Thus, a federal funds rate of 5.25 percent isn’t enough to contain rising prices.  Ideally, a rate on the order of 7 to 7.25 percent is needed to do the trick.

After its recent FOMC meeting, the Fed signaled two additional rate hikes this year.  As part of this week’s testimony, Powell validated this… remarking it was a “pretty good guess”.

So, why pause in the first place?

The Silicon Valley Bank and First Republic Bank fiascos in March are a very small part of a much larger issue.  Rapid interest rate hikes have left poorly prepared banks unable to adequately compensate depositors. Continue reading →

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Are You Unknowingly in the Impact Zone?

Posted on June 16, 2023 by MN Gordon

“When the wave breaks here.  Don’t be there.  Or you’re gonna get drilled!” – Turtle

A New Bull Market?

Have U.S. stocks really entered a new bull market?

That’s the claim of some experts following the S&P 500’s recent attainment of a 20 percent increase from its October 2022 interim low.  We have some reservations.

Of note, the S&P 500 is still down over 7 percent from its all-time closing high reached on December 29, 2021.  Certainly, the S&P 500 could hit a new high as part of this rally.  But it would be short-lived.

There are a number of factors at play that are bearish for the stock market.  Interest rates, Treasury sales, credit market stresses, and an imminent recession.

In fact, we believe the S&P 500 has become increasingly risky over the last six months as the top technology stocks have bubbled up.  Because of this, the portfolios of many investors are now unknowingly in the impact zone.  And they will get absolutely drilled when the market resumes its next bear market leg down.

We’ll get to the how and why of this in just a moment.  But first, some context is in order.

This week’s Bureau of Labor Statistics consumer price index (CPI) report is as good a place as any to look at first.  As you may have seen, the BLS reported that consumer price inflation, as measured by the CPI, increased at an annual rate of 4 percent in May.  That’s more than double the Fed’s arbitrary 2-percent inflation target. Continue reading →

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Time to Get Real About Artificial Intelligence

Posted on June 9, 2023 by MN Gordon

There’s never really a good time for a new bubble mania.  But usually, they have the decency to come at the tail end of an extended bull market, as a sort of blow-off top.

That’s when investors, blinded by greed and confident from a long period of success, throw caution to the wind.  They recklessly chase share prices higher with the expectation of bagging easy riches.

The dot com bubble mania blow-off in the run up to the new millennium was a true classic.  It was preceded by an 18-year bull market and triggered by a new, game-changing technology.  The subsequent downside – a 75 percent collapse of the NASDAQ – was timeless.

The current AI bubble mania is an odd duck.  With the roll out of ChatGPT, roughly 6 months ago, the AI bubble mania has inflated within an extended bear market rally.  Hopeful investors are getting suckered in at the worst possible time.

Year-to-date, the NASDAQ is up 26 percent.  Yet, it is still down over 17 percent from its November 19, 2021, all-time closing high. Continue reading →

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On the Importance of Deflation and Depressions

Posted on June 2, 2023 by MN Gordon

Much of legislative activity is grossly overcomplicated.  This is because honest governance is missing from the process.

The simple and honest way to put headspace between the debt and the debt ceiling is to run a budget surplus and use the excess to pay down the debt.  The politics of the moment make this impossible.

Unless something radical happens, the Senate will soon pass the debt ceiling bill.  Perhaps by the time you read this, it has already happened.  Are you happy?

You shouldn’t be.  Not if you believe in small, limited government, greater freedom and autonomy, and future prosperity for your kids and grandkids.  If you believe in these things, then raising the debt ceiling is a direct assault on your sensibilities and way of life.

Alas, most Americans don’t give a rip that the debt ceiling was raised.  They’re too busy running up their own consumer debt to care what Washington’s doing.  And like the federal government, when they run out of money, and max out their credit cards, they borrow more.  For tomorrow never comes. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , , | 20 Comments