Radio Show 3/13/23 Focus On What Matters
POWELLITIS- READ EVERY WORD!
If every asset price, every data point, every economic statistic, every decision by investors, speculators and traders…small, medium and large are used to, addicted to and FORCED TO work off of 0% interest rates, what do you think happens when the unwind comes? FORCED TO were the operative words. We have been warning you about this great unwind for years. We have been warning you about the bubbles. We have been warning you about the screwing of savers. We warned you that Austria was able to float 100 year bonds at less than 1%. We warned you of the bond market losses. We warned you about the biggest problem. All of this was not the real market. All of this was not the free market. We warned you. We whined and complained on a daily basis that we let one man control the biggest market in the world with unimaginable amounts of conjured up money to buy up the whole freaking bond market. Let’s think about this again and simplify things again for you.
One man printed to $9 trillion and took rates to 0%. Talked his counterpart in Europe to do the same. One man was able to print to $9 trillion. Think about that. We let him print to $9 trillion to take over the most important market in the world. The market on yields. Again, every asset price, every data point, every economic statistic, every decision by investors, speculators and traders…small, medium and large were FORCED TO work off of 0% interest rates. They were forced to make decisions that otherwise they wouldn’t have if that one man did not have the ability to take over the biggest market in the world. Short term paper. Nope. Paid nothing. 1 year…nope. 2 year…nope. 10 year? 10 year paper paying as low as 0.398%. What do you think happens to an entity that is forced to go out ten years to make just 0.398% when rates spike higher? They lose a crap load unless they hold to maturity. They are forced to hold to maturity unless they want to take a loss.
What else? We warned you about inflation. We just went back to our economics 101 book. Too much money chasing not only too few goods but chasing nothing. It was that simple. So while Jay Powell was smiling at himself in the mirror because markets were up and bubbles were turning reddit followers into zillionaires, we again warned that this was all because of one man’s whims with the unimaginable ability to print unimaginable amounts of conjured up money and there would be an ultimate outcome and that ultimate outcome would be an unimaginable unwind. Jay Powell had no clue what he wrought.
So economics 101 took over. But human nature says Jay Powell did not want to believe there would be any problems because in real time, everything was just fine. Markets were cooperating. But then the s–t hit the fan. Inflation spiked. He refused to believe what we and eventually quite a few others started to scream about. But the real market started talking. Amazingly, all he had to do was follow what he stopped controlling when the printing spigot ended. Yields spiked. Economic 101 says when inflation picks up, the real world of markets would demand higher rates to account for the inflation but also to unwind the crazy. As yields spiked, he did nothing which led to higher inflation. Add in Biden’s continued asinine spending and you had one heck of a 1-2 punch for inflation. The so-called “Putin price hike” came later. The president then did his job by lying about the cause.
Powell finally realized he had to combat the inflation. Powell had to finally admit with Yellen (another easy money central banker) that inflation was a problem. At first, slow walked but as inflation picked up and yields kept going higher, he had to start moving quickly JUST TO PLAY CATCH UP. Over time, he finally caught up to the real market as he basically was racing against Usain Bolt.
And now, we have hit our ultimate warning to you. Our simple question was, has been and still is what happens when all of the distortions this one man created by playing God with the biggest market in the world really get unwound? You are now seeing it in real time. This is not just Silicon Valley. This is the many that were FORCED TO deal with one man’s rigging and manipulating the biggest market in the world, the yield market. This is the many that are holding long dated paper while yields have spiked. At the extreme, this is about Austria being able to float 100 year bonds at under 1%. Take a guess on how much principle has been lost on these bonds.
So here we are today. The 16th largest bank is taken over even though we have been told everything is just fine. Yellen telling us all is well does not make one feel better as she was part of the contingent back in 08 who told us subprime was contained and housing prices never go down. She was part of the contingent that had oversight over the banks that committed all kinds of fraud using all kinds of alphabet soup leverage causing the disaster. And yes, she was part of the contingent that started the nightmarish experiment of printing money out of thin air. Feel better now.
So what is next? Anyone who tells you they know is just guessing. But we can tell you we have been on top of this and we cannot be sure. We are told how good the stress tests are but these stress tests do not test out the emotions of people and we can guarantee you none of these stress tests involved the nightmarish taking over of the bond market by one man or the fact that in record time, 1 year paper has gone from 0% to 5%. These stress tests do not test out the fact that the many now know 5% government paper is out there. This is just one man’s opinion and some may not like the following statement but the people running the show…who caused all this DON’T KNOW WHAT THE HECK THEY ARE DOING AND HAVE ABSOLUTELY NO CLUE WHAT IS OUT THERE. They do not understand this is not about the banks but about the decisions of those same people and businesses who were forced into living in Jay Powell’s world of no yields but now have alternatives. Banks are only banks because of the deposits of people and business.
We do have some forward thoughts.
There will be others. Silicon Valley went out because they were not able to raise money because how far down their stock price dropped. We think it is a must to watch stock prices of especially the smaller.
Two weeks ago, we were sure the fed was going to raise another 1/2 point in the upcoming meeting… but now, we give that no shot. There may just be a chance of no move at the next meeting. You must know that if Powell had his way, he would have been lowering rates right now but because of the inflation he created, unless things really worsen, lowering rates may still be out of the question. BUT THE LOWERING OF RATES WILL BE AN EVENTUALITY. They are boxed in like mixed nuts. Raise rates now? Doubt it. But if they lower rates, what about the inflation they were so wrong about but now have to deal with?
What would we do? We would have never been in this position in the first place as we would have let free markets do their thing. They are quite efficient without these interlopers.
But if we did take over right now, we would do everything in our power to have others take over Silicon Valley and not the federal government. Enough of the government thing. Isn’t $32 trillion of debt and soaring enough?
We would then start paying attention. We would then make sure all financials institutions, big and small were acutely aware that they are only as good as their deposits. In case you did not know, there was a huge flight to safety Friday as the 10 year yield plunged. In fact, the whole yield curve plunged. That is money moving to safer places. We would have every major bank start thinking about worst case scenarios, because we are not dealing with banks, but they’re depositors, and how they feel.
We would then sit down with the administration and tell them to take their $6.8 trillion nightmare of a budget and stick it. Just that number $6.8 trillion mentioned has implications. That’s $6.8 trillion with over $1.5 trillion of debt…a record.
The real market has taken over. The control Jay Powell had with unimaginable amounts of conjured up money has been over for a while but somehow believe he thinks he is still in control. We continue to be worried that the same people that caused these problems and are treated like they have a clue are still running the show. We would love to give you better news but we have always dealt with reality and reality has always been the numbers. We take no joy in any of what we are stating but debt, deficits, distortions brought to us by the people in power are now speaking volumes and where it stops, wish we knew. We just think one must be careful of the talk everything will be fine. WE HOPE EVERYTHING WILL BE FINE! But it is not fine when the 16th largest bank goes under in short order, an institution that has oversight by guess who?