A Jolly Mess

Sabotaged pipelines, sinking stocks, savage storms and other tales from the new abnormal...

(Source: Getty Images)

Bill Bonner, reckoning today from Baltimore, MD...

Last week was a jolly mess.  

Someone blew up the world’s most important gas pipeline. The Dow closed out the worst September in 20 years. The bank of England looked normalcy in the face – and panicked. Inflation rose. And a storm swamped much of Florida. ‘Get used to it,’ said the climate alarmists; it’s the new normal.  

But Floridians were already used to it; hurricanes in Florida are the old normal, not new normal. There was nothing especially ferocious about Ian. But it had been a long time since a hurricane like the Okeechobee Storm of 1928, which killed 2,500 people, had struck the Ft. Myers area.  

Meanwhile, just when the winds of inflation were supposed to be flagging comes news from Barron’s:

Fed’s Preferred Inflation Gauge Rises in August. Price Gains Still Running Hot.

The core personal consumption expenditures price index, the Federal Reserve’s preferred inflation metric, picked up in August, after cooling off in July.

And this from Breitbart:

The prices of food purchased by American consumers in August saw the most inflation since 1979, government data showed Friday.

The personal consumption expenditures index for food was up 12.4 percent compared with a year ago, indicating that food prices were up the most year-over-year since February 1979.

12%?

Yep.   

And for a lot of people, a 12% increase in food costs is a big deal. It forces them to make tough decisions.  

‘The People’s’ Money

It should be forcing the feds to make tough decisions too. After all, inflation is federal policy. The feds spent more than they raised in taxes, and filled the gap with printing press money. Shouldn’t it cut back… and spend less of ‘the people’s’ money… so that inflation will go down?

Nah… instead, also last week, President Biden announced a plan to eliminate hunger by 2030. This will be done by spending more money, not less. No mention was made of the last great fight against hunger. That came in 1969, when Richard Nixon pledged to banish it forever. Apparently, that effort fell short… or there would be no need for a new one. 

So, you see, everything happened more or less as could be expected. The president did what he does, such as it is. Central bankers did what they do. Terrorists did what they do. And hurricanes stuck to the familiar script too, along with those who want the feds to ‘do something’ about them.

And here at Bonner Private Research we will do what we do too – marveling at how terrifying ‘normal’ can be… especially, when you’ve been enjoying abnormal for such a long time.  

Years ago, an old friend, whose tractor was stuck in deep mud explained what had happened:

“I forgot that it could rain.”

Abnormal is a time when the sun shines every day… and you can borrow money for less than it is really worth. Naturally, you leave your umbrella at home. You think ‘abnormal’ is the new normal.  

And then, it rains. And interest rates go up.

More Bang for their Bucks

Interest rates famously “discount” things that could go wrong in the future. And when the Age of Everlasting Sunshine came to an end, suddenly interest rates had a lot more to discount. Inflation, for example.  

In a country with 10% inflation, a 5% yield on a 30-year bond is more ‘normal’ than a zero yield. But while the BoE was as calm as a corpse at 0%... at 5% it was in a panic. It thought it was approaching its Lehman Bros. moment… and decided not to take a chance. Markets are great, say the deciders, but not when they tell you what you don’t want to hear.

What markets were about to say, of course, is that Britain’s ‘lower for longer’ interest rates had turned even the most conservative money manager in London into a wild-eyed gambler. Fund managers were supposed to make sure pensioners got their money – 10, 20, 30 years out.  And with such low rates, managers had to move their money from ‘risk-free’ gilts to ‘risk-ee’ bets on stocks. And then, to get even more bang for their bucks, they borrowed to gain leverage.  

Everybody did it.

And it all went well, until… it rained. And the winds picked up. People loaded up on toilet paper. And then, Britain’s central bank made its pivot.

“They had to do it,” you see in the financial press. “The BoE had no choice,” say the explainers. Otherwise, “it would have been a disaster.”

Meanwhile, in another town far, far away… another central banker stays the course. Yes, Jay Powell is not for turning. Not yet.

Not until things get too normal.

Regards,

Bill Bonner