In Praise of Inaction

Patience, prudence and a whole lotta "hurry up and wait"...

(Source: Getty Images)

Joel Bowman, checking in today from Broxbourne, England...

Did you hear that, dear reader? Jerome Powell said the quiet part out loud this week. 

Asked whether he thought Russian President, Vladimir Putin, was responsible for the inflation currently swamping American consumers, as per President Joe Biden’s persistent claim, the Federal Reserve chief replied, matter-of-factly, “No, inflation was high before — certainly before the war in Ukraine broke out.”

Of course, nobody could have seen that coming, right? Not White House mouthpiece, Jen Psaki. Not Secretary of the Treasury (and former Fed Head) Janet Yellen. Not President Joseph “I’ll take full responsibility” Biden himself. And certainly not Mr. Powell, who had his hand on the pump all along.

From these wizened sages we heard only that inflation was not “a thing”... 

Then, when “not a thing” became, indeed, “a thing,” we heard that said thing would only be “transitory”...

And when “transitory” became “persistent,” we were informed that said thing was actually a “good thing”...

And now that “good thing” turns out to be a “bad thing,” we’re assured that, thanks to the deft stewardship of all the people who guided the ship full speed into the iceberg, we are now in a fantastic position to fix the hull.

And that, too, is a good thing!

Well Enough Alone

According to current pants on fire spin doctor Pinocchio Press Secretary, Karine Jean-Pierre, “the economy is in a better place than it’s been... historically” and that “this administration” and “other experts” feel that they are now in “a good position to take on inflation, to really work on lowering prices.”

To that end, the President called on Congress this week to enact a federal gas tax holiday. Here’s CNBC: 

President Joe Biden called on Congress Wednesday to temporarily suspend the federal gas tax, as he tries to quell the rapid surge in prices at the pump. While experts say a suspension could provide some immediate relief, it could also keep demand elevated, thereby exacerbating tight supply.

Consumers are getting hit with higher prices everywhere, which has become a headache for the administration ahead of November’s midterm elections.

But the rise in fuel prices is perhaps the most noticeable strain on consumer pocketbooks — signs at corner gas bars across the country declare the bad news, the current price per gallon. The national average topped $5 per gallon for the first time ever earlier this month.

The cure for high prices, as mentioned many times in this space and elsewhere, is high prices. On the consumer end, costlier goods and/or services act as a wet blanket on demand. On the producer side, the profit signal invites more supply (from those “greedy capitalists”) into the market. Less demand and more supply, ceteris paribus, means lower prices. 

Enthusiastic Inaction

Of course, that would require letting things alone, allowing buyers and sellers to come to their own agreement, standing aside while Mr. Market does his work. 

But politicians cannot be caught in a state of enthusiastic inaction. They must, forever and always, be seen to be “doing something.” Even (and most often especially) if it’s the wrong thing. 

Food and gas prices are the primary concern for working Americans at this particular moment, due in no small part to the fed’s decided lack of inaction when it came to wanton money printing over the past two decades. Now, with the president’s approval ratings deep into their own bear market, Mr. Biden rushes to make matters worse. 

One wonders, when all the dust settles, whether he’ll have the cajones to claim: “I did that.”

Meanwhile, markets saw quite the rebound this week... but faded far short of the 50% retracement (to roughly Dow 33,000) that would signal a solid trend reversal. “There’s probably more bounce left,” observed Bill on Thursday, before adding that “even a dead cat bounces more than this.” Still, we’ll take what we can get at this stage.

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Dan Denning and Tom Dyson were on the case, as usual. Here’s a snippet from Dan’s Friday note to Bonner Private Research members...

It was a nice rally in the indexes this week. The S&P 500 is up more than 5% from its recent lows. And this was only the second positive week out of the last twelve. As Investment Director Tom Dyson and I have both said, you have to be disciplined to avoid bear market rallies. They’re alluring. But this bear market isn’t over:

• The average bear market on the S&P 500 lasts 13.7 months and ends with losses of around 38%. That’s based on data from the eight bear markets since 1973 (a bear market being defined as a decline of more than 20% from the high).

• The 1973 bear market lasted 21 months and resulted in a peak-to-trough decline of 48%. It took 69 months to make new highs. The dot.com bear lasted 31 months, saw a 49% peak-to-trough decline, and took 31 months to make new highs. The 2007 crash lasted 17 months, resulted in a 57% decline, and took 40 months to recover from.

• This bear market, so far, has lasted six months and resulted in a ‘draw down’ of around 20%.

Tom, meanwhile, reiterated the need to remain in “Maximum Safety Mode” in his monthly report, which hit member’s inboxes on Wednesday... 

“The set up for investors right now is the scariest I’ve ever seen,” he cautioned. “I wish I were writing to you with better news. But my job is to tell you what I see. And what I see isn’t good…

“Our advice remains the same it has all year. Without a Fed liquidity backstop, the system is collapsing. Inflate or die. Set the dial to maximum safety, hold lots of gold and lots of cash, and avoid the major stock market indices and all bonds.”

As it turns out, inaction (on the part of investors) has been the prudent move so far this year. Not getting suckered into bear traps, not fighting the trend, but waiting patiently for select opportunities to present themselves. So far, the opportunities that meet Tom’s threshold have been few... though he did book gains of 14%, 27% and 52% on a handful of “tactical trades” in the past couple of weeks. 

Priority #1, however, remains capital preservation. 

If you’d like to learn more about Tom and Dan’s strategy to help preserve your hard-earned savings through the coming storm, you can start by becoming a Bonner Private Research member and digging into their many reports, issues and market notes. There’s a (growing) ton of resources – including interviews, recordings, transcripts, etc. – in the members section of the website, which you can access immediately by joining us today...

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And now for Bill Bonner’s missives from the past week...

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Aaaand… that’s all from us for today. Tune in tomorrow for your regular Sunday Sesh, where we contemplate the world’s many wonders and dilemmas over an unhurried glass (or two) of high-altitude malbec... 

We’ve also got another episode of your Fatal Conceits podcast on tap. This week we caught up with ByteTree founder and editor of the prestigious Fleet Street Letter, Mr. Charlie Morris. A multi-decade veteran of the investment space, having worked as an investment banker and multi-asset fund manager, Charlie had plenty to say about gold, stocks, bitcoin, interest rates and much more besides. 

All that and more in tomorrow’s Sunday Sesh. We hope you can join us. 

Until then...

Cheers,

Joel Bowman