Next to Nothing
A Fed policy for the faint of heart, plus Elon Musk's challenge to Mr. Putin and the trouble with offense spending...
(Vintage engraving of The Uffizi Wrestlers. Source: Getty Images)
Bill Bonner, reckoning today from San Martin, Argentina...
Jerome Powell and his fellow Fed heads are hunkered down for their big meeting today and tomorrow. Caught between a rock and a hard place, the Fed has to decide. Consumer prices are rising at a politically uncomfortable rate – almost 8% per year. But the stock market is wobbly… and threatens to crash.
What to do?
Nothing! Or as close to nothing as it can get away with. Later tomorrow, the Fed will almost certainly announce a tiny 0.25% increase in its key lending rate… bringing it (adjusted for inflation) to MINUS 7.4%.
To get our bearings, we note that if you’re going to stop price increases you have to lend money at a rate that is higher than the inflation rate, not below it. An inflation-killing move equivalent to what Paul Volker did in 1980 would put the Fed rate at PLUS 10% – or 1,740 basis points higher than it is today. And if the Fed continues its baby steps to nowhere approach, raising the key rate by a quarter point per trimester, it will take 17 years to get there… or until 2039. By that time, the dollar and the world’s US dominated money system will be long forgotten.
“Inflate or Die?” On a scale of 10, we rate the chances that the Fed will mount a serious fight against inflation at 1.
Fed chief Jerome Powell says he is just being cautious. What with a war going on and all… he didn’t want to introduce more “uncertainty.”
What to make of it? Sarcasm offers the only relief.
Gladiators, Fight!
Elon Musk has proposed what must be the best solution to the Russo-Ukraine war. He challenged Putin to a ‘single combat’ to settle the issue:
It is absurd, of course. But it would be a great way to end the war. Imagine the box office! Billions could be raised from selling tickets to the event or on-line viewing. The money then could be used to repair the damage.
And if Putin wins, he gets what he wants without more bloodshed. If Musk wins, whatever he wants… well, who knows? But it’s not likely to be worse than what is happening now.
So far, no word from the Kremlin about whether the challenge has been accepted. So, the bombing, shelling, killing, sanctioning and spending goes on… in the Ukraine, in Yemen, in Afghanistan… and all over the world.
But why? Why is money taken from Americans to be used to kill Russians, Yemenis or Afghanis? Why is money taken from Russian civilians without due process? (What kind of kangaroo court would condone taking money away from people who had done nothing wrong?)
Here at BPR money is our beat. Money is made by producing goods or delivering services – such as providing gas to Europeans – and thereby satisfying customers. But politics intrudes… and money vanishes.
“You’re either with us or against us,” George W. Bush said of the War on Terror. There was no middle-ground… no room for compromise… no other side to the story.
You’re either vaccinated… or you’re causing the “pandemic of the unvaccinated,” said Joseph Biden, even though vaccinated people – such as your editor – got the COVID too.
And now… even suggesting that there is another side to the story marks you as a “Russian asset.”
Yesterday, the Financial Times cited the case of India. The fact that it has not come out four-square in favor of the ‘western allies,’ could “imperil relations with the US.”
Holy Fantasies
This train is bound for glory; everyone is meant to get onboard. But getting on-board with the sanctions war against Russia means getting off-board with other fads and fashions of the elite. Until a few weeks ago, for example, fossil fuels were the devil’s work and investors were proudly displaying their contempt for weapons manufacturers.
‘A nasty business… with nasty clients… and nasty results,’ we put words in their mouths. In the ESG (Environmental, Social, Governance) world, investing in energy or weapons was a no-no. Making the world a better place was the goal, even if it meant lower profits.
But now they’ve all signed on to the ‘Ukraine-as-Holy Land’ fantasy, and suited up for battle. Suddenly, the war on CO2 has disappeared from the headlines and ‘defense’ is no longer a bad word.
“Ukraine is one of the most important ESG issues we’ve ever had,” said Philippe Zaouati, chief executive of Mirova, the $30 billion sustainable-investing unit affiliated with Natixis Investment Managers. “It’s a vital issue for energy and human rights, and questions whether we still want to live in a democracy or not.”
Really? Is that what it’s all about? Is that what we’re fightin’ for?
Is democracy at stake? Is that the reason to switch from saving the planet to saving the Ukraine?
But Mr. Putin has shown no sign of wanting to end the Ukrainian democracy; instead, he seems to want to increase it, by allowing the Eastern provinces to elect their own leaders. As for the rest of it, he insists only that it remains neutral. Thinking strategically, he doesn’t want any NATO missiles hard against his southern flank. How this poses a risk to democracy, we don’t know. Were Mexico to announce that it was allowing China or Russia to put their missiles on the south side of the Rio Grande…how long would it take the US to launch an invasion? Mexico’s democracy be damned!
But that’s the nice thing about politics. Nothing is ever marked to market. You can believe anything you want. And since you can fool most of the people most of the time, you’re almost always able to get the yahoos behind you.
Alas, fooling people causes foolish people to do foolish things.
Tune in tomorrow for more on the foolishness surrounding us all.
Regards,
Bill Bonner
Ed. Note: Did you know that Ukraine and Russia represent, respectively, 10 and 20% of the world’s total wheat production? Together, the two countries account for 30% of the all global wheat exports. Most of that goes to the MENA region - Middle East and North Africa… you know, ground zero for the Arab Spring revolution that swept through back in the early 2010s, last time food prices went crazy.
Measured in ever inflating paper currency, global food prices were already up 20% y.o.y. even BEFORE the whole Russia-Ukraine fiasco. And given the uncertainty surrounding the immediate future of “Europe’s Bread Basket,” as Ukraine is sometimes called, it’s unlikely we’ll see things return to normal anytime soon.
What does that mean for global supply chains… for prices at the grocery store… for your investments and your budget? Our analysts are keeping a close eye on the situation. For now, Tom and Dan have engaged “Maximum Safety Mode” for the BPR portfolio. That means plenty of gold (plus some silver) and enough cash on hand to deploy when opportunities arise, as they eventually will.
If you’d like to follow along with their in-depth research, we suggest getting on board today. Tom’s weekly update is due out tomorrow. Dan’s will follow, Friday. Join BPR here…
I've been making that exact analogy about Chinese nukes in Mexico since about 10 days ago. Some definitions: Hypocisy - "It's only OK when I do it." Exorbitant Privilege - "It's only OK when we do it."
“What kind of kangaroo court would condone taking money away from people who had done nothing wrong?” The Federal Reserve, through deliberate inflation?