Peak Delusion
If this is what a "robust" economy looks like, we don't want to see a weak one!
(Photo: View from today’s office, somewhere along the 205km Sognefjord, Norway.)
Joel Bowman, checking in today from Flåm, Norway...
Peak inflationists took another look at the map on Friday. Turns out, we may still be in the foothills. Here’s the Wall Street Journal...
The economists predicting “peak inflation” have been right in one sense: Inflation does keep peaking, with Friday’s Labor Department report showing the consumer-price index at a 40-year high of 8.6% on an annual basis. What progressive spending gave to Americans in welfare and new entitlements, it has taken away in a lower standard of living.
President Joseph Robinette Biden Jr. was, of course, quick to take full, adult-like responsibility for the situation, exactly as he promised:
Just joking. Following an inflation report that even the left-leaning Economic Policy Institute called “pretty ugly,” Biden turned instead to his usual whipping boys.
The Russo-Ukrainian War... Corporate greed... Congress... Putin’s Price Hikes... Supply Chain Disruptions... the virus... You know the roll call already.
“We’ve never seen anything like Putin’s tax on both food and gas,” he gasped after Friday’s report, generously sharing the blame for a job poorly done while adding that his administration, “could continue everything we can to lower the prices for the American people,” but ultimately it is, “Congress that has to act.”
He also lashed out at ExxonMobile for not doing its job...
“We're going to make sure everyone knows Exxon's profits,” said the Big Guy. “Exxon made more money than God last year.”
Oil companies are, “not drilling,” he claimed, because they were too busy buying back their own stock, “which should be taxed quite frankly... and making no new investments... Exxon, start investing and start paying your taxes.”
(The company responded by pointing to its 2021 tax bill, which totaled $40.6 billion... a 78% increase from the $22.8 billion it paid in 2020.)
Into the Heavens
At the pump... at the store... at the rental counter... on vacation... on the farm... stretching across the jagged horizon, as far as working Americans can see, the price peaks rise and rise, up into the heavens. Here again, the Wall Street Journal...
Energy and food prices made up much of the May increase, but this is cold comfort for consumers. Americans used to be able to substitute lower-cost protein when beef prices rose. But everything at the supermarket has become more expensive in the past year—eggs (32.2%), chicken (16.6%), milk (15.9%), even soup (13.9%). Lower-wage workers are getting crushed by Bidenomics.
And it’s not just energy and food prices that have gone through the roof, either... the roof itself is threatening to take off, too! According to the Labor Department’s report, shelter costs – which account for roughly one-third of the Consumer Price Index – accelerated in May, rising 0.6%. This marked the fastest one-month gain since 2004. Year over year, shelter costs have climbed 5.5%, the fastest since February 1991.
Studious readers will recall that we were told this would all be transitory... just a temporary blip... nothing to worry about. Yellen... Powell... Granholm... Psaki and POTUS himself repeatedly assured us the situation was under control, that it was all part of their extraordinary strategy to manage the unmanageable by knowing the unknowable. Here’s a little montage in case you forgot...
Needless to say, investors are not thrilled by the worsening economic outlook. While savings are being systematically destroyed through inflation, retirement accounts are being whacked over in the stock market.
The Dow Jones industrial Average was down another 5.3% last week, the S&P 500 fell 6.1% and the tech-heavy Nasdaq slid almost 7%. The three indices are lower by 14.2%, 18.7% and 28.4%, respectively, year to date.
Hmm... higher everyday prices at the store and lower lows for your investments. Is this the “most robust economic recovery in modern history” that Biden was touting just five days ago?
If this is robust, we don’t want to see what weak looks like!
Of course, sane individuals would blissfully ignore these politicos and wonks, if only their policy decisions were not so destructive. Alas, we’re forced to tune into their “force and chicanery,” as Bill put it earlier this week.
BPR Investment Director, Tom Dyson, echoed Bill’s sentiment in a note he sent to subscribers on Wednesday. Here’s a key snippet...
We are all policy traders now. What I mean is, we should be discussing the prospects of promising companies, earnings, revenues, rising dividends and that sort of thing in these pages.
Instead, we’re all just waiting to see what a handful of academics will do next with the price of money.
In a more perfect world, you could just buy a basket of excellent stocks and let compounding work its magic.
The sad truth is, the only way we’re going to keep our purchasing power intact through the coming debt default is if we understand this fact: recession, inflation, devaluation and even the big trends in the stock market from now on, are not outcomes based on the private decisions of millions of profit-seeking individuals, adjusting their behavior based on market prices.
Recession, inflation, devaluation, and the big trends in the stock market are all driven by government policies from this point forward. If we’re going to make it, we must play the game. We must be policy traders.
A Recession Policy
For example, right now, the government wants to cause a recession. Why? It thinks a recession will kill demand for goods and services and, hopefully, oil. This will get inflation down AND stick it to the Russians.
It’s not a time to be contrarians and buy the dip, as so many seem to want to do. The trade we must make now is to hold a lot of cash and make sure we stay out of the way of the crashing stock and bond markets. They surely have much further to fall if the Fed continues with higher rates and Quantitative Tightening (which began last week). We’ve nicknamed this policy “the Fed wrecking ball”.
Bonner Private Research subscribers know Tom has set the portfolio dial to “Maximum Safety Mode,” as he and Dan map out a strategy for long term capital preservation. What does that mean? Lots of cash, precious metals and hard assets, for one thing... and a select few “tactical trades” judiciously executed when the opportunities present themselves.
If you’re done listening to the “two weeks to flatten the inflation curve” crowd and prefer to take charge of your own independence, you might consider becoming a Bonner Private Research subscriber today. Details, here...
And now for Bill Bonner’s missives from the past week...
That’s all from us for today. Tune in tomorrow for a special mailbag edition of your Sunday Sesh, where we’ll put your investment questions to Tom and Dan. As mentioned earlier, they can’t offer personal advice, so please do keep the questions general in nature.
You can write to us directly at BonnerPrivateResearch@gmail.com or simply drop your query in the comments section below.
As for peaks, our train back up the mountain is about to depart. Until next time…
Cheers,
Joel Bowman
Joel, there’s a great individual survival story from that part of he world of a Norwegian resistance soldier in WW2. It was called Escape Alone. A good quick read while you’re there if you can get your hands on it.
My inbox is a happy place because you gentlemen are such PROLIFIC writers, and you each have a slightly different angle. I benefit from your driving sense of curiosity by learning new things all the time. I'm happy and honored to be aboard your ship as you navigate today's especially treacherous waters. Good luck to us all!