Stagflation!
Rising inflation and economic contraction... you ain't seen nothing yet!
(Source: Getty Images)
Joel Bowman, reckoning today from Buenos Aires, Argentina...
Is it just that Elon Musk is an immigrant from a poor country, or is it because he’s African American that has got the woke mob’s unisex panties in such a bunch?
We’ll “circle back” to all things Twitter/Musk related in tomorrow’s Sunday Sesh. For now, let’s concentrate on what’s in front of us... a stock market meltdown, a (synchronized?) fiat currency “race to the bottom” and a curious phenomenon that Austrian School economists call “stagflation.”
Where to begin?
“The Generals,” as Dan Denning has been referring to them (that is, mega cap S&P 500 stocks like Amazon, Facebook, Netflix, Tesla, Alphabet etc.) were in full, disorderly retreat on Friday. Here’s ol’ mate Denning with the wrap...
Well, that was ugly...
On the back of a disappointing earnings announcement from Amazon, the Nasdaq lost over four percent on the day. It was down over 13% in April (the worst month since October of 2008) and is now down over 20% for the year (bear market territory).
The Dow Jones Industrials rallied late to avoid a thousand-point loss on the day. A thousand points doesn’t mean anything technically. But it’s a big number and makes for big headlines. And more fear.
Meanwhile the S&P 500 fell over three and a half percent. The minus 13.37% start to the year is the third-worst start ever, and the worst in 83 years. It started down 17.3% in 1939 and 28.2% in 1932.
Now, your weekend editor is no quant trader...but them there numbers sure do look bad!
Meanwhile, economists were “surprised” to discover the economy shrank by 1.4% during the first quarter. They had been expecting 1% growth. Oopsie!
It’s a good thing these wonks aren’t working as civil engineers... or pilots... or oncologists...
Can you imagine?
“So, we made our calculations, using the decolonized 2+2=5 math equations, and the structure looked stable...”
“It appears the pilot had been expecting the tarmac to be in the opposite direction...”
“Right, well... the thing is, ‘remission’ can mean different things to different people...”
And here comes murmurings of that dusty old Econ. 101 term, scarcely heard in the US since 1974, when it was all the rage: “stagflation.” For those who had better things to do in college, stagflation is characterized by negative growth coupled with persistently high inflation (not “transitory,” mind you... persistently).
High unemployment is another hallmark of stagflation and, although at 3.6% unemployment is “officially” low, the fact that workers real wages (that is, adjusted for inflation) are falling like a rock does not help the situation. In the ‘74 recession, job losses lagged inflation and economic contraction by some months. All told, some 2.3 million Americans lost their jobs during the 16-month recession.
With the consumer price inflation gauge boiling over at a 40 year high and this week’s “shock” news that the economy is actually contracting, it might be time to whip out the old bell bottoms and platform shoes. One gets the feeling that, as Bachman-Turner Overdrive sang in the summer of ‘74, “B-b-b-baaaaby, you ain’t seen nu-nu-nu-nothing yet!”
Of course, President Joe “The Buck Stops With Me” Biden was on hand to claim full responsibility for the economic mess his administration hath wrought. From his official Whitehouse Statement...
While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of COVID-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength.
And here we invite any reader, thus far unconvinced of the president’s “position of strength,” to witness the man in full flight...
Just remember, it was only a couple of years before we went from “You Ain’t Seen Nothing Yet” to Kansas’s Point of No Return album... thereafter, it was all dust in the wind...
Ed. Note: Not receiving Dan’s Friday market notes? Get yourself on the list, here…
And now, back to matters at hand. Earlier this week, Bonner Private Research Investment Director, Tom Dyson, launched a “counter offensive,” adding five new names to the BPR portfolio.
From Tom’s note to BPR subscribers on Wednesday...
This month, for the first time this year, we’re launching a counter offensive.
I’m adding five new stocks to the Bonner Private Research list of favorite stocks. These companies are all defensive value stocks generating large cash flows from production or transportation of basic materials. These stocks have all fallen significantly in price over the last week and are giving us excellent entry prices. I’ll get to the new stocks in a moment. First, let’s review the big picture…
Moving Out of Maximum Safety Mode with Caution
What’s going on? It’s simple. We’re at the top of a gargantuan credit and equity bubble – the greatest of all time, in all things.
Suddenly, the world economy’s best supplier of cheap commodities (Russia), the world economy’s best supplier of cheap manufacturing (China) and the world economy’s best supplier of cheap debt (the Fed) have all gone offline.
It’s like cutting off the oil, fuel and coolant to a high-performance engine, all at the same time.
We’re seeing the world economy buckle as trillions of dollars in unserviceable loans and investments begin to be liquidated. Investors are fleeing from the stock and bond markets and seeking safety in cash.
There’s a name for this process. It’s called ‘debt deflation’. And it’s about to trigger a global sovereign debt crisis.
Central banks will not tolerate deflation for long. And they definitely won’t let government Treasuries hard-default on their debts until all other avenues have been exhausted. So central bankers will react to this debt crisis by printing money, monetizing bad debts, and devaluing their currencies. This is the key thing to understand for the next chapter in world economics.
Currencies, not stocks or bonds, will be the main release valve for the tremendous losses from this collapsing debt bubble. I’m expecting a global synchronized currency devaluation in which the major world currencies could lose as much as 75% of their purchasing power versus gold over the next decade, much like occurred after World War 1.
Our job is simple. We must tactically swap our savings of paper currencies for scarce hard assets like land, energy, gold and essential infrastructure before they pull the rug out from under the currency markets.
As we’ve remarked in these pages before, though we fully expect a world of hurt to come in the broader stock market and for inflation to continue eating into the value of fiat currencies around the world, there will be opportunities for patient investors... those who have been following Tom’s advice and keeping a store of gold (plus some silver) and dry powder (cash) on the sidelines.
If you’d like to receive Tom’s complete analysis, including weekly market updates and monthly research, as well as full access to the BPR portfolio (along with his 5 new picks), feel free to join us here, today...
And now for Bill Bonner’s missives from the past week...
And that’s all from us for today, folks. Tune in tomorrow for your regular Sunday Sesh, when we’ll take a closer look at what’s not being said about the whole Twitter story...
We’ve also got a brand new Fatal Conceits podcast loaded in the chamber, one recorded right here in Argentina, “the ghost of America’s inflationary future.”
Until tomorrow...
Cheers,
Joel Bowman
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From the trenches as a employer the economy is going to continue shrinking as long as American's are paid to stay home, or for that manner to work from home.
As the owner of a popular food franchise hiring young people or for that matter any age person is increasingly difficult. The idea $15 minimum wage is the solution, is laughable in that we've paid $15 all along, and more for day shift. Young people don't think past next week, when they have enough money for the week and the next the excuses start to pile up. Covid has been a boon to the employee seeking time off with no consequences.
We're currently selling one location, the business broker has learned all our competitors are either selling or liquidating. They're using FB market place or Craigslist. God help them, there's an unending stream of want to be business owners to waste time with.
I'm thinking besides gold it might pay to purchase some freeze dried meals, say 6 months worth. If food becomes a problem the bark will be gnawed off all the trees by then and most of the population will have perished or eaten each other.
Some hope, with food Americans eat too much, and too often. One well balanced meal a day is all anyone needs.
Russia's invasion was clearly provoked. 8 years of civilians dying in Donbass accompanied by troop build ups along the line of control and ever increasing shipments of weapons from the USA combine with a failure to implement the Minsk accords was a powder keg just waiting to explode. The US could have reigned in Kiev but chose to use them as cannon fodder. Biden cheered as the ruble imploded only to see its value rebound in less than a month. The idiots running the show in the US seem to have zero understanding of Russian history and culture. Their most important holiday celebrates the end of WW2 whereas the Americans have long forgotten it. Their ability to endure pain and thrive is unparalleled.