The End of the Road

What's really behind "Putin's price hikes," commodities go boom! and tales from our South American bolt-hole...

(Source: Getty Images)

Bill Bonner, reckoning today from San Martin, Argentina...

As expected, first it was the’ Covid supply chain disruptions;’ now the White House aims to blame Vladimir Putin. The Washington Post:

Biden frequently named the Russian president as he explained his decision [to cut off Russian oil.] “Putin’s war is already hurting American families at the gas pump,” he said. “Since Putin began his military buildup on Ukrainian borders — just since then — the price of the gas at the pump in America went up 75 cents. And with this action, it’s going to go up further. I’m going to do everything I can to minimize Putin’s price hike here at home.”

You can fool most of the people most of the time, said Abraham Lincoln. And that’s plenty for government work. With the complicity of the White House, Congress and the Fed, inflation will continue while the feds continue to lie about what causes it.

Colleague Dan Denning comments:

The national average of gasoline prices was up 52% before the invasion of Ukraine. It's up 18.8% since then (much higher in CA etc.). That's what happens when you take 4-5 million barrels per day off the markets. Crude is up 124% since Uncle Joe was sworn in.

Inflation is Putin's fault? How about the 90% increase in the monetary base since September of 2019? From $3.2 trillion to $6.1 trillion. 80% of all dollars in circulation in history printed in this time. 

(Source: Board of Governors of the US Federal Reserve)

Gold rose to over $2,000 an ounce. The CRB, the commodity index, is up 140% so far this year – the biggest supply shock in more than a century. And a recession is now “baked in the cake.” More in a moment…

The End of the Road

We arrived back in our South American bolt-hole yesterday. We took the road over the mountain, which is a little faster, but tiring, with snaky twists and turns as you work your way up to the top. Once there, the weather and the topography change completely. From the cloudy, humid, almost jungle-like greenery of the Lerma Valley, you arrive on the high desert in full sun, with the wind whipping across immense plains.  

Then, we turned off the main road for a short cut. A hand-painted sign warned that it was “Only for 4-wheel drive trucks.” But it saved an hour, so we decided to give it a chance.  

The road was not too bad… cutting through badlands in order to get down to the Calchaqui Valley on the other side of the mountains. In one or two spots, deep sand required 4 x 4 traction.

We’ve been away for almost two years, but time moves slowly in the valley. In his recollections of traveling in the area in the early 20th century, Juan Carlos Davalos recounts how his ‘30s-vintage Ford got stuck while crossing these same washed-out roads.

Antonio, the farm manager, greeted us at the large barn when we arrived. In a few moments, it was as if we had never left.  

Antonio had just been up to the farm in the mountains (the two farms touch each other, but one is 2,000 feet higher, where we raise cattle; the other is down in the valley, where we raise the hay to feed them.)  

“Very sad,” he said. “That Carlos died. We went to pay our respects to the family.”

Last week, Carlos, a young ranch hand with a wife and two children, drowned in the reservoir. How? Why? The police ruled it an accident. But the water was only about 4 feet deep.  

“Everybody wants to believe it was an accident,” said a shrewd neighbor, later in the day.

“So, what do you think happened,” we asked.

He bent his head, raised his eyebrows and said no more.

“You can’t cross the river,” Antonio warned. So we loaded our things on the back of a small wagon, hitched to our new Massey Ferguson tractor.

(“Your carriage awaits.” Photo: Bill)

(Crossing the river. Photo: Bill)

(Elizabeth Bonner arrives in style. Photo: Bill)

On the other side of the river, it is as pleasant as ever. A line of alamos (a type of poplar) run up on either side of the driveway. Green fields – lush with clover – stretch out on both sides. And there on the hill is our house – rescued from ruin, surrounded by stout columns; it is a handsome reminder of the valley’s colonial past. And there, cut off from the wide world by 4 hours of dirt roads and the rushing water of the Calchaqui River, we settle into our office and take stock.

Let them Eat Cake

As the price of gasoline rises, the rich – who live in the best zip-codes – barely notice. The poor and middle classes – who were lured to further-out suburbs by lower housing prices, are hit hard. And now worse may be coming. Rabobank researchers see more inflation and a recession on the way:

…historical experience also suggests that once the inflation genie is out of the bottle, economic growth has a tendency to slow down regardless of the policy reaction. It happened in 1974/75; it happened 1980/81; and again in 1992, 2008, and 2011. It suggests that ‘soft landings’ are very difficult to achieve.

An inflation-caused recession may already be “baked in the cake,” they conclude. And what else is in that cake?

That is the major theme of the decade ahead – rising prices, recession, the destruction of America’s middle class, the decline of the US empire… and the increasing corruption of its political life. 

Most likely, the Elite Establishment will continue to point fingers at Vladimir Putin… at ‘greedy corporations’… at Republicans… at Democrats…

…and inflation will get worse. Even after the conflict on the Eurasian steppes is resolved, the US is likely to continue its sanctions and meddling. Remember, it’s ‘inflate or die.’ An ‘emergency’ – even a trumped-up one – gives it cover to continue inflating.

In a few months, however, it will probably be obvious where this is headed. Then, the Fed will be forced to take more serious measures. And then, all hell will break loose. 

Just a guess…

Stay tuned.

Bill Bonner

Ed. Note: Speaking of Hell breaking loose… word from Dan is that the situation is probably even worse than you think...

“The Fed is hiking rates and ending QE right as we go into a recession, with soaring energy costs, and official inflation at 7.5%. The yield curve is flattening/inverting. Food prices are rising. And the stock market hasn't even begun to crash yet…

“The question forming is some curious minds: What's a hyper-inflationary depression look like? It’s where assets bought with borrowed money crash... and everything real people need to live goes to the moon.”

Ok, so… what to do? We’re keeping most of our powder dry… including stockpiling precious metals - mostly gold; some silver - and holding cash, with a sufficient supply in private storage and an emergency stash easily accessible, in case S(really)HTF.

Other than that, our investment director, Tom Dyson, is on the lookout for “Old Economy” value plays; companies dealing in the production, distribution and storage of real world goods that real people need to live… especially in really difficult times. There WILL be opportunities out there, but patience and prudence go hand in hand here.

If you’d like to sign up for our paid research - which includes twice-weekly updates from Dan and Tom, as well as in-depth monthly reports, private Zoom calls with Bill’s trusted analysts and experts, plus plenty more - feel free to join us, here. No time like the present…