When this collective delusion of a “Volcker 1979 Playbook” shatter it will be spectacular.
When The Delusion Shatters It Will Be Spectacular
April 5 (King World News) – Luke Gromen: Fascinating to watch the Fed (and many market participants) engage in the collective delusion that they can run the “Volcker 1979 playbook” with US debt, deficits, and Balance of Payments akin to 1920 Europe. When this collective delusion shatters, it will be spectacular.
The Magnificent Rise Of Gold
Egon von Greyerz: The debt-soaked, energy-dependent West is not as strong as the headlines would have you believe, which means Gold, as it has done for thousands of years, will rise as failed leaders, debt-soaked nations and world reserve currencies fall…
ALERT:
Billionaire and mining legend Ross Beaty, Chairman of Pan American Silver, just spoke about what he expects to see in the gold and silver markets and also shared one of his top stock picks in the mining sector CLICK HERE OR ON THE IMAGE BELOW TO HEAR BEATY’S INTERVIEW.
Savings
Nautilus Research: U.S. Personal savings as % of personal income declines below 6.50%; first time in 2-years.
US Personal Savings Rate Has Collapsed To 6.3%
Important Copper Alert
William Middelkoop: Copper Alert ‘The global copper industry needs to spend more than $100 billion to build mines able to close what could be an annual supply deficit of 4.7 million tonnes by 2030, Erik Heimlich, head of base metals supply at CRU said this week’
The Economy May Go From Bad To Worse
Peter Boockvar: The March ISM services index rose to 58.3 from 56.5 but that was just under the estimate of 58.5 and it was 68.4 right before omicron hit.
ISM Dead Cat Bounce
New orders rose 4 pts to 60.1 after falling by 5.6 pts last month. Backlogs were up slightly. Inventories were up a modest .9 pts but at 51.7 that is the most since March 2021 but on the other hand:
“The Inventory Sentiment Index returned to contraction in March, indicating that inventories are in ‘too low‘ territory and not meeting current business requirements.”
Employment got back what it lost in February and then some, up 5.5 pts m/o/m to 54. On the delivery and pricing side, Supplier Deliveries fell 2.8 pts to 63.4 and that is the lowest since March 2021 but still is well above the 52.4 it stood at in February 2020. Prices paid rose within .1 pts of its highest level on record dating back to 1997 when this survey began.
MORE “TRANSITORY” INFLATION:
Prices Paid Remains At Highest Level In History
With respect to trade, exports jumped by 8 pts to 61 while imports fell by almost 7 pts but only some service companies report each.
The breadth of the increase got better as 17 of 18 industries reported growth vs 14 in February and 15 in January.
The ISM bottom line was unsurprising:
“There was an uptick in business activity in March but respondents have indicated that they continue to be impacted by capacity constraints, logistical challenges and inflation. Labor shortages have eased slightly, as Covid cases have declined and public health restrictions have been relaxed.
Geopolitical concerns – particularly the Russia/Ukraine war, which has impacted material costs, most notably fuel and chemical prices – have created uncertainty for many businesses.”
Global Supply Troubles Continue
Some company quotes were notable and while the ‘Supplier Delivery’ component to fall m/o/m, here what was said on that:
“Long lead times for electronic components are becoming normal and expected. Chemical deliveries are often delayed due to a lack of qualified hazardous materials drivers.” — Public Administration
“Global supply chain issues continue to disrupt chip supply, which is suppressing production of new vehicles.” — Retail Trade
“Supply chain disruptions are still a problem due to reduced allocations and manufacturer back orders. Demand continues to outpace manufacturing capacity.” — Health Care & Social Assistance
“Constrained supply of many key product groups continues. Inflation worsening. Overall sales and profitability continue to be strong.” — Wholesale Trade
“Supply chain challenges continue at about the same levels as last month. Employment has improved as covid cases are declining. Restaurant sales have improved since Valentine’s Day, with mask and vaccine verification mandates being dropped.” — Accommodation & Food Services
RECESSION WARNING: Expect Capital Expenditures To Collapse
Finally, this was a noteworthy quote about possible capital spending plans. If companies see their profitability at risk, they will spend less in capital spending, a key economic pillar if global trade and consumer spending moderates because of higher inflation:
“Concerns over inflation and rising energy prices are causing our company to take a cautious approach, especially related to planned capital expenditures.” — Management of Companies & Support Services
When a dove talks tough we take note. I’m talking about Vice Chair Lael Brainard today in a speech who reiterated the rate hikes that are coming of course but that has already been priced in. What takes her more to the hawkish side from here is the “rapid pace” of balance sheet runoff that she is calling for.
“The reduction in the balance sheet will contribute to monetary policy tightening over and above the expected increases in the policy rate reflected in market pricing and the committee’s Summary of Economic Projections.”
I’m guessing QT, which will most likely begin after the May meeting, will total $80b per month, or about $1 Trillion on an annualized rate. In 2018, the balance sheet shrunk at a pace of about $30b per month. So $80b is why it would be considered ‘rapid.’
QT Not Even Close To Being Priced Into Markets
This is not a new revelation by a Fed member by the way but a reminder that just because rate hikes have been priced in, I’ll argue that QT is not even close to being priced into markets. We’ve certainly seen in 2018 what happens when they happen together. Bond yields are at the high of the day in response with the 10 year yield in particular back above the 2 year yield and above 2.50% at 2.54%.
As seen in the chart below, QT really picked up in early 2018. The size of the Fed’s balance sheet is in orange. The fed funds rate is in white.
Interest Rates Historically Rise As QT Takes Place
ALSO RELEASED: China & Russia Own 30,000+ Tonnes Of Gold As Western Gold Holdings Are A Mirage, Plus What Is On A Tear! CLICK HERE.
ALSO RELEASED: $20,000 Gold And $740 Silver, But Look At This Inflation Shocker CLICK HERE.
ALSO RELEASED: MOTHER OF ALL GOLD BULL BREAKOUTS: World’s #1 Gold Producing Company Has 34 Year Breakout! CLICK HERE.
ALSO RELEASED: Greyerz – US Dollar Not Exist As The World Will See Terrifying Hyperinflation Followed By Deflationary Depression CLICK HERE.
ALSO RELEASED: RUSSIA HOLDS SHOCKING 12,000 TONNES OF GOLD: Russia & China Possess Jaw-Dropping 32,000 Tonnes Of Gold CLICK HERE.
ALSO RELEASED: Tavi Costa – We May See Gold Hit $10,000 An Ounce But Silver’s Parabolic Rise Will Be Even More Exciting CLICK HERE. To listen to one of the most important interviews of 2022 with Tavi Costa where he discusses the coming violent upside moves for gold, silver and the mining stocks CLICK HERE OR ON THE IMAGE BELOW.
To listen to Alasdair Macleod discuss Russia’s 12,000 tonne gold hoard and China’s 20,000 tonne gold hoard as well as the game-changing event in the gold market this week CLICK HERE OR ON THE IMAGE BELOW.
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