Another Fine Mess You Got Me Into

Economic Periods Are Cyclical

Perhaps it’s a bit more than ironic that Laurel and Hardy’s “Another Fine Mess” was released in 1930 shortly after The Great Depression commenced. The cracks in today’s macroeconomic geopolitical financial world have appeared and are broadening thanks in part to our averting a debt crisis only to create another. Once again, the problems we face are manmade. The indelible effects of 10+ years of far too low interest rates, created by the last economic crisis, exacerbated by the flooding of markets with large amounts of “COVID” cash, recently bolstered with an open checkbook for Yellen are just adding fuel to the fire. The markets reacted with what some prognosticators are calling a “breakout”. Looks like “we’ve done it again”, right Ollie? Is there a way out of “this mess”? Let’s take a look at what history tells us.

Great Britain still has no clue how to handle rampant inflation. It’s kind of a Catch 22. Raising rates to fight the inflation battle while simultaneously lowering income taxes, together with Quantitative Tightening didn’t work well. Keep in mind the Gilts rose from a negative interest rate environment to much higher levels. This move triggered a “crack” in the pension management system leading to a steep decline in the British Pound coupled with margin calls on its collateral base and their derivatives. The crisis was averted but one needs to ask, what’s next? UK inflation is far from being cured. Will the Brits revert to flooding their own economic system with more cash to offset what appears to be declining internal conditions emulating what’s transpiring here? The should have done that during the 1930s so maybe they’ll correct mistakes made in the past; times are a bit different today so we’ll sit back and just watch.

I’ve been a proponent of “no way out’ where there isn’t a formula for a “soft landing” worldwide. With the debt crisis resolution we might have found that solution, print more money. It is obvious that once again we’re entering into a period of manmade chaos. Although similar to 2008, another diabolical monster, inflation, remains at excessively high levels but is slowing to a degree. Powell is not a true Voelker-like individual such that the Federal Reserve’s actions would be predictable with rates staying at elevated levels for an extended period of time. My thought is that Powell doesn’t have a big enough set of cojones to take action of this nature, especially in a politically influenced election year. Chances are we will just continue “kicking the can down the road”, in hopes of a solution to today’s manmade problems that simply cure themselves. Until that happens we’ll need to just deal with another, the next manmade economic problem, failure to act. History has a tendency to repeat itself with Canada pushing rates up another 1/4 point today but like the rest of the world they’re getting closer to “pausing”; pausing what? Battle like it’s Viny Ridge instead of hugging a few trees on Vancouver Island. Who am I kidding; it’s can kicking time again; print more money and delay the inevitable. We’ll handle the next of our many problems after we create them.

Based upon whatever action the Federal Reserve takes, “wicks” in several markets are becoming apparent. The U.S. Dollar, 10-year notes, 30-year bonds, equity indices and commodities, based upon the Dollar, are gyrating with volatility being the watchword. My sense is that we will give in to the inflation battle versus continuing Quantitative Tightening. If I remember correctly, following the Brit’s lead hasn’t worked well in the past and probably will not work this time either. Buying time has never worked in the past especially when solid, viable and decisive actions can be taken now. Just kicking the can down the road usually makes things worse but with the presidential elections on the horizon, that’s probably what we’re going to get. Who knows, if push comes to shove they might actually “inflate” the “inflation target” to upwards of 3% instead of 2% just to show progress. If they do that whirring sound you hear will be coming from Volcker’s grave.

Dot.com Bubble Revisited - A Second Manmade Problem

If you had invested in the market in 1999, it was a literally a “mania”. Companies were frantically launching websites even changing their actual corporate focus to “the web” in the middle of quarterly earnings calls. Portfolio managers launched funds to chase any types of internet-based stocks they could find, some simply changed the name of existing funds to capture investment flows to participate in these trends. The problem then, that’s reappearing again today with AI, is that the earnings growth necessary to maintain these valuations will once again fail to occur. The expectations are simply outlandish; companies, even the leaders in the AI field, will never be able to achieve their goals or targets; then what?

Narrow market rallies buoy indices, excite investors, creating unimaginable dreams of becoming richer than your wildest expectations. The newbie investors participating in these parabolic marketplaces don’t give long-term macroeconomic theory a second let alone a first look. The last thing they will do, even if expectations of a few companies are met, is “sell”. They’ll always look for more until the bubble bursts and it’s too late. I wonder what the next bubble will be? Crypto, oh wait, silly me, that one has already started to burst as “regulation” finally kicks in. Do you think regulation will have an effect on the AI world? You can count on it.

It’s Barbecue Season

Embedded inflation you say; demand coupled with a less than expected harvest yield will do it for you every time. Live cattle bumping an all time high and corn, well yields were not as good as we expected; I’m a buyer at July corn price levels especially with Ukraine’s dam bursting. McDonald’s, Wendy’s and other major chains, are all hedged; you’re the ones paying more at the grocery store right in time to create your season of discontent. How much higher are “watermelon” prices going; they’re almost double what they cost last year here in the Lone Star State. Summer’s here; enjoy the season even though it will cost you a little more but who’s counting, right?

Thanks Barchart, you’re the best. Ya’ think maybe you can keep the prices a little bit lower on the commodities you report and chart over the summer so traders can afford to buy your services? That would be nice, eh? Inflation is embedded; Joe and Kamala don’t see it as they’re not the ones doing the shopping, we are.

Laurel and Hardy were known for their slapstick humor. A British-American comedy duo rose to fame during the last Great Depression. If that is not appropriate nothing is. Let’s hope the final outcome is different this time around versus what happened in the past during Laurel and Hardy’s time in the spotlight. Disinflation is where it all begins and if we handle that trend as poorly as we did the recent inflationary cycle, we just might repeat history.

Back to building a long lasting, at least as long as I last, publication that imparts upon you, my readers, what you can learn from others. That’s where I’m heading with The Ticker EDU. It’s a labor of love. Like everything else, after 55+ years of experience, it’s “in my head”. Developing a methodology of how to get it “out-of-there” into a logical format people of all ages can benefit from is a daunting task. What should I teach? How should I teach it? As a business person, it is essential that I’m compensated for my time and effort. I’m speaking with mentors I have worked with for most of my years of experience in this industry. It’s going to get figured out but like anything else, it’s going to take time. Until then, enjoy the posts on Substack and let me know what you want to learn. Position trading, options, using ETFs and commodity futures, are high on the list. Presenting my knowledge and this informative content, what the true educational market is, how much time people are going to spend learning and at what level are questions I’m seeking answers to. Let me know your thoughts and thanks for your patience.

Everyone learns at their own pace. If you pick everything up the first time through, great but if not email me at david@thetickeredu.com so we can further help. Again, let me know what you want to learn, I’m all ears.

Here’s a little slapstick at it’s best from Laurel & Hardy. Let’s hope we can all avoid “another great mess” as we exit the ones we’ve created in the past. Best wishes to all and remember, you control the direction this country is heading. You can help clean up the mess; it’s in your hands.