2023: Goodbye To All That
“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
Forecasts create the mirage that the future is knowable – Peter Bernstein
Federal Reserve Bank of New York President John Williams said, “the central bank isn’t really discussing cutting interest rates right now.” Are they, or aren’t they? Who knows? (Ed)
“Banks don’t go out of business taking risk, they go out of business levering the things that they’re told aren’t risky.” David Dredge on Grant Williams podcast https://www.grant-williams.com/podcast/dave-dredge-2/
Tell me more about the disinflation…
“The problem is that by forcing prices into unnatural places for too long the manipulators interfere with this thing we call reality.” Chris Martenson
In our line of work, there is a common saying: the market can stay irrational longer than one can stay solvent.
Lately, it appears we should revise the ending of that saying to include “or sane.”
Having priced in nearly double the number of rate cuts given by the Fed’s forward guidance for 2024 (-140 bps vs. -75 bps), the market has declared the inflation problem solved and the glidepath to a goldilocks economy all but certain. Stuck in yesteryear’s paradigm of inflation, rates, and earnings multiple revaluation, risk assets have melted up in a crazed frenzy. John Authers – Bloomberg
“Many of those numbers are not really true – look at inflation. If there is anybody who believes that inflation is what they publish, you know, you cannot be serious. Of course, inflation is another number. My inflation is probably 10% of my basket of goods and services I consume, and so it is for many other people, so I think the numbers are made up, you know.
The shelter part of the CPI is a problem, and it is exaggerated on the downside, and recently they exchanged what was it health care insurance premiums for healthcare insurance profits of those companies – I mean, it’s ridiculous. So I think inflation is in fact higher, and that would mean that a higher and higher percentage of the US consumer is struggling, is struggling more than what the statistics tell us, and credit card delinquencies are probably pointing in that direction.”
– Felix Zulauf on Grant Williams podcast https://www.grant-williams.com/podcast/felix-zulauf-2023/
John Williams agrees with Felix’s 10% inflation rate. The CPI on the Alternate Data Series, shown below, reflects the CPI as if it were calculated using the methodologies in place in 1980. In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.
“The percentage of companies with strong/healthy Altman Z-scores (which combine account profitability, leverage, liquidity, solvency, activity ratios, etc. to measure bankruptcy risk) has dropped below 10% for first time on record” John Authers – Bloomberg
On the FEDeral Reserve: We have to get away from this PhD standard, the improvisation of our monetary masters who, having earned a doctorate in economics, they think they know things they cannot possibly know.
From a former BoE governor Mervyn King –
” If you look at the computer models, which not just the bank of England, but other central banks use, whatever you do to monetary policy, inflation always comes back to 2%. Why does it do that? Because the model says it has to, it’s built in, it’s an assumption.”
It may seem quaint, but there was a time pre-1971 when you could divide the monetary aggregates (there are several) by the amount of gold held by the US Treasury and you would derive the reference price of $35/oz.
And in 1980 when gold soared to $800/oz the dollar was 100% backed by the gold the US held.
What is shocking is the amount of paper money created since that time frame.
If one were to do the same calculation today (monetary aggregates/gold ounces held by the US Treasury) it would take a gold price of $80,000/oz to balance the equation.
A far cry from today’s $1,950/oz.
Mark Twain was right “One of the most important reasons for studying history is that virtually every stupid idea that is in vogue today has been tried before and proved disastrous before, time and again.” – Thomas Sowell
Think about this one… “For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled.” – Richard Feynman
If your system of government relies upon the sagacity and ethics of the leaders who run it to keep you safe and free, you are engaging in utopian thinking and you’re going to get the tyranny you deserve.
“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” – Stephen Hawking
And finally, a thought to carry into 2024 and beyond
Be who you are and say what you feel, because those who mind don’t matter and those who matter don’t mind.
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