We’ve been firing warning shots day after day about the lack of leadership in the administration and these talking heads on television (including economists) have absolutely no clue what is happening with the economy. Video: Link Here (Uploading in a Lower Quality 🙁
The same administration today, who called Trump a liar and a divider for four years, makes Trump look like a saint. The same people that told you Armageddon would happen if Trump was elected are showing you what that looks today like when you have people in office without any business intelligence. Now that is not to say the Trump Administration was a saint either. They have their own issues around printing of debt and much more; nevertheless, the focus is on the current administration – after-all, all this is happening on their watch.
Michigan Consumer Sentiment is a small sample but this encompasses everything you buy and everything you own. Prices are up for purchases and items you own are significantly dropping.
Savings Rate continues to plunge as Consumer Credit Card Debt exceeds a 40 year high, but don’t worry because the Whitehouse and Treasury says, “Recession is not plausible” and this is to prevent the public from panicking and starting to question what is happening – if they’re not already. Then again, most people are pointing fingers at Russia because that’s what they’re telling people on the news media – it’s an infinite loop.
Let’s look at some charts here. I’ve been talking about this for 18 months saying one day the middle finger is coming and the Federal Reserve and Central Banks will not be able to stop it. The same people that caused this problem were just re-elected by the POTUS. It’s like being the worst employee at a company and never showing up, but you get a promotion and a substantial raise.
Tools to fight inflation. The current administration is trying to utilize the roadmap established by Paul Volcker, Former Chair of the Federal Reserve, under President Ronald Regan, who raised interest rates at unprecedented levels to nearly 20% sending the unemployment in an upward trajectory towards 11%.
A quote of his that sticks with me is, “Once lost, the consequences can be severe and stability hard to restore.”
This same approach is what the current Federal Reserve should take; especially since there is an unprecedented Balance Sheet. As I’ve stated in many videos – Jerome Powell has been at the helm since 2018; appointed by Former President, Donald Trump. Before that you had Janet Yellen at the helm in 2014 under Former President, Barack Obama. Yes, the same Janet Yellen who says today, “we did not see this inflation storm coming” and who says, “there is no recession in sight.” Now say what you want about the political parties, of who is controlling the whitehouse, the reckless stems all the way back to Federal Chairman, Ben Bernake, under Former President, George W. Bush. This is where they discovered the printing press of the M2 Money Supply.
At the end of the day, the Federal Reserve policy is the most important determinant of money supply and why I look at them as the most powerful people in government.
This is why the M2 Money Supply is such an important indicator when it comes to inflation; however, every talking pundit is pointing blame for the reasoning behind the inflation – regardless of the truths and without significant raw data to back it up
Your M2 Money Supply is a broader classification of money supply of high levels of liquidity outside of just cash.
M2 is used as an indicator of possible increases or decreases in inflation levels. This is because it is a broader measure of the money supply in an economy than when compared with M1 – which only looks at money that is in the hands of the public.
As a result, M2 offers a more comprehensive overview of inflation levels because if the M2 monetary supply is increased, inflation could rise. Equally, if M2 supply is restricted by central banks, inflation could fall. However, it is generally accepted that there is a lag of between 12 to 18 months for inflation levels to respond to increased monetary supply.
Also, inflation will only rise if monetary supply is increased but economic output remains the same. If economic output increases alongside money supply, then inflation might not increase at all. If you think about the talking heads on television saying how strong the economy is – what they’re not accounting for is the so-called strength in consumer spending is due to consumers spending stimulus money; however, there is a lopsided data point because a larger percentage are not working and contributing to income tax growth and manufacturing production growth and expansion.
This goes back to the videos where we said the government has two options in their pipeline. Stop printing debt and government spending and/or increase taxes significantly on the middle class.
But we believe the Central Banks will have no option other than to significantly increase interest rates to the volumes of Paul Volcker, to decrease the M2 Money Supply – while putting the consumer on life support.
M2 Money Supply
Money Supply M2 in the United States decreased to 21728 USD Billion in April from 21809.70 USD Billion in March of 2022.
Fed Funds Rate
The Federal Reserve raised the target for the fed funds rate by half a point to 0.75%-1% during its May 2022 meeting, the second consecutive rate hike and the biggest rise in borrowing costs since 2000, aiming to tackle soaring inflation. The central bank added that ongoing increases in the target range will be appropriate, with Chair Powell pointing to 50bps hikes in the next couple of meetings
- This is going to put more pressure on companies that sell products and services that consumers buy at higher prices.
- The Dollar is going to tank when the market gets the bigger picture and will add even more downward pressure to the markets and the Bonds, while adding upward pressure to inflation.
- I think the Fed needs to get more aggressive with their actions than the lip service. If the economy must suffer greatly — let’s just get it over with! Pain is Coming regardless.
Overnight repo rate is the interest rate at which different market participants swap treasuries for cash to cover short-term cash needs.
- The repo rate is helping to ensure banks have the liquidity to meet their daily operational needs and maintain sufficient reserves.
Annual inflation rate in the US unexpectedly accelerated to 8.6% in May of 2022, the highest since December of 1981 and compared to market forecasts of 8.3%.
- Energy prices rose 34.6%, the most since September of 2005, due to gasoline (48.7%), fuel oil (106.7%, the largest increase on record), electricity (12%, the largest 12-month increase since August 2006), and natural gas (30.2%, the most since July 2008).
- Food costs surged 10.1%, the first increase of 10% or more since March 1981.
- Big increases were seen in prices of meats, poultry, fish, and eggs (14.2%).
- Other increases were also seen in cost of shelter (5.5%, the most since February 1991), household furnishings and operations (8.9%), used cars and trucks (16.1%) and airline fares (37.8%) while cost of new vehicles eased slightly (12.6% vs 13.2%).
Energy inflation in the United States accelerated to 34.6% in May of 2022, the most since September of 2005, due to gasoline (48.7%), fuel oil (106.7%, the largest increase on record), electricity (12%, the largest 12-month increase since August 2006), and natural gas (30.2%, the most since July 2008).
Food inflation in the United States accelerated for a 12th straight month to 10.1% in May of 2022, the first increase of 10% or more since March 1981.
- Big price hikes were seen for meats, poultry, fish, and eggs (14.2%).
Consumer Sentiment in the US fell sharply to a record low of 50.2 in June of 2022, well below market forecasts of 58, preliminary figures showed. Lowest in history since 1978.
- The current economic conditions subindex sank to an all-time low of 55.4 (vs 63.3 in May) and the expectations gauge plunged to 46.8, the lowest since May of 1980.
- Consumers’ assessments of their personal financial situation worsened about 20%. 46% of consumers attributed their negative views to inflation, the biggest share since 1981, during the Great Recession.
- Inflation expectations for the year ahead went up to 5.4% from 5.3% and the 5-year outlook to 3.3%, the highest since June of 2008.
- Consumers expect gas prices to continue to rise a median of 25 cents over the next year, more than double the May reading.
Initial Jobless Claims
Jobs are a lagging indicator. Business Owners will react to the inflation not predict it. Business Owners will be blindsided and layoff employees at mass.
- The most unemployment claims this year since June and I think these figures are about to surge with economic reality.
- This recession is going to last years’ and will probably be worse than the “The Great Recession” between 2007 and 2009 lasting 18 months, but this time will be much different.
Markets know the Fed will need to hike rates more aggressively because inflation is bigger than they thought. The economy is going to be in Recession that much sooner. The markets have it WRONG. You’re going to see UNPRECEDENTED selling of the 30 Year Treasury that will lose the most value.
30 Year Treasury Bond
10 Year Treasury Bond
5 Year Treasury Bond
2 Year Treasury Bond