economy – REconomix

Mid July Mini-blog

Interest Rates – Trump backed off on firing Jerome Powell as Fed Chairman, as the markets quickly panicked following a Bloomberg story that he would do so. Powell and Trump are at odds (to say the least). Trump’s cluelessness on the economy leads him to believe he can massively and suddenly drop interest rates without triggering accelerated inflation in a sorta strong economy. Wall Street told Trump to go pound sand. Remember, Powell is only the chair- the FOMC sets short-term interest rates via the Federal Funds Rate, so Trump would have to fire the whole committee, or win them over as well.

The tariff saga– the dumbest, most one-sided trade war in history carries on, with Trump thinking he can sweep his Epstein ties under the rug with more tariff announcements. The funny thing is- the TACO trade (an acronym for Trump Always Chickens Out – when markets tank after Trump announces a tariff, only to rally when he rescinds it) is fully expecting him to Chicken Out. Now, what happens if he sees this as acceptance of his latest hair-brained tariffs and actually goes through with them???

Bond markets– the captains of the universe continue to be the bond traders, whom not even Trump can control. The problem with trusting the bond markets to keep doing the right thing, however, is that those guys control OPM- other peoples money- not their own . So if things go south, they might be out of a job, but the rest of us can lose everything.

The Economy – though it is chugging along, there are lots of underlying weaknesses in the economy, including rising unemployment, housing shortages, a consumer debt spiral, student loan debt spiral, falling real estate values in many places, and of course, inflation. We will find out more in the coming weeks, as earnings season begins on wall street.

The Elephant in the room– The thing everyone (media, government, wall street big wigs, except for people like Ray Dalio) seem to forget, is that the nation’s DEBT is skyrocketing, and Trump and the GOP just added $5Trillion more of it over the next several years. I warned us all about out-of-control inflation as far back as 2018, and now I’m issuing an even BIGGER warning about our national debt spiral. Our Wall street titans did and said nothing about inflation back then, and they will do and say nothing (except collect tax breaks) about our coming debt explosion. And yet, people wonder why I’m so cynical about the current system.

Not financial advice, but I am currently buying, or interested in…

Actual silver coins and bars
Actual gold coins and bars
BTC
Gold/Silver ETF’s
Farmland
Medical supplies
Ammo / guns (if that’s your thing)
This is risky- equities – because the markets are stupid, and will likely go even higher before they fall. You must realize that the markets can collapse at any given time. If you go very long, you will likely come out a winner. Don’t panic sell, and you will be ok.

Where do we go from here? Thoughts on tariffs, the economy, Fed, inflation.

Saturday, May 3, 2025

Here, I give a “plain English” explanation and some direction as to where we’re headed economically speaking. After predicting massive inflation, slapping down the “transitory” label that the Fed famously fumbled, predicting numerous small corrections and the Big correction this year, I’ve been on a nonstop win streak since at least 2015. Predicting major macroeconomic moves is part science, art, psychology, and patience, but mostly, you must learn and constantly reinforce your knowledge about what moves markets and economies. There are indicators, some sophisticated, some very simple. There are fiscal and political aspects, monetary aspects, consumer habits, commodity supply and demand, etc. But one of the most important things, is that you must understand these things in relation to one another, their relevance, and have a clear mathematical perspective, so that you know which data to disregard, or apply less “weight” to. Numerous business articles are published each day. Some may be important to certain sectors and industries, but mostly, they are not important to the macro economy.

Speaking of indicators, we have a big group of indicators screaming at us! There is underlying weakness in the economy that the markets haven’t reacted to, because it’s too wrapped up in the 24hr news cycle. But the market psychology of the 24 hr news cycle is a whole topic for another discussion. Here are a few screaming indicators:

Consumers are not paying down credit card debt, which usually starts to fall after the holiday shopping season.

Credit Card delinquencies are an indicator of financial stress on consumers.

Delinquency rates on auto loans have markedly increased, especially among consumers with subprime credit scores.

Not all auto loan delinquencies are low-income consumers, a sign that consumer financial distress is widespread.

We also have some major issues at the forefront:

Trade/ Tariff negotiations. These aren’t going as well as hoped by the Trump administration. There will be some “big” (read: amplified) announcements, and they will try to put the best light on them, but the whole thing, short of rolling them back almost completely, is a debacle. It was botched from the beginning, and they will mostly have both short (inflationary) and long (industry altering, layoffs) effects on the economy.
Interest Rates. The most obvious example of the economic illiteracy and ineptitude of the current administration was back in April, when Mr. Trump tried to pressure Fed Chairman Powell into lowering interest rates. The bond market, the true masters of the financial world, slapped him down. Then, he tried to get Powell fired and again, the bond market said no. Time for a quick note on the Fed and its chairman; first, the Fed is run by bankers. Yes, there are economists on the board of governors, but mostly to advise bankers, as they do on Wall Street. Big banks decide who the Fed governors are and who the chairman is. Period. If the Masters of The Universe- people like Jamie Dimon, Larry Fink, Steven Cohen, etc. decide they don’t like the Fed Chairman, rest assured, he will be gone by way of pressure on the stock and bond markets. So, where will interest rates go from here?Well, it depends. There are 2 likely scenarios for the economy right now; the first being near-term volatility, followed by structural stagflation, the 2nd, disinflation, followed by possible deflation.
The most likely near-term scenario is a period of market volatility followed by structural stagflation. This scenario is actually frightening. With the underlying weakness in the economy as a backdrop, oxygen-sucking major economic news dominates the headlines in the form of trade deal announcements, possible interest rate cuts, all fueling markets and creating buzz, and artificial stimulation. Laced in between, are some very bad news reports about layoffs, bankruptcies, and consumer distress. Whether the markets ultimately “shrug off” or react negatively to these reports largely depends on whom people listen to, and this is key. However, the inflationary effects of the tariffs and resulting supply shortages will be giving core inflation a boost. Partly offset by lower energy costs, they will probably get a huge shot in the arm from the new tax bill. Depending on how many short term stimulative gimmicks there are in the final bill, there will be some initial market euphoria as trillions in tax goodies will be handed out. This will be somewhat inflationary. A big reason why Powell is holding back on rate decisions is, he would like to see the final bill first. Why would he risk making a decision that could be muted by the effects of the tax bill? No matter what happens then, he would get the blame.

4. The second most likely near-term scenario is that markets react negatively to the negative economic news, the tariff negotiations fool no one, and massive layoffs start happening very quickly. We’ve already seen Mc Donald’s same-store sales drop off a cliff (a very good indicator), and there’s a lot of other widespread stress signals going on throughout the US economy. This weakness fuels rapid disinflation and possible deflation. The silver lining in this scenario is that Powell then drops interest rates, seeing no real impediments to doing so, and the economy gets another short-to-medium term stimulus effect, as consumers, businesses, and government are allowed to refinance debt at lower interest rates. This is probably the better of both scenarios EXCEPT…

The $37 Trillion Elephant in the room is the debt crisis.

5. Through any scenario, the debt crisis has not gone away. DOGE is a dud, and the prospect of massive cuts to social security and Medicare seem less and less likely as Mr. Trump fumbled away tons of political capital with his botched tariff rollout and various political wars he’s waging. This means high budget deficits are here to stay, and regardless of how low the interest rates go, the interest on the debt will be punishing. It will only be a matter of time before bond markets step in again, and start flexing their powerful muscles.

6. Caveats: Supply shocks, wars, pandemics, major disasters can all alter or forestall any of these scenarios. The most powerful evidence of that was the COVID pandemic. A war in the South China Sea or Iran would have major repercussions for markets, economies and political machinations throughout the world, and we must hedge accordingly.

The Sh*t Show is in full swing! (I warned you!)

Written Wednesday Mar 2nd, 2025 10:30PM PDT

Some people are finally getting it. There’s no rhyme or reason to these tariffs. They just don’t make any sense at all. A tariff implemented to bring back shipbuilding to America for instance, would take at least DECADE to actually deliver. BUT it would be worthwhile, helping to bring back an important and strategic US industry.

BUT a tariff (tax) on toasters and pencil sharpeners? Clothes hangers? Men’s underwear? Ask yourself, are these strategic products? What kind of margins are we talking about? Is it even worth it to bring back these jobs? Are these the jobs that will give people the skills of the future? And how much will we have to pay people to do such menial labor, especially at full employment, and while simultaneously cracking down on immigrant labor ??

But also, the argument goes, these tariffs will raise revenue! Let’s put that in perspective. The Trump administration says the tariffs will bring in $600 billion in annual revenue. Even if this is to be believed (and it shouldn’t), The losses in the equity markets from the tariff rollouts have already wiped out $2 Trillion.

And even if that doesn’t jar you, the effects of a recession (now at 50% for 2025 on polymarket, and rising almost weekly in Goldman Sachs estimates) will absolutely wash out those revenue gains.

Vietnam, for instance, exports $150 Billion in goods to the US. If we slap a tariff (TAX on US citizens) on all those goods, and they retaliate with a tariff (TAX on themselves) on our $10 billion of exports to them, who does that really hurt??

So what are the rest of you holding on to? Some insane pipe dream that Trump and his merry band of sycophants are playing 3D chess and intentionally crashing the economy to lower interest rates and bond yields so that he can slay the debt with a combination of inflation and budget cuts???

If that’s the case, let me tell you why you’re wrong. MILLIONS stand to lose their jobs and livelihoods in that scenario. Ever heard of the misery index? This will be the most miserable you’ve ever felt in your lives economically, by far. And, unless you’re sitting on millions of dollars in LIQUID assets, you will absolutely feel it. Because having $1 million, in just a few years, will feel like having $100k.

If you don’t get this concept, there’s little hope for you. You probably will lose your shirt trying to “own the libs” and “win” against your sister in a political debate.

In just a couple years, there will be no more political debate. The party will be officially over. America will turn against this cabal of oligarchs, and they will either capitulate, or try to hold on to power by suppressing and nullifying our votes.

God help us all.

Notes on the economy mini blog – Fear rises

On June 5th 2024, I issued a warning for individuals and investors alike. The data that was coming in signaled a growing weakness in the economy. Check out below.

***Our warning from July 5th was right on the money!***

Today’s data and market reaction has proved me right (yet again!) that the so-called “soft-landing“ may be over. The VIX (CBOE Volatility Index, AKA the “fear index”) is up significantly since our warning.

Just yesterday, the Fed decided to hold rates steady, at least until September. This decision has now come under fire by many as too late to head off recessionary headwinds in the economy. How do I feel about that? Better than a lot of people, because I prepared for it.

A broad market sell-off today signals that investors are at least somewhat nervous about the economy. Bond markets also show signs of broad investor pessimism.

The job market has shown some weakness as well. A slowdown in the monthly hiring rate coupled with rising unemployment is also appearing in the most recent data.

Is it time to panic? Never. Is there hope? Always. Email me about your thoughts and strategies on the current economic condition and how it pertains to you.

Notes on the economy mini-blog – Watch out!

The US economy is rapidly decelerating. The deceleration is flying under the radar (it almost always does, until you get your layoff notice) mostly because of the AI boom, and the trickle-down effect to other parts of the market.

Don’t forget that there’s a serious war economy chugging along underneath (no one talks about this!) and a construction boom (not in housing) due to the infrastructure law.

Don’t Panic!

Why? The Fed has plenty of ammo due to high interest rates. They can lower interest rates and reaccelerate private investment in a pinch. That’s the short term.

The long-term scenario looks less promising…stick around for more valuable insight, from the person who predicted massive inflation (in 2018!) and laughed when the Fed called it “transitory.”

How does this affect you, on the microeconomic scale? Email me, and stay tuned!!

Notes on the economy mini blog- Irrational exuberance

It’s easy to be a grumpy investor when you’ve missed out on the latest rally, but this is not the case- we actually bought SPY expecting a slight bump. However, what we are seeing is more than a slight bump.

Irrational exuberance is once again rearing it’s ugly head, driven by better than expected employment, an almost sure sign of a resilient economy- if there weren’t so many other flashing red lights.

A pause in rate hiking can actually hurt us by further entrenching inflation (which we predicted as far back as 2018!! Check the receipts). On the other hand- increasing rates can start to unleash a wave of defaults (think commercial real estate) in the already slammed banking sector. The cascading effects can be catastrophic to say the least!

So we’re going to back out of our small SPY position, and wait on the sidelines for a better day. Hopefully, we won’t be waiting too long! #BuyLowSellHigh

Is a recession coming?

After having predicted strong inflation far before most world-renowned economists, and after being similarly ahead of most others in instantly swatting down Jerome Powell and Janet Yellen’s views that inflation was transitory, we’re going to take a deep dive into what’s steering the US economy right now, and more importantly, where it’s going.

With the latest US inflation data in and running at a white-hot 8.6%, the answer to the question is a strong YES, as the Federal Reserve will be frightened into beaching the giant ship that is the US economy. Runaway inflation is a deep and valid concern, and interest rates is only one way to try and tackle the problem. The other ways to tackle the problem largely depend on consumer behavior, which will inevitably take a hit due to the cascade of bad news coming out about the economy.

Prior to the inflation announcement today, there was some hope that the Fed could “thread the needle” and escape a recession. Even here at REconomixTM we were slightly hopeful of such a scenario. Now that inflation has become very entrenched, the Fed must try its best to slow down the economy.

Structural Problems

As we all know, the Fed “printed” money for more then a decade, and the supply of money grew so large, it created asset bubbles. This is because in capitalism, money likes to go where it’s “taken care of,” and it likes higher returns. The result was asset bubbles in stocks, real estate, and cryptocurrencies, amongst others, which are being deflated by the promise of ever higher returns in safer assets, along with the slowing of demand in loans from banks. People tend to take out smaller loans, or none at all, when the cost to pay them back goes up.

The US economy is very exposed to the rest of the world because of the amount of free trade deals, exports, imports, and the amount of multinational corporations bringing profits or losses back home. The post-pandemic world saw a stimulus from central banks around the world, which means that money supplies increased, ultimately causing consumers around the globe to purchase more goods and services.

India and China are massive economies with growth trajectories which cause a rise in consumption of food, and other commodities around the world. In fact, if it weren’t for the state-mandated lockdowns in China, the global inflation problem would actually be worse!

Fiscal Policy

In the past 2 decades, the US government, as the “spender of last resort,” has propped up the flagging economy through running large budget deficits. This started with the Bush administration post 9/11, and increased during the Obama, Trump, and now Biden administrations. Much of the spending has been focused on defense and national security. In the course of the last 2 decades, defense and homeland security spending has been profligate at times. As one example, an entire fleet of new ships, called Littoral class destroyers, was created at a cost of several billion dollars. They are now rendered impractical and vulnerable, and are slated to be scrapped or sold off.

Energy

During the pandemic, the price to drill and transport oil got so low, it cost more to ship it and drill for it than it was worth. The demand for oil was extremely low compared to the supply. Large oil-producing countries, especially OPEC, decided that they would put limits on the production of oil to try to boost the price. Since the boom in global demand from people getting back to work, those production cuts are still in place.

Russia’s invasion of Ukraine resulted in sanctions of Russian oil and gas, which removed millions of barrels of oil a day at a time when we needed it most. To date, OPEC has not made any meaningful production increases to offset Russian oil. OPEC seems to be cashing in and making up for any losses from the pandemic.

***Even as demand has increased, OPEC oil production is well below 2018 levels. Source: ycharts***

Food

Food is a core necessity, like energy, and the prices of food are affected by energy. It takes energy to produce food products, refrigerate them, and transport them to stores. Agriculture has been affected by the rise in trade and incomes in China, as well as 3rd world countries, notably India, Africa, the middle east, Central and South America, and southeast Asia. As incomes rise, people tend to consume more food, and unfortunately, waste more food.

***The price of wheat has doubled in the last year, especially since the war in Ukraine started. Source: CNBC***

Other commodities

As the world increases in affluence and wealth, (especially India and China, which combined, have 2/5 of the world’s total population) commodities become more scarce during economic expansions. This includes metals, precious metals, and other goods.

Supply Chain Breakdowns

Post-pandemic, the supply chain disruptions were rightfully blamed for much of the rise in prices due to spot shortages of goods and commodities. It was relatively easy to return to work in the service sector, but the manufacturing and shipment of goods and commodities was greatly affected. This will be less of a factor over time, but many shortages remain.

The Perfect Storm

In conclusion, the aforementioned factors, and others have created a perfect storm of uncertainty, scarcity, war, fiscal irresponsibility, and irrational exuberance. The coming recession must be handled carefully by those in charge, as to not cause panic or severe disruptions and further scarcity in necessities. If the past is any indication, we are headed for political upheaval and widespread dissatisfaction with the status quo.