The market needs a monetary system whose cost of capital is determined by that market at any given point in time and not a small group of men in boardrooms at the member Federal Reserve banks.
If it wasn't clear already, this week should make it very apparent to anyone who was skeptical that things are not all well in the economy. A slew of economic data hit the tape that signaled that we are either already in the midst of a recession or quickly barreling towards one. Here are the pertinent data points that came out this week.
We'll start with the jobs market where the number of multiple jobholders in the US hit a new record high with 8.5m+ Americans working multiple jobs to stay afloat.
To make matters worse for the American workforce, October's initial non-farm payrolls initial jobless claim came in at its lowest point since September of last year. With only 204,000 jobs added. This is disconcerting considering the fact that every initial jobs print this year has been revised down except for July. If you're to believe that revision trend will continue, you can expect that 204,000 number to look even worse.
Next up we have the ISM manufacturing index, the longest running manufacturing index in the country, which came in at lows only seen during the midst of the Great Financial Crisis and the beginning of lock downs in 2020. As you can see from the tweet below, only 2 out of the 18 industries that are followed by the index grew in October. Not ideal.
Lastly, the Atlanta Fed cut their Q4 GDP growth expectations from 2.3% to 1.2%.
As a result of all of this bad news the stock market pumped and bond yields came down, which is what you would expect if all was well in the economy and things were operating productively. However, we live in an abject clown world in which the tail wags the dog. All of this bad economic data is leading markets to believe that the Fed will be forced to turn their rate hikes into rate cuts and begin pumping more liquidity into the system. Whether or not that actually happens is yet to be seen. We'll see if the Fed has the balls to keep rates high in the face of a ZIRP addicted economy and political class that are more than willing to blow asset and debt bubbles if they aren't forced to go out and make calculated allocation decisions. Inflation be damned.
As Stan Druckenmiller stated earlier this week, the Fed's rate hikes have brought a proper hurdle rate back to the markets that are forcing people to make more informed allocation decisions when it comes to business or investment planning. If the Fed were to reverse course now, this hurdle rate would be completely removed and we would be sent right back down the path of higher debt and rampant inflation. But with the Fed successfully "destroying demand" (making it so companies are forced to lay people off because their costs are too high), the thought of keeping rates higher for longer becomes very political. Even though the market may need a heavy dose of medicine to get back toward a state of sanity, people losing jobs en masse will become politically unpalatable. Especially during an election year.
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This is not how markets are supposed to work. Having the ability to artificially manipulate the cost of capital on a whim completely distorts markets and makes people addicted to manipulating that cost lower so they can allocate money with little opportunity cost. The problem with that though is that the opportunity cost isn't removed it is certainly masked for a period of time. Adding gun powder to debt and inflation bombs that are getting larger with every Fed intervention and financial crisis.
The market needs a monetary system whose cost of capital is determined by that market at any given point in time and not a small group of men in boardrooms at the member Federal Reserve banks. This is why we bitcoin, freaks.
Great to have my in-laws in town. Should be a fun weekend.
Enjoy your weekend, freaks.