Fed Handcuffed after 30 Years of Freewheeling Use of Printing Press

April 13, 2022

Fed Handcuffed after 30 Years of Freewheeling Use of Printing Press April 12, 2022 By Mitchell Anthony.   The Most Significant Economic Event of the Quarter was not the War While most of us thought the most significant economic event thus far in 2022 was the impact of the war in Ukraine on consumer confidence.  However inflation really remains the most significant economic problem in the world today and its impact that it has on central bank’s ability to monetize our way out of economic problems. The war has only aggravated this problem with food and energy prices still rising. The Federal Reserve has had freewheeling use of its printing press for over 30 years enabled by inflationary expectations that were anchored at 2 to 2 ½%. Every single recession encountered since 1990 was easily resolved with the Fed’s ability to pour new credit into the markets and monetize our way out of virtually every economic problem we encountered over the last 30 years.  With the dollar being the reserve currency of the world combined with ultra low inflationary expectations the Fed acted without hesitation to print money and run its press as often as needed.  Unfortunately America has encountered what appears to be a very difficult inflationary environment that may take several years to resolve with tight monetary policy. This is contrary to the belief that was embraced by central bankers around the world in 2021 as the economy emerged from the pandemic lows.  Capacity was largely the driver of inflation in the beginning as producers shut down during the pandemic and were very slow to return their factories and facilities to full-scale. At the same time demand ramped up considerably for durable goods and housing as consumer spent a tremendous amount of time at home instead of traveling. Read more

Will The War End this Economic and Market Cycle Suddenly ?

March 9, 2022

Will The War End this Economic and Market Cycle Suddenly ? 15% Equity Market Correction Takes A Bite Out of Investor Wealth and Confidence! March 9, 2022 By Mitchell Anthony   WILL THE WAR END THE ASSET BUBBLE, ENTRENCHED INFLATION, AND THE RECKLESS CONSUMER? This economic cycle has been wrought with problems.  At the top of the list are consumption and consumer confidence issues which have been dealt with through easy monetary policy and fiscal stimulus. However the solutions had collateral damage and we now have entrenched inflation, a consumer that spends with unbridled optimism, and asset bubbles in real estate and financial assets. Now to add insult to injury we have a wild man at the helm of a nuclear enabled superpower that is acting reckless and has declared war on the Ukraine.  Historically war has destroyed consumer confidence and pushed the economy into recession quickly.  However this war is like none other and the world has to fight Mr. Putin with economic warfare rather than military warfare. This has only exacerbated our problem with inflation because it has been rooted in capacity problems for raw materials of all types and now we add to it things produced by Russia and the Ukraine like oil, natural gas, and some agriculture like wheat.  This war will undoubtedly effect consumer confidence along with the higher price of gasoline and soften the demand side of inflation. However the US consumer is not entirely rational and the central bank and Congress left the punch bowl out far too long and the US consumer is addicted to free money and has bankrolled much of it for continued use and spends recklessly as a result.  Hopefully a more sober price conscious consumer will emerge?Read more

Russian Aggression Risks Global Recession

February 14, 2022

Russian Aggression Risks Global Recession By Mitchell Anthony February 14, 2022   Russia is seeking concessions from the Western world that will enable them to expand their socialistic culture onto previous members of the Soviet Alliance.  Russia has not been successful in the democratic world that many members of the Soviet Union embraced after the 1991 breakup of the USSR. As a result they have returned to a more authoritative form of socialism.   As such they have aggressively tried to re-annex former USSR Members including Georgia and the Crimea.  Their next target is the Ukraine who has resisted and has sought refuge from NATO and the Western World.   The Ukraine was promised entrance into NATO in 2014 after the takeover/annexation of Crimea by Russia.  This promise has not been delivered as it seems that it would lead to an invasion of the Ukraine by Russia. There is a tug-of-war going on between Russia and the western world. Russia would like to see socialism return similar to the Cold War era that existed in the 80s.  America and the West conversely want to see these former Soviet republics become stable productive economies with democracies running their governments. Read more

Are Stocks and Real Estate Poised for a Bust

January 26, 2022

Are Stocks and Real Estate Poised for a Bust January 25, 2022 By Mitchell Anthony   The equity market has been going through an extreme period of volatility over the last few months as investors fret about whether a soft landing or a recession is on the horizon.  This volatility has everyone nervous because of substantial amounts of wealth that Americans have in our financial markets.  If there is a meaningful recession then markets undoubtedly will correct 20% or more from past highs. Conversely if there is a soft landing for the problems that we are having with inflation and growth than the markets will get back on a path to higher prices as soon as this becomes visible.  The market is clearly worried about inflation and much higher interest rates and as a result equity prices have already fallen 10 to 15% on equities and demand for homes has softened.  This equity correction seems overdone and it would seem that prices will stabilize very soon as we await more data on inflation.  We have never had a lasting substantial correction of more than 10% in equity markets that wasn’t driven by a substantial economic event.  We have not yet had an economic event and do not believe one is upon us now, however we do recognize we are close to the amount we are willing to lose from a previous high before making sales to protect our assets.  We also recognize that the equity Market has had a substantial move over the last two years (over 50% appreciation see figure 1 &2) that must be considered when identifying a stop loss point for the equity market.  We believe that it is not time to panic and sell equities aggressively and move to cash but will do so soon if selling persists. Read more

Will Inflation Wreck this Economic Recovery?

January 10, 2022

Will Inflation Wreck this Economic Recovery? By Mitchell Anthony January 7, 2022   2021 was a great year of economic recovery from one of the worst events that ever took hold of the global economy. The pandemic! Unfortunately there was some collateral damage and an inflationary cycle began that is difficult to understand.  More importantly expectations for inflation have risen dramatically.  Inflationary expectations have been anchored for over a decade at very low levels of 2-3%. However the CPI is currently measuring 6% inflation and the PCE (personal consumption expenditure index) is at 4.7%.  These high levels of inflation have not been seen in decades and many believe they will not be sustainable because they have been achieved through strong demand that followed a long period of deprivation.  These high levels of inflation has caused corporate leaders, business owners, and consumers to fear and worry that there is nothing ahead but significantly higher prices for the next few years.   As a result business leaders are acting in a defensive manner to prepare for this inflation by putting plans in place to raise prices for their products.  Likewise workers are demanding more wages to offset the inflation they believe lies on the horizon. This sort of thinking has caused inflationary expectations to become unanchored.  As this occurs it becomes challenging to re-anchor expectations for inflation back at low levels that are consistent with healthy economic growth without a recession and/or a sharp correction in asset prices. Read more