Below, we look at the silly but not-so-silly game of market predictions.
For today’s report, I’ve decided to revisit a 15-minute video made back in March of 2019.
Please note, this presentation was made some 11 months before COVID hit the headlines and precisely one year before the >30% slide in the S&P in March of this year (and the equally “miraculous recovery” which followed).
I think you’ll find the themes and “market predictions” discussed then quite familiar today.
More to the point, you’ll see that the warnings made over a year ago are more accurate now than mere market predictions, as what we are examining when it comes to debt, Main Street rot, and subsequent debt “solutions” for this rot do not require crystal balls, tricks or silly market predictions.
Instead, one merely needs to follow the math…
A Timeless Video?
But first, here’s the presentation:
While Wall Street Enjoys the Party, Main Street Rots from the Bottom Up
Now, let’s consider the warnings made then, the events which followed since, and the take-aways for tomorrow.
Again, no need for tarot cards or fact checking and silly market predictions. The numbers and facts don’t lie.
Media Noise—Nothing Changed…
I began by warning of all the media noise which so distorted facts leading into 2019.
As I said then, bull v bear bias, opinion and noise are everywhere, but blunt discussions of our historical debt and its economic and market implications were almost nowhere to be found.
Since then, of course, little has changed.
The media remains almost Miranda-like silent on this key issue of cancerous debt.
Even in our first Presidential “debate,” there was no question raised on this issue, nor any frank discussion of the same.
Talk about whistling (or squawking) past the graveyard…
Wall Street Keg Party—Nothing Changed
In 2019, I compared the debt-driven markets to a keg-party on the beach.
In short, I reminded viewers that as long as the Fed keeps rates to the floor and the money printers in over-drive, it’s like a party (and market) that never runs out of beer.
In March of 2019, when filming this report, Powell was already reversing course on the rate hikes of 2018 and moving 180 degrees toward dramatic rate cuts in 2019.
Such “market predictions” were based entirely on the market’s panicked reaction to the 2018 Christmas slide, driven by those 2018 rate hikes and the sad (and short) Fed attempt at QT rather than QE.
(BTW…I warned of the December 2018 market sell-off in October, from a beach out West…)
As I said in the 2019 video above, the Fed bows to Wall Street, not Main Street. When its Wall Street brats cried for more beer, the Fed accommodated them in grand style.
As I warned in this video, Powell would do anything to keep the market party going and postpone any signs of a hangover by reducing rates or printing more money.
Was I right?
Yep.
Within 6 months of filming this warning, the repo markets tanked in September of 2019, and right on que, the Fed stepped in with hundreds of printed/ “loaned” billions of repo-support (i.e. more free beer for Wall Street).
This repo disaster was a neon-flashing sign of a broken credit market, one thirsty for needed liquidity (i.e. more free money) and a clear sign to market veterans like Tom and myself that the markets would implode by 2020 or 2021.
Equally predictive, was the arrival in 2019 of more QE, for as I warned in the March, 2019 video above, QE would return as soon as Wall Street started to get queasy again…
Thus, one month after the repo disaster, and within 7 months of my March warning, the Fed behaved exactly as predicted.
In October of 2019, the markets got nervous again, and thus the Fed stepped in with $60 billion per month in more money printing (QE) and artificial bond support.
I literally dropped my fly-rod that October and posted the following video from a Utah, river-side cell phone, telling investors to front-run the Fed’s latest fat-pitch from the Eccles building.
Since October of 2019, we now see QE gone wild, not just for a temporary glitch, but full-on unlimited QE.
In short: I told you so…
The Fed Exaggerating/Stretching the Truth—Nothing Changed
In my March video, I also said that drunks often exaggerate facts, and that we would continue to see more “fibbing” from the Fed well into 2020 and beyond.
Needless to say, that was an easy prediction.
As I’ve shown in math-based reports like this one here, the Fed is deliberately dishonest, as a matter of policy, especially when it comes to inflation.
Think about it folks. For years the Fed said it was trying to “target” inflation and seemingly unable to hit its 2% bulls-eye, as if inflation could be so controlled.
Then, in September of 2020, Powell suddenly announces he’s going to “allow” higher inflation, as if the prior years of failing to “target” it were a mere verbal ruse or a forgotten “ah-shucks moment.”
But as I’ve shown here and here, the Fed was terrified of inflation, not “targeting it.”
And yet now, by suddenly “allowing it,” the Fed is only proving it was fibbing yesterday and “allowing” inflation today to help DC and Wall Street pay their debts with diluted dollars while hitting Main Street in the gut.
Main Street Screwed—Nothing Changed
Speaking of Main Street, I also warned in March of 2019 that markets could rise despite a rotting Main Street, for the simple reason that Fed policy favors Wall Street, not the real economy. Again, I repeated that just recently here.
By favoring markets over the real economy, the Fed’s policies are proving in real time that markets are so disconnected from reality that we can see new highs even in the midst of a global pandemic and recession.
I warned in March of 2019 that more money printing would come.
It came.
At the time I said this, the Fed’s balance sheet was under $4 trillion; today that figure has bloated to an astounding $7 trillion and counting.
I also warned that the only “solution” DC and the Fed had for the massive debt-party we were enjoying was more debt—alas, more kegs for the market debt party.
In just over a year since making this warning, the US debt has gone from $21 trillion to $26 trillion and heading toward well over $50 trillion by 2030, as even our own Congressional Budget Office effectively admits…
Folks that’s a helluva party…
And as I also warned, companies on the stock market, veritable zombies by every traditional metric of sound balance sheets, would merely survive on more debt, regardless of economic or business reality.
As warned, corporate debt has since sky-rocketed to $11 trillion and household debt to nearly $15 trillion, surprising even myself in its continued levels of drunken, debt bacchanalia…
Fed Desperation—Nothing Changed
In my March, 2019 video, I also said that this dangerous party was a desperate party.
I said it could and would last as long as the Fed choses to repress rates and print money, even if the world were to rot all around Wall Street.
Since then, New York City and the mid-town financial district is a veritable ghost town, but the markets keep raging forward despite every sign of debt over-drinking and Fed over-stimulus.
Those who attribute the market’s 2020 “recovery” to the tech sector are literally missing the money printer in the room, as I explained below in my recent August 2020 video from France:
The COVID Hall-Pass
But many will still cling to the argument that the Fed of 2020 is merely a helping-hand (rather than a predictable drunk), citing of course the extreme economic conditions wrought by the unique, black-swan Covid crisis of 2020.
In short, some would rightfully argue that we can’t blame Powell for keeping the party going, as he’s out to help us all through uniquely trying times.
Needless to say, I sure as heck did not foresee the Covid crisis when I made that March 2019 video report from Virginia.
But I can tell you now, as I told you then, that Covid or no Covid, the US markets and economy in 2019 were heading toward a reckoning and hangover of epic proportion.
Stated otherwise, even without a Covid crisis, Powell and Wall Street were already quite sick (and debt drunk) heading into 2020.
In fact, I’ll go one step further and say what everyone on Wall Street already knows, namely that Covid provided the perfect backdrop for yet another Wall Street bailout, one which conveniently hides behind the public guise of a humanitarian necessity.
But as Churchill famously remarked: “Never let a good crisis go to waste.”
In short, Covid literally saved an otherwise debt-dead-drunk market with one helluva a Bloody Mary and can-kicking aid package of zero rates and unlimited QE.
Fed-Fantasy and Fed Power—Nothing Changed
In my March, 2019 video, I concluded by saying that Fed-supported markets can technically survive almost anything if and when debt is free and money can be magically created by a mouse click at the Fed HQ.
How It All Ends? —Nothing Changed
But I also warned then, and will repeat again today, that the Fed can’t buy an economy or save Main Street.
I warned that the next recession would erupt from the bottom-up, not from the top-down.
In short, I warned that a rotting Main Street rather than a Fed-rigged Wall Street, would be the trigger of the next melt-down, even as our discredited and drunk stock markets melt-up.
The social unrest, political division and cancerous debt levels under-pinning all of this absurdity is ignored by the left, right and center (as well as Chris Wallace).
Meanwhile, a ticking time bomb of national debt, Main Street pain and Wall Street excess continues to clock forward, though its dangerous ticking sound is currently masked by media bobble-heads and presidential candidates acting like kindergarteners fighting at recess over candy.
In short, everything of which I warned well over a year ago is playing out today with almost eerie precision.
Market Predictions Made Easy
Is this because I’m some kind of self-avowed prophet gifted with powers of foresight?
Hardly…Even my embarrassingly large ego is not that big…
The simple truth is that all of us can see what is right under our noses, if we just know where to look.
All frauds, after all, are easy to predict, just as all drunken parties end in a brutal hangover.
The Fed’s policies, I’ve empirically argued, amount to open fraud, and the debt party we’ve indulged in since the 1980’s in general, and 2008 in particular, is right there for us to see.
Our best-selling book, Rigged to Fail, warned of all of this, and came out just 3 weeks before markets tanked.
We were not prophets of doom, merely veterans of markets and students of history, economics and math, of which the book gives due respect.
If you don’t have time to read the book (it’s practically free and you should make the time), the American Institute for Economic Research recently reviewed its key themes.
We highly recommend you at least familiarize yourself with those themes and warning signs here.
In the meantime, the crazy disconnect between sanity and unlimited, drunken market support from a central bank continues…
Our Solution? – Nothing Changed
Markets, and hence your portfolio are now in an unprecedented place in history where outsized risk is engaged in a tug-of-war with outsized reward in a Fed-supported market that only seems to forever rise and recover from every dip, no matter how deep.
We think such markets are artificial, and as such, rigged to fail when natural market forces, like natural forces of physics, get their last laugh, as they always do.
In short, even the Fed, and these markets, can’t defy gravity forever. Those are easy market predictions.
Until gravity returns, we at least offer a portfolio solution that manages both risk and opportunity in these crazy times.
For a deeper look at our portfolio approach, simply click here and see for yourselves.
Have a great weekend.
Sincerely,
Matt and Tom
