I'm spending the weekend in New York city as two of our young adult children live here. I only come here about once a year but I am always struck by the number of brand new mega sky-scrapers in the city. And then I am equally struck by the mounds of trash and homeless people strewn about at ground level amid street life "eau de toilette". The intersection of epic wealth and epic squalor. It's a metaphor for what is wrong with the Ponzi "system". New York is not home of the 1%, it's home of the 0%, wherein subprime dreams of infinite growth are catalyzed by free money. At the base of the modern pyramid are the disposable peons squeezed endlessly to prove that totally unprofitable business models could one day turn a profit amid the most ideal boom times economic conditions. Until it all collapses and turns back into a Silicon Valley pumpkin all over again.
Ironically, our son works in downtown finance aka. Wall Street in the Energy industry. He covers both fossil energy and renewables. He like many others disagrees with my bearish assessment of oil prices. There is now a major disconnect between the spot (physical) oil market and the futures market. The spot market is "tight", but the futures are trading like a brick. I tend to focus on the latter since futures are more subject to speculation. I'm also more looking at the overall commodity complex which is trading even worse than oil. Oil is unique because Russia is the second largest producer and Europe is attempting to ban import of Russian oil. Zerohedge constantly reminds us that Europe will be economically destroyed by their Russian oil ban and in the meantime highly discounted Russian oil will find its way to market in China and India amid global economic collapse, assuring that Russia remains fully intact.
Sure.
All of which was presciently warned about 50 years ago:
"THE COMPUTER MODELING made it plain: If people continued to overextract finite resources, pollute on a massive scale, and balloon the human population in an unsustainable way, civilization could collapse within a century. It sounds like that modeling could have been done last week"
What produces collapse in most of the scenarios is the combination—it's not all only one thing. In the case of fossil fuels, it's both the consumption of the reserves of fossil fuels and the pollution"
What could lead to a more sustainable scenario, or a scenario of balance?...Realizing that it's not higher and higher consumption which makes us live in a good way, have a healthy life and well-being. It's the quality of our relationships with other humans, with nature, that makes possible the scenarios in which you can decouple well-being and the growth of consumption"
Indeed. This is not the end end of civilization, this is the beginning of civilization. One in which the ascendant corporate monoculture of rampant materialism is no longer worshipped. In the meantime, it's clear that a culture in late stage self-imposed decline will deny it's ending right to the very end.
Even at this late juncture, Wall Street is pedaling the myth of a soft landing. In this article, Schwab's Chief Investment officer advises investors to "Backup the truck" to buy stocks in a recession. She believes, like many others, that we are reaching peak inflation which means that Fed rate hikes will soon come to an end. And therefore, once the market figures out the end of rate hikes is near, it will take off.
There is a problem with that investment hypothesis - even if it's true that inflation is peaking - which is far from certain: Currently, the Fed rate is at 1.5% on its way most likely to 2.25% (.75%) or 2.5% (1%) this month. However, WHY would the Fed stop hiking rates at 2.5% when THEY know full well that they cannot offset a recession with that small amount of rate cut firepower? In other words, if they have to start cutting rates in 2023 will they want to start from a level of 2.5%? No.
History informs us that the LEAST amount of rate cuts required to offset a recession in the past 50 years is 5% in both 2000 and 2007. In 2020, the Fed had only 2.5% of rate cut dry powder but they also had unlimited QE AND record fiscal stimulus.
The 1990 recession was considered a "soft landing" but it took 7% of rate hikes to create that soft landing scenario. Otherwise, logic dictates it would not have been a soft landing:
Which means the Fed is now on the horns of a very dangerous dilemma. Do they continue to hike rates and ACCELERATE recession, or do they backoff rate hikes and have insufficient dry powder ahead of recession?
Either way, it's totally fantastical to believe that by the time they need to start cutting rates, they will have sufficient dry powder to prevent economic depression.
In summary, the bull case is to assume non-normalized rates ahead of recession AND to assume soft landing when the everything bubble explodes.
Sure.
