As we enter into a new year, I am sure many are hoping for a better year in 2022. For those who plan ahead, there may be good reason to expect 2022 to be better. For those who fail to plan and figure “the Fed has my back” I believe it may be a painful time in 2022.
One of the major reasons for this is the fact that inflation appears to be far more entrenched than many have imagined. One of the key components of what assets may thrive and which assets may dive could depend upon the path of inflation during the year.
As I have written for the past few months (long before the Fed and talking heads admitted it) that inflation was not temporary but was likely to get worse and worse as time goes on. Why? Because they can’t stop “printing and buying” without collapsing the entire financial system. We are on a path that, as I wrote 12 YEARS ago- once you go down the “printing” path there is no turning back.
It is stunning to me that they have gotten away with this ridiculous plan for this long. We are actually conjuring up “money” from nowhere to pay current bills, interest on debt already owed and even issuing new bonds (more debt) to pretend we are retiring old debt. I am speaking about the USA but basically the entire developed world is doing the same things.
During the last Fed meeting the Fed actually said the during 2022 they were going to reduce their over $9 TRILLION balance sheet. So instead of BUYING assets they will be SELLING. I have a great question- TO WHOM? Who is it that will buy a security paying 1% or less with inflation at over 6% (actually 15% if reported as it was reported in the 1980s)? Just who would pay for almost guaranteed losses going forward. My take: Don’t hold your breath on that one.
We have “leaders” (I use that term VERY loosely) that are throwing gasoline on to the fire by making one bad decision after another. They close down pipelines and wonder why the price of fossil fuels skyrocket. They make mandates to have no emissions in the future while choking off those producing what we need to live now both economically and in other ways.
While the COVID epidemic may be coming to an end (or maybe not?) it appears to me that the problem that may rear its ugly head this year is energy costs. It is already happening in Europe and around the globe as the supply of fossil fuels-mainly natural gas and coal are in short supply and prices are skyrocketing. In the case of natural gas many are aware that the cost of heating homes is a big problem. What many may not realize, however, is that natural gas is needed to produce fertilizer and the byproducts are used in the slaughterhouses to incapacitate poultry before it is processed.
The main costs on a farm are for labor, gas or diesel and fertilizer. With the cost of all three rising in tandem I have a hard time foreseeing lower prices anytime soon.
In addition, Goehring and Rozencwajg, notable pros in the energy field, have models that show that by the end of 2022 we may see a phenomenon that we have NEVER seen- not even during the oil crisis in the 1970s. That is that, because of underinvestment in the space, global demand will likely, for the first time, be higher than the pumping capacity that exists.
You have central banks, major banks, the BIS and IMF all talking about economically starving fossil fuel producers by refusing them loans. Since the green revolution is likely to take decades to accomplish this should lead to FAR higher commodity prices going forward. Basically, this means that virtually everything you buy will be far more expensive in the near future.
Most of what we purchase has a direct tie to the price of gas and oil. We also have to ship, fly or truck the goods we buy and that has to be added to the price also.
I have written dozens of times about how this “printing” creates NOTHING but appears to. Real money is produced when a product is produced and sold. “Printing” takes the production out and just creates more “money” which has less value with each “printing” especially when there is no corresponding VALUE being created.
A REAL economy needs capital to build the economy, a willing workforce to produce the goods and energy to help transform the raw materials into a finished product that can be sold for a profit. There is PLENTY of capital floating around but far too few people WILLING to work and the cost of energy skyrocketing. Also, according to the St. Louis Fed, the velocity of “money” (how fast money is changing hands in the economy) is also at all-time lows.
The fact of the matter is that there are major banks that own the Federal Reserve. These folks are in cahoots so that they get the conjured up cash first and are basically “buying it all”. Wall Street is buying up railroads, hospitals, utilities, and major corporations
This seems to explain why it appears that the very fabric of society is falling apart. All that matters to Wall Street is PROFITS and themselves. They know nothing about service, sacrifice or anything else that makes the world a better place for all. It is all about THEM. There may be a few exceptions to this but likely VERY few.
They are buying up homes and pricing our future generations out of the market OR forcing them to become debt slaves to the same banks that are pulling off the scheme.
It appears that the world has become a giant gambling casino and the central banks, major banks and hedge funds- by manipulating virtually ALL assets are the house and it is set up so they can’t lose. Just look at when Gamestop and other stocks went the wrong way because enough people had enough firepower to move the price. As the big boys started to see losses- lo and behold the systems went down and nobody (that we know of anyway) could buy anymore. You could SELL though. If you can’t buy but you can sell there is only one way for the price to go and that is DOWN. Of course, those who were the victims of the short-squeeze were magically made whole.
I believe the most disgusting thing about that whole episode is that the only investigation ever done was about the Reddit users that ganged up on those that regularly pay fines for rigging just about everything.
If we had a real functioning economy which was free from interference by those “in charge” the excesses we have seen built up in the last decade would not have taken place. I believe that all price discovery has been destroyed by market interventions into almost all asset classes.
Probably the worst part of this whole scenario is that the illusion put forth by those “in charge” seems to be accepted by so many. The mainstream media regularly harps on the “great economy” we have when just a peek at the underyling numbers show an economy in freefall.
During the release of the Fed minutes on Wed. January 5th. there were actually members who remarked that we are actually near “full employment”. When I see what appears to be an obvious lie like that it makes me even more convinced that this is actually all they do. Say one thing and do whatever they want.
The Bureau of Labor Statistics shows that we have a labor participation rate of less than 62% as of December 2021. As an example, it was over 68% in 2001. Full employment??? We have more citizens and less people working than at any time since the 1970s when many women were still mothers and not yet fully integrated into the workforce.
This illusion will cost those who don’t see through it dearly. As many are talking about a current or future “recovery” there has been none. The only thing that has grown massively are our debts. Of course, those “in charge” use the debt as growth and- voila- most people are fooled into thinking things are better. Likely, they are better for a SHORT period of time until the next fallout takes place.
The fact of the matter is this. In all previous recessions or depressions that I am aware of, the excesses that were built up that caused that recession were dealt with. Many got financially destroyed. This time the excesses that were built up- actually over the last 50 years- not just the last 12 or so were NEVER dealt with. As a matter of fact, all we did was add multiples to what caused the problems in 2008 in the first place.
As usual, I would tell anyone who will listen to have assets everywhere you can because we don’t know what comes next. Personally, I favor REAL assets as opposed to paper promises made by others.
What Is the VALUE of a promise that can’t be kept?
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