There is certainly more than enough to write about this week! The problem I am having right now is figuring out which major news is the most important. Is it the 10-year yield nearing ½ %? Is it oil futures trading at MINUS $40.00 on Monday and between $8.00-$10.00 per barrel through June on Tuesday? Is it the weakness in the metals? Is it the fact that we have lost 22 million jobs in the last 4 weeks and will likely surpass 25 million when those new unemployment numbers come out on Thursday? Or that the economic dislocation appears to be growing by the day with no real end in sight?
Overall, I believe that if this were a baseball game we would be in the top of the first inning of this part of the depression. Remember, I believe we have been in a depression since at least 2008 and have conjured up so much cash and computer blips that we have pretended to be ok and able to pay our bills- until the charade became too large to hide. Now, here we are!
Many, it appears to me, are blissfully unaware of the massive economic damage that has already been done to our economy. People are SIP (Sheltering In Place) and are waiting for their masters to allow them to go back to work. Unfortunately, many are going to be surprised to learn that their jobs no longer exist. Retail, restaurants, movie theatres, airlines, cruise lines, sporting events, hotels, theme parks, etc. have a long road back after being shut down and having the media scare the hell out of half the population.
In addition, many people who were barely making it will be buying essentials with their paltry stimulus checks that will only be a short-term lifeline for many. There will likely be little “pent up demand” from an economy that is producing a fraction of the income needed to sustain the massive debts already incurred and that is going trillions of dollars into additional debt to, again, pretend that all is well. Well?- BS!
Any thought that “ALL IS WELL” was blown away on Monday when contract holders of oil contracts had to pay $40.00 per barrel to get rid of the oil they promised to take delivery of. There is precious little space to store it and no demand to alleviate the storage problems showing up anywhere on the horizon.
The president came out with the declaration that the strategic oil reserve would be topped off with 75 million barrels of oil. The result? The June contract went from over $20.00 at the time of the announcement to around $10.00 as I write this on Tuesday afternoon.
It would be one thing if there was just one thing pointing to a collapse but every major indicator is flashing red. The only “markets” we have are fake money conjured up from nowhere buying assets that are worth far less than they are being bought for but even if the “asset” turns out to be worth 1 cent even if they bought it for $100.00 the one cent is more than it cost them to produce it anyway! How sick is that?
We are producing VERY little. Not only are asset prices being rigged upwards BUT more importantly for the future small businesses are getting wiped out. While devastating for those owners and employees we could possibly be ok if other things weren’t taking place at the same time like:
According To a report issued in the Immokalee Bulletin titled “The Day South Florida Agriculture Died” written by Gene McAvoy of University of Florida IFAS Southwest Florida Research and Education and President of the National Association of County Agricultural Agents, “On Tuesday March 24 , a local broker says, everything changed, From brokers, orders stopped and everything got quiet. On Wed., March 25, it got super quiet”. “Since then, tomato volumes are down 85%, green beans are like 50% and cabbage is like 50%”.
“RC Hatton has plowed under 100 acres of green beans (around 2 million pounds) and 60 acres of cabbage, or 5 million pounds. Florida’s tomato growers target 80% of their production to restaurants and other food service companies, rather than to supermarkets. In this sector, growers are walking away from big portions of their crop. Tony DiMare estimates that by the end of the growing season, about 10 million pounds of his tomatoes will go unpicked”. Again- a serious similarity to what things looked like prior to the collapse of the Soviet Union.
In addition, the article says that cattle ranchers are having problems too. “The cash market and futures prices are lower than anyone can remember. One local rancher sold calves last week and averaged $250.00 per head at the Arcadia auction barn. A few weeks ago he would have received $450.00 per head average and that constitutes below break-even.” That is a 44% price decline in 2 weeks!
In addition, the AP reported that “almost overnight millions of hogs are stacking up on farms now have little value”.
All of this is taking place while there are miles-long car lines of people waiting for a food handout and food banks running empty. Serious disconnect and serious problems in my opinion dead ahead.
While I am concerned about the future supply of hard assets and particularly about the things we need to sustain our lives I am immediately concerned about what may happen in the short-term with the price of oil collapsing. Our economy runs on oil. No only do we use it for production and transportation but many banks have HUGE outstanding loan balances with the energy companies and many traders- some possibly having leverage that just a few percent move could wipe out their entire portfolio could be on the hook for large losses- leading to further larger losses going forward. As usual, the government and the Fed are promising- you guessed it- Money from nowhere to fix the problem! Just how will more fake money get people to start consuming again when the economy is shut down and may take years or decades to get back to where we were previously? Let’s not forget the economy was collapsing at an increasing pace 18 months before any virus news- this just hastened our demise.
Many people ask- so what do we do? My answer is :
On one hand we have no economy to speak of. It has been destroyed. We started out at 20% unemployment if we reported numbers as we used to report them (John Williams- Shadow Gov’t Statistics) and we have lost 22 million jobs (reported) in the last 4 weeks. Truly unprecedented. It is likely that 25-30% of the population is contributing economically and the rest are collecting money conjured up from nowhere to survive. On the other hand you have a Fed and Treasury Department who are bailing out their buddies with trillions of dollars of asset purchases, loans and backstops and sending the peons crumbs to keep them quiet while we are being looted 100 times worse than in 2008. And barely a peep!
They are attempting to prop up stocks, bonds, real estate, etc. and are using, in their own words, “UNLIMITED LIQUIDITY” or unlimited money “printing” to stave off the deflation that the “markets” are trying to achieve to get rid of the excesses that have built up over time. This is healthy and should have taken place in 2008. At this time we would likely have recovered and had a lasting real recovery rather than the debt-fest we have just woke up hung over from.
In the meantime, as the mad money “printers” not only here but globally conjure up cash to infinity the price of gold and silver remain subdued (not by accident) and look to me to be a place to hold value as the central banks buy up virtually all paper assets and take control of real stuff like companies and income producing bonds with nothing but a computer click. They are even buying up muni debt. There may come a day when you write your local property tax check to either the IRS, Treasury or maybe even to the Federal Reserve or one of the six banks that own it.
For everyone else in the USA printing money is a felony and you would be in jail if you tried it.
Anyone who naked shorts (sells something they don’t own) would be arrested UNLESS they are major banks-then you get a slap on the wrist and have to share a small percentage of the profits with those in charge through fines. Trillions have been made and tens of billions have been paid in fines but those who carried out these deeds are still mostly in control and many have become wealthy beyond belief.
So, with people in control who appear to have no morals, an unlimited money machine and the ability to buy any asset at any price- all while the real economy has imploded leads to a situation where virtually ANYTHING could happen. You have to have assets everywhere and as the wind changes- adjust the sails.
This is just the beginning!
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