Not long ago, major US banks finally started to come to their senses and admit what most honest market observers knew all along: there is not going to be a soft landing, we are going into recession:
They finally realize that the Fed is panicking with its rate hikes. There is no other way to interpret it: when the Fed hikes 75 basis points three times in a row, that is panicking. And it shows that they don’t care about a soft landing–that’s little more than them trying to calm people down as they execute a controlled demolition of the economy.
Hamburger Helper packets are now suggesting you use hot dogs instead of ground beef, because they know people can’t afford ground beef anymore, so bad are economic conditions:
The federal government continues emptying the Strategic Petroleum Reserve in order to depress oil prices in the run up to the midterm election:
And now SPR inventories are at their lowest levels since 1984 with 300 million barrels of oil having been sold off.
Eventually, in the coming months, the US government will become a net buyer of oil, which will send gas prices back upward.
But that doesn’t matter right now–all that matters now is putting lipstick on this pig and holding the whole system together with duct tape until the midterms are over.
So things look pretty bad here in the US. ‘Cross the pond, they look even worse, but we are seeing developments now that suggest that maybe the rules of the game are changing once again. I’ll explain.
Last week, the British pound fell over 7% in a few hours. It went from being worth $1.12 to being worth about $1.03, nearly at parity for the first time since at least the 1980s. In other words, an unprecedented collapse.
As recently as the summer of 2021, one pound was worth $1.41.
This comes on the heels of a massive decline in the euro, which is now worth less than a dollar for the first time since 2002. One euro is now worth about 95 cents, yet in May 2021 it was worth about $1.22.
Since February, the value of the Japanese Yen index (JXY) has fallen by about 20%.
Major world currencies are now trading like Dogecoin.
The Japanese central bank attempted to intervene last week to stop the crash of the yen, but after a brief surge in the yen, it went right back to where it was before the intervention.
US mortgage rates have surged to over 7%, and last night, the 10 year treasury yield crossed the 4% mark. However, it fell back down to around 3.8-3.9 in light of extraordinary actions taken by the Bank of England to support the pound and depress bond yields.
Prior to today, 30 year UK bonds had been going utterly vertical:
It’s probably hard to see the chart, but since early August, yields on the 30 year gilt had shot from 2.2% to over 5%.
This is supposed to be one of the safest and most stable investments in the world behind US bonds, and it’s trading like a crypto currency.
Now yields are down to about 3.9% on the 30 year gilt, a massive fall (or more accurately rally, as bond yields fall when bond prices rise) that obviously has nothing to do with supply and demand, but rather massive central bank intervention.
… the BOE became the first bank to capitulate on its plans to proceed with QT on Wednesday when the central bank restarted QE in a “temporary and targeted” bond buying operation – which will be as “temporary” as “temporary” inflation was – warning of a “material risk to UK financial stability” if the turmoil in the UK government bond market were to continue. It also raised the prospect of a “tightening of financing conditions and a reduction of the flow of credit to the real economy”, but what it really meant is that QT is over before it even started, and QE is back.
According to the FT, the “break” in the bond market manifested itself in thousands of pension funds have faced urgent demands for additional cash from investment managers in recent days to meet margin calls, after the collapse in UK government bond prices blew a hole in strategies to protect them against inflation and interest-rate risks.
The BoE’s action said its action was designed to restore order. “The Bank will carry out temporary purchases of long-dated UK government bonds from 28 September,” it said. “The purchases will be carried out on whatever scale is necessary to effect this outcome,” it added, saying the Treasury would underwrite any losses.
Spoiler alert: there will be nothing temporary about the return of QE, as the moment the BOE even thinks of ending the bond buying yields will explode right back to where they were. In effect, the BOE just became the first central bank to admit that it is trapped, and the only other option left is to raise inflation targets to 3%, 4% and so on.
So QE is back, at least in the UK.
And yet inflation in the UK is still around 10%. The BoE is still in the process of hiking interest rates in the name of taming inflation, allegedly.
But it appears they’ve capitulated now. The pain in financial markets and in government debt markets was too great, and they have gone back to QE to depress bond yields and force equity markets ever higher.
In other words, they have chosen hyperinflation.
The bottom line is clear: we have long quoted Michael Hartnett who said that “financial markets stop panicking when officials and central banks start panicking”, and this morning the Bank of England was the first bank to panic, and the panic will soon move to every other central bank across the world simply because the cost of tightening is too much.
In response to the BOE’s pivot, 30Y gilts yields dropped by the most on record and it price soared some 16% (!) as the formerly most liquid bond market now trades like a penny stock…
… and while risk assets are still debating what this means – and let us break it down for you: pivot means that central banks can’t take any more pain and will soon do QE and rate hikes at the same time everywhere, eventually ending hiking and starting to cut rates – the bottom line is that this is the beginning of the end for the fiat system which now faces a terminal dilemma: fight inflation and suffer market collapse and economic depression with millions laid off, or push to stabilize social order and employment with higher asset prices, runaway (hyper)inflation be damned.
My operating theory this whole time has been that central banks will hike until inflation is tamed, regardless of how much the stock markets collapse, regardless of how much the housing markets collapse, and regardless of how deeply the economy falls into recession.
Because they care more about the viability and stability of their currencies than they do your home value, your portfolio value and your job.
They can come back from a recession, but what they can’t come back from is the complete destruction of their currencies.
The US dollar is the backbone of the Rainbow Flag Empire. Global dollar supremacy is everything to our ruling elites. Without the dollar, they are nothing. It is everything to them. And so they are going to do whatever it takes to protect the dollar.
That’s been my operating assumption all of 2022, once it became clear that they’d have to start tightening to get rid of inflation, which was proving to be non-transitory.
I have been trying to warn all the dip-buyers and permabulls that the Rules of the Game Have Changed, and that the Fed is no longer your friend. The Fed is determined to crush the economy, the stock market and the housing market in order to get inflation under control, and until the Fed has achieved its task of bringing inflation under 2%, you would be a fool to bet on the stock market–which, I might add, was, prior to the rate hiking, the most ludicrously overvalued bubble in US history.
But now we are seeing signs that the central banks of the Western World may not, in fact, be determined to bring inflation down by any means necessary.
US stocks, which have basically been on the brink of collapse the past week, sitting precariously at their June lows, are now RAMPAGING higher on the hopes that because the Bank of England has pivoted back to QE, the US Federal Reserve will do the same.
I keep saying that they won’t do this because to do so would basically be to throw in the towel on the inflation fight and consign us to hyperinflation, which will ultimately be the US ruling class’s undoing. If the dollar goes bust, so do they.
But now I’m not so sure. Are they really going to try to hike rates and do QE at the same time?
I don’t know. I would be shocked if they did because they’d basically just be signing the dollar’s death warrant.
But it seems like it’s right around the bend. We may have to just accept the fact that hyperinflation is coming.
It may be time to prepare to start buying stocks. We need a crash, we deserve a crash–but we can’t fight the Fed.
Markets are beginning to turnaround on hopes of a Fed pivot even though the Fed has made it abundantly clear in the past they are not pivoting. The permabulls that make up the market participants want so desperately to believe the Fed is going to pivot and we’re going to back to QE and stocks can just keep going up indefinitely. They really have gotten to the point where they believe the market should never, ever go down. We should be in a permanent bull market at all times.
I don’t know if the BoE’s decision changes things for the Fed. Things are not breaking here in America, so I don’t see why the Fed would pivot just because the BoE pivoted.
You have to keep an eye out for any signs of a Fed pivot. We are on high alert right now.
Elsewhere, the Nord Stream pipeline that sends natural gas from Russia to Germany mysteriously blew up. We all know America was behind it for one simple reason: it prevents Germany from burying the hatchet with Russia.
Germany is going to freeze this winter because it is determined to impose sanctions on the Russians at America’s behest. But the Americans know the Germans are on the verge of capitulating and removing sanctions on Russia. So the Americans blew up the pipeline to make sure the Germans have no reason to capitulate on the sanctions. Now the Germans don’t even have the option of begging the Russians to turn the gas pipeline back on–the pipeline has been blown up.
So America will profit off of this by shipping liquefied natural gas to Europe to replace the lost gas supply from Russia.
That seems to be the plan here.