Category: Economy

Stock Market Crash Coming

Money supply growth went further negative. This is the most negative recording since records have been kept.

Margin debt is also collapsing.

Some of the yield curves have went further negative.
It is getting difficult for me to see how this does not result in some type of stock market panic in the coming months.

Recession Warning Part II

As I expected, money supply growth went negative.

This is a very rare event. You should hold off buying any illiquid assets such as housing. Move to as much cash as possible. The economy will look very different in four months.

Recession Warning

The M2 NSA money supply growth just crashed to about 2%. These are very low numbers. It is looking more likely that a recession and stock market panic is going to occur in the coming months. Given the three week lag in the reporting of these numbers, we are probably already having negative money supply growth.

Recession Watch-From Bullish To Bearish

I have been bullish on the US economy and US stocks for 10-years. I made a few post back from 2017 that stated a 2008 style recession was not in the cards. You can see my posts here and here.
In 2020, I warned about inflation. It was the easiest call I ever made. A summary of my post on inflation are found here. In short, money and credit went vertical. Below is the 2020 M2 money supply growth from 2020. The numbers below show levels that surpassed all previous records by large numbers going all the way back to when records were first kept.

There are a few indications that a recession might be coming.
First, the yield curves are inverting.

I have detailed previously the reason the yield curve inverting is a sign of a recession to come. You can see my post here.
More importantly, the money supply is crashing from a very high number.

It tends to start dipping around this time of year going into the fall. This is one of the reasons most recession and stock market crashes happen in September/ October months. Given that we are already at 5%, the tendency for a seasonal decline could put the growth to low single digits. It may even go negative like it did in 2008. This was an obvious sign in 2008 that a stock market crash was about to take place.

If these trends continue, we will have a recession within the coming months. I will be closely following the H.4.1 and H.6 publications over the next few weeks to see if these trends continue.

The Federal Funds Rate
This has nothing to do with the federal funds rate. It is a meaningless interest rate. Its the interest rate banks charge each other overnight. But inter bank lending has been dead since 2008 when the Federal Reserve began to pay interest on excess reserves. Why would bank A lend to bank B for 1.5%, when they can let it sit with the Fed risk free for 1.65%.

This is the reason inter bank lending has died. I find it amazing the amount of time and articles written on the Fed Funds rate. It has become meaningless.

The Easiest Call I Ever Made-Inflation

Long before the “I” word (inflation) was fashionable, I began to issue warnings. On March 17th, 2020, I issued the first such warning with my post “Inflation Warning“. Followed by my post on May 7th 2020 with “Records Smashed“. I topped it off on June 6th 2020 with my post “Beware-Price Inflation“. Money and credit levels are still elevated. The Federal Reserve is going to react to these inflation prints. It is hard for me to believe they are going to keep pumping money like this. I am not dogmatic about the inflation/deflation debate. I let the money and credit numbers do the talking.

The Mania Goes On

The corporate press and political class have gone crazy over the below data.

The positive test match the amount of testing. Which means they are not conducting test the proper way. I address this problem in my post, “Unscientific and Sloppy“.

Even more embarrassing, none of these measures seem to do anything.

The Good News on Taxes

I am going to make a prediction about tax rates in the US. They are going to continue to go sideways/downward. It has been doing just that since the end of WW II. I think it will continue for the rest of my life.
Both the highest and lowest bracket have been trending downward.

The effective corporate tax rate has decreased more since 2011.

As a percentage of GDP, the US federal government has never collected more than 20% of GDP. It does not matter how high or low those tax rates go. They are capped at 20% since WW II.

President Obama and the Democrats had complete control over congress in 2008. The highest bracket went from 35% to 39%. They put the highest bracket right back to where it was in 2000. This is a marginal change if you are making a million dollars a year. Now there is a man in the white house that is clearly losing his cognitive ability. For liberty and freedom, this is a good thing. I do not like charismatic presidents. They tend to get things done. Conservatives and libertarians have complained for decades that the government does to much. Now we have a victory-Gridlock. The gridlock is due to the decentralization of information. No one can make a move without it being scrutinized. If a charismatic man like Obama, with complete control over congress, could only take the top bracket from 35% to 39%, I think we are in good shape going forward.
Further, why would the Democrats push such an agenda? In 2020, the US government financed 50% of every dollar spent. This is no more absurd than 60% or 70%. The US government borrows whatever is required. No one in the federal government gives a damn about the receipts coming in. It is inconsequential to the outlays if the US government collects 3.5 trillion in taxes or 4.5 trillion in taxes. This seems like a foolish battle to start.
Any raising of taxes will probably be marginal. I do not think any massive tax increases are coming in the near future.

The US Bull Market Goes On

There are websites and analysis that constantly warn about the coming US bear market. They have been wrong for over a decade. It is one thing to be wrong. It happens. It is another thing to argue with the market.