"The Fed Hiked Until It Broke the Regional Banks."
Joe Biden: "I am Here to Crash Bicycles and the Economy, and I am All Out of Bicycles."
The Gladstone
Economic Newsletter
Volume 18, No. 7
May14, 2023
“The Fed Hiked Until It Broke the Regional Banks.”
Joe Biden: “I am Here to Crash Bicycles and the Economy, and I am All Out of Bicycles.”
DISCLAIMER: The following is not intended as investment advice, but is rather intended to promote your own analysis of markets and the economic climate. The author is not a registered investment professional. Any action taken as a result of this analysis carries a high degree of risk. This newsletter contains the personal opinion of the author.
Dear Readers-
I considered having the subtitle on today’s piece read as “God Help Us All. The UK Got the Monarch It Deserves.” An even more inflammatory subtitle could have been “Prince Dopey is Now King Dopey.” Count your meager blessings. The quote in today’s title is from Michael Hartnett of Bank of America Global Markets. The subtitle quote from Joe Biden is actually a spoof. However, the subtitle quote could easily be true.
We have a disaster unfolding in the world economy. The financial press in the U.S. is speculating on when a recession “will start.” We have been in a recession for quite some time. Our unemployment figures are not showing this, as we have an insufficient supply of cheap labor in the economy following the pandemic, and we have not seen the mass layoffs in the general economy yet. We are seeing continued mass layoffs in the tech sector though. Most of the tech workers that have been laid off have migrated to startups, but the overall startup sector is in the process of collapsing by the end of the year.
Why do I say we are in a recession? One only has to look at the following chart of actual cardboard box shipments:
Pretty much everything in the US economy eventually moves in a cardboard box. Or several of them. Our current recession is as bad the Credit Crisis of 2008-09, judging by box shipments. This recession is going to get far worse, and I can confidently predict we are entering an economic depression in the coming months.
Another way to read the actual US economy is to look at ad spending, which has been plummeting in recent months:
I have also repeatedly warned about the disaster that continues to unfold in the commercial real estate market. The office real estate market has been the worst hit sector in commercial real estate, and no city has been hit harder than San Francisco. San Francisco’s real estate market problems have been exacerbated by the chronic homeless crisis in San Francisco making its downtown a “no go” zone, and by the tech layoffs. In addition, you have the lunatic government of the city and the state of California. Here is a chart of the office vacancies by building in downtown San Francisco:
New York, Los Angeles and other Democratic government cities seem to have the worst office vacancy problems. The regional commercial banks are the largest lenders for the commercial real estate market, and are going to take a huge hit from this crisis. When you add this problem to the losses on the inventories of US treasuries these banks hold, you have a fatal combination. Yes, the very largest banks will be protected. However, here is a breakdown of derivatives exposure for the U.S. banks, as published by Greg Mannarino in his newsletter:
It is clear to me that we have a disaster that is unfolding. It is also clear to myself, and Greg Mannarino, that the U.S. Government’s “Plunge Protection Team” is very actively holding the U.S. equity markets up. I heartily recommend Greg Mannarino’s newsletter and his Youtube broadcasts. I must warn you, that his youtubes are an acquired taste. They are not for sensitive souls.
It appears that the industrial production of China is in trouble. Chinese imports and exports have gone down, despite the re-opening of all of China after the pandemic closures. Factories all over China have closed or are closing. I have also seen a very recent youtube video in which the Chinese government has decreed that farmers strip their land of other crops, and clear forested slopes, for grain production. This is reminiscent of the insane policies of the Great Leap Forward of the Mao years. The video showed Chinese government crews plowing under vegetable crops, pulling out full orchards of peaches and pears, and clearing steep forest land to construct terraces for grain production. The only thing I can think of that this is a preparation for the invasion of Taiwan, in that China imports a huge volume of grain to feed its people. Destroying other crops is obviously not the solution, and is economically (and socially) crazy.
The UK is a disaster, even before Charles ascended the throne. Japan and Europe are not in good shape. In total, we are poised for an epic economic disaster to unfold.
The following is not investment advice. It is only to inform my readers that I do put my money where my mouth is. I have bought a significant put position for August 18th, 2023 expiration on the SPY (S&P 500) and QQQ (Nasdaq). This is not investment advice! Consult a professional before making investment decisions, and certainly if you ever do stock market options. This is not for amateurs. I run the risk of losing my entire put option investment position if the markets do not plunge by August 18th. However, I am quite willing to take that bet.
Social conditions in the U.S. are horrible. I present the following chart without comment:
On a final note, to demonstrate the deliberate destruction of the U.S. economy by the Biden administration, the E.P.A. just announced a requirement for fossil fuel power plants to capture 90% of their carbon emissions. The E.P.A. had previously tried this in another form, and the courts rejected this. Now they have come back to mandate something that is not technically feasible, and the costs of such a program would be astronomical. The E.P.A. is basically trying to outlaw natural gas and coal fired power plants. To show how insane this is, my “geologist identity” presents a chart of global temperatures for the last 10,000 as determined from Greenland ice cores. The climate change people are embracing a religion that is not founded on any facts. It is a religion, and I am a heretic:
To close this newsletter, I include two quick graphics. The first is a spoof of “Bud Light’s new Canadian marketing campaign.” I sent this graphic to colleagues in Canada, who appreciated it.