January 2023 ‘Soft Landing’ Notes

DBS

January 2023 ‘Soft Landing’ Notes

Seems like there is a concerted effort to continue the ‘this time it’s different’ explanation for the markets in general, and to keep the ‘soft landing, don’t worry’ sentiment going.  Economist Harvey Campbell first identified that when the US Treasury yield curve inverts (short-term yield beats long-term), a recession follows.  For eight out of eight times, back to the 1960’s, each time this inversion happened, a recession followed.  But Campbell now says this time it’s different – it doesn’t signal 9/9 this time.  At the same time, most economists and bank execs are repeating the soft landing prognosis for the near future.  Even Powell’s ‘dovish’ update this week about having a “path” to bringing inflation down to the Fed’s 2 per cent target without a “really significant economic decline or a significant increase in unemployment” seems to have the stock markets pricing in interest rate reductions into the near future.

As the Market Sniper points out, three top, scary media shows drummed out 24/7 throughout 2022 simply did not go away.  Global inflation, zero-Covid China, and the energy-dark Winter for the EU.  Have all these problems really, suddenly been ‘fixed’?  Or more likely, simply delayed, kicked down the road by 6 or 8 months?  Why did China suddenly abandon its zero-Covid lockdowns – it must be for health reasons, right?  And did inflation suddenly just go away?  As the Market Sniper points out, this latest yield-curve inversion is the steepest decline and deepest in history.  But not to worry, because Campbell (above) says that no longer means anything.

Inflation hasn’t gone away, but it is being portrayed in the media as coming down.  Not that real prices are coming down, they are just not increasing as fast.  The US government measure of this uses its ‘preferred’ benchmark of ‘CORE PCE’.  By this measure, they can claim that the interest rates (4.50%) have finally gone above the inflation rate (4.42%), so problem solved.  This will provide the needed MSM coverage to ensure people have their 15 second sound bite to repeat ‘did you see – we fixed inflation!’

Core CPE vs Fed Rate, Charlie Bilello

Forget about the reality of true inflation, putting back in the actual proportions of energy and food pricing that people use, from Shadowstats.com.  By any measure (either using the 1990-based proportions or the 1980 one), the true inflation rate is still above 12% – falling but still more than double the official level.  This still means that through elements of ‘tyflocracy’, the Western middle class is losing that spread between true inflation and the Federal interest rates.  But the 4.42% level in the government measure allows the narrative for ‘we’re getting closer to our target’.

True Inflation Rates from Shadowstats.com

The charade that government is ‘fighting inflation’ with all the tools it has continues, as they show their Core PCE figures coming down per above.  While in reality, they purposely cause inflation via flooding of the money supply (M2), with a major difference.  This was on the order of hundreds of billions in the ‘great financial crisis’ of 2008-2009.  The increase since March 2020 has been around 6 trillion.  Increasing the money supply this time didn’t go to bailing out big banks as it did in 2008-2009, rather it filtered out to the entire economy.  It is well known that this would directly drive up prices of all goods in the market, and hence the >10% true inflation versus this 4.x% Core PCE.

FRED M2 Supply

Again, none of the fundamentals of these problems have been addressed or fixed, except for in the media and government messaging.  And, a majority of people still trust that.

It seems like things are set up for some rally or market relief over the next few months.  This despite the M2 supply above showing decreases starting late 2022.  The stock markets usually track (with lag) the money supply changes, so it would seem a market drop should be built in.  There is a lot of real estate in the news touting all the great deals to be had due to the slump in activity.  Perhaps they are priming us for some interest rate reductions to extend yet again another mini-bubble, only to reverse course again after the next black swan.  Would that be a hot or cold war with China, or, American direct involvement against Russia?  It seems both the financial bubble and the C19/‘sudden deaths’ stories may need some distraction at some point, which would also double as an excuse for any market crash.  “It Russia’s fault” was last year’s inflation excuse.  As Market Sniper says in the link above, the financial problems already have some major reaction built in – just a matter of timing.  A handy story like a Russian hack or some other war-fear would help distract people on to another unifying narrative.  As an example, it sure looked convenient in hindsight that the C19 ‘pandemic of our lifetime’ launched like a bad Hollywood zombie-plague movie just in time to save the system from a disastrous repo-market crisis – they needed an excuse to print money and there it was.

As for the sudden deaths (mostly being blamed on all sorts of long-Covid or lockdown effects), the tally below puts the ‘sudden deaths’ (or suspected \/ deaths) well above ‘died of C19’ level.  (SAAAAD = deaths of despair, abuse, alcohol, suicides, etc.) These figures are for the US but many Western nations have similar ratios:

From Ethical Skeptic

Both ‘Sniper’ and Ethical Skeptic comment that some sort of hack or war will handily come along for the next distraction/excuse.  But, this assumes that the public needs to be distracted in the first place.  How many actually are asking questions about either the ‘sudden death’ levels or the financial problems?

Judging by a quick scan of the MSM, I doubt there’s a huge change in skepticism – here’s an MSNBC host using her own experience (with her doctor on air too) to explain that myocarditis is caused by colds and all is normal.  I think they have lots of tools to buy time.