My thoughts on today’s inflation report. According to Alan Blinder, former vice-chair of the Fed, the Fed managed to achieve a soft landing in exactly 2 of 11 tightening cycles since WWII; the first one occurred in 1966 and the more recent soft landing in 1994. An 18.2% success rate with one success story in the last 50 years isn’t encouraging. One wonders, however, if our economic policymakers inhabit the same planet as the rest of us. I guess the prevailing “wisdom” among the cognoscenti is that a 4% long bond will usher in world peace and the oil and wheat will begin to flow in copious amounts.
U.S. inflation reached a new four-decade high of 8.6% in May, the Labor Department said. The annual rate of inflation has risen sharply since early 2021, when the U.S. economy’s rebound from the pandemic accelerated.
This just in from Alfred E. Neuman- file under “What, me worry?”
Yellen Sees High Gasoline Prices Persisting
Treasury secretary points to underlying strengths in U.S. economy, says ‘nothing to suggest’ recession is near- She’s in good company:
Bernanke: Subprime Mortgage Woes Won’t Seriously Hurt Economy AP Published 9:54 AM ET Thu, 17 May 2007- note the date
Also on this very subject, prices at the pump, Moody’s Analytics:
Gasoline prices at $6 per gallon shave 0.4 percentage point off U.S. GDP growth in the third quarter, dragging output from the annualized growth rate of 3.6% in our baseline to 3.2%. In the final quarter, the hit to GDP growth is 1.2 percentage points. The decline is a function of a reduction in real consumer spending.
At $7 per gallon, GDP growth in the U.S. slumps to 3.1% in the third quarter and 1.1% in the fourth. This marks a half percentage point and 1.6-percentage point reduction from our baseline, respectively. The inflationary impacts of $7 gas are similarly pronounced. The CPI jumps 8.6% in the third quarter and 7.7% in the fourth.
As is always the case in every recession I’ve seen, it starts on the margins of the riskiest, most cockamamie investments, say crypto, then SPACS, then the “Sky Pie” stocks like EV truck makers. This just in:
EV SPACs Warn about Running Out of Cash: The Beginning of the End for the Craziest Stock Bubble Ever
EV SPACs Warn about Running Out of Cash: The Beginning of the End for the Craziest Stock Bubble EverElectric Last Mile and Canoo are among at least 25 other SPACs that have issued “going concern” warnings so far in this cycle, according to Audit Analytics, cited by the Wall Street Journal. During this cycle, 232 companies went public via mergers with SPACs. And at least 25 of them have issued warnings recently about running out of cash and
not being able to make it as a “going concern.”
At least six EV SPACS have issued going concern warnings since 2021.
And EV battery makers have joined the group. They include some of my favorite Imploded Stocks. These SPACs already brutalized their investors, and they are going to brutalize them further. And it’s just the beginning. During the dotcom bust, which took over two years to sort all this out, countless startups ran out of cash and died and their stocks went to zero or they were acquired for nearly nothing.
Then, it spreads to the latest in stock scams – the tech stocks
The ARK is taking on water:
High-profile asset manager Cathie Wood, CEO of Ark Investment Management, has watched her innovation-focused funds plunge in 2022, as technology and high-risk stocks have lost favor with investors amid higher interest rates and a murky economy. In this environment, Wood’s six actively managed ETFs and her three passively managed funds have
lost almost half their assets in recent months.
We can only rely on the adage proffered by the great observer of American life, Hunter S. Thompson- “When the going gets weird, the weird turn pro.”