by Dr. Chris Kacher
Fed and rate hikes
Recessions since 1990 have resulted in negative returns in the US stock market except for 2020 which was a black swan due to record levels of QE from the Covid pandemic. The year after recession typically results in double digit returns for the stock market with the exception of 2001 which was the dot-com bust where the NASDAQ Composite lost -78% from 2000-2002.
High rates and inflation to persist?
The Fed is nearing the end of its hiking cycle but where inflation heads is less certain. As we know, the reported CPI is well below the actual numbers. The fake CPLIE has tumbled in the US and UK on an annualized basis but long bond yields, instead of falling, have risen because real inflation persists. Inflation may persist for a prolonged period due to a myriad of issues I've discussed in prior reports. For example, ESG (environment, social, governance) is leftist evil as it allegedly stands for helping the planet but its higher order effects are hugely damaging to progress, so have contributed largely to global inflation by crippling innovation.
The old guard knows this so sits with immense power high up the scale of Maslow’s hierarchy. They possess both wealth and power. They support movements that on the surface sound good such as ESG and DEI (Diversity, Equity, and Inclusion) but such movements have dire second order effects which cripple innovation thus spur inflation via bad economic policy. They invoke the movement of woke postmodernism which is even more radical than Marxism because they want to make changes to the core tenets of modernity. The postmodernists believe that science and math are tools of oppression and were created to serve the powerful at the expense of the oppressed. The wokeness movement has hijacked institutions all across the country from Harvard to Stanford to Google to Facebook to IMF to WTO. ESG and DEI are two of the many such manifestations.
The old guard represents the Blackrocks, Apples, and Amazons of the world vs. decentralized Web3 and crypto whose use case is freedom to transact value which results in the freedom to communicate without being censored or cancelled. Without the freedom to transact, all other freedoms collapse. The right to transact underpins all other rights. You don’t have free speech if you can’t buy a stamp or a net connection. You can’t assemble if you can’t buy gas or a ticket.
Enacting uneconomic laws due to mainstream FUD hamper or even cripple economies as uneconomic regulations and mandates lower GDP while inflating the cost of goods and services. This is what has happened by way of ESG, DEI, and powerful companies that support such agendas such as Blackrock who gain state favors in China by forcing companies to adopt ESG practices in the United States which then weakens the US because the Chinese companies are not forced into the same uneconomic ESG standards.
ESG punishes companies such as Chevron to take responsibility. As one example, if Amazon’s trucks dont conform to ESG’s standards, Chevron gets penalized. That’s like telling McDonald’s to take responsibility for anyone who eats a Big Mac. This is all spurred from ESG’s wave of “woke morality”.
At any rate, keep a close eye on long term Treasurys, the dollar, inflation, and economic data. Strong economic data will force the Fed to keep rates elevated which will ultimately lead to further strain on the economy, record level delinquencies, and further banking issues. Weak economic data will eventually force the Fed to start lowering rates as things start to unravel leading to recession. For the Fed to get its soft landing, exponentially growing technologies will have to continue to add value which could postpone recession beyond expectations, but given the unprecedented pace of rate hikes, this seems unlikely. It is a question of when, not if, the next black swan hits. Stay tuned.