To tame inflation, the interest rate must be higher than the inflation rate.
Annus Horribilis Revisited
By: George Noga – April 3, 2022
My January 1, 2022 post warned this would be a year of great geopolitical, economic, political and financial danger. If you missed that post, go to my website: www.mllg.us. Rarely have predictions come true so quickly and completely. That post resonated with readers as I was bombarded with questions. This post is updated to include events subsequent to 1/1/22 and contains my analysis for the remainder of this year.
Geopolitical Horrors
I wrote that: (1) this would be the year Putin invaded Ukraine and Xi invaded Taiwan; (2) Russia and China would form an entente; and (3) other bad actors such as Iran and North Korea, using the same calculus as Putin and Xi, would foment great mischief.
These predictions have come true except for Xi invading Taiwan. It now is less likely China will invade Taiwan because of the surprisingly robust world reaction to Russia’s invasion of Ukraine. Iran is racing toward a nuclear weapon, flaunting the feckless Biden Administration; they will use their oil money windfall to fund terrorism. The NoKos have resumed testing intercontinental missiles capable of reaching the US.
Economic Horrors
I wrote on January 1st that: (1) inflation would reach double digits; (2) the Federal Reserve will be forced to surge interest rates; (3) these actions will lead to a deep and prolonged recession; and (4) the debt and deficit will go thermonuclear.
This could very well be the beginning of the spending crisis; myspecial posting scheduled for May 8th is devoted to that topic.
How have these predictions fared? Inflation already is at double digits. The Producer Price Index (PPI) is up over 9% and the CPI will exceed 10% once higher gas prices are factored into the index – likely this month. Moreover, the CPI would be up 15% if it was calculated the same as the last time we had double-digit inflation. Eventually the Fed will be forced to catapult interest rates. To tame inflation, the interest rate must be higher than the inflation rate; this means interest rates above 10%, but not this year. Moreover, this may be the start of the spending crisis, the topic of my May 8th post.
Political Horrors
The Biden political horror show continues lurching toward rock bottom. The only winners are Jimmy Carter and Spiro Agnew, who are replaced by Biden and Harris as poster children for ineptitude. Kamala Harris personifies what happens when top positions are filled based on identity. The national security team of Biden, Harris, Austin, Blinken and Sullivan is the weakest ever. Biden is under water on every issue: immigration, crime, inflation, Covid, Afghanistan, Iran, supply chain and energy.
Nothing exemplifies the lunacy of the Biden Administration moreso than energy. They have declared war on American (including Canadian) fossil fuels, which are clean and safe. Instead, they beg our enemies Iran, Venezuela and Russia to produce more. The world will use the same amount of fossil fuels regardless of its provenance. Instead of US energy independence – and even exports – we are enriching our enemies, hurting our allies and harming the environment by shifting energy production to high pollution places – and all in the name of the environmental religion and climate madness.
Financial and Investment Horrors
My January 1st post warned of serious investment risks; in December, I repositioned my portfolio to 70+% safe, short-duration assets and doubled my allocation to commodities and gold. So, how is that working out? Stocks are down nearly 10%; gold is up about 10% and commodities are surging – all in just 3 months. But the worst is yet to come; that will occur when interest rates go north of 10% to try to get ahead of inflation. I am keeping my powder dry awaiting a low risk reentry point.
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Next: We observe May Day with a special May 1st posting.
