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Tom Luongo
\nGOLD GOATS ‘N GUNS<\/p>\n
Back in January I wrote a piece called, \u201cWho\u2019s Afraid of Jerome Powell?<\/a>\u201d Then I discussed the incipient wailing and gnashing of teeth coming from those terrified of a hawkish Fed. Our entire society has become so addicted to cheap dollars and easy credit that it created a \u201cBallers<\/a><\/em>\u201d mentality society wide.<\/p>\n Ballers\u00a0<\/em>is all about the corruption money brings to those few thousand people in the NFL and their organizations because of the millions of people who spend too much money on a passing fancy, entertainment.<\/p>\n The NFL, like all pro sports, is nothing but a money funnel with a Federal Reserve sized Hoover attached to it. It\u2019s the ultimate corruption of\u00a0e pluribus unum<\/em>. From many to one.<\/p>\n Take a little bit from all of us, time and again to help us relieve the stress of the shitty world they\u2019ve built. Give some of it to the rubes who play the game, who blow it on hookers, high end cars, and drugs, while the lion\u2019s share gets sucked right back up into the same oligarch class that created it in the first place.<\/p>\n But it\u2019s no different than you or me, buying shit we don\u2019t need on credit, self-medicating with pro sports, alcohol, video games, day-trading cryptos on Robinhood, yelling at racists on Twitter or my personal favorite, a ridiculous board game collection.<\/p>\n We\u2019re all\u00a0ballers<\/em>\u00a0to one degree or another, spending easy money on distractions rather than facing the reality that the most unsustainable thing about our society is the money which makes it all happen.<\/p><\/blockquote>\n Here we are eight months later and Powell has done exactly what I\u2019d hoped he\u2019d do, aggressively raise rates and begin shrinking the Fed\u2019s balance sheet once his second term as FOMC chair was confirmed.<\/p>\n After July\u2019s second 0.75% rate hike in as many meetings the talk was all about the \u2018hints\u2019 embedded in Powell\u2019s demeanor and presser that the Fed was on the verge of pivoting and reversing rates. This talk has been going on since before the first 0.25% rate hike in March.<\/p>\n It reached a fever pitch after the July meeting because of a number of factors which have almost nothing to do with US domestic economic data or the needs of the US as a country. As I\u2019ve discussed\u00a0ad nauseum<\/em>, the group most exposed to an aggressive Fed is not the US economy, which is what the headlines are now focusing on, but the European Union and the ECB.<\/p>\n I never expected Powell to indicate any kind of pivot talk at Jackson Hole last week. His nine-minute speech was the exact opposite of that. It was a complete dispelling of the illusion that the Fed has any mind to change course any time soon.<\/p>\n Powell explicitly addressed that this policy will lead to a prolonged recession. Moreover, he admitted that the current problem is a sincere mismatch between supply and demand. And, in the shock of all shocks, admitted what myself and a few others have been saying for months now, the Fed\u2019s tools are not capable of dealing with the supply side of the economy, only demand.<\/p>\n In short, we have an oversupply of economic activity that supports the\u00a0Baller<\/em>\u00a0lifestyle of the past and a deficit of things that support that lifestyle. All the Fed can do at this point is restore lost credibility with the markets and protect its future.<\/p>\n This, in my opinion, is exactly what they are doing.<\/p>\n The question is who is the Fed trying to protect itself from? It has been my contention for months that the Fed is no longer on board with coordinating Central Bank policy globally to suit the needs of foreign actors, in particular the European Union and the ECB.<\/p>\n By refusing to fold to the pressure earlier in the year and going forward with hiking farther and faster than anyone (including myself) thought they would or could the Fed has placed the ECB into a bind. Powell\u2019s speech at Jackson Hole tightened that bind to the breaking point.<\/p>\n Since most of our prominent politicians are on\u00a0Team Davos<\/em>\u00a0the wailing will never stop. It took\u00a0Elizabeth Warren<\/a>\u00a0all of twenty minutes to find a microphone to screech into:<\/p>\n \u201cDo you know what\u2019s worse than high prices and a strong economy? It\u2019s high prices and millions of people out of work. I am very worried that the Fed is going to tip this economy into recession,\u201d\u00a0<\/strong>Warren told CNN on Sunday.<\/p><\/blockquote>\n Yes, of course the Democrats are 1) still denying that we\u2019re in a recession and 2) that it\u2019s not their fault. But Warren, being the good destructionist she is, refuses to admit that there comes a point where you can no longer spend money to prop up an economy with these levels of imbalances.<\/p>\n This was precisely Powell\u2019s point in his speech at Jackson Hole. And if Warren or any other so-called leader we have on Capitol Hill was willing to stop bitching and listen they would see what is clear to everyone.<\/p>\n The Baller Days are behind us.<\/p>\n The yacht\u2019s trashed, the caterer left, the punch bowl empty and the credit cards maxed. Oh, and now there isn\u2019t even a new contract on the table. There\u2019s no money left for trillions in giveaways to buy votes from people with no skin in America\u2019s game.<\/p>\n But, since Lizzie works for those trying to destroy the US, of course she\u2019s worried for the future. Where are her checks going to come from?<\/p>\n While the Fed has the magic money tree, even it, sometimes has to be watered and fertilized with something that looks like savings.<\/p>\n This is why everyone was afraid of Powell in January. They had rightly guessed that he was serious about the job of bringing back credibility to not just the Fed but the US as well.<\/p>\n The real pivot wasn\u2019t the one that everyone wanted from Powell in some nebulous future. The real pivot occurred back in July when the ECB raised rates and announced their newest program to shuffle deck chairs, the TPI \u2014 Transmission Protection Instrument.<\/p>\n There ECB President Christine Lagarde announced she would defend internal European credit spreads to manage the risks within the EU as it now was being forced to raise interest rates.<\/p>\n Lagarde never wanted to raise rates. But, as far behind the curve as Powell was in January, Lagarde was on a different track in July. This was her Mario \u201cWe will do whatever it takes\u201d Draghi Moment and it fooled the markets for about a month.<\/p>\n And then the old trends reasserted themselves. The euro bounced to $1.04 and collapsed to a new low. German-US 10 year spreads blew out to 1.966% and has since contracted\u2026 hard.<\/p>\n So, while Lagarde is furiously trying to keep things under control in Europe, relative to the US it is losing ground now daily quickly. The US\/German spread is a bet on the relative \u2018safe haven\u2019 status within each of these economic zones.<\/p>\n It doesn\u2019t help that the EU is continuing to commit economic and political\u00a0hara-kiri<\/em>\u00a0by engaging in idiotic energy policy across the continent in order to punish Russia for Europe\u2019s crimes in Ukraine.<\/p>\n The WEF midwits put in charge of the EU to effect this policy refuse to change course.<\/p>\n I wrote when it happened that I thought Powell\u2019s aggressive rate policy indirectly was\u00a0responsible for the collapse of the Draghi government in Italy.<\/a><\/p>\n You know I believe the Fed is working to re-establish US primacy over its own monetary and fiscal policy, which tracks with the way Powell has raised rates and caused heart attacks within the Eurodollar system.<\/p>\n Moreover, when you look at the failures of the Biden administration to get any traction globally to isolate Russia you see a\u00a0Davos<\/em>\u00a0agenda that is failing completely.<\/p>\n It then tracks that weak newcomers to the Italian Swamp, like those in M5S, may have finally been given enough assurance that the situation has changed. July\u2019s 9.1% US CPI print was enough to really begin breaking things.<\/p>\n The Anti-Davos factions within the US are strong enough now for them to throw off the\u00a0Davos\u00a0<\/em>yoke, as represented by Draghi, Mattarella and former PM Matteo Renzi, and begin Italy\u2019s bid for independence.<\/p>\n The Fed responds to\u00a0Davos<\/em>\u00a0taking out\u00a0{The UK\u2019s Boris}<\/strong>\u00a0Johnson by taking out Draghi and putting the EU on a path to disintegration. The euro broke parity with the US dollar on this news. Now the ECB is staring at a vortex of higher rates as the Fed is clear to raise another 75-100 bps in two weeks.<\/p><\/blockquote>\n Less than two weeks later, Draghi was gone, the ECB raised 50 bps and began crushing credit spreads while the Fed hiked another 75 bps.<\/p>\n But the ECB can never admit this or it destroys the idea of it being any kind of independent agent. Remember, central banking rests on the dubious idea that these people are apolitical and make their decisions only with respect to their domestic needs.<\/p>\n If Lagarde were to publicly attack Powell\u2019s policy she would be admitting the ECB is subordinate to the whims of the Fed and that the only thing she\u2019s good at is picking out neck scarves to wear at public speeches.<\/p>\n The pressure on the EU from their catastrophic energy policy now has them openly calling for an end to the Union\u2019s political arrangement.\u00a0German Chancellor Olaf Scholz just called for an end to single country veto power<\/a>\u00a0on fiscal and foreign policies. This is a naked power grab by Germany to enforce its will on the whole EU, ending any pretense of national sovereignty.<\/p>\n It\u2019s not like this wasn\u2019t expected. It\u2019s always been the plan by\u00a0Davos<\/em>\u00a0to consolidate power in Brussels under the direction of German Greens. The excuses of Climate Change and the need to punish Russia is now their twin\u00a0casus belli\u00a0<\/em>against any opposition to their rule.<\/p>\n \u201cWhere unanimity is required today, the risk of an individual country using its veto and preventing all the others from forging ahead increases with each additional member state<\/em>,\u201d the German chancellor said.<\/p>\n According to Scholz, \u201cthe principle of unanimity only works for as long as the pressure to act is low<\/em>,\u201d citing the example of Russia\u2019s military offensive in Ukraine, which has challenged the way the EU approaches policymaking.<\/p>\n The German leader also wants the EU to switch to majority voting in areas such as taxation and foreign policy, adding that he knows \u201cfull well that this would also have repercussions for Germany.<\/em>\u201d<\/p><\/blockquote>\n This is a direct consequence of their losing multiple political battles here in the US and it is forcing them to go for the gold now versus in the future. Powell\u2019s Fed is forcing this moment to its crisis point and the Eurocrats of\u00a0Davos<\/em>\u00a0are not letting that crisis go to waste.<\/p>\n At the same conference they are now talking about price caps on energy the same way the G-7 did this summer. So, nothing has changed in Europe. They will go it alone if they have to in saving the world from Climate Change and Russians.<\/p>\n You rock on guys, winter is coming, after all. The only people who are against a hydrocarbon-fueled future are the ones without any significant reserves of hydrocarbon fuels. Let that sink and that should tell you what you need to know about European policy. The US is about power, but we have the natural resources to sustain our lifestyle.<\/p>\n Europe got so used to living a Baller lifestyle on cheap Russian gas, they thought they could do so forever and dictate terms to the world to subsidize it. It was so cheap Credit Suisse\u2019s Zoltan Poszar calculated it as \u201c$2 Trillion Of German Value Depends On $20 Billion Of Russian Gas.<\/a>\u201d And I guess they weren\u2019t satisfied with that. It had to be more than 100x leverage, apparently.<\/p>\n They have to do this now because they are terrified of what Powell said on Friday. As is everyone else.<\/p>\n The virtuous cycle of infinite credit expansion is over.<\/p>\n![\"\"](\"https:\/\/i0.wp.com\/tomluongo.me\/wp-content\/uploads\/2022\/08\/image-5.png?resize=616%2C291&ssl=1\")
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