Victor’s Perspective on Debt Ceiling Bill:
The stand-out surprise here
was that there is NO Debt Limit until January 1, 2025. That essentially
gives the Treasury Department the latitude to borrow as much money as it needs
to pay the nation’s bills during that time, plus a few months after the limit
is reached, as the department employs accounting maneuvers to keep up payments.
The complexity of the deal
allows schemes, gimmicks, chicanery, and sleight of hand dealings that keep
advancing to new heights. This bill will result in higher inflation, which will
come from huge federal government spending that will follow a recession which
will begin in earnest later this year.
Curmudgeon - Liquidity Set to Contract:
Bloomberg reports that the U.S. Treasury is about
to unleash a tsunami of new bonds to quickly obtain the money it needs now that
the debt ceiling has been raised. This will be yet another drain on dwindling
liquidity as bank deposits are depleted to pay for the new U.S. Treasury debt.
The Treasury auctions, set to begin Monday, will
rumble through every asset class as they claim an already shrinking supply of
money. JPMorgan estimates a broad
measure of liquidity will fall $1.1 trillion from about $25 trillion at the
start of 2023.
“This is a very big liquidity drain,” said JPMorgan
Chase & Co. strategist Nikolaos Panigirtzoglou. “We have rarely seen
something like that. It’s only in severe crashes like the Lehman crisis where
you see something like that contraction.”
It’s a trend that, together with Fed tightening (QT),
will push the measure of liquidity down at an annual rate of 6%, in contrast to
annualized growth for most of the last decade, JPMorgan estimates.
However, Victor believes that the financial system
can cope with this loss of liquidity, as there’s $2.2 trillion parked in reverse
repos, which we explained in this
Curmudgeon/Sperandeo post.
It would be easy to let 1 trillion mature (they are rolled over
daily) and that trillion would flow to the Treasury General Account (TGA).
Analysis of BLS Non-Farm Payrolls Report:
Friday’s BLS jobs report exhibited the same repeated
pattern of made-up numbers. Economists
have consistently underestimated the U.S. non-farm payroll numbers for the last
two years. They expected an increase of
188,000 non-farm payrolls for the month of May, but instead we got a “made up”
339,000 jobs added. Let’s look behind
the headline jobs numbers.
After accounting for the drop in hours worked, it’s
as if the economy lost 140k jobs in May. For the January-May period, the
index of aggregate hours worked is negative.
Also, the sizable jump in the unemployment rate was a
surprise, rising to 3.7% from 3.4%. The
BLS report showed that it is taking longer for people to find work: The number
of people unemployed for 15 to 26 weeks jumped by 179,000 to 858,000. We’re not done yet!
Once again, the Birth Death Model (BDM)
“created” +231,000 non-seasonally adjusted (fictitious) jobs. Without the BDM non-counted jobs, the BLS
report would state +108K jobs added!
Cartoon of the Week:
Mishtalk summed it up by saying, “The BLS
Wonderland reporting is back with a vengeance today as jobs and employment
head in opposite directions and the unemployment rate jumps.”
The bottom line is that you can’t trust the BLS or
any other U.S. government reported numbers.
They are “shaked and baked” to make the economy appear better than it
actually is. Please see Victor’s
Conclusions for more on this pattern of deception.
Point of Order for the Fed:
If the Fed REALLY cared about the “wealth effect”
resulting from increased stock prices, why do they not simply raise the
REGULATION T initial margin requirement from 50% to 100%? The ability to buy stocks using a 50% margin
(e.g., $100 buys you $200 worth of stock) has been in effect since 1974 and has
never changed! The Fed could
unilaterally raise margin requirements as they control REGULATION T. That would surely dampen speculation in high
flying big tech stocks (NVIDIA, Amazon, Alphabet/Google, Meta/FB, which are all
up 40+% in 2023).
Market Comments:
Stocks are in a bubble and totally disconnected from
the real economy. Workers are
experiencing real declining wages while small businesses are going bankrupt at
a record pace! America is being driven
into a recession by the Fed on a scam that inflation is not declining fast
enough.
However, stocks in some cases are at their highs and
have had the highest valuations in the last two years. In particular, the FANG+ stocks (Meta/FB,
Amazon, Netflix, Alphabet/Google, and Apple) are only 7.8% off their all-time
highs! And FANG+ doesn’t include NVIDIA
which is +169.1% in 2023!
The unchecked speculation continues. Traders have rushed into bullish options bets
on the highflyer s, seeking to amplify their gains if tech shares keep
climbing. Activity in NVIDIA call options hit one of the highest levels
on record in recent sessions, as did the popular Technology Select Sector
SPDR ETF, according to CBOE Global Markets data.
Finally, the market advance in 2023 has been
incredibly narrow. The S&P 500 is up
12% this year, but it would be negative without the contribution of
seven big tech companies, according to S&P Dow Jones Indices data through
the end of May. Shares of the 10 largest
companies in the S&P 500 climbed 8.9%, while the other 490 S&P 500
companies lost 4.3%, according to Bespoke.
Victor’s Conclusions:
To NOT have a debt limit till 2025, along with a
political system that gives money to people using a printing press is like a
free lunch to the 10th power.
It is best stated by George Orwell: "There are some ideas so
absurd that only an intellectual could believe them; no ordinary man could be
such a fool."
Sadly, the U.S. political system represents Corporate America
for money and special interests for votes, and not the citizens of
America.
I suggest the markets should embrace the MAD magazine
slogan “What Me Worry” from the comic book character Alfred E Neuman.
According to former MAD editor John Ficarra), “For
seven decades, MAD magazine has gleefully warped generations of adolescent
minds with a simple message: "Everyone is lying to you, including
magazines. Think for yourself!"
This mantra speaks the rare truth which you don’t get
from mainstream media reporting circles these days. It also reflects my sentiments.
End Quotes:
“Elections are when people find out what politicians
stand for, and politicians find out what people will fall for.”
“The dollar will never
fall as low as what some people will do to get it.”
Alfred E. Neuman, MAD Magazine
….………………………………………………………………………………………
Be well, stay healthy, wishing you peace of mind.
Till next time…...
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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