Substack’s video retrieval app is not functioning, so here is a link to the video.
If you watch the video in full (bearish case at 4:14, bullish case at 6:07), you will see the symmetrical estimates for the end targets of a bearish MNQM23 outcome and its similar bullish outcome.
The bullish case might be the easiest to figure, given the fact that spending has been ordained by this new “continuing resolution” to be at least as high as the spending during the Covid-19 “pandemic” ( which I lovingly call “the covidiocy” ). That spending was design to hand out “free” money while people were forced to stay home (ill-advisedly, in my opinion) and to give Congress and the two major sides of the Uniparty (Republican and Democrat) more control over every aspect of this economy, brought fully to bear on us by the current President.
Inflation likely continues or increases through January 2025
The last image I got from U.S. Debt Clock dot org was this. $31,826,893,122,644 was the current Federal Debt level. This agreement will allow potentially another 4 to 8 trillion dollars to be spent over the next 18 months.
You can tell the Federal Reserve debt clock is panicked. I got this when I logged onto it via Google Chrome :D .
At the limit (which is really only an ESTIMATE of the limit, according to the Congressional Budget Office), would increase the money supply (since all of this spending would be printed), when one divides 8 trillion into 31.8 trillion, about a 25.2% increase of money in the economy. (1.252) ^(12/18) equals a nominal inflation estimate of perhaps as high as 16.1% inflation per year. I realize that some of the money might not be spent and that it could be absorbed in price activity and actions in the bond market by the Federal reserve, but given that figure one would have to further estimate that 8% to 10+% inflation is not out of the question on average. In a post I made a couple of weeks ago, the USDA was still projecting 20% food inflation for this year. Will it get worse as time goes on? Who knows, but it would seem the canary is running out of oxygen as it flies deeper into the mine shaft.
For those of you who might have graduated high school after 1980, inflation rates are multiplicative, not linear. That is what you paid an additional 8% for this year, you will pay 16.6% more than in the base year you estimated the first increase. I will let Doc Brown from “Back To The Future” describe that.
Who gets to pay for all of that. YOU DO. And there are no limits on discretionary spending and no cap on entitlements. You will pay for it by having you wages destroyed by inflation and by an IRS army of somewhere between 80,000 and 87,000 IRS agents, depending on which figure one believes. There will be no breaks for middle-class business either.
And What About The U.S. Dollar?
As you know, because of Joe Biden’s snubbing of Saudi Arabia in talks about oil purchases, the Saudi Arabian government has chosen to to back the U.S. Dollar in world oil trade. That basically ends any commodity relationship with the US Dollar, either tangible or intangible. President Nixon ended the gold standard in August, 1971. That is when the inflationary genie was let out of the bottle and strapped with jet fuel engines. The US has inflated its currency consistently since 1913 and persistently since the 1860s.
What is serious about this is that Saudi Arabia this week will apply to BRICS membership.
What does that mean?
World leaders have been angry with the USA over the forced “by market dictates” of the EU and the Middle East to purchase oil in U.S. Dollars. Our doing that allows the USA to print money endlessly as most of world trade is done in US Dollars and that keeps the U.S. dollar money supply flowing. A complete halt of that would put pressure on that printing press to spend endlessly and mindlessly. If anyone wants to pay for that printing, they WILL DEMAND higher interest rates.
What does that do? It makes it MORE EXPENSIVE To PRINT MONEY. At some point in the very near future, interest payments will be THE LARGEST EXPENSE for the U.S. Federal government. That will effectively bankrupt entitlement and defense spending, and if printing goes beyond all of that, welcome to Zimbabwe 1990 or current-day Venezuela.
It is just that serious. This will affect everything. Bonds, stocks, insurance products like life insurance and annuities. (Those safe money accounts that pay guaranteed income are also at risk of not being able to pay for the options contracts that prop the equity side of those investments, particularly in a massive debt default).
The Stretching Of Valuations
I have been raving about this since 2008 and yet we continued the suicidal ZIRP (zero interest rate policy) without abatement. Our government under this administration simply hit the gas and accelerated the issue with even more reckless spending that the previous three administrations.
Not a huge fan of Bob Moriarty ( as he sells metals for fun and profit, even though owning them, particularly now ) nails the situation on the head in the first 5 minutes of this video.
As far as the equity side of things go, CNBC almost commits an act of journalism with this commentary about asset prices. When asset prices are divorced from true inflation-adjusted positive risk-free return, you get massive overpricing on things like $NVDA. AI suddenly becomes Ozzy Ozbourne’s “Ai Ai Ai!” when the rate increases begin and your equity portfolio sinks like a stone in the ocean.
To give you additional technical analysis that measures the potential deep dive, I will present you with this video which shows the bearish side I showed you with charts. It is two months old, but I have been talking about this since the pivot low at 10757.50 which held earlier in the year.
Final Comments
Remember that this market could skyrocket before the troubles that will eventually hit it, ACTUALLY HIT. If you long only, hedge your positions. If you are like me and can be long or short at any time, you have a degree of flexibility, but you will have to protect your currency reserves against inflation.
I do not have time to go into cryptocurrencies or metals, but you will need to make strategic decisions. It is not 1982, when one of the biggest bull markets began.
Market and economic conditions are now three-dimensionally bat-guano-crazy. Be prepared.
If you have questions, leave them on Twitter or in the comments below this post. If you like what you read, hit the “like” button also!
More will come later as the days move forward. Have a marvelous rest of your weekend and a happy, productive and profitable week next week!