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So Ray Dalio on China: https://www.linkedin.com/pulse/china-100-year-storm-horizon-how-five-big-forces-playing-ray-dalio-wysbc/

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Wrapping up the month:

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And now the Fed's error:

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Now this chap is definitely part of the 'establishment' and politically connected and generally an apologist.

Yet here we are and he is admitting that the true picture of inflation has always been downplayed and manipulated. So most people who participate in the financial markets are well aware of this fact.

Here is the issue:

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The last time that the Debt/GDP ratio was so dangerous, the Fed kept the inflation figure (manipulated or not) high enough, long enough, to errode that Debt/GDP ratio lower. Much lower.

This time, Powell, caving into or miscalculating or simply not understanding the dangers, hiked rates through the roof ( a la Volcker) BUT unlike Volcker, the debt had not yet been eroded away. So instead of accomplishing what Volcker accomplished, Powell has simply exacerbated the problem as the higher interest rates, due to the compounding, are increasing the debt, the interest payments and inflation all at once.

Of course the only answer is to return to sky high inflation, somewhere around that 20% mark for a decade or so. Powell has failed.

Are markets pricing this in?

Equities are (an imperfect) inflation hedge. Some sectors (obviously) are better than others. Also you would need to take into account the fiscal priorities in allocating funds. It would be nice to find some charts of various sectors during the late 1960's thru to 1980 that mirror the current sectors somewhat.

Now the 'general consensus is that when rates come down, the market takes off higher. Hmmm. I'm really not down with that analysis. In my day job I earn good money. Even I am getting pissed off with the grocery bill, shipping costs of anything, etc. When rates come down inflation will re-accelerate. Sales of many things will fall because the peasants cannot afford them. The peasants are the majority.

Lowering rates may be the very catalyst that launches the recession.

If jobs are cut from falling demand and the UE rate jack-knifes higher, equities will reverse very quickly. Very quickly.

jog on

duc