Reporting and opinion by Mathew Carr
May 9, 2024 — Enough of the going into an election completely blind.
India’s electorate, the most populous in global history, are already voting without really knowing what they are voting for.
In probability, US presidential tickets will have three names: Donald Trump, Joe Biden and Robert Kennedy.
What these three men do not have is a mandate to enact the crucial reforms that America needs.
Here’s why they need to get a mandate — whoever gets it first will win:
US problem: fiscal deficit gets wider and elections make politicians cowardly while corporations bully them
Spiralling deficits and higher interest rates are not sustainable.
Craig Shapiro, macro trader, sets out the problem and the solution, as he sees it:
“Even with nominal GDP as strong as it has been, and even with very strong asset markets that should have driven higher capital gains tax receipts, the fact that the US government is still running higher than expected deficits in the greater than $1.5trn+ range is extremely concerning. We are at full employment with inflation running above target and deficits continue to blow out to greater than 6%+ of GDP. The bond market is not going to be happy. Janet (Yellen) is going to have a lot of bonds to sell for a long time.
…
“The Federal Reserve continuously employs policies which exacerbate wealth inequality in America, favor the rich over the poor, the asset owner over those living paycheck to paycheck, the homeowner over the renter, obliges its favorite sectors (particularly the banks) and broadly exists to uphold the current system of power and wealth in America. For the vast majority of Americans, the Fed is not your friend.
Future generations will suffer
The Fed’s primary policy objective of assuring smooth US Treasury market functioning has enabled our leaders in Washington D.C. to oversee a completely dysfunctional government which is generating perpetually massive budget deficits for as far as the eye can see.
There is now no political will for either spending cuts or tax increases, no legislative momentum to address the growing deficits in any way, constant divisiveness up and down the aisle and overall, a broadly broken government that is only working really for the 1%.
America just continues to borrow from future generations at an accelerating rate with no hopes of ever paying the money back while expecting that the rest of the world will just continue to stand by idle, supporting us with continued UST purchases like they have been doing for 50+ years.
…
US banks need to be taxed properly: CarrZee — perhaps a global transaction tax?
Shapiro:
“And so we (the US) have abused this exorbitant privilege that we have. Foreigners are getting pissed off, they’re starting to sell.
They’ve been selling treasuries and will continue to sell treasuries, you know, because there’s no stopping…there’s no stopping these deficits.
And so I don’t know how the rest of the world is going to believe that the US is a going (concern?), you know, it’s gonna get its fiscal house in order and until we do, it’s gonna be hard to make real, real structural, real structural changes.
Well, in terms of like investing in ways to play this, it looks like the people in power aren’t going to allow deflation, debt deflation and asset prices may be falling for a long period of time because then that starts to muck up the tax receipts and then the Federal Reserve Bank may have to step in and start to fund what government again …buying US Treasuries …buying municipal debt like they did in 2020. After rules changes.
The smart investors like the hedge fund managers that have a really good track record like Stanley Druckenmiller, David Einhorn, (spelling?) they’ve started to sell some of their technology company shares like Nvidia, Amazon, Google some of the others after they’ve already taken profits and they’re starting to reallocate asset rotation into like base metal miners like tech oil, natural gas companies like Chevron, and then also gold miners.
Question : Do you think that this is probably this asset rotation of trying to buy low, sell high and then moving into different asset classes is a smart long term strategy?
Shapiro: “Yeah, look, I mean, I’m still … I’d still be a believer in in the AI cycle. I just think you know, valuations are, are very high. And so…
And I think that valuations in commodity producers are obviously much lower and much more attractive.
And so I do think that that rotation makes sense, kind of a paper to hard asset rotation and yeah, we’re starting to see some early signs of that.
But certainly, there’s there’s a lot, you know, a lot more to go.
I do think that it’s, you know, the question for the Fed is how much of a mini deflationary boss will they tolerate in order to kind of sow the seeds that are necessary for them to do the next level of money printing.
And the problem I think we’re having is that they, like the bubble is getting bigger and bigger because they keep hinting that they’ll and acting like they’re gonna pump liquidity around every turn.
So the market kind of calls that …sniffs? that out and reacts accordingly and like I said, like we saw … over the course of the last week or so after the May meeting and …and that’s what gold is sniffing out and that’s what Bitcoin is sniffing out …that the Fed will never allow a debt deflation cycle to exist for very long and that it will come to the defence of paper assets.
Quickly with more liquidity. And so gold is front running that and bitcoins front running that.
And I think ultimately, you know that that putting capital in into the hands of producers who could benefit from that weak dollar environment with real assets like energy producers or copper producers or what have you, I think that is a smart strategy.”
CarrZee: potential for changes to laws on fossil fuels make those producers risky. Plus there is a chance fusion technology will wipe them out.
And I’ve never understood what limits the supply of Bitcoin. I would never recommend that investment given that.