Grifters Gonna Grift

By Jeff Kelly on November 23, 2022

“The code of the con is to know just enough about everything so you can lie about anything”

 Dan Garfat-Pratt

Grifters have dominated the headlines over the past 10 days. Some of the grifters were elected to Congress and the Senate. Some bought Social Media companies and immediately made fools of themselves via their incompetence. Other grifters used the shroud of unregulated Crypto exchanges to carry out Ponzi schemes resulting in the loss of billions of dollars. 

Having lived through a few cycles it’s remarkable how similar things happen at the end of all cycles. The names are different but the actions of grifters is always the same. At the end of the dot-com bubble we saw frauds resulting in bankruptcies from Enron, WorldCom, Global Crossing, Conseco, and PG&E. All involved some level of corruption and fraud. Companies changed their name to have dot com in the name. Congress held hearings and they passed laws (entirely useless) to prevent a reoccurrence. Interest rates were kept artificially low due to concern over Y2K. This was an absurd notion computer wouldn’t work after 12/31/1999. The U.S. Dollar rallied to highs and the Federal Reserve raised rates until the economy went into recession. Does that sound familiar?

Next came the easy money real estate bubble. Fed kept rates too low for too long. Wall Street loaned money to anyone with a pulse. Wall Street also created bonds totaling trillions of dollars out of thin air. Eventually someone figured out the bonds were made up. They were also on the balance sheet of every financial institution in the world. The housing market crashed. The government stepped in and saved several insolvent financial institutions. We decided it would be a good idea to allow corporations to buy up huge pieces of neighborhoods at rock bottom prices. Prices created by the institutions the government was forced to bailout. Prices that created the real estate debacle. The Fed had raised rates into the real estate crash. The U.S. Dollar rallied, and commodities soared. Oil was 148.00 a barrel in the summer of 2008. Familiar? Fraud in mortgages and mortgage companies was endemic. Many companies traded to zero. The Fed was shocked, shocked mind you that there was gambling in this area.

In todays Fed run world, they decided no regulation was needed in the Trillion-dollar Crypto market. It was “decentralized”. They didn’t move to regulate or mitigate any of the over 22,000 different tokens traded on Crypto Exchanges. Many of these tokens have been the instrument of the current fraud involving several of the Crypto exchanges. Easy money created by the steps taken during the pandemic led to the usual occurrences at the end of cycles. Commodities and inflation soared, the U.S. Dollar strengthened and the grifters multiplied. The only thing multiplying quicker than the grifters is the Fed speeches screeching “inflation” at the top of their lungs.

The other issue currently front and center in our lives is the complete and udder lack of contrition by any of major participants in the current debacles. The Fed goes about raising rates with little concern to the outcome. The clown network CNBC continues to bring on the Crypto pumpers, they continue to employ several folks who have admitted to conduct well outside of norms if not outright illegal. 

The good news is the Crypto blow ups don’t look to be systemic. The markets are looking past the poor earnings outlook and seeing a brighter day. Seasonal strength should carry us through Thanksgiving week. The outlook after the turkey day high is not optimistic. The crypto saga is also not done. We’ll see a lot more fall out in the weeks and months ahead.

CHARTS FROM THE WEEK PAST

Fed Funds rates eclipsing the 30-year treasury yield is often an inflection point for fixed income.

Collapse in shipping rates continues to look unreal … cost to ship 40-foot container from Shanghai to Los Angeles has fallen by 83% from peak, by far largest drop on record (bringing level to lowest since June 2020).

Future jobs looking poor. Congrats Jerome, folks starting to get fired.

Your mom must be proud.

Supplier delivery time has crashed.

No more supply chain problems. Next up, demand problems.

Foreign buyers love our bonds.

Stocks, not so much.

The U.S. has only about 15 days of diesel Inventory.

Glad the new speaker of the house is going to investigate Hunter Biden.

47 million new credit accounts opened in the 3^rd quarter. Balances on credit cards grew at their fastest pace in 20 years.

Hard to put a happy face on that.

Total bank deposits and commercial bank deposits just went negative for the 1^st time in 30 years.

October retail sales +1.3% m/m vs. +1% est. & 0.0% in prior month; This was reported the same day Target missed sales by a large amount and the day after Walmart beat nicely.

California stimulus checks were injected into retail sales.

The Atlanta Fed is forecasting 4.4% GDP growth for the fourth quarter.

If this comes to pass, the Fed will not be happy. Sadly, they want lower not higher growth.

Political gridlock is good for markets.

National Association of Home Builders Index continues to tank.

Looking at this chart it would support higher oil prices.

Maybe much higher.

China will help the Euro going forward.

Euro needs all the hep it can get.

Large jump in 30-day delinquencies at Discover Card.

“Consumer spending is weakening just as slowing inflation takes away the pricing power many companies have depended on to support revenues and EPS.

We’re still early in the headcount reduction/wage cooling process. Many companies are facing unusually strong demands from their workforces, and it’s not just wages we must worry about. Unit Labor Costs need to slow, as they always have when the core CPI has slowed. Tech is leading our layoff tally higher. (If you would like the detail behind our layoff tally).”

Hard to see China reopening with Covid cases soaring.

Do they really want to reopen? Or do they like the control Covid gives them.

Stagflation is now the consensus view.

I wonder if Jerome ever thought about slowing growth but inflation not going down. Then what’s his next move? You can’t be a hero in the Hampdens if inflation doesn’t decline.

The big picture is anything can happen but the rally likely is not a new bull market.

The best stocks into the market peak in 2000 were not the leaders after the market bottomed in 2002.

The recent rally was in the worst performing stocks.

Very little advance from the better YTD performers.

The Chinese property market may be the largest asset class in the world.

But would it be if they let the companies go into bankruptcy as they should. Many are shells.

China doesn’t look to be having an inflation problem If we shut down the country would Jerome Powell be satisfied?

Energy poverty is the world’s biggest & most neglected problem. Without electricity getting out of poverty is impossible.

Over 40% of the Earth’s population lives in energy poverty. 800 million have no electricity & 2.5 billion still cook burning wood, dung, & charcoal. 

We have seen a big uptick in ship capacity just as demand has collapsed.

Biotech outperforms when financial conditions ease.

Other areas of the world have high percentages of their mortgages in floating rates.

These will reset much higher next year and cause a drag on the potential for an economic recovery.

The dark line in the chart below is the IPO index.

The grey line is the Unicorn Index. Private equity and venture capital have not marked their investment down nearly enough to reflect the carnage in these markets.

Not enough Lithium if electric cars grow as expected.

Bonds are beginning to look attractive relative to equities.

Interesting places where violent crime is skyrocketing.

Michael Lewis next book is about Sam Bankman-Fried.

Email from CAA confirms he has been embedded with him for last 6 months. Another conspiracy the nuts can rally around!

This one didn’t get all the press that FTX did, but it’s got a lot of the self-dealing elements too.

WEEKEND HOMEWORK

A complex hero. 

A forgotten story. 

The first witness to reveal the full truth of the Holocaust . . .

 Award-winning journalist and bestselling novelist Jonathan Freedland tells the incredible story of Rudolf Vrba—the first Jew to break out of Auschwitz, a man determined to warn the world and pass on a truth too few were willing to hear—elevating him to his rightful place in the annals of World War II alongside Anne Frank, Primo Levi, and Oskar Schindler and casting a new light on the Holocaust and its aftermath.

People won’t believe what they can’t imagine . . . 

In April 1944, Rudolf Vrba became the first Jew to break out of Auschwitz—one of only four who ever pulled off that near-impossible feat. He did it to reveal the truth of the death camp to the world—and to warn the last Jews of Europe what fate awaited them at the end of the railway line. Against all odds, he and his fellow escapee, Fred Wetzler, climbed mountains, crossed rivers and narrowly missed German bullets until they had smuggled out the first full account of Auschwitz the world had ever seen a forensically detailed report that would eventually reach Franklin Roosevelt, Winston Churchill and the Pope.

Mike Green is one of the great minds in finance today. His view on the Fed is close to mine. He however is much smarter than I.

MacroVoices #350 Mike Green: Investing Opportunity in an Increasingly Uncertain World

Erik Townsend and Patrick Ceresna welcome Mike to MacroVoices. Discussions include:

• Proxy wars & the new war cycle
• Dimensions to expect in the current ongoing war
• Possible motives of escalating “friendly competition” to proxy wars
• Is deflation on the horizon that will lead to depression?
• Indebtedness of US & outlook on treasuries 
• Perspectives on gold & uranium 
• China’s reopening and their resumption of consumption

Have a wonderful weekend. Get all that pre-thanksgiving stuff done. You can’t put it off anymore. I know because I’ve tried.