First off, happy 2nd anniversary of “14 Days to End the Spread”, which transpires, I believe, on Tuesday. I was at a UWS Health Club (I like to live dangerously) when the alarms sounded, and I was summoned home. With a daughter in the third trimester of her third pregnancy, I didn’t leave the compound until August. The baby arrived, healthy and happy, on Cinco di Mayo. I have always believed that he will share a lifelong bound with those born during those early lockdown months — as “covid babies”. I very much hope this comes to pass.
I don’t wish to be premature here, but if the current trend of diminished corona-threat (or, at any rate, of our willingness to respond by disrupting all our activities, for dubious, and, at best, marginal, gain), we should plan a nation-wide mask-burning bonfire. From Spokane to St. Augustine. From Bangor to the border of Baja, CA. Omaha and Orlando.
Out with you, Omicron! With this light, we banish you! Bowie’s “Cat People” (putting out fires with gasoline) is blasting over enormous loudspeakers in the background. That, my friends, would be a sight to see, and, maybe, just maybe, would launch the end of an era of aggressive self-injury, of striving mightily to put up points against our own, er, squad.
British footballers, with trademark elan, refer to these episodes, where a player scores into their team’s net, as “own goals”.
And, as I was casting about for this week’s theme, I encountered a clip of a rare NHL “own goal”, wherein Detroit Red Wings goalie Alex Nedeljkovic tried to sweep away an approaching puck – which, inadvertently and unfortunately, found its way his own net. Whereupon he collapsed in a puddle of his own humiliation.
For the “read ‘em and weep” contingent among you, I offer the following link to the Detroit Free Press summary, replete with videos from several angles:
I am less of a hockey fan than I am of baseball (i.e. I don’t care at all), so I Wiki’d this poor Nedeljovic guy, and find out that he’s: a) from Ohio; but b) is of Russian ethnic descent.
A Russian-American ginning up an “own goal” in Detroit. How very exemplary of our current vibe.
Because both countries are engaging in a veritable “own goal” orgy. Let’s start with the Russians. What in God’s name are they doing over there? I reckon the Ukraine is a nice piece of property, nestled as it is on the shores of the Black Sea, rich with agricultural and mining assets, and fought over since pre-historic times. It ranks 5th in grain exports, coming in behind, well, Russia, the United States, Canada, and France. Labor there is deliciously cheap; the poor souls who produce this natural bling, earn, on average, $500/week.
It is 27th in the World Hockey Standings but has never been known to give up an “own goal’. Russia and the United States, by contrast, rank 3rd and 4th, respectively. Team Canada is Number 1 and France clocks in at 15, leaving me to wonder whether there is a causal correlation between grain exports and success on the ice (probably not).
But Putin appears to have shot at his own net, at least insofar as: a) the Ukes have not, as yet, chosen to roll over and get stiffed; and b) the rest of the world is not only mad as a hatter at him, but is looking to extract mad retribution.
It is, however, conceivable that Vlad the Invader has his stick trained precisely where he wishes it to to be. He KNOWS that he can take down the Ukies, even if they are putting up pain-in-the-ass resistance. For all the bluster surrounding sanctions, the most cogent analyses I have uncovered suggest that he took them into his calculus, and that beyond this, he has multiple hacks around them.
And America (land that I love) may be playing right into his hands. The United States, after all, occupies the top 17 spots on the “own goal” league tables, and may just be living up to this impossibly high standard with respect to this here dustup.
Let’s consider our less than energetic responses in the realms of fossil fuels. We imposed heavy sanctions on Russian banks and financial institutions but have put those pertaining to energy finance “on ice” until June. We’re going hat in hand to the Iranians – sworn enemies of the U.S. – to replace the output. Moscow is brokering the deal for us, and those always-reasonable mullahs added some spice to the negotiations this past weekend – by blowing up a regional embassy of ours.
Meantime, we have not lifted a finger to spark up our own energy complex, which, until we decided to hog-tie it, was the most formidable in the world.
The Saudis have told us to pound sand, and, given the topography of that nation (the joint is NOTHING BUT sand), this tells us all we need to know about that.
And don’t even get me started on that whole MiG jet transfer fiasco with Poland (Hockey Rank 22).
Meanwhile, as was inevitable, inflation is beginning to run rampant. Y’all saw the Feb print of 7.9%. Government types are cheering the modest drop in recently hyper-charged used car prices, but doesn’t that just mean that everything else went up even more?
And, to offer a blinding glimpse of the obvious, these are February figures, deriving from a simpler time — before Russia was bombing maternity hospitals, before the world began to embargo this largest supplier of (yes) grains, but also industrial metals such as Nickel. Now, you don’t have to tell me how little a nickel is worth (7.9% less than it was a year ago).
But metallic Nickel (which comprises only 25% of the coinage accumulating on our children’s mason jars; the rest is copper) is a different matter. It’s used in a lotta important shit. Including the batteries that everyone is so spoony about.
It is now trading at about 8x where it was a little more than a year ago (by contrast, Copper is only up by around 10%), in part owing to a short squeeze last week that cost investors billions, and, beyond this, impelled the vaunted London Metals Exchange to do the once unthinkable – DK $4B of otherwise valid transactions in the commodity.
Beyond Nickel, Russia is also the leading exporter of Palladium, and makes the league tables in Platinum, Tin, Coal and Iron Ore – all of which are in the midst of a raging rally.
This is stuff that we use, that we need, people, so, obviously, inflation is destined to get worse before it stabilizes (much less gets better). Tuesday brings the PPI print, estimated at a round 10% — again before the impacts of the Russian Invasion and our Paper Tiger response.
All of which puts the Fed in one helluva bind. As the fates would have it, the FOMC meets this week and, on Wednesday, will drop the most-anticipated Policy Statement in quite a while. A 25 bp rate increase – the first in four years — is largely in the bag.
The drama, I suspect, will focus more intently on their thoughts on The Taper.
I can’t think that the Fed is looking forward with joyful anticipation to the removal of its click-a-mouse liquidity –from a financial system that is most characterized by an exceedingly elevated risk premium. But it would seem they have little choice in the matter. Following closely on the heels of the above-mentioned lockdown anniversary, comes the two-year mark of the Fed printing “own goals”– to the tune of $120B/mo, which they have used to purchase securities issued down the road at the Treasury.
Now, you can count me among the minority that is sort of down with all that monetary creation in the wake of The Big Crash, and even with their having revved up their engines anew to counteract the early menace of them little covid buggers. But they should’ve quit when they were ahead. About a year ago, when the economy was clearly in robust recovery, and might’ve economically (if not politically) weathered a rate normalization. Had they done so, inflation might be tamer as I type these words.
But instead, they kept printing, and, in an inflationary sense, running up the score of “own goals”. To the point where tighter money mitigants are not likely to achieve victory – defined here as the cooling of price pressure without causing a recession.
And a recession appears to me to be on the cards, virtually inevitable. Prices are going up, real wages are going down. Most of the free monetary cheese distributed by the government has been spent by the masses. Consumer, corporate and municipal credit amounts are surging from one record to another and will continue to do so while real rates remain in deep negative territory.
Obtuse investors may finally have caught on to the notion that all this money must be paid back, and that it might not be so easy for borrowers to do so:
Investment Grade, High Yield and Municipal Bond Prices: “Own Goals” Abound
These are big bites being taken out of what are euphemistically referred to as “Fixed Income” investments, and I think they are the cause of the deepest wrinkles in Chair Pow’s increasingly furrowed brow. Because these are the investments that power the portfolios of pension funds, endowments, insurance pools, annuities, and structured notes. A plurality (or more) of these capital pools feature mandatory sales triggers at certain levels of loss. Thus, the risk of these selloffs feeding on themselves.
For a variety of reasons, higher interest rates will also feed this fire (like truckloads of H-95s), and, by doing so, put additional political pressure on our always-political, currently hyper-politicized Central Bank. Voters will notice the negative marks on their IRAs, and Former Chair Yell is likely to come knocking on Current Chair Pow’s door, looking for explanations.
I don’t think he will have pleasing answers, so Yell will bring bad news to Paymasters Biden, Pelosi and Schumer, who will pass it on to the rank and file, who will then message as best they can to an increasingly frustrated electorate.
And so on and so on and shoobie doobie doo.
And even the always-slow-on-the-uptake equity markets have started to take notice of it all. But I don’t need to tell y’all about that. Because you read the papers.
It’s very difficult to assess the (multi) directionality or (undoubtedly elevated) magnitude of the risks — on the slick, frozen surface of the global capital markets. They’re out there, appear quite menacing, but are exceedingly difficult to track.
In result, believe we should channel as much empathy as we can for one Alex Nedeljkovic. Like him, we can see the puck coming at us, but don’t have clinical control as to how best we can divert it away from the cages we are paid to protect.
*******
With tragic but perhaps inevitable irony, the Red Wings lost that game to the Minnesota Wild. (Who shouldn’t even exist. Because the North Stars should have never relocated to Dallas).
The final score was 6-5, in an overtime/shootout.
If this doesn’t impel you to keep your eyes, at all times, on the puck, then I fear nothing will.
TIMSHEL