You are a free subscriber to Me and the Money Printer. To upgrade to paid and receive the daily Capital Wave Report - which features our Red-Green market signals, subscribe here. Why I'm Throwing Mushrooms at Jerome PowellMan... the more things change... the more they stay the same... Plus a new Monopoly game, and the problem with price controls on food.
Dear Fellow Traveler: It feels like Groundhog Day because… it is Groundhog Day. The Fed just injected another $30 billion through repo operations this week. That tells you somewhere in the plumbing, somebody needed cash and couldn’t get it from the private market. Private credit is showing more signs of stress after years of floating-rate loans to overleveraged borrowers... But here’s the real winner… I’ve been talking about Japan… for 18 months. Well this is a doozy… Japan quietly rewrote accounting rules to hide ¥11.3 trillion in unrealized bond losses at life insurers… Under existing standards, once a bond’s market value falls below 50% of its purchase price with no recovery path, insurers must recognize the loss. This would force bond selling, pushing debt yields higher and tightening fiscal conditions in the largest sovereign debt market on the planet. See the problem? So instead of letting that discipline mechanism function, Tokyo has completely exempted these bonds from impairment accounting. Which basically means… bond risk and price discovery aren’t real. Meanwhile, this morning’s PCE print showed inflation re-accelerating with core at 0.4% monthly, while the consumer runs on a 3.6% saving rate with flat real income. It looks like I can throw that “deflationary” scenario we explored out the window… None of these are isolated events… They’re all symptoms of the same disease. The global financial system is drowning in duration risk and sovereign debt… Every time losses become large enough to threaten the institutions that fund government borrowing, policymakers change the rules. The Fed did it in 2009, when the FASB relaxed fair-value accounting for banks holding toxic mortgage paper. They did it again in 2023 with the Bank Term Funding Program, letting banks pledge underwater Treasuries at par after Silicon Valley Bank blew up. (I can’t wait to see what they do with off-shore stablecoin operators one day…) Japan’s just doing it for life insurers by exempting held-to-maturity bonds from “impairment recognition” even as market values crater. It’s not like they’re the only groups that actually own these bonds. The pattern doesn’t change… and you pay the bill… IT’S THE SAME THING!!!
Rates rise, and bond portfolios take losses… Then, those losses threaten solvency of the institutions that support the ever-hallucinatory sovereign funding model… Then, instead of letting the market clear, policymakers intervene by changing accounting rules, injecting liquidity, moving the goalposts, and deferring the reckoning… The whole thing is made up… so that we can keep printing more and more debt. Japan is the biggest version of this problem on earth, with debt-to-GDP above 250%, where the Bank of Japan and life insurers together effectively ARE the sovereign bond market. There’s no independent price discovery, and one of the last internal discipline mechanisms just got neutralized. This is the Permissionism framework operating at the sovereign level… The institutions closest to money creation get protected through lending facilities, accounting exemptions, and borrowing rates that don’t reflect actual risk, while the cost gets distributed to everyone else through inflation and reduced purchasing power. Again… other institutions and investors own the same bonds. That’s what this morning’s PCE report really showed. The consumer is absorbing the cost of keeping this entire system afloat with flat real income, declining savings, and eroding purchasing power… And it keeps happening, so the financial architecture never has to face the consequences of two decades of leveraged excess. The policymakers will keep injecting repo, keep changing the accounting, and keep moving the goalposts until they can’t. It’s the same crisis running the same playbook with the same deferral, and the only thing that changes is the size of the number they’re hiding. As always, your best bet is on the chokepoints in the economy… What else do I think? Thing I Think No. 2: It Feels Good to BRRR…Yesterday, I showed you that I created a Money Printer game… (It’s free). The game culminates with the character throwing mushrooms at Jerome Powell, and then ultimately having to fight a Deflation Dragon and fire up the money printer. But we went back to one of my favorite articles that I ever read… I programmed the Jerome Powell Money Printer Monopoly game. (It’s free…) You can be one of eight characters, although I’ll warn you that your only hope to win is 1%, Retirement Boomer, or Tech Bro… That’s sort of the point. It will go on for a while. Yesterday, I simulated it. The tech bro won after a market crash and multiple bailouts. It lasted 18 years, and cumulative inflation reached 325%. It’s not really meant to be played… just to make a point. But have fun. Enjoy… No. 3: Speaking of Banking… What an Interview…Last week, I forgot to share this interview… and you need to watch it. Tim Melvin sat down with John Allison at Home Bancshares… John Allison has built one of the highest-performing banks in the country while never once diluting his shareholders through 26 acquisitions… As Tim’s explained, that’s a record that practically nobody in the industry can match. But this conversation isn’t a victory lap. John is fired up because he’s watching bank after bank destroy shareholder value through reckless M&A, paying premiums they can’t justify while their stocks trade at decade-low multiples. Meanwhile, the CEOs running these deals keep collecting bigger checks for overseeing larger institutions that deliver worse returns. If you own bank stocks or you’re thinking about owning them, this interview is essential listening because John lays out exactly how to tell the difference between operators who build value and empire builders who burn it. Again, watch the interview here… No. 4: These People Are SuicidalI won’t have enough breadcrumbs to get home if I go too deep down this rabbit hole, but it appears that Jared Bernstein and Company is at it again. The Center for American Progress just published a plan calling for government-negotiated price caps on groceries. A “Go-To Grocery List” of 24 essential items… eggs, ground beef, chicken, milk, bread, coffee… where the federal government would negotiate with retailers to freeze prices for two years so wages can “catch up.” Their argument is that anticompetitive behavior and corporate greed have driven grocery prices up 30% since 2020. Let me save you some time. Grocery prices didn’t rise 30% because of corporate greed. They rose because the Federal Reserve created trillions of dollars, Congress flooded the economy with fiscal stimulus, and supply chains broke. The money came first, and prices followed. That’s how inflation works. It’s always how inflation works. Now, CAP isn’t stupid. They wrapped this in some reasonable-sounding incentives. Retailers who participate get capped credit card swipe fees (saving them $4 to $6 billion a year), tariff relief ($11.8 to $14.3 billion), and expanded SNAP incentives. They even cited Mexico’s post-COVID price cap program as a success story. And they had a panel of economists debate the idea… where half of them said it was a bad idea. Tara Sinclair of George Washington University and Ben Harris of Brookings both warned that price controls create shortages, distort price signals, and attack suppliers. They urged policymakers to build more supply and expand income-based support instead. It’s the same things with housing… Those two were right. The other two were wrong. CAP’s own data tells you if you bother to read it. Only 14 cents of every food dollar goes to the farmer. The other 86 cents flow through processing, wholesale, retail, and finance. Every single layer is priced in depreciated dollars. You can’t freeze prices when the currency keeps losing purchasing power and is being debased at 8% a year. The math doesn’t work. It has never worked. And the insulin comparison that Bharat Ramamurti keeps trotting out? The $35 Medicare cap works because the government is the buyer. It has leverage. The cost difference gets absorbed through the federal budget. That’s not a price control… It’s a subsidy disguised as a cap, funded by taxpayers, inside a closed system where the government controls both demand and payment. Grocery markets have nothing in common with that. You’ve got thousands of producers, hundreds of processors, dozens of retailers, and 330 million consumers making independent decisions every day. There is no single buyer. There is no closed payment loop. When you cap insulin under Medicare, the manufacturer still gets paid. If you cap eggs at the grocery store, somebody in the supply chain eats the loss. It won’t be the retailer running 1.7% margins. It won’t be the farmer getting 14 cents on the dollar. It shows up as reduced supply, lower quality, or both. Every time… throughout history… The real conversation nobody wants to have is simple. Groceries cost 30% more because the dollar buys 30% less. The problem is the currency and the policies that debase it. Everything else… the panels, the reports, the Go-To Grocery Lists… is political theater performed by people who want to work in the White House again. You can pass a law against gravity because gravity doesn’t care. But why actually understand economics… This guy ran the Council of Economic Advisers (CEA) under President Biden… and he can’t even explain how monetary policy works… He proved it on camera below.  Now he wants price controls around food… What in the living hell is going on here? No. 5: And Finally: Go USA.An awesome win yesterday for the Women’s USA Hockey team against Canada. If you missed the goal yesterday, it’s a beauty. It was a great comeback and a thriller… Today, the Men’s USA team is in the semis. They barely got by Sweden, who I think is a better team than their competition today in Slovakia. They’ve still got their work cut out for them. I don’t regret going to the Olympics now because I realized that I’d be going to the game tonight… at 9:30 pm in Milan… and then UP for a plane at 7:30 am. I would have had to pull an all-nighter… and I’m not built for that anymore… Old dad… Canada is playing right now… Let’s go, Finland! All right, everyone. Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.
|
Subscribe to:
Post Comments (Atom)
0 Response to "Why I'm Throwing Mushrooms at Jerome Powell"
Post a Comment