Another Bad Omen Just Appeared

How Will the Fed React? Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Another Bad Omen Just Appeared - More bad economic news… - Does the Fed now have an excuse to back off its aggressive tightening?… - Then Jim Rickards shows you when he believes inflation will end… Recommended Link [Biden to Replace US Dollar?]( [Read more here...]( Thanks to President Biden’s Executive Order 14067, a former advisor to the CIA and Pentagon predicts the 3rd Great Dollar Quake has begun. The first was Roosevelt confiscating private gold in 1934. The second was Nixon abandoning the gold standard in 1971. Now, Biden’s plan could pave the way for “retiring” the US dollar. Your dollars could soon be confiscated – or made worthless. See how to save your investment and retirement accounts... [Click Here To Learn More]( Annapolis, Maryland June 23, 2022 [Brian Maher]Dear Reader, What is this we see? Another ill omen of economic distress, a portent of recession… of lean days ahead. The Institute for Supply Management’s June manufacturing index (PMI) came issuing this morning. This index is a generally faithful gauge of American economic health. It monitors the raw materials purchases, production, inventories, orders, prices and employment data of over 400 industrial concerns — the vital signs of economic life. Any PMI reading above 50 indicates a hale and hearty economic outlook. Any reading below 50 indicates approaching economic illness. “Experts” had forecast a 56.0 indication. What was the actual figure? 52.4 — beneath consensus projections — and far beneath last month’s 57.0. It is also the poorest reading since June 2020, the locust season of economic lockdown. This month’s 52.4 PMI exceeds the critical 50, it is true. Yet it represents a severe letting down from last month’s 57.0. What, then, is the economic prognosis? Mr. Chris Williamson, chief business economist with S&P Global Market Intelligence: The pace of U.S. economic growth has slowed sharply in June, with deteriorating forward-looking indicators setting the scene for an economic contraction in the third quarter. The survey data are consistent with the economy expanding at an annualized rate of less than 1% in June… Business confidence is now at a level which would typically herald an economic downturn, adding to the risk of recession. The Federal Reserve is attempting to engineer a “soft landing.” It is out to scotch inflation without hurling the economy into recession. Yet even Capt. Powell concedes, "it is going to be very challenging." On this one occasion we agree with the fellow — the job would make even a skilled aviator quail — not to mention a flier of Powell’s poor airmanship. But will today’s stiff PMI headwind induce him to divert? That is, will it induce him to divert from his present position of aggressive rate hikes? A listless PMI not only suggests a wilting economy. It also telegraphs an inflation forecast… If PMI numbers increase, inflation is generally on tap. The opposite likewise holds true. The PMI numbers are decreasing — and so perhaps may prices. The aforesaid Chris Williamson: A corollary of the drop in demand was less pressure on prices, with the survey’s inflation gauges… falling sharply in June to suggest that, although still elevated, price pressures have peaked. Have price pressures peaked? We do not know. We embrace a bias for the theory of extended inflation, that prices have not peaked. Supply chain delinkages and elevated oil prices are the rock of our thesis. Yet we are willing to entertain the contrary proposition. The gentlemen and ladies of Renaissance Research affirm that PMI is “traditionally viewed as a good indicator of business sentiment regarding future inflation.” Incidentally: Yields on the bellwether 10-year Treasury go at 3.06% today, down substantially from 3.45% on June 14. Declining yields fortify but do not cement the deflationary case. So again, do today’s figures excuse the Federal Reserve from aggressive action? Just yesterday Chairman Powell himself belched that “the economic outlook” will dictate policy. Today’s PMI indicates a diminishing economic outlook. The market presently inclines toward the belief that the Federal Reserve will soften… along with the economic outlook. Explains Zero Hedge: This morning's PMIs — full of recessionary indications, forward-looking pessimism and deflationary signals — appear to have been the straw that broke the camel's back of hawkish expectations. Rate hike expectations have tumbled notably and subsequent rate cuts are hovering at 75 basis points. Specifically, the odds of 75-basis-point rate hikes in July and September are sliding fast (68% and 22% respectively now) and for December and February the odds of a single 25-basis-point hike are evaporating… Stocks remain confused as to whether they should sell off on recession fears or rally on the expectations of easing and QE down the line. Stocks may indeed be confused. And who is not these days? Yet today they evidently expect easing and QE down the line… The Dow Jones gained 194 points today, the S&P 500 gained 35 and the Nasdaq Composite gained 179. Is the market correct? Is the market incorrect? Perhaps more importantly, how long will today’s inflation endure? Below, Jim Rickards gives you his answer. Read on. Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: We occasionally receive information from our affiliates that we’re compelled to pass along to you. Today is one of those days. We’ve officially slid into a bear market. Cryptos have crashed. At the same time inflation rages and gas and food hit all-time highs. So what should you do with your money right now? Our colleague answered that all-important question in his [Emergency Stock Market Update.]( You can watch it [here]( before it goes offline. This man reveals the ONE corner of the market that’s going up as everything else is going down. It’s hard to believe, but he tapped this ONE solution to deliver TWO 10X winners as normal stocks were tanking. If you want to protect — and even grow — your portfolio, we suggest you take this information aboard. [Click here to watch it right away.]( Recommended Link [Stunning New Prediction for 2022]( You’re going to want to see this — America’s #1 futurist just came out with a stunning new prediction for what could happen in 2022. And surprise, it’s got nothing to do with Trump. Or trade wars. Or the ongoing gyrations on Wall Street. In fact, this could be your one chance to ignore all that upsetting “fake news”… and get back to the business of getting exceedingly rich instead. [Click Here Now]( The Daily Reckoning Presents: The one question on everyone’s mind… and the likely answer… ****************************** How Long Will Inflation Last? By Jim Rickards [Jim Rickards]How long will today’s inflation last? That’s the question on everyone’s mind right now. It’s critical because your investment decisions depend on the answer. Deficits are the obvious place to begin with. The best way to consider debt is the debt-to-GDP ratio; you put the debt in the context of the gross income needed to service the debt. The best estimate for annual U.S. GDP as of Dec. 31, 2021, is $24 trillion. The result is a U.S. debt-to-GDP ratio of 125% ($30T ÷ $24T = 1.25). Another estimate puts the ratio at 130%. Those ratios (and projected ratios for future years) are the highest in U.S. history, higher even than at the end of World War II when it was 119%. Does the debt-to-GDP ratio matter as far as inflation is concerned? Yes and no. In the short run, probably not. There’s extensive economic literature that shows high debt-to-GDP ratios slow economic growth and put the economy on a disinflationary path. For now, it’s enough to say that economies with high debt-to-GDP ratios often flip from disinflation (or deflation) to hyperinflation almost overnight as citizens and creditors suddenly realize that inflation is the only way to escape the room. Monetary policy, our second factor, is at the top of most lists as a likely cause of inflation in the short term. In fact, it will have no inflationary impact at all and is more likely to be disinflationary. The popular view is that excessive Fed money printing must inevitably cause inflation. The Fed creates so-called base money by buying Treasury securities from banks. But those banks simply return the money to the Fed in the form of excess reserves. So that money does not enter the real economy and plays no role whatsoever in consumption or other activities that could lead to consumer price inflation. The only form of money that might lead to higher inflation is M1, the money created by commercial banks when they make loans or extend other forms of credit. Increased lending of that sort may or may not happen, but it will have little to do with the Fed. But an increase in commercial bank lending requires individuals or businesses that are willing to borrow. Right now, neither a lending appetite nor the urge to borrow is present. One area where Fed policy does touch the real economy is the creation of asset bubbles. Expanding bubbles are not particularly inflationary because the animal spirits are directed at stocks and bonds rather than consumption. Bursting bubbles can be disinflationary because they tend to change psychology in the direction of reduced consumption and higher unemployment. In short, there’s little reason to believe that current asset bubbles will contribute to inflation. Current Fed tightening through asset sales and rate hikes has deflated asset bubbles to a certain extent (more is likely to come), which is feeding through to reduced consumption. On balance, this process is more deflationary than inflationary. Politics, the third inflationary factor, has had a clear inflationary impact, although the effect may be short-lived. Politics was the driver of massive pandemic relief packages that directed trillions of dollars to individuals, small businesses and global corporations from March 2020–March 2021. The inflationary impact of this spending came not from higher deficits or Fed monetization of the debt. The inflation came from the fact that money was pumped straight into the hands of consumers at a time when output was constrained by lockdowns and supply chain breakdowns. Recommended Link [Trump’s Secret Legacy]( [Read more here...]( In July 2020, the Trump administration oversaw a RADICAL change to the tech world… one that could unleash a huge wave of disruption… prosperity… and wealth creation in the near future. Chances are, you haven’t heard about it until today. But according to one of America’s most respected tech forecasters, it’s set to create small fortunes right here in this country. He recently went on camera to explain why... [Check The Footage Out Here]( The result was a spending spree in the goods sector when the goods were often hard to find. By March 2021, inflation had ticked up to 2.6%, the highest since August 2018. The following month inflation hit 4.2%, the highest since September 2008. By the end of 2021, inflation was running at 7.0% rate, the highest since 1982. Today, the inflation rate is 8.6%, the highest since 1981. Supply shocks are the fourth factor that’s driving inflation. This kind of inflation is caused by the supply side rather than the demand side of an economy. Supply shocks are coming from all directions as the cumulative effect of trade wars, pandemic lockdowns and supply chain breakdowns. This analysis brings us full circle. Inflation is certainly on the rise, but will it persist or fade due to offsetting factors? In the short run, inflation will persist at or about current levels. Once momentum is established, a trend rarely stops on a dime unless there is a new shock comparable to the pandemic that appeared in 2020. The better form of the question is whether inflation will maintain current levels of 8.6% or higher over the course of 2022 and 2023 or will it retreat to the 5% level and eventually levels below 3% that were the norm from 2009–2020? As described above, monetary policy is irrelevant to inflation but is highly relevant to asset bubbles. On balance, the Fed’s current efforts at monetary tightening will collapse asset bubbles in a disorderly way, which will be deflationary in its impact contrary to Fed expectations. For this reason, the Fed will not be a source of inflation in the near term. Politics will also not contribute to inflation in the near future. There’s clear evidence that the $5.5 trillion in deficit spending between March 2020 and March 2021 was a cause of the inflation that we’re seeing now. But the inflationary surges faded once the money was spent. The impact was temporary, not lasting. So monetary policy and politics will not produce persistent inflation under current conditions. Is there a factor that can drive inflation higher in the short run and possibly change consumer expectations, which will drive prices even higher? Yes. That factor is the supply chain and the emergence of supply shocks that play out in higher prices. This dynamic is not transient like helicopter money. It feeds on itself if not cured quickly. It’s beyond the control of policymakers because of the complexity of supply chains. Because of the supply chain disruptions in key commodities such as energy, food and strategic metals, inflation will persist and get worse. This is not because of the Fed or the Congress. These shocks could be alleviated by freeing up the U.S. energy sector and ending the war in Ukraine and the economic sanctions that go with it. Don’t expect any of those things to happen. Biden is in thrall to the climate alarmists so he won’t help the U.S. energy industry. Biden is also blind in Ukraine where a simple “no” to NATO membership would end the war almost overnight. Instead, investors should expect persistent inflation until the Fed causes a recession. At that point, stocks will crash and inflation will morph into deflation. The losers will be savers; retirees; and those relying on insurance, annuities, pensions and fixed-rate bonds to pay their bills. The biggest winners will be those who invest in hard assets such as oil, natural resources, gold, silver and real estate. Regards, Jim Rickards for The Daily Reckoning Ed. note: We occasionally receive information from our affiliates that we’re compelled to pass along to you. Today is one of those days. We’ve officially slid into a bear market. Cryptos have crashed. At the same time inflation rages and gas and food hit all-time highs. So what should you do with your money right now? Our colleague answered that all-important question in his [Emergency Stock Market Update.]( You can watch it [here]( before it goes offline. This man reveals the ONE corner of the market that’s going up as everything else is going down. It’s hard to believe, but he tapped this ONE solution to deliver TWO 10X winners as normal stocks were tanking. If you want to protect – and even grow – your portfolio, we suggest you take this information aboard. [Click here to watch it right away.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. For any further comments or concerns please email us at feedback@dailyreckoning.com. If you are having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox [by whitelisting The Daily Reckoning.]( [Paradigm Press]© 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We expressly forbid our writers from having a financial interest in any security they personally recommend to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Email Reference ID: 470DRED01[.](