Good News, Then Bad News

Good News First Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Good News, Then Bad News - What the year’s first half might predict for the second half — and the decade beyond… - The Fed can’t make things better, but it could make things worse… - 2008 all over again, only worse… Recommended Link [[SCIENTISTS SPECCHLESS] Patent No. 11,219,620 B2: The End Of Arthritis?]( [Read more here...]( This tiny stock’s new patent could give new hope to millions… and make early investors rich. And it all kicks off with an announcement that I expect any day now… when this $87 million company will announce what could be the potential end of arthritis. [Click Here Now]( Portsmouth, New Hampshire July 11, 2022 [Jim Rickards]Dear Reader, How bad was the first half of 2022 for stocks? It was the worst first half since 1970, long before many of today’s investors were even born. In the first six months of 2022, the S&P 500 was down 21%, the Dow Jones was down 15% and the Nasdaq Composite was down 30%. That’s bear market territory for two of the three major indexes, with the Dow in correction territory and not far from the bear. Those poor stock market results come alongside higher interest rates, higher inflation and much higher oil prices. Of course, if you have any exposure to the stock market, you know what you’ve been through this year. I don’t have to tell you. But what you really want to know is… where do we go from here? It helps to have some valuable historical perspective. Ray of Light or Headlight on an Oncoming Train? The first half is not always a prelude to the second half. In 1970, the market turned around in the second half and performed well. That offers some hope for this year’s second half. That’s the good news. Still, 1970 was the beginning of a tumultuous decade. There was another major market crash in 1974 and another in 1981. That’s the bad news. There were also three recessions (1974, 1980 and 1981) in just seven years. And that was the decade when inflation spun out of control, hitting 13.5% by 1980. In 1977, the U.S. actually had to issue Treasury bonds denominated in Swiss francs because the dollar was so weak nobody wanted it. It can get that bad and it can happen almost overnight. But right now, the outlook for the second half of 2022 is actually worse than the first half. Headwinds Build The U.S. is probably in a recession today. U.S. GDP declined 1.6% (annualized) in the first quarter, and the Atlanta Fed GDP forecast for the second quarter shows a 1.2% decline. If that second-quarter figure holds (we won’t have official data until late July), that would meet the technical definition of a recession as two consecutive quarters of declining GDP. 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 To Learn More]( Meanwhile, inflation is currently 8.6% on a year-over-year basis. The Fed has raised interest rates from 0.0% to 1.50% since March and is on track to raise rates to 2.75% by September, with more rate hikes in November and December. That’s the fastest tempo of interest rate hikes since Paul Volcker in the early 1980s, but the Fed is still way behind the curve. The Fed wants to stop inflation, but the way they do that is to destroy demand. That will make the new recession even worse. Still, the Fed may fail to stop inflation even while causing a recession. That’s because the inflation is coming from the supply side in food and energy and not from wage demands. Supply chain dysfunction grows worse, both because of continual COVID lockdowns in China and the impact on food and energy exports from the war in Ukraine. Neither phenomena will be over soon. Commodity shortages will lead quickly to food shortages and more empty shelves in supermarkets. The Powerless Fed The Fed can’t fix broken supply chains, open up energy production or grow crops, so monetary policy is powerless to fix the problems. It can, of course, make things worse by tightening into weakness as it’s doing now. I mentioned sanctions. Across the board, the economic sanctions against Russia have backfired and are hurting the U.S. and Europe far more than they are hurting Russia. The economic damage to the U.S. economy will get much worse before the economy gets better. Biden won’t stop the sanctions soon. That means the trashing of the U.S. economy will continue. On top of these fundamental headwinds, there may be a new global liquidity crisis underway, as indicated by inverted yield curves in Treasury notes. It has to do with the strong dollar and a dollar shortage. 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. Save your investment and retirement accounts. [Click Here To Learn How]( Strong Now, Weak Later Earlier I mentioned that the dollar was so weak during the late 1970s that the U.S. government had to issue Treasury bonds denominated in Swiss francs. Over the course of the next decade or so, I expect the dollar to collapse internationally. But that’s a long-term forecast. For now, the dollar is strong compared with its counterparts around the world. Basically, it’s the cleanest dirty shirt in the laundromat. And that’s a problem… You may wonder how there could be a dollar shortage when there’s $9 trillion of base money floating around. Well, as I explained recently, the answer is that that amount is trivial compared with the leverage on bank balance sheets. You’re talking about hundreds of trillions of dollars on bank balance sheets, of leveraged positions, all of which is based on collateral. There aren’t enough bills to go around. The banks are desperate for that collateral. If you’re a foreign bank and you want to buy Treasury bills, which you do for collateral, you need dollars to get them. So you have to take your own currency, buy dollars and then buy the bills. That’s what’s driving the demand for dollars. That’s just making the dollar stronger. It’s completely artificial; it’s completely unsustainable. But there’s a mad scramble behind the scenes for dollars to buy high-quality dollar collateral, specifically Treasury bills to support leverage on balance sheets. 2008 All Over Again, Only Worse The scramble for collateral also speaks to weaker economic growth, fears of default, decreasing creditworthiness of borrowers and fear of a global liquidity crisis. We're not there yet, but we're getting close with no relief in sight. Banks could start to fail. There could be a run on some of these banks. This could be a replay of 2008, but worse. So the good news is we have an answer; the bad news is it’s not a very pretty picture in terms of where it could happen next. The timing of any financial crisis is always uncertain, but the probability of an eventual crisis is high. New signs of liquidity stress are emerging every day, and no investor should be surprised if the crisis happens sooner rather than later. But hope springs eternal. Investors hope that the second half of 2022 will undo the damage suffered so far. Hard data on interest rates, inflation and the supply chain suggests otherwise. Strap in — it could be a rough ride. Regards, Jim Rickards for The Daily Reckoning P.S. Yes, the stock market has had its worst first half since 1970. But I’m afraid the worst isn’t over, not by a long shot. I fear we’re looking at the [single fastest and deepest correction of our lifetimes]( and the dam is already starting to break. Unfortunately, many, many Americans are going to get caught in the flood. I admit, my forecast could be wrong. I hope it is. But all the indications suggest otherwise. Let me show you why I fear the worst and you can decide for yourself. But I think you should at least be prepared for what could happen. [Go here now for all the details.]( --------------------------------------------------------------- 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! 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