It Keeps Getting Worse

The Latest Inflation Numbers Are Out Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] It Keeps Getting Worse - June inflation comes in even hotter than expected… - What will be the Fed’s next move?… - Then Jim Rickards shows you the current battle between inflation and deflation, and which will likely win… Recommended Link [Trump’s Final Gift To America]( [Read more here...]( There’s a little-known way Trump could – one day – have his revenge. It involves a Federal Ruling he oversaw in the final year of his Presidency that could change America forever… unleash an estimated $15.1 trillion in new wealth… and create countless ways for everyday Americans to benefit. What is this little understood decision? And how will it impact you? [Get The Facts Here]( Annapolis, Maryland July 13, 2022 [Brian Maher]Dear Reader, CNBC gives today’s headline news: Shoppers paid sharply higher prices for a variety of goods in June as inflation kept its hold on a slowing U.S. economy, the Bureau of Labor Statistics reported Wednesday. The consumer price index, a broad measure of everyday goods and services related to the cost of living, soared 9.1% from a year ago, above the 8.8% Dow Jones estimate. That marked the fastest pace for inflation going back to November 1981. Yes, the weisenheimers botched again, and to the downside, again. We cling nonetheless to our belief — despite all reason, despite all evidence — that on some distant tomorrow they will strike bull’s-eye. But to return to the topic under discussion… Gasoline prices ballooned an alarming 11% last month — and nearly 60% year over year. Sky-shooting gasoline prices are ill economic omens. They portend recession. We learn further that eating costs increased 1% in June — and 10.4% since last June. Not since February 1981 have food prices sizzled at such an incandescent annual rate. Yet the present inflation is scarcely limited to gasoline and food prices. Like an evil weed worming catastrophically through a garden, inflation spans the economy. Mr. Robert Frick, economist with Navy Federal Credit Union: CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation. Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel. Whenever confronted with official inflation data fabricated by government data-torturers — as today — we consult Mr. John Williams and his ShadowStats. Thus we learn: If today’s inflation were gauged by 1990’s metrics, the rate is not 9.1%... but in excess of 13%. And if by 1980’s metrics, the present inflation rate approaches a fantastic 17.3%. How do you like it? The Federal Reserve’s “Open Market” Committee gathers in two weeks’ time. Thus a question presents itself: Will today’s inflation-soaked report accelerate its operational tempo? One James Knightley, ING’s chief international economist, believes it will: U.S. inflation is above 9%, but it is the breadth of the price pressures that is really concerning for the Federal Reserve. With supply conditions showing little sign of improvement the onus is on the Fed to hit the brakes via higher rates to allow demand to better match supply conditions. The market is with him. CME Group’s FedWatch gadget presently gives 78.6% odds of a 100-basis-point July hike. Yesterday those odds came in at 7.6%. Conversely: Today’s odds of a 75-basis-point hike read 16.7% — plunging from 92.4% yesterday. Yet if inflation goes at 9.1% (let alone 17%), the Federal Reserve remains well “behind the curve.” Today’s federal funds rate hovers between 1.50% and 1.75%. Mr. Powell and mates cannot possibly elevate rates to inflation-crushing levels — for those are also economy-crushing levels — and market-crushing levels. In brief… inflation has them by the ear. Yet the dollar bounces along at 20-year heights. A formidable dollar purchases more goods than a straggling dollar. This dollar likewise equates to depressed commodity prices — foodstuffs and energy prices among them — and thank the Lord for it. “How bad would inflation be if the dollar was weak?” wonders our colleague Dave Gonigam of The 5 Min. Forecast. We wonder as well. We hazard the answer would raise our hair and freeze our blood. We prefer to hold a muscular dollar than a runt dollar. But can the dollar grow overly mighty? Jim Rickards: [A strong dollar] makes imports less expensive, which has a deflationary impact on the U.S. domestic economy… A strong dollar also hurts U.S. exports from major companies such as Boeing and GE. That hurts U.S. competitiveness and U.S. jobs. Finally, a strong dollar hurts corporate profits of U.S. global companies because their overseas profits are translated back into fewer U.S. dollars. This is a headwind to U.S. stock market performance. And so we have a clashing of warring forces — inflation from one side — deflation from the other. Inflation enjoys a present advantage. But will a deflationary counteroffensive reverse inflation’s gains? And will today’s inflation yield abruptly to deflation? Jim Rickards takes up the question below. What is his answer? Read on. Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: The stock market has had its worst first half since 1970. But Jim Rickards is afraid the worst isn’t over. Jim fears 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. Don’t be one of them. [Go here to learn how to avoid the flood.]( 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 Now]( The Daily Reckoning Presents: “Today’s inflation may be displaced by disinflation or outright deflation before we know it”… ****************************** Inflation Could Rapidly Turn to Deflation By Jim Rickards [Jim Rickards]Even with globalization in unwind mode, the world economy is still densely interconnected; no major economy operates in isolation. If China’s economy is slowing, then Australia’s export sector is suffering also. If German manufacturing output is handicapped by energy shortages, then parts suppliers in Eastern Europe and Japan will see a slowdown in new orders. If the euro goes low enough against the dollar, then U.S. consumers may see French wine at bargain prices to the disadvantage of California wine producers. You get the point. If one central bank such as the Fed is raising rates, then a central bank such as the ECB may have to follow suit, even with a slowing economy, just to keep the euro from going below $1.00 (referred to as parity). If the Bank of Japan refuses to raise interest rates at all, which they do, then the yen will go into free fall against the U.S. dollar. Right now, inflation is up around the world. The problem of higher inflation and the central bank policy response of higher rates are global phenomena. They are not confined to a small group of countries. It is not the case that any one country has the headroom to provide stimulus that can help the world without causing inflation at home. The locomotive theory (that one country can pull an entire train up a hill) is dead. Inflation and higher interest rates are the norm. The glaring exception is China, the world’s second-largest economy. In China, the latest inflation rate shows a modest 2.1% increase (annualized). Interest rates are a relatively low 3.7% and the People’s Bank of China (PBOC) has been leaning toward monetary ease recently. The most recent annualized GDP growth rate for China is 4.8%, quite low by Chinese standards. Most analysts believe that the actual growth rate is much lower, perhaps even 0.0% (the Chinese are notorious for lying about economic results in order to maintain a growth narrative). The Chinese yuan (CNY) has been declining relative to the U.S. dollar (USD). This may be a symptom of a classic currency wars strategy to cheapen your currency to promote exports and export-related jobs. Is China an anomaly or is it the canary in the coal mine? Is weak growth in China the shape of things to come in the rest of the global economy? Central banks in the high-inflation economies have been unusually candid in admitting that rate hikes intended to destroy demand and squash inflation may result in recessions in their economies. That seems likely to be the case. If so, the entire world may be following China toward a low growth/low-rate outcome, which could be properly characterized as a global recession, or even a new depression. Oddly, this recessionary outcome could result in reverse currency wars in which countries try to strengthen their currencies relative to the U.S. dollar in order to lower the costs of dollar-denominated global commodities such as food and energy. Why is the dollar so strong lately? The answer is there is a global dollar shortage bordering on the global liquidity crisis going on behind the curtain. How could there be a dollar shortage when there’s $9 trillion of base money floating around? 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. 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. 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]( Let’s look specifically at the U.S. economic situation... The recent performance of the U.S. economy is not good. First-quarter GDP was negative 1.5% (annualized). The second quarter ended on June 30, and we will not have GDP growth numbers from the Commerce Department until late July. The best estimate available for second-quarter growth comes from the Federal Reserve Bank of Atlanta, which uses available data that arrives monthly or periodically to forecast GDP in close to real-time. That estimate is for -1.2% growth in the second quarter. Combining the first-quarter decline with a second-quarter flat result produces an overall decline for the first half. If actual second-quarter growth is finally reported as negative (which seems increasingly likely), this would put the U.S. in a recession now — a recession is defined as two consecutive quarters of declining GDP. The obvious question is: Why is the Federal Reserve raising interest rates if the U.S. economy is on the cusp of a recession? The answer of course is inflation. The Fed has a dual mandate to maintain price stability and reduce unemployment. These two goals are not complementary in the short run as economists wrongly once assumed. There are times when the Fed has to choose one goal at the expense of the other. Right now, the U.S. unemployment rate is an extraordinarily low 3.6% while inflation is the highest in 41 years at 9.1%. This makes the Fed’s choice easy. The Fed must crush inflation to avoid losing all credibility. If raising rates to stop inflation causes unemployment to go up from 3.6% to 4.1% (as Fed Chair Jay Powell recently admitted may happen), then that’s an acceptable balancing act from the Fed’s perspective. Unemployment of 4.1% is consistent with the dual mandate while 9.1% inflation is not. Higher rates and lower inflation are therefore the Fed’s predominant goals. Left unsaid is whether higher rates and higher unemployment don’t just result in a soft landing for inflation but cause a hard landing and a recession. A hard landing is the most likely outcome; as noted, the U.S. may already be in a recession. Events could turn out much worse. A recession will hurt corporate earnings, which will cause the popping of asset bubbles starting with the U.S. stock market. A stock market crash could converge with a global liquidity crisis (that has already begun behind the curtain of financial plumbing) to produce a combined recession and financial panic worse than 2008 and 2020. So here’s the way to understand the world: Current inflation is based on supply shocks and supply chain dysfunction that arose almost a year ago. Global demand for dollars is forcing the dollar higher in the short run. Meanwhile, markets are preparing for the coming recession by marking down prices across the board today. Today’s inflation may be displaced by disinflation or outright deflation before we know it. In short, investors should be prepared to flip from 40-year highs in inflation to disinflation and possible deflation in a matter of months if the Fed persists in its rate hikes over the course of this year and into 2023. Inflation hedges that are suitable now, including high leverage and investments in stocks and real estate, may turn into a losing strategy as cash and Treasury notes come back into favor. Investors should diversify their portfolios to be robust to both outcomes and remain nimble when it comes to favoring one result or the other. Regards, Jim Rickards for The Daily Reckoning P.S. The stock market has had its worst first half since 1970. But Jim Rickards is afraid the worst isn’t over. Jim fears 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. Don’t be one of them. [Go here to learn how to avoid 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. Dozens upon dozens of major companies are on the verge of collapse. And if you have their stocks in your portfolio, you could be in serious trouble. My system has just triggered more than 150 new “sell alerts.” I strongly urge you to jettison these toxic stocks immediately. How many of them do you have in your portfolio? In [this briefing]( I detail everything, including the complete list of 153 stocks for FREE. [>Click This Link to Be Taken to My Urgent Message Now<]( --------------------------------------------------------------- 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. 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