Yeah it’s a quip we’ve gotten quite a lot. Unfortunately someone else already snagged the domain before we could. It’s no shocker for me to tell you that 2020 has been a year of record breaking macro data…unfortunately not in the direction that we would typically like to travel. Here is a tweet-storm covering just some of the data.
But is it really all that surprising? Those who were paying close attention knew that a recession was right around the corner, and COVID and social unrest provided a convenient scape goat on which we could pin our frustrations.
I’d first point you to Kudlow’s “no recession in sight” comments from back in early 2019.
By the Fed’s own research/admission, bond yield curve inversions and low unemployment rates historically strongly correlate with an upcoming recession in 12-18 months. Like clockwork, the repo markets started melting down in November of 2019, to which the Fed was quietly providing Billions of dollars to meet demand.
You have to understand the Fed provides Interest on Excess (IOER) reserves for member banks, and to see overnight lending rates exceed that of IOER should give one pause. It doesn’t make sense, and a market that was operating efficiently would arbitrage out that difference in the search for yield.
It’s safe to say that if you were paying attention to the right people and the right metrics 2020’s massive economic blowback was no surprise…what I certainly didn’t expect, however, was a forced closure (see death sentence) for many small businesses across the country who were forced by law to comply with new draconian public health regulation. But we won’t get into that today.
The question, I suppose, is what does a return to normalcy look like? Is there one? How long can the Fed continue to kick this can down the road and how much worse will things ultimately get?
Certainly, don’t expect markets to operate efficiently until we are finally able to purge the malinvestment and systematic wealth transfer from the working class to the asset rich. Keep your eyes on the horizon.
Book of the Month:
The Dao of Capital: Austrian Investing in a Distorted World
– “Because of the quirks of our human eagerness for the immediate reward, we are forewarned that what seems easy and straightforward is deceptively so; the roundabout is in practice a counterintuitive path—of acquiring later stage advantage through an earlier stage disadvantage—nearly impossible to follow.”
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