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    MarketMap™ 2023 Scenario Planner Issue#4 w/chart gallery

    February 14, 2023

February 14, 2023

MarketMap™ 2023 Scenario Planner Issue#4 w/chart gallery

The new year 2023, early February headlines are being spun like everything is wonderful.

The Whitehouse is rightfully proud that the economy is doing just great. The USA has full employment, the lowest unemployment in 45 years, the stock market remains strong in the face of interest rate hikes by the Fed, and while inflation remains high last report, expectations are high that inflation is coming down; and interest hikes will soon slow down or stop. In fact, today new inflation numbers will be released.

So, everything has just the scent of success. Just like Ray Stevens wrote in his March 1970 #1 hit song “Everything is beautiful.”

But since I’ve been in the business over the past 25 years it’s an undemanding story of kicking the can down the road in the situation underlying the economy and the repression of volatility. These actions reached a point where bonds offered no interest rate return, only the speculative chance of lower rates for capital gain before the bonds matured. Turning Treasuries into “risk assets.”

Ever since the last period of hyperinflation (the 1970s) and the Plaza accord, the gold bugs, and the oil bugs, and the dollar bears have told the same story over and over regarding the demise of the dollar system, and dollar hegemony. Fifty years later the greenback remains the currency of choice.

Why? Well, it goes beyond the economy, which may be in big trouble here because of geopolitical issues. But the stability of the dollar system rests on the military, and international political power of the US and is manifested through market forces. In other words, it is a system that is in place and until it stops working, there is no need to change it. So all the past doom and gloomers have been barking up the wrong tree and wrong for the past 30 to 50 years!

However, today, with the full faith and taxing power of the US Treasury the US has kicked the can down the road borrowing to pay off debt, painting it and the world into a corner. If it needs to hike rates to combat inflation the carrying cost of the debt goes up adding to the debt.

Which all sounds too familiar, like crying wolf too often and not getting a reaction, when you hear “… the value of the loans declines because of non-performance, that requires capital – fresh cash liquidity – to make up the shortfall in debt service payments received by the Central Bank.” In simple terms, THE Bank is staring at a systemic “margin call.” No one wants to get out of the pool first.

I understand it is a lot of responsibility to be a leader, with a conscience. To relate “off-risk” and to find ways to make a profit trading without going “risk-on.” Not until there is a washout. Just not a low-risk but a no-risk entry. By the way, virtually no one will be able to stomach buying stock, as their vision will be clouded by fear and loathing.

How do I know this? Been there, done that have the t-shirt and video. Bought double bottom in 1974, August 1982, November 1987, October 1997 and 1998, October 2001, March 2009, and December 2018.

But hey Powell and Yellen got this, right?

I think not, because it is out of their control, as I pointed out on January 18, 2018, MarketMap™ Scenario Planner. The desperately wide division brought by the 2016 election left a vehement political war that is going on between a radical fringe group of the GOP and the democratic administration just to increase the debt limit to pay the debt and continue to kick the can down the road, not to mention simply “provoke the Dems.”

In 2018’s MarketMap™ I said “Geopolitical Security threats will precipitate financial distress… And that A constitutional crisis has parallels with this cycle, the 18.6-year cycle.” It still does, this decade does.

What compounds the Big Picture problem is how fast layoffs will come when the economy turns down, human resources (labor) is the first area hurt in an economic downturn. Inflation helps businesses, deflation helps the consumer. That conflict in turn brings more civil unrest to the surface on top of the January 6th insurrection.

In literary terms, it’s a Faustian bargain by the central banks of the world.

With the continuous central bank intervention, policies of competitive devaluations, and hyper asset bubbles the global economy is fast approaching a large deflationary crash because of a “sovereign default” as mentioned above. Followed by historical “class warfare” as mentioned above.

With the clarity the 1/6/2020 insurrection brought with the attack on our system, it makes sense for the Fed and Treasury to avoid history repeating itself with the states of Germany in the 1930s. They have to make the tough choices as in engineering a painful but manageable global recession today. Instead of risking an uncontrollable tragedy in the future. Absent some drastic actions by the central bank’s power today the economic balance will manifest itself first through hyper-asset explosions in the right-hand tail. Which does not need to be commodity-based.

Followed by a deflationary crash that may include some sovereign defaults the left-hand tail risk. If it’s not too late already for the managed approach.

During the next crisis, the government will not be able to re-leverage and the collapse will be epic. What I outlined above with the congressional/ White House playing liar’s poker on budget negotiations is a prime example of the crisis and volatility becoming unplugged.

MarketMap™ 2023 Scenario Planner Issue#4 Major change of trend dates (COTs)

 

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