The sad truth about the world we live in now is that insanity is the new normal, and the old normal is now considered a statistical anomaly.
For example, in a logical world, old monetary stores of value and hedges against the inflationary behavior of central banks would soar during a period like the one we are living in now. Yet in reality, we only witness cryptocurrencies surging even though very little commerce is conducted with these “currencies” outside of the dark web. Add in the idea the equities are now a better hedge against inflation, if one believes the bubblevisions, and a formula for continue economic uncertainty and insanity is in place.
The spring will be officially upon North America in a few weeks and soon after, the long hot summer. If the markets behave as this author has postulated, there will be a brief period of markets rallying after the Easter holiday, then a phased solid sell-off beginning after Passover (which ends April 30th) that lasts until June 10th as the world waits with baited breath for the FOMC meeting.
Thus May 1, 2024 may well mark the beginning of the summer of the crazy 4‘s.
The First Crazy 4 – The old 2% inflation target is now tolerable at 4%
The Federal Reserve has been dropping hints that inflation is somewhat contained and trending in the correct direction, primarily due to a strong economy and growth offsetting pricing surges which primarily impact the consumer. The much celebrated PCE, a flawed measure of inflation which the Fed insists provides an accurate reflection of someone’s economy somewhere (obviously not in America), was only up 0.3% month over month in February which created a small sense that the Fed was getting to a point of sub 4% inflation thus giving the central bank room for a rate cut.
The memes truly do write themselves.
However the reality is that if one uses the much more relatable and reliable Atlanta Fed Sticky Price-CPI annualized rate it is still trapped above the 4% level for 2 years now.
This brings into focus other problems within the broader economy which should concern everyone, especially the idea that the Fed will accept short to intermediate term rates of higher inflation (through the election), declare victory, and cut to prepare for a looming crisis which is coming on faster than everyone has thought about.
The Second Crazy 4 – $4.00 per gallon for Regular Unleaded
The most amazing data point of the past week is the sudden surge in gasoline prices at the pump, yet the unwillingness of the media nor government to even remotely mention the problem. On Tuesday night for example, one of our local stations surged from $3.43 per gallon to $3.69 per gallon for regular unleaded.
Just this week, JP Morgan warned of a summer rise in oil prices now that Russia appears to be getting serious along with Saudi Arabia about enforcing the OPEC+ cuts decided on last year (From Fortune via YahooFinance):
Long before Brent tops $100 per barrel, unleaded gasoline prices in the US will top $4.00 per gallon further stoking inflationary fears and stifling any prayer the consumer has for maintaining current spending habits and levels.
The Third Crazy 4 – A Sharp, Sudden Correction of the S&P 500 down to 4400
The equity markets have behaved just as they have in the past with bubbles, BS, and bullishness that everyone proclaims are “unseen” in history. The reality is that the older one gets the one more sees this. As I have written about in the recent past, these Eiffel Towers of speculation always end poorly and see a correction.
If I am correct about this speculative frenzy and it begins with a “sell in May and go away” period of panic in concert with commercial real estate finally forcing the recognition of problems with numerous regional and community banks, then a correction of the S&P 500 down to the 4400 area doesn’t seem quite so insane.
That gap roughly between 4400 and 4450 is a juicy target and not totally out of the realm of possibility to hit with rapidity, especially if one sees the market break to new all time highs above 5500. Not only would such a correction or crash be alarming to the permabulls but it would be a welcome relief to the Federal Reserve as it would provide the cover they need to cut rates rapidly and long before the Presidential election season takes over the headlines.
The Fourth Crazy 4 – Getting the Fed Funds Effective Rate and US 10 Year Treasury into a Harmonic Convergence
Unfortunately for Jay Powell, the market is still setting price targets and only his desire to go down in history as the next Paul Volcker appears to be clouding the reality which he is facing. Unlike the inflationary crisis as a result of America’s departing the gold standard in the 1970’s, Powell’s crisis is now based on the reality of a society aging out demographically while producing more services and output from the government rather than manufacturing or actual asset creation of real value.
That is why the CRE (commercial real estate) crisis could provide the cover, preferably in tandem with an equity market correction of up to 20%, for a realignment where the Fed Funds Rate moves back in tandem with the markets and for Jay Powell’s sake, hopefully coinciding around a tolerable 4.50%.
If the Fed can initiate a rapid move, as I have projected in June and July, plus a stealth QE to bail out CRE, then the economy should stay relatively stable with sticky CPI above 4% and Real GDP remaining above 2.5% heading into election eve.
That should silence any criticism of the Federal Reserve until 2025 and provide a springboard for equity prices to recover into the fall along with housing to stabilize at current levels with mortgage rates dropping closer to 6% for a thirty year mortgage.
The Wild Card Crazy 4
The United States is on the precipice of what can only be called a period of historic instability.
Modern technology has overwhelmed the oldest demographic within the country, while the importation of an uneducated lower class manual labor pool will only result in a massive welfare state as the very same technology replaces the need for many unskilled laborers. Add in the mix of formerly employed middle and upper middle class employees being displaced by the modern technological revolution causing a rapid decline in their standard of living, then the craziest 4 of them all is upon us, a wild card, so to speak:
4 years of domestic instability.
When I considered this possibility that this was not just a result of reading The Fourth Turning and the ideas presented withing the Strauss-Howe Generational Theory, a new reality is that we have witnessed a societal division between an older school of loyalists to the idea of “America” versus an educated younger population brought through a system emphasizing global citizenry over nationalist Judeo-Christian values.
This conflict is now coming to a head economically, culturally, and politically with numerous European nations demonstrating the consequences of these policy choices.
With the rapid changes in technology upon us, in concert with a deterioration of basic human morality, the craziest 4 of them all could the four year period from 2025 to 2029.
Enjoy your crazy summer America and buckle up; history is the cruelest teacher of them all.
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