"World Shut Your Mouth."
I was thinking about Julian Cope's 1987 Magnum Opus when I was watching the markets yesterday afternoon and this morning.
The bond markets are getting absolutely shellacked since the FOMC statement and the coincident release of the infamous Dot plot.
The world, especially the FinTV world, really should be shutting its mouth and addressing the real problem here. Inflation is the elephant in the room. So, how do we stop it? Do we revert to wearing Ford-era WIN (Whip Inflation Now) lapel buttons?
No. The FOMC members and their other central bank cronies around the globe are so extraordinarily feckless that all they can come up with is a cockeyed plan to send the Western World into a recession by killing demand for anything that requires financing by making that financing more expensive.
Similarly, Dr. Powell would likely recommend curing a sprained ankle by amputating the leg. No, no, no, a thousand times no!
The problem with the Western economies is not too much demand, it is too little supply. That is what is making prices rise! How can these rubes not see that? It would drive me crazy... if I didn't constantly bet against the Confederacy of Dunces by shorting Big Tech and going long Big Energy. Feels good, I can't lie.
First and foremost, The West must lower energy prices by achieving self-sufficiency in hydrocarbon production. Did you think relying on Putin for natural gas was a great public policy, Ms. Merkel? No, it really wasn't, as Putin is his generation's Hitler. Not a reliable fellow, to say the least.
Add to that the extraordinary delusion of Climate Change promoters and their financial cronies, the ESG crowd. How is that investment in the ARK Innovation ETF (ARKK) treating you these days? Oy vey.
But, again, these dual forces have combined to create a world in which hydrocarbons are in short supply, which makes the price of everything else rise.
You want to eat? What do you think is the main component of fertilizer production? Natural gas, baby. You want to watch a movie on your iPhone? How do you think that iPhone got from Apple's (AAPL) manufacturing facility in China to the US West Coast, probably the port of Long Beach? It was packed with hundreds of thousands of similar SKUs on a container ship that was powered by... you guessed it... hydrocarbons, probably bunker fuel, which is basically a thicker version of diesel.
I will cease making gratuitous examples, because you get the point. Inflation isn't caused by some greedy Ebenezer Scrooge-like character raising the price of lettuce so he can squirrel away your hard-earned dollars. Inflation is caused by pressure in the supply chain, and higher hydrocarbon prices are the main source of that pressure. Oil and natural gas power the world, and when supply is insufficient to meet demand, basic economics tells us that prices will rise.
Feckless dolts like Powell can try to "hit the sweet spot" and "thread the needle" to create a "soft landing" or whatever the mindless commentators on FinTV call it. It is not working!
Oil hit $140/barrel in July 2008, and we all remember what happened next. WTI crude is "only" quoted at $84/barrel today, so please understand that the problem can -- as it did this summer -- get much, much worse.
You can either exploit it via hydrocarbon-based portfolios like my HOAX complex (free-to-all version is here) or you can hope against hope that Cathie Wood somehow gets her groove back. Ugh.
Before his solo career, Julian Cope was the frontman for The Teardrop Explodes. The Western World economy is exploding now. The bond market has been, as always, the first to know. Please don't be the last.