IN-DEPTH: TRANSCRIPTION - UnderTheLens - FEBRUARY – Macro Themes for 2022
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TRANSCRIPTION
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Thank you for joining me. I'm Gord Long.
A REMINDER BEFORE WE BEGIN: DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are COMMENTARY for educational and discussions purposes ONLY.
Always consult a professional financial advisor before making any investment decisions.
COVER
At the beginning of the year many of us like to formulate a perspective of what we might expect to occur in the coming year. We hope to get a few glimpses which might better prepare us for what otherwise might be unexpected. However, those in the media that assist with these glimpses often describe symptoms not the causes. That is because often what occurs is only a further development of what has already been occurring.
Similar to a slow moving glacier, which suddenly is seen to move, to the more watchful eye however, it has already been detected to have been in motion for some time.
AGENDA
As you will no doubt observe in this video, many of our prior Annual Thesis papers are similar major glacier trends which are now becoming more visible and garnering more attention by many media prognosticators.
As such I would like to cover the items I have outlined here.
Separately, in this month’s LONGWave video we will follow on from these Themes …
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.. to discuss the Investment Themes (shown here in red) which we fully expect to take advantage of in 2022 as part of our Strategic Investment Insights on our MATASII.com web site.
SLIDE 6 – UNFOLDING PRIOR THEMES
You will see that what we have writing about is steadily unfolding more or less as we have described:
- At the STRATEGIC level in our Annual Thesis Papers,
- At the TACTICAL level in our monthly videos such as in the video series UnderTheLens. LONGWave or Macro Analytics and
- At the OPERATIONAL level in our weekly newsletters.
SLIDE 7 – CASSANDRAS & PROGNOSTIGATORS
I have reviewed over 22 Cassandra’s, Prognosticators and Media pundits, some of which are shown here.
Overwhelmingly they are calling for a major market correction (or worse) in 2022.
But as usual they don’t say when in 2022, how big or how broad. This is understandable but not helpful.
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This fall we laid out this “Though Experiment” for 2022 which in January is already unfolding so far, exactly as we thought it might. The January bar shown in Red reflects a major downward move in the equity markets, as represented here by the S&P 500.
From this initial downward move we expect a counter rally to soon develop taking us into early spring before in fact we begin a serious and sustained Bear Market correction heading into the US mid-term elections.
We will discuss this chart in more detail in the more technical February LONGWave video.
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In our Year Being Themes video in 2020 (prior to the March Covid-19 initial outbreak) we outlined the importance of where we were in regards to Long-Term Cycles.
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All of our major cycles showed the period we are now in being the culmination of many long term cycles. Currently, mostly at their cycle lows.
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All bringing with them major shifts in societal mood and behavior, which can be expected to garner major change in views and values as part of what is often referred to as the Fourth Turning.
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One of them which we spent a lot of time on then and in prior months was the expected beginning of the Commodity Super-Cycle.
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From all our work it was clear that Commodities were seriously mis-valued and should begin to adjust accordingly.
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That is exactly what did occur as shown here by the red arrow (when we were beating the drum on it). The initial move has been very strong across the CRB commodity Index …
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… as well as the Goldman Sachs Commodity Index. The gains coming in Commodity values were well telegraphed and we hope as subscribers you were able to take full advantage of these initial moves in the commodity sector.
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However, we should now expect some consolidation before heading higher, remembering that this is all part of the beginning of a major ongoing shift from Growth to Value as factors such as free cashflow become decidedly more important.
Why?
Because credit will gradually tighten and become paramount as real unencumbered collateral will become more scarce as the result of the lack or real wealth creation.
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When Covid-19 hit with a vengeance in March 2020 we talked extensively how this was bringing with it more than a fight against the global pandemic, but also a major Regime Change in the increasing creation of financial credit and loosening Monetary and Fiscal Policy.
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The Pandemic was a shock that would be taken full advantage of to push massive government spending. That push turned out to be in excess of $30T and still growing.
Being trapped by Unsound Money which is based on a Fiat Currency foundation, we had already lost our abilities to price risk appropriately as well the markets abilities regarding price discovery.
Now we were entering a new world of complete Creditism versus Capitalism. Instead of Savings going into Productive Assets, we no longer had sufficient savings and instead had Creditism where artificial credit went into consumption. Consumption that didn’t create wealth nor was sustainable without ever increasing levels of credit.
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As I learned in my first college Political Science classes, politics is about POWER. Power for the primary purpose of “Re-Distribution of Wealth”.
Ideally that re-distribution is for the good of the people in a properly running democracy.
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However, what we warned of, that if not properly executed would instead lead to further and increasing levels of ever expanding Inflation and Deflation waves we have been experiencing over the last few decades.
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There are consequences of Poor Policy decisions when you are operating with Unsound Money.
What we got, as we warned then, is an explosion in Inflation!
It was perfectly predictable.
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As is the fact that too much money chancing to few goods would foster not only inflation but also possible supply shortages.
Shortages that will initially lead to overbuilding and a glut. but as the Pandemic shock subsides could be expected to become another, larger Deflationary wave.
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In our 2021 Themes we did a three part video series on the Global Macro and our concerns with the growing threat of Stagflation. We were concerned about the new direction the newly inaugurated US administration appeared to leaning towards in areas like energy independence and further massive spending bills.
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No longer was our concern the resulting inflation but the degree to which the new administration was leaning towards far left socialist like policies.
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Our 2021 Thesis paper entitled “Social Suppression” we laid out what we were already seeing and what could possibly unfold if continued.
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Our concerns were not something new but what we had been tracking and discussing in many of our writings since the Financial Crisis. We wrote and did many videos on all the blocks shown here in this original 2012 roadmap we suspected we were headed down as Quantitative Easing (QE) first appeared on the Monetary docket.
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The public’s worry with Economic and Physical Security had further mutated into Repressive and Suppressive elements of Financial and Heath Security and Safety.
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No longer was our concern with just the strong likelihood of a serious recession and an era of protracted Stagflation on the horizon …
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.. but also what the new administration was supporting in the way of just some of these items listed here. All of which are core American values which appear to be increasingly challenged.
Challenging possibly to the point of the American people beginning to wonder and question what America was becoming and what it any longer stood for?
Let me make something very clear in case you think I am being political here!
I have no dog in this fight. I am neither a Republican nor Democrat! If anything I might possibly be labeled a Libertarian.
I vote what I believe is right for America and ALL Americans. I vote for a person and not a party. In fact I have very serious reservations about the US two party system and maybe more specifically the Washington DC political machine.
So the points I make here I know many support and believe this is where American should be going. I also know there are many who are strongly against everyone of these points. That is EXACTLY what makes America .. AMERICA!
However when Suppression occurs in any camouflaged attempt I am against it. That is where my current worries stem from. Unfortunately, both US parties have histories of both.
Governments and Bureaucrats always mutate towards POWER and CONTROL. I am against that.
Social Suppression of any form which erodes the US Constitution I am opposed to!
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With that said let’s see where I think this all is leading in 2022 and likely to become increasingly more visible.
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Geo-Politics is going to be a big on-going Theme in 2022.
We identified this in our 2020 Thesis paper “Global Conflict”.
Global conflict is a result of the world shifting from a Uni-Polar to a Multi-Polar world. No longer is the US the dominant economic, military nor financial power in the world.
This shift by its nature leads to conflict. No longer can the US be counted on to be the uncontested policeman on the global “beat”. Other regions and countries see it only as intrusive versus needed.
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But there is more than just that occurring. American leadership is weakening at an alarming rate. It is quickly being seen on TV’s around the world as a country with serious internal problems, political conflict and with ideas that other countries reject simply as “out of touch with reality”.
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US Policies are being judged unkindly around the world.
The US debacle in withdrawing from Afghanistan sent a clear message to the world. It also began a sharp decline in the American people’s confidence in its political leadership.
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Continuous policy blunders and frankly incompetence has increasingly led to even more unintended consequences.
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The America people are turning their TV’s off as they no longer trust what the media reports. What was once just political “spin” is now seen as orchestrated narrative or more bluntly “propaganda”, censorship and political distortions.
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In case you are on the right and just see this to be occurring from a left leaning media, you are wrong!
The Right wing FOX network is also losing viewership in significant numbers. It is not a left – right issue. It is an issue of divisiveness and what binds a country together as a nation and its leadership reinforcing unity with a clear vision of where the country should be headed towards.
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This issue is most clearly seen in the US handling of the Covid Pandemic.
We have been subjected to a never ending series of controlled and ever shifting narratives centered on primarily Vaccines, Mandates and Masks directives
All have come across as Authoritarian that has taken the country in the direction of divisiveness pitting Americans against Americans. This is however is not unique to just the US.
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We need to contrast this with what a Democracy for the people should do. It should be about more than just that. It should be about Policies that are much more broadly based. It should be about Planning and Approaches that give Americans confidence and hope.
Policies that show the government is not there to dictate but serve.
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It should be about the government trying to educate to achieve understanding which gives confidence.
It should be about synthesis of all available research and knowledge to give Americans hope.
That is not what is occurring. We feel we are witnessing the naked grab of power!
This is only going to lead to more serious problems both Geo-Politically (as America is seen divided and poorly lead), as well as domestically with an inability to address rapidly growing structural, financial, economic and social problems.
This will dominate the US during this mid-term election year.
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Inflation & Slowing Economic Growth are already evident and will only get worse in 2022.
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Inflation is already at levels not seen in 40 years.
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But it is actually even worse when all the statistical games of Substitution, Imputation, Hedonics and others are removed and accounted for as they were in 1980.
Inflation instead of being 7% as it is currently reported is actually 15%.
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Economic growth is additionally also greatly misrepresented and reported as we outlined in our 2017 Thesis: “The Illusion of Growth”.
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… and even using official government numbers is about to get much worse in 2022 which we outlined a number of time last fall.
The problem with all this is that it is going to seriously damage the US Federal Reserve’s credibility and possibly its independence in 2022.
The Federal Reserve is potentially likely to become the political lightening rod for everything that is wrong in America and why politicians are not to be blamed for shortages, inflation, rising financing rates and tightening credit.
All of this is only going to be seen to be restricting Americans from living the life that they expect – even though America increasingly continues to consume vastly more than it produces.
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Shortages have brought to the fore the serious problems that can occur with global supply chains.
These problems are only going to get more acute as global margin pressures begin to assert themselves across entire global supply chains.
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We have been warning of this since our 2014 Thesis paper entitled “The Globalization Trap”.
Expect to see the foreign made goods we depend on and have always been cheap to soon no longer be so cheap, nor as available!
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We are expecting the US Dollar to begin to see real weakness in 2022 as the exploding US Twin Deficits begin to really matter. The US dollar (and most currencies) tracks closely to the countries Twin Deficits of Trade and Fiscal balances as well as its Current Account balance.
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Our 2019 Thesis paper highlighted growing problems with the US dollar around the world as more countries are forced due to the US weaponization of sanctions to reduce their dependency on using the US dollar. US Sanctions impact not only those countries targeted but many countries trading with the sanctioned countries.
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The US Dollar faces pressures as the Global Reserve Currency, but additionally because it is funded by US Treasuries which are considered the Global Risk Free Benchmark. This in fact is no longer the case which exposes the US dollar even further.
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We recently released a video outlining other issues that are concerning us about the US dollar.
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The Tsunami of Climate Change programs are going to be an increasingly bigger issue in 2022. It will begin to restructure the change in the financing of the global energy industry. We can expect new Carbon Taxes and Green Bonds to become increasingly major financial considerations for country fiscal policies, along with the global trading of Carbon Credits, Offsets and Streams
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As we outlined in this year’s Thesis paper entitled “SUSTAINABILITY: For Whom?” we see this being a killer for Capitalism with the advent of ESG and DEI program initiatives. These should be viewed as fundamentally Trojan Horses for the social and government control of corporations.
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Macro-Prudential policies of Financial Repression are about to mutate to Green Financial Repression or maybe better labeled “Regulatory Repression”. Both are intended to achieve the same goal of making growing government fiscal debt burdens less onerous in real terms.
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Finally, we can expect major financial market instability with the Market Correction the prognosticators are all calling for.
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The Buffett Indicator is strongly Overvalued …
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.. and has seriously disconnected from economic GDP growth. This is unsustainable.
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Financial Markets often get ahead of themselves but historically always regress to their mean. At two standard deviations, this is well over due.
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Price/Earnings Ratios are strongly over valued and if growth slows they can be expected to contract.
They have potentially a long way to come down!
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What can we conclude?
Markets are always hard to predict but many of what we have been detailing over the years is unfolding as expected. Like a glacier it may be slowing moving but recently has clearly become evident.
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To quote Vladimir Lenin, the leader of the communist movement in Russia who once observed:
“There are decades where nothing happens; then there are weeks where decades happen!”
This is the era 2022 is part of?
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In our next LONGWave video we will follow on with these Themes in the context of Investment Themes and Insights.
We will discuss how these Macro Themes can be expected to become investment ideas as highlighted here in red!
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As I always remind you in these videos, remember politicians and Central Banks will print the money to solve any and all problems, until such time as no one will take the money or it is of no value.
That day is still in the future so take advantage of the opportunities as they currently exist.
Investing is always easier when you know with relative certainty how the powers to be will react. Your chances of success go up dramatically.
The powers to be are now effectively trapped by policies of fiat currencies, unsound money, political polarization and global policy paralysis.
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I would like take a moment as a reminder
DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are for educational and discussions purposes ONLY.
As negative as these comments often are, there has seldom been a better time for investing. However, it requires careful analysis and not following what have traditionally been the true and tried approaches.
Do your reading and make sure you have a knowledgeable and well informed financial advisor.
So until we talk again, may 2021 turn out to be an outstanding investment year for you and your family.
Thank you for listening
