THE EXCESS LIQUIDITY MARKET FIX IS NOW IN!

OBSERVATIONS: STICKING MY POLITICAL OAR IN THE WATER!

The advice I was given when I immigrated to the US 40 Years ago continues to ring in my ear this election year! It was given to me as a warning by a US ex-pat who had fled to live in Canada. I ignored, and immigrated anyway, thinking he was just old and cynical.

1. 1. Your US vote is not about choosing Democrat or Republican, but rather whether you want the Gotti’s or the Gambino’s in charge.
   2. If you vote for a Democrat President, then always vote for a Republican controlled Congress (or visa-versa). That way they can do less damage!
   3. Washington as the capital is not a state but rather a DC. Those initials stand for the “District of Corruption”.
   4. Ignore whatever a congressional bill is titled. It is always about taking something from you to give to someone more powerful, influential and connected.
   5. There are 50,000 lawyers, between “K” street and the beltway, paid to figure out new ways to take what you work for. They are like a giant human vacuum cleaner sucking up the money they simply printed and now need back!
   6. If by chance or misfortune you ever go to Washington and happen to need to shake someone’s hand – always keep you other hand on your wallet!

Having heard this, I still immigrated to the US anyway and have loved every minute of it! To me his advice is only the ante you must pay to live in such a magnificent country with freedom loving, entrepreneurial and like minded people.

I need you to appreciate that I was initially programmed in a left leaning country. But as I have gotten older I have gradually shifted “right” – to the extent that I am now probably best labeled a Libertarian. Understanding that here is how I distill the upcoming election down to its essence:

TRUMP: I don’t like him personally! (Full Disclosure – I lost money years ago on his DJT funding of his Atlantic City casinos); Trump lacks the temperament for political office (from dog catcher up); Trump is divisive and not a unifier (I thought we left name calling behind in the playground?); Trump is by nature a Bully.

What he gets right is:

1. 1. He actually delivers on what he says and delivers on his promises. He is one of very few politicians I have ever seen that actually does what he says he will.
   2. His policies have generally been sound and in the country’s and world’s best interest.
   3. He puts the American people first and speaks in a language that any non-Washington citizen can actually understand or is interested in hearing.
   4. He is first and foremost a patriot willing to die for his country.

HARRIS: I really don’t know who she is, (I followed her as the Border Csar and found her MIA); Harris speaks in platitudes, political correctness & prepared sound bites that leaves me wondering what the message is?; Harris’ policies are further left than even Bernie Sanders and Elizabeth Warren, (which is an achievement in itself!); She is so rehearsed that it would be easier and faster for me to just speed read the transcript and avoid the teleprompter gig. It is always the same.

What she gets right:

1. 1. ??
   2. ??
   3. She does what she is told. (That is the best I have so far – but I am still working on her list.)

Knowing the Democrats are a machine and the Republicans operate like the comic “Keystone Cops”, I am sure between now and the election I will be beaten to death with the non-stop narrative that Kamala actually walks-on-water, while daily given further newly uncovered “proof” that Trump is a threat to our Democracy.

I will let the election MSM drone now begin, but to be honest I have already made up my mind! I do plan on voting in person just to find out if apparently I have already voted by mail?

WHAT YOU NEED TO KNOW!

AN EXTREMELY LOOSE ELECTION YEAR FINANCIAL CONDITIONS INDEX (FCI)

Going into this US election year the Financial Conditions Index (FCI) was loosened considerably, then loosened further as the election approached.

From a technical pattern perspective we have a classic Ending Diagonal Pattern. This pattern reliably signals a major reversal. Normally that reversal occurs in the area shown by the arrow to the right. That point approximates the election date of Tuesday, November 5th.

It stands to reason that the reversal will likely be quite rapid to stop inflation from resurging again. Of course their efforts will be like closing the gate “after the cows got out”!

RESEARCH

1- THE EXCESS LIQUIDITY MARKET FIX IS NOW IN!

• • The Fed this week did a crisis level 50 bps rate cut while Financial Conditions are already extremely loose! This is highly unusual and there are going to be serious consequences of this which will come to light after the election.
  • There is little doubt that longer-term inflation risk, rather than receding, is now baked-in to rise!
  • We are awash in Excess Liquidity to keep the global economy afloat and we are about to make it even worse!
  • To add “Fuel to the Fire” we are presently witnessing:

1. 1. 1. Easing Global Monetary Policy Rates (abetted & accelerated by the Fed now cutting by 50 bps)
      2. Weakening US Dollar
      3. Easing Global Inflation Rates
      4. Market Belief in Lower Near-Term Recession Risks
      5. Growing potential for an Increase in Global Real Rates

• • We expect Global absolute liquidity (versus Excess Liquidity) to rise towards the also rising S&P 500. 
  • This is not yet the Mises “Crack-up Boom” – that we believe is still coming with Wave 3 later in the Beta Drought Decade!!

2- A EURO CARRY TRADE TO THE RESCUE?

• • The Fed is actually highly focused on two key factors that received little air time last week:

1. 1. 1. A UK-EU RECESSION: A recession in the UK and Europe is more likely than one in the US. The Yield spreads between the US, Europe and the UK should start widening, with both spreads currently at one-year tights.
      2. SPREAD DIFFERENTIALS: The Fed must ensure that the US Government Debt growth can be financed, which means foreign borrowers are needed as well as attractive spread differences!

• • It is our studied opinion that the initial preparations are now well underway for a Euro Carry Trade to begin picking up an expected weakening in the Japanese Carry Trade. Increasing Excess Global Liquidity amongst other factors will allow this to happen.

DEVELOPMENTS TO WATCH

US’ POTENTIAL APPROVAL OF LONG RANGE MISSILES INTO RUSSIAN CRIMEA

• • Biden is considering approval of supplying Ukraine with Long Range Missiles.
  • Putin is extremely clear: on such a development: “This would constitute their direct participation, and this, of course, changes the very essence, the very nature of the conflict. It will mean that NATO countries, the United States and European countries, are at war with Russia.” 
  • The White House, after meeting with UK PM on the subject at the WH, has went dark on the subject. This is both a “tell” and is not a good sign.

GROCERY PRICE CONTROLS: Lead to Scarcity, to Black Markets then to Rationing 

• • Why is Kamala H. immediately talking about Price Controls on Groceries? It is because her overall policy plans require government spending increases that are well north of $5T of Deficit Spending. That will come with further inflation at the grocery store, gas pumps and in rents!
  • It is becoming increasingly clear that there is another wave of inflation coming. This time however it will meet with a promise to use every coercive power of government to prevent increases in prices on groceries, rents and fuel.
  • We have been down the Price Controls road before and it always leads to Scarcities, then to Black Markets, then to Rationing if extended too long.

GLOBAL ECONOMIC REPORTING

FOMC 50 BPS RATE CUT ANNOUNCEMENT

• • The FOMC cut rates by 50bps, taking the target for the federal funds rate to 4.75-5.00%, more in fitting with money market pricing before the release rather than the analyst consensus of 25bps.
  • Within its projections, the 2024 rate forecast was revised down to 4.4% from 5.1%, which implies a further 50bps of easing from current levels..
  • Further out, the FOMC’s median projections see the 2025 rate at 3.4% (prev. 4.1%), and end-2026 dot at 2.9% (prev. 3.1%), where it also sees the neutral rate (2.9% vs prev. 2.8%).