SVET Markets Weekly Update (September 10, 2022)

12 Sep 2022 by rate3

FOMC board meeting is scheduled for September 20. Accordingly, analytics attention will be drawn to any piece of 37th week macroeconomic news, which can (hopefully) divert USA (and the world) from the stagflation path pawed to us by FED. There are more than a handful of professional forecasters left who still naively believe that Powell might come to its senses and stop hiking rate because of some new macroeconomic data coming around.

It is trivial to realize that fighting inflation, which root causes are in FOMC own misguided policies as well as in the European war, by exterminating US middle class (f.e. US mortgage rates, which stood on 2.6 percent in December 2020, has already exceeded 6.0 — its absolute record since November 2009) is not a good idea.

The fact that FED persists on doing exactly that despite all damages it has already done to the innovative and production capacities of economies around the world proves that its real goal is political and ideological — not economical. Consequently, whatever the results of the Inflation, PPI, Retail Sales or Michigan Consumer Sentiment reports will be this week it will not prevent a dozen govs bureaucrats continuing to plunge us further into the economic dystopia.

Moreover, in Powell latest commentaries he hinted on his dissatisfaction with how slowly markets get his messages. From that we can conclude that FED is not fighting inflation (which as Powell himself has publicly acknowledged they can do nothing about) but trying to cause a maximum damage to US consumers, by, essentially, confiscating their savings, most of which depends on the stock market performance one way or another.

By hiking the banks rate FED achieves three of its unstated objectives:

One is to accumulate enough of heavy-handed political ammunition needed by one of the colors to fight another one during the upcoming electoral campaign (consequently, we expect some alterations of FED policies no early than November, providing, of course, that this campaign brings ‘expected’ results).
Second is to cool down the economy by making loans unaccessible for a good part of medium and small businesses, which, coincidentally, also eliminates an unwelcome competition for big corps readily available for ‘political suggestions’.
Third is to get peoples back into the work-force by denying them proceeds from those microscopic capitals they managed to amass during preceding periods of a relative well-being. The notion that few thousands of extra dollars donated by FED during the shut-down, which some consumers manage to still keep on their accounts, ‘weight heavily on the economy’ causing ‘the excessive consumption’ is just ridiculous, those donations were substitutes for non-paid salaries and had been already ‘eaten’. As to the rest of those ‘printer goes brr’ 4+ trillion USD — after markets crashed to 2020 levels (and below) all those money are now back to banks and won’t be released until economic conditions are notably improved.
We have to face it — the real ‘FED mandate’ is to prevent the majority of population from being ‘wealthy’ (a.k.a not to starve without ‘a job’) before retirement (if ever), which, as the old economic concept goes, makes them lazy and unavailable for ‘employment’. That is the hard-core reality underlying the world financial system design: its purpose is to keep wealthy its designers — not its users.

(Naturally, from that stand point crypto-assets present itself most real and present danger to FED beneficiaries and their cronies. The notion that most peoples can obtain financial independence right starting from their young age frightens the hell out of peoples, which power, prestige and livelihood depends on their ability to control and to manipulate us by unilaterally defining all minutes rules of how and how much we can earn, save and invest.)

Going against this ancient system of abuse and cohesion masqueraded as ‘the institutional mandate’ used to be absolutely unthinkable even a dozen years ago. Cryptocurrencies have made the unconfiscatable wealth accumulation for everyone on our planet possible for the first time in the human history. It is only natural that govs misanthropes see it as the most potent threat to their privileges and prepare to fight it tooth and nail.

Notwithstanding, markets are moved by emotions — not reasons. Most players still believe (or pretend to) in FED’s sufficient impartiality. So, most wall street gamblers will continue to iterate between long or short positions depending on which way the macro-indicators go. Same will do BTC, which was heavily ‘institutionalized’ in 2021. That prompts us to get back to macroeconomic statistics updates of this week :)

The inflation unexpectedly slowed to 8.5 (on a yearly basis) percent in July (from 9.1 in June, or 6.6 percent decline). Now most analytics expect it to drop even further to 8.1 (4.7 percent decline). Energy prices slowed down rising almost 33, which still far less than 41.6 reached in June. With that gasoline costs slowed the most (~44 percent vs ~60) followed by, fuel oil (~76 vs ~99), and natural gas (~31 vs ~38). On the other hand electricity prices continue to speed up (rising ~15 percent — establishing a new record after February 2006).

As to the ‘core’ inflation, measured by the consumer price index or CPI, which does not include food and energy, it stood at 5.9 in July (at a six-month low, unchanged from the previous month). Market forecasts put it on 5.9 in August, again. Despite that, inflation will most likely continued to get higher for food and for, so-called, ‘shelter’ (basically, a rent) as it had already increased 10.9 and 5.7 percent in June, accordingly.

Producer Prices Index (or PPI, as reported by US Bureau of Labor Statistic) is another way to measure inflation. It fell 0.5 percent in July (on monthly basis), following a 1 percent rise in June. It is now expected to fall 0.1 percent in August mostly due to an anticipated drop in gasoline prices.

On the other hand, retail sales slowed down in July to zero percent growth (from +0.8 percent increase showed in June) — an another sign of deteriorating economic conditions. Analytics do not expect any rise in August sells as well predicting it stays on the July level (zero growth).

Paradoxically, consumer sentiments (measured by The University of Michigan index) which had already been on a three month high in July (58.2) are expected to get even higher (to 60) in August by most analytics. Apparently, peoples continue to experience a surge of optimism unsubstantiated by economic data after most restrictions on travels and gatherings lift off.

Overall, FED is still firmly set on aggressively slowing down the economic growth despite inflation figures deceleration and economic fundamentals deterioration. Still, US consumers experience a surge of positivity happy to be back on traveling and meetups.