28 Jan 2022

After feeling down in the dumps for the last couple of weeks I am currently flying on a Honolulu high. Still got a bit of the achey flu feeling but braved a short run and a magnificent swim at Bondi Beach yesterday. No it is not Covid, the PCR testers know me by name now.

Sydney at the moment is in its summer glory.


The markets are in a very precarious state at the moment and are being buffeted, not the Warren variety, with market noise from all directions but mainly from the top. If you look at the #Russell small caps on a monthly chart you can see a very ugly looking down candle that is measuring a bearish market 21% drawdown from its November highs. You can see #NaturalGas continues to shoot higher and #Silver got smacked silly down -3.25%

#Robinhood released its earnings at the closing bell which disappointed. Is this not a meme stock that has gone through the ringer and is down more than 70% from its highs. Another IPO meme stock from last year #Rivian the hyped electrical vehicle is also cratering from its highs down more than 45%. You may recall me trashing this stock when it IPO’d. Berman may not always be right but I am never wrong. The pictures in the chart below look identical but don’t be fooled I placed each one on its own Axis (left/right) so the log scaling looks the same but is not.

#Microstrategy is down -10% on the day and is staring down the barrel of default on its bonds if the Bitcoin price keeps coming down. The shmo Michael Saylor is still tweeting how he is doing everything in his power to buy more. When you have a fanbase that marvels at the size of your proverbial’s then its incumbent of the well endowed to flex a little. Too much I know- sorry.

Money Complex

I have been writing about the troubles China’s Evergrande Property Group is in and that is only the half of it. Looks like the big brothers are going to step in and take the wheel so to speak, I am talking about the government nationalising the assets to prevent the mother of all bankruptcies. I suppose this would make Lehman Brothers look like little brothers. I love my punning. I have always been one to laugh at my own jokes, its a little weird when you laugh at your own puns – LOL.

In the 20 minutes left before this sends off with or without my permission I want to write a little about inventory.

Today, wholesale inventory surged yet again, the third highest monthly increase on record (behind October). Two of the three highest jumps of all time coming in the last three months.

However far worse was the retail inventory that shot up to an all time record.

So let me try and tell you what I make of all of this.

Inventory build accounted for 71% of Q4 #growth. That’s because businesses have bought way more stock than usual because of #inflation fears. This means future GDP growth will collapse as businesses slowly liquidate their bloated inventories at higher prices, especially as we are about to enter a tightening phase of monetary policy!

I believe that the Fed is doing the only thing it can do now that inflation is in the system. Once inflation is entrenched in wage expectations it becomes really sticky (inelastic) as you cannot drop peoples salaries like you can excess Playstation stock. The problem is the Fed waited way too long. Despite the fact that it is the cause of the problem with its ultra low moral hazard producing monetary policy, but that is a rant for another time.

Look below at China’s PPI spiking into October only to fall off a cliff thereafter. I think we should be expecting very weak GDP numbers in the first quarter. When you combine that with higher interest rates and the Fed reducing its balance sheet with bond runoffs to the tune of $750 billion a year, I start to hear the drain making sucking noises. Inflation might be more transitory than everyone now thinks. Jay Powell is no Maestro (reference to Alan Greenspan) as his Orchestra is playing horribly out of tune.

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