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Zombies run for shelter as Federal Reserve hawks look to a higher dot plot

As expected, Jerome Powell and the Federal Reserve raised interest rates by 75 bps for the fourth consecutive time this year, to the 3.75% – 4% corridor….

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As expected, Jerome Powell and the Federal Reserve raised interest rates by 75 bps for the fourth consecutive time this year, to the 3.75% – 4% corridor.

This was in line with market expectations since the CME’s FedWatch Tool showed an 85%+ chance of a three-quarters percentage point hike just prior to the FOMC announcement.

As far as the powers of the mighty central bank extend, Powell has certainly flexed the institution’s muscles. However, the policy actions seem to have disproportionately influenced areas of the economy that are highly vulnerable to the interest rate environment.

For instance, in a recent piece, I discussed how real estate investor George Gammon was forecasting a possible 50% drop in home prices over the next couple of years.

Source: Bankrate.com

Year to date, equity markets have also sunk, the floor has fallen out from under bond prices, and now mortgage rates are above an eye-watering 7%.

At the same time, inflation remains high – in the case of the CPI and the Fed’s preferred measure, the PCE. Moreover, the core measures of each have accelerated in the past months, signalling that the Fed may not have quite as tight a grip on inflation as they once thought.

Source: Investing.com

Hawkish Powell and dot plots

In his speech, Powell’s tone was perceived as more hawkish than expected, dispelling the notion of any slowdown in hikes in the near future.

The combination of high inflation, high earnings and continuing resilience in the labour market with historically low levels of unemployment, indicate that rates need to head higher.

The NASDAQ composite, heavily compromised of highly levered tech and growth stocks, was hit hard during the announcement, receding 3.4% on the day.

Source: Marketwatch

Initially, the market may have expected a more dovish message, judging from the initial uptick in share prices.

Ramin Nakisa, a veteran investment banker and founder of Pension Craft said,

…a surge in the NASDAQ and S&P 500, but just moments after that I think markets realised that Powell wasn’t saying anything that was suggesting a pivot or a slowdown, in fact, he was saying the opposite…and then markets tanked.

Yet, the labour market has continued its strong run and has even seen a super tight 1.7 vacancies per worker, now rising to 1.9, threatening to ignite the wage-price spiral in the long run (which you can read about in this May piece).

This rising demand for employees may be in response to the high degree of savings that many households built up during the pandemic and associated fiscal support schemes.  Moreover, skyrocketing inflation may be forcing some purchases forward.

In my earlier article on the Fed’s September meeting, I discussed the dot plot and where the members saw rates headed. Given the aggressive stance assumed by Governor Powell at this juncture, the December dot plot may have the potential to shift higher.

Source: CME

Despite the Fed’s consistent signalling that it would be raising December rates by 50 bps, the CME’s FedWatch Tool shows that probabilities of either a 50 bps or 75 bps hike are split virtually through the middle.

This seems to suggest that the market perceives that a higher rate pathway is entirely possible in the near term.

Fed runoff

The Fed’s pace of quantitative tightening shifted to its maximum intended of $95 billion per month in September, through a combination of government paper and mortgage-backed securities.

Instead of reinvesting the coupon and principle, the Fed shall retire these instruments to suck excess liquidity out of the system.

Liquidity increased significantly with the Fed’s program of injecting $120 billion per month into the economy via quantitative easing in the wake of the pandemic.

Although the effects of monetary policy and QT are not yet evident on the mainline indicators such as CPI and the Fed’s preferred PCE, the Fed’s balance sheet is beginning to shrink. Since its peak on 13th April 2022, the balance sheet has shrunk by 2.704% as of 26th October 2022.

Due to liquidity drying up, inflation control, which is central bank speak for demand destruction seems to be affecting borrowing and repayment conditions among small, mid and large firms.

Source: Senior Loan Officers Survey, Pension Craft

Zombie collapse

Given the Fed’s hawkishness and determination to keep raising rates, highly-leveraged, unprofitable enterprises will find it increasingly challenging to stay afloat.

In a study by the Bank of International Settlements, the proportion of zombie companies in 14 select economies rose to 15% in 2017, as compared to 4% in the 1980s, a result of easy money policies.

Swiss Re economists Jérôme Haegeli and Fiona Gillespie anticipate that high yield default rates of 15% could materialize if a recessionary environment were to unfold.  This is compared to the average high-yield default rate of about 4% in the last 10 years.

The authors argue that this wave of defaults would be beneficial to capital allocation and delaying this may lead to a rise in stagflationary risks.

They suggest that authorities should consider bailing out entities that show potential for success in the long run, a job that is likely easier said than done.

Small-cap and growth stocks will likely be especially vulnerable and see a string of liquidations, having only recently emerged from a prolonged, seemingly never-ending environment of 0% rates.

In an earlier article, I noted that Joseph Wang, a former senior trader at the Fed’s open market felt that new tools including swap lines, the repo facility and debt buy-backs to manage treasury market turmoil, corporate bond market volatility and banking crises, respectively, could extend the rate hikes.

In essence, he argues that the Fed will continue to hike by being able to intervene strategically when cracks emerge.

Thomas Hoenig, Former Kansas City Federal Reserve President and CEO also believes that the Fed has no end-point for its rate hikes at this point, which would of course spell disaster for the majority of struggling enterprises.

Although this may be true, I expect interest payment burdens to weigh on the Fed, as well as the political unpopularity of constraining lending in the economy.  

Regardless, the hangover and criticism from 2018-19’s pivot would be fresh in the collective minds of the Fed. The institution undoubtedly wants to restore credibility among its naysayers, and we should not expect a pivot in rhetoric or action any time in Q1 2023.

Part of the struggle to restore credibility is to unwaveringly signal the Fed’s willingness to crush inflation in the face of mounting social and financial costs.

The 2% trap

Perhaps global central banks, in a bid to maintain credibility have committed themselves too firmly to the 2% level.

As per my knowledge, there is nothing hallowed about this number and it certainly would make little sense that it be uniformly applicable across so many countries over decades.

The Economist discussed the rise of the 2% target in these terms,

When New Zealand’s parliament decided in December 1989 on a 2% inflation target for the country’s central bank, none of the lawmakers dissented, perhaps because they were keen to head home for the Christmas break…owes its origin to an offhand remark by a former finance minister…Should the somewhat arbitrary goal of 2% be changed?

The flexibility to admit that inflation will likely have to head north, in the long run, to say 3% may have afforded much-needed breathing space to monetary authorities.

However, today, the inflation-targeting central banks have boxed themselves into a corner, that has the potential to inflict huge costs on economies in search for this 2% number.

Any capitulation on their part could drive stagflationary forces and a loss of credibility.

Even though no immediate pivot is likely, the Fed’s 2% mandate will continue to weigh heavily on zombie companies and will contribute to significant job loss in this area.

Although we are unlikely to see a pivot in Q1, the Fed has left the backdoor open, stating,

…the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

The post Zombies run for shelter as Federal Reserve hawks look to a higher dot plot appeared first on Invezz.

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International

Health Officials: Man Dies From Bubonic Plague In New Mexico

Health Officials: Man Dies From Bubonic Plague In New Mexico

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Officials in…

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Health Officials: Man Dies From Bubonic Plague In New Mexico

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Officials in New Mexico confirmed that a resident died from the plague in the United States’ first fatal case in several years.

A bubonic plague smear, prepared from a lymph removed from an adenopathic lymph node, or bubo, of a plague patient, demonstrates the presence of the Yersinia pestis bacteria that causes the plague in this undated photo. (Centers for Disease Control and Prevention/Getty Images)

The New Mexico Department of Health, in a statement, said that a man in Lincoln County “succumbed to the plague.” The man, who was not identified, was hospitalized before his death, officials said.

They further noted that it is the first human case of plague in New Mexico since 2021 and also the first death since 2020, according to the statement. No other details were provided, including how the disease spread to the man.

The agency is now doing outreach in Lincoln County, while “an environmental assessment will also be conducted in the community to look for ongoing risk,” the statement continued.

This tragic incident serves as a clear reminder of the threat posed by this ancient disease and emphasizes the need for heightened community awareness and proactive measures to prevent its spread,” the agency said.

A bacterial disease that spreads via rodents, it is generally spread to people through the bites of infected fleas. The plague, known as the black death or the bubonic plague, can spread by contact with infected animals such as rodents, pets, or wildlife.

The New Mexico Health Department statement said that pets such as dogs and cats that roam and hunt can bring infected fleas back into homes and put residents at risk.

Officials warned people in the area to “avoid sick or dead rodents and rabbits, and their nests and burrows” and to “prevent pets from roaming and hunting.”

“Talk to your veterinarian about using an appropriate flea control product on your pets as not all products are safe for cats, dogs or your children” and “have sick pets examined promptly by a veterinarian,” it added.

“See your doctor about any unexplained illness involving a sudden and severe fever, the statement continued, adding that locals should clean areas around their home that could house rodents like wood piles, junk piles, old vehicles, and brush piles.

The plague, which is spread by the bacteria Yersinia pestis, famously caused the deaths of an estimated hundreds of millions of Europeans in the 14th and 15th centuries following the Mongol invasions. In that pandemic, the bacteria spread via fleas on black rats, which historians say was not known by the people at the time.

Other outbreaks of the plague, such as the Plague of Justinian in the 6th century, are also believed to have killed about one-fifth of the population of the Byzantine Empire, according to historical records and accounts. In 2013, researchers said the Justinian plague was also caused by the Yersinia pestis bacteria.

But in the United States, it is considered a rare disease and usually occurs only in several countries worldwide. Generally, according to the Mayo Clinic, the bacteria affects only a few people in U.S. rural areas in Western states.

Recent cases have occurred mainly in Africa, Asia, and Latin America. Countries with frequent plague cases include Madagascar, the Democratic Republic of Congo, and Peru, the clinic says. There were multiple cases of plague reported in Inner Mongolia, China, in recent years, too.

Symptoms

Symptoms of a bubonic plague infection include headache, chills, fever, and weakness. Health officials say it can usually cause a painful swelling of lymph nodes in the groin, armpit, or neck areas. The swelling usually occurs within about two to eight days.

The disease can generally be treated with antibiotics, but it is usually deadly when not treated, the Mayo Clinic website says.

“Plague is considered a potential bioweapon. The U.S. government has plans and treatments in place if the disease is used as a weapon,” the website also says.

According to data from the U.S. Centers for Disease Control and Prevention, the last time that plague deaths were reported in the United States was in 2020 when two people died.

Tyler Durden Wed, 03/13/2024 - 21:40

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Government

Mike Pompeo Doesn’t Rule Out Serving In 2nd Trump Administration

Mike Pompeo Doesn’t Rule Out Serving In 2nd Trump Administration

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Former Secretary…

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Mike Pompeo Doesn't Rule Out Serving In 2nd Trump Administration

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Former Secretary of State Mike Pompeo said in a new interview that he’s not ruling out accepting a White House position if former President Donald Trump is reelected in November.

“If I get a chance to serve and think that I can make a difference ... I’m almost certainly going to say yes to that opportunity to try and deliver on behalf of the American people,” he told Fox News, when asked during a interview if he would work for President Trump again.

I’m confident President Trump will be looking for people who will faithfully execute what it is he asked them to do,” Mr. Pompeo said during the interview, which aired on March 8. “I think as a president, you should always want that from everyone.”

Then-President Donald Trump (C), then- Secretary of State Mike Pompeo (L), and then-Vice President Mike Pence, take a question during the daily briefing on the novel coronavirus at the White House in Washington on April 8, 2020. (Mandel Ngan/AFP via Getty Images)

He said that as a former secretary of state, “I certainly wanted my team to do what I was asking them to do and was enormously frustrated when I found that I couldn’t get them to do that.”

Mr. Pompeo, a former U.S. representative from Kansas, served as Central Intelligence Agency (CIA) director in the Trump administration from 2017 to 2018 before he was secretary of state from 2018 to 2021. After he left office, there was speculation that he could mount a Republican presidential bid in 2024, but announced that he wouldn’t be running.

President Trump hasn’t publicly commented about Mr. Pompeo’s remarks.

In 2023, amid speculation that he would make a run for the White House, Mr. Pompeo took a swipe at his former boss, telling Fox News at the time that “the Trump administration spent $6 trillion more than it took in, adding to the deficit.”

“That’s never the right direction for the country,” he said.

In a public appearance last year, Mr. Pompeo also appeared to take a shot at the 45th president by criticizing “celebrity leaders” when urging GOP voters to choose ahead of the 2024 election.

2024 Race

Mr. Pompeo’s interview comes as the former president was named the “presumptive nominee” by the Republican National Committee (RNC) last week after his last major Republican challenger, former South Carolina Gov. Nikki Haley, dropped out of the 2024 race after failing to secure enough delegates. President Trump won 14 out of 15 states on Super Tuesday, with only Vermont—which notably has an open primary—going for Ms. Haley, who served as President Trump’s U.S. ambassador to the United Nations.

On March 8, the RNC held a meeting in Houston during which committee members voted in favor of President Trump’s nomination.

“Congratulations to President Donald J. Trump on his huge primary victory!” the organization said in a statement last week. “I’d also like to congratulate Nikki Haley for running a hard-fought campaign and becoming the first woman to win a Republican presidential contest.”

Earlier this year, the former president criticized the idea of being named the presumptive nominee after reports suggested that the RNC would do so before the Super Tuesday contests and while Ms. Haley was still in the race.

Also on March 8, the RNC voted to name Trump-endorsed officials to head the organization. Michael Whatley, a North Carolina Republican, was elected the party’s new national chairman in a vote in Houston, and Lara Trump, the former president’s daughter-in-law, was voted in as co-chair.

“The RNC is going to be the vanguard of a movement that will work tirelessly every single day to elect our nominee, Donald J. Trump, as the 47th President of the United States,” Mr. Whatley told RNC members in a speech after being elected, replacing former chair Ronna McDaniel. Ms. Trump is expected to focus largely on fundraising and media appearances.

President Trump hasn’t signaled whom he would appoint to various federal agencies if he’s reelected in November. He also hasn’t said who his pick for a running mate would be, but has offered several suggestions in recent interviews.

In various interviews, the former president has mentioned Sen. Tim Scott (R-S.C.), Texas Gov. Greg Abbott, Rep. Elise Stefanik (R-N.Y.), Vivek Ramaswamy, Florida Gov. Ron DeSantis, and South Dakota Gov. Kristi Noem, among others.

Tyler Durden Wed, 03/13/2024 - 17:00

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International

Riley Gaines Explains How Women’s Sports Are Rigged To Promote The Trans Agenda

Riley Gaines Explains How Women’s Sports Are Rigged To Promote The Trans Agenda

Is there a light forming when it comes to the long, dark and…

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Riley Gaines Explains How Women's Sports Are Rigged To Promote The Trans Agenda

Is there a light forming when it comes to the long, dark and bewildering tunnel of social justice cultism?  Global events have been so frenetic that many people might not remember, but only a couple years ago Big Tech companies and numerous governments were openly aligned in favor of mass censorship.  Not just to prevent the public from investigating the facts surrounding the pandemic farce, but to silence anyone questioning the validity of woke concepts like trans ideology. 

From 2020-2022 was the closest the west has come in a long time to a complete erasure of freedom of speech.  Even today there are still countries and Europe and places like Canada or Australia that are charging forward with draconian speech laws.  The phrase "radical speech" is starting to circulate within pro-censorship circles in reference to any platform where people are allowed to talk critically.  What is radical speech?  Basically, it's any discussion that runs contrary to the beliefs of the political left.

Open hatred of moderate or conservative ideals is perfectly acceptable, but don't ever shine a negative light on woke activism, or you might be a terrorist.

Riley Gaines has experienced this double standard first hand.  She was even assaulted and taken hostage at an event in 2023 at San Francisco State University when leftists protester tried to trap her in a room and demanded she "pay them to let her go."  Campus police allegedly witnessed the incident but charges were never filed and surveillance footage from the college was never released.  

It's probably the last thing a champion female swimmer ever expects, but her head-on collision with the trans movement and the institutional conspiracy to push it on the public forced her to become a counter-culture voice of reason rather than just an athlete.

For years the independent media argued that no matter how much we expose the insanity of men posing as women to compete and dominate women's sports, nothing will really change until the real female athletes speak up and fight back.  Riley Gaines and those like her represent that necessary rebellion and a desperately needed return to common sense and reason.

In a recent interview on the Joe Rogan Podcast, Gaines related some interesting information on the inner workings of the NCAA and the subversive schemes surrounding trans athletes.  Not only were women participants essentially strong-armed by colleges and officials into quietly going along with the program, there was also a concerted propaganda effort.  Competition ceremonies were rigged as vehicles for promoting trans athletes over everyone else. 

The bottom line?  The competitions didn't matter.  The real women and their achievements didn't matter.  The only thing that mattered to officials were the photo ops; dudes pretending to be chicks posing with awards for the gushing corporate media.  The agenda took precedence.

Lia Thomas, formerly known as William Thomas, was more than an activist invading female sports, he was also apparently a science project fostered and protected by the athletic establishment.  It's important to understand that the political left does not care about female athletes.  They do not care about women's sports.  They don't care about the integrity of the environments they co-opt.  Their only goal is to identify viable platforms with social impact and take control of them.  Women's sports are seen as a vehicle for public indoctrination, nothing more.

The reasons why they covet women's sports are varied, but a primary motive is the desire to assert the fallacy that men and women are "the same" psychologically as well as physically.  They want the deconstruction of biological sex and identity as nothing more than "social constructs" subject to personal preference.  If they can destroy what it means to be a man or a woman, they can destroy the very foundations of relationships, families and even procreation.  

For now it seems as though the trans agenda is hitting a wall with much of the public aware of it and less afraid to criticize it.  Social media companies might be able to silence some people, but they can't silence everyone.  However, there is still a significant threat as the movement continues to target children through the public education system and women's sports are not out of the woods yet.   

The ultimate solution is for women athletes around the world to organize and widely refuse to participate in any competitions in which biological men are allowed.  The only way to save women's sports is for women to be willing to end them, at least until institutions that put doctrine ahead of logic are made irrelevant.          

Tyler Durden Wed, 03/13/2024 - 17:20

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