Hoth

It's gorgeous out. Still lightly snowing. Accumulation gradually creeping into the secondary roads.

I asked for mood flakes, and it more than delivered. Been snowing lightly all afternoon; everything at home is cloaked in white. Just beautiful. Glad to get a little taste of winter before we torch again.

Just give me an hour of mood flakes, just an hour. Is that so much to ask?

Never seen it, but I hear it infuriates astronomers and ornithologists alike, the former because it introduces streaks in long exposure telescope observations, the latter because it disrupts bird migratory patterns (many species rely on stars for guidance).

Yeah, the Tether CP reserves issues strikes me as pretty suspicious, but I generally avoid crypto, so perhaps others are more in the loop.

Thanks for your reply. Here is my rebuttal: First, I agree with several of your points: that the US has been risking its privileged status as the reserve currency, that things have not been great since the GFC (except for asset holders), that the Fed has intentionally been supporting risk assets in the hope that there would be a wealth effect, and that there's a pension crisis. Here's where we differ. I believe that it is the continuation of current reckless monetary and fiscal policy that threatens U.S. preeminence as the preferred reserve currency. I don't know how old you are, but for much of my childhood the chief rallying cry of at least one party was fiscal conservatism and balanced budgets. For a few decades now, that stance has been sliding, spending and federal debt creation has grown increasingly unsustainable and both parties have presided over trillion dollar plus annual deficits in recent years. The Fed has enabled this recklessness with their low rates and ability to hoover up and monetize a large chunk of this debt. A nifty little trick, but not one that inspires confidence in foreign lenders. A reset, as you call it, especially if the Fed raises rates to tackle inflation, would likely strengthen the dollar and perhaps reimpose some fiscal discipline on our policy makers. Things have not been great in the real economy since the GFC, with perhaps a few brief interludes. But the chief error of central bank policy since then has been to substitute a real economy for a financially engineered one. Keeping rates at unprecedented lows for an unprecedented period of time has changed the calculus for many managers. Back when there was a real cost of capital, a manager would consider real projects and IRRs and NPVs because if you're borrowing at 6 or 7%, you better have a good project that can return in excess of your cost of capital. Good projects tend to create good jobs. Now, with rates pegged close to zero for years and years, managers have an alternative and easier option: borrow cheap, buy back shares, drive up earnings on paper, and parachute out rich. This has been the overwhelmingly preferred option and a driver of rising wealth inequality. It's also innervated thousands of company balance sheets. Companies now feel emboldened because they feel they can demand a bail out when they get in trouble (see the airlines last year). Look at Hertz as a recent example. Bankrupt last year, now authorizing a multi-billion dollar buyback. I could write a Tip-length diatribe on the hazards of financial engineering driven by low rates, but the point is that it only creates a thin patina of prosperity during good times and makes companies less able to weather the bad. The Fed knows they've been supporting risk assets with their policies. The problem is that people have come to accept that Fed support is limitless and therefore all assets are riskless. They feel emboldened to bid up prices to obscene levels because fundamentals are irrelevant and "don't fight the Fed" is the mot du jour. Indeed, so emboldened are they that more money have flowed into the market this year than in the past twenty combined, margin debt has been assumed at historical extremes and risky options strategies have been deployed to such unheard of excess that the stock market has almost become the derivative and not the other way around. This, coupled with the popularity of passive investing, has created a remarkably inefficient market, with valuations so stretched that they blow away previous bubbles. This cheap money has driven manias in other asset classes, crypto, bonds, SPACs, real estate. Since you mentioned real estate, I'll point out that house valuations going parabolic is not healthy--we've already seen how that tends to end once in the last fifteen years. You now have a lot of younger buyers starting families who have been borrowing themselves into insolvency between student debt and feeling pressured to buy houses as prices continue to sore. This will also be a drag on the real economy for years to come. As for the pension crisis, I would absolutely agree that there is one, but it has been driven by the Fed making it all but impossible to earn a safe return on capital for over a decade now. There are other causes, under-funding, unrealistic return assumptions etc., but Fed policy has been a major driver. Pension funds, desperate for yield, have moved into riskier and riskier asset classes, hoping that diversification will save them if there's trouble. This too has contributed to the bubble mentality. Now, even with record valuations, pension funds can't meet their targets and some, like CALPERS, are starting to introduce leverage. Not a prudent strategy. I believe your are correct in your assessment of a pending "great reset"; however, given that the problems I've been describing have been echoed in other developed economies across the world, some to an even greater degree than the U.S. (cough cough China), I think the risk is a strong dollar in the short to medium term. But I am not bullish on risk assets for the next decade and anyone buying at these nosebleed levels, whether stocks or real estate, are probably looking at negative expected returns, perhaps considerably negative.

At this time of year we'd take that and run. Best wishes to Jerry for a speedy recovery!

Propping up markets is not part of the Fed's mandate. This attitude of expecting the Fed to intervene every time stocks dip 5% is a big part of the problem and has contributed to driving the bubble to its present extreme. The Fed doesn't have to do anything. The reality is they stayed too easy for too long and buried their heads in the sand with respect to inflation while they claimed unemployment was their concern. They don't have that excuse anymore and inflation has been stickier than expected and way above target. If measured in the old way, CPI is probably closer to 12-14%. That's a massive political issue and causes real pain for much of the populace. You can bet the Democrats are putting a lot of pressure on Jay behind closed doors to get it under control. The Fed's best tool for combating it is dropping QE and raising rates. If it deflates the present speculative excess, so be it! What's healthy about having hundreds of unprofitable companies trading at 20-50x sales? Or revenue-less companies like Rivian worth more than GM or Ford, or unprofitable movie theater companies touting the latest shitcoin craze because it drives activity to their stock. It's grotesque. It's run amuck and it's high time it came to an end. Raising rates will fix inflation and cleanse the markets of all this garbage.

Our panic thread is when Wiz posts his countdown to May and Tip starts talking about solar irradiance warming his car.

This is really cool. A scientist who can grow snowflakes to whatever specification he wants:

'13 was a lot of fun in Boston, but I knew I was missing something historic when that band pivoted over CT. My folks were stranded for days until backhoes dug them out.

I was in Boston then. I don't think Hamden got much, maybe 8-10".

Ha, I still remember waking up after the first sloppy storm and seeing the overnight Euro had come around and absolutely mauled us. Soon after, everything else fell into place. That was special.

Or the first one can set up the 50/50 for the second a la Jan '15.

It's snowing!!! Never gets old.

First flakes are on the books!

If I have no pack to protect, it can cut to Milwaukee for all I care.

My forecast of heavy, heavy disappointment looks like it was bang on the money.

Happy Thanksgiving everyone! Hopefully we're seeing a classic mid-range fumble by the modeling, only to have it roar back in a few days.

You're in a much better spot than I am. I feel you've got a decent shot.

I will take a few wet flakes and run. Hell, I still need to mow my lawn!

That's what IPA is for.

Leaf cleanup is more or less complete. I'll run the mower over the lawn one more time next weekend until the gas runs out, then it's time to wait for snow.

This will be solid preseason practice. No need to be invested yet; feels like a Mitch trouncer to me.

There is some eye opening data in this paper: https://www.hussmanfunds.com/comment/mc211108/