Hardship by Force

So glad we almost made it
So sad they had to fade it
Everybody wants to rule the world
--Tears for Fears

How often have you read something to the effect that the virus, or the pandemic, caused current supply chain woes.

No.

It was not the pandemic. It was government response to the pandemic. Shutdowns, lockdowns, rules about testing, rules about isolating in the event of a positive test, attendance restrictions, et al.

CV19 did not impose economic hardship on billions. Governments did.

Hardship by force.

"You've Got to Go"

Ellis 'Zee' Pettigrew: LT, rules of engagement?
Lt A.K. Walters: We're already engaged.
--Tears of the Sun

Last week 19 children and two teachers were killed by an 18 yr old active shooter in a Texas elementary school. Evidence is emerging that local police were on the scene early, but they did not enter the building to neutralize the shooter. 

As shots continued to be fired from inside the school building, onlookers, including parents of the students, urged law enforcement to get in there. But they stayed put. In fact, some onlookers who attempted to breach the 'safe zone' in desperation to 'do something' were forcibly restrained by police.

It was not until a Border Patrol tactical unit showed up more than an hour after the initial arrival of local law enforcement that the school building was finally entered and the shooter taken down.

A former Border Patrol agent who trained the team in active shooter scenarios was disturbed by local law enforcement's lack of urgency. "You go to the sound of gunfire," he said.

"Somebody's going to get shot in these scenarios--I mean, that's the whole point of an active shooter. And when you are a law enforcement officer and your job in the situation is to prevent any more innocent people from being wounded or killed--then you've got to go. Hopefully everything turns out OK, but you've got to go."

Active shooter situations dictate that law enforcement has to find a way in and neutralize the threat.

"If you're met with a hail of gunfire, then you've got to work your way around and figure out another way. If that means you retreat and port a window and go in, OK. The doors are locked, we can't get in, we don't have the tools to get in, then we've got to break the windows and go in. Driving a squad car through the side of the building--when you've got children being massacred inside of a building who gives a **** about a $50,000 squad car? Drive it through the wall.

"Because every shot that's fired is somebody either dying or getting wounded, you've got to go."

He suggests that officers on the scene bear a heavy burden for their failure to act.

"As far as I'm concerned, if there was any shooting going on, and there was law enforcement there failed to act for whatever reason, anybody that was there needs to turn in their badge and their gun, and they need to go away and hope they can live with the deaths of these children."

Pray for all involved, including those officers. And resolve that if you ever face one of these situations, then don't hesitate. You've got to go.

War Fatigue

Armchair warriors often fail
And we've been poisoned by these fairy tales
--Don Henley

Governments wanting to engage in war with foreign entities must win consent of the citizenry to do so. If they view the war as illegitimate, the people have capacity to shut the war down via several avenues, including voting officials out of office, withholding funds for military resources, or even overthrowing the regime prosecuting illegitimate war.

Consequently, governments must convince people that their war is just. They must do so at the outset of the conflict, and then continue to do so. Because war requires ongoing sacrifice in order to fund the war effort, it is possible that enthusiasm for war will wane as people increasingly regret what they must forfeit as conflict drags on.

It appears that support for US involvement in the Ukraine conflict is already waning. Surveys suggest that the American public is increasingly wary of US efforts to harm Russia in manners that hurt the domestic economy.

That, of course, is precisely what sanctions do. Any effort to restrict production and trade with entities abroad damages standard of living at home.

As more Americans realize that sanctions are not unilateral, this administration loses its public grant of legitimacy for engaging the country in war.

Art of Hybrid War

"War is a continuation of politics by other means--von Clausewitz."
--Captain Frank Ramsey (Crimson Tide)

Interesting post that fades mainstream media claims that things are going poorly for Russia in Ukraine. The central claim is that Russia is slowly and deliberately tightening the vise around territory that is strategically meaningful. 

Moreover, by keeping the pace deliberate, Russia puts more pressure on Western economic systems that have essentially sanctioned themselves into positions of peril. That peril includes long-term damage to a dollar-denominated financial system.

Russia may be honing the art of hybrid war.

New Detente

Anatoli Grushkov: I will miss so very much talking to William.
Jack Ryan: Me too.
Anatoli Grushkov: Perhaps, from time to time, you and I could talk.
Jack Ryan: Yeah, I'd like that.
--The Sum of All Fears

Statesman Henry Kissinger urges the West to cease trying to inflict crushing military and economic defeat of Russia, and suggests that negotiations should begin to head off a more serious, irreversible conflict.

The 98 yr old architect of detente diplomacy posited that these negotiations should shoot for a return to the pre-war status quo. This would include Ukraine accepting a peace deal that ceded formal control of Crimea and also tolerated informal Russian influence in the eastern Donetsk region.

Predictably, Kissinger's recommendations set off the blue check crowd that generally seems dead set on global thermonuclear war. This mindset has been reinforced by a US administration that has failed to talks of any kind toward a negotiated peace.

We can be pretty sure that, if Henry Kissinger were still secretary of state, he would be in the middle of peace talks, seeking to broker a New Detente.

Status Quo Changing

"The status quo has changed, son."
--Patrick Gates (National Treasure)

Interesting piece by Louis Gave on the possible impact of the Ukraine conflict and associated sanctions on the USD's reserve currency status. He suggests that, in an age of fiat currencies, military superiority strengthens a nation's currency and has gone a long way toward solidifying the dollar's reserve currency status.

However, cheap military technologies such as the drones that have been deployed en force in Ukraine are changing the game of warfare--to the extent that they might substantially reduce the impact of conventional weaponry that the US holds a lock on. Should this come to pass, then Big Defense loses value alongside the US dollar's status.

In addition to the impact of the war on the ground, Gave suggests that the weaponization of finance as reflected by the blitzkrieg of war-related sanctions is tutoring the world about the risks of depending on the USD. Developed country bonds have been getting pounded while developing country bonds have been strong--quite the turn from the lessons of the Asian Contagion in the late 1990s. Lesson: Why hold US/EU bonds in this environment?

Moreover, sanctions have demonstrated that the US and its allies can run roughshod over property rights at their discretion. If the wealth of Russian oligarchs can be confiscated so abruptly, then why not the assets of any entity deemed to be an adversary of the US? Lesson: Why depend so highly on a financial system controlled by the US?

The status quo may indeed be changing.

Imagine the Compliance

Now did you read the news today?
They say the dangers gone away
But I can see the fires still alight
They're burning into the night
--Genesis

Pfizer's CEO dazzled the audience at the World Economic Forum with the spectre of ingestible computer chips that signal to authorities that a drug has been ingested.

"So imagine the implications of that...the compliance."

Surely the audience did just that. After all, the WEF is the home of the Great Reset and Build Back Better agendas.

And Pfizer (PFE) is the producer of one of the primary pharmaceutical vehicles employed during the pandemic to help advance those agendas.

Imagine the compliance indeed.

no position

Futility of Saving

Who's gonna tell you when

It's too late?

Who's gonna tell you things

Aren't so great?
--The Cars

Nice graph (taken from this article) showing the futility of saving cash as a means to beat inflation. The inference is that cash hasn't covered cost of living increases in years.

This graph is conservative, given that inflation numbers under-report price increases. Stated differently, the actual ability of saving to cope with price inflation is significantly worse than suggested here.

What corresponds to the step changes down in earnings on savings? Easy Fed monetary policy that went into overdrive with the onset of the quantitative easing regime in 2009.

More Extremes

Dr Melissa Reeves: Why do you call Billy 'The Extreme?'
Dustin 'Dusty' Davis: Because Bill IS 'The Extreme!'
--Twister

More data points suggest that we're approaching noteworthy market extremes. Bank of America's (BAC) fund manager survey is touching crisis-level sentiment in both expectations for economic growth...

...and for profit growth.

On a separate front, credit default swaps on investment grade (IG) debt widening--approaching levels that have historically caused the Fed to pivot away from program intended to tighten monetary conditions.

I continue to sense that, although the Fed is talking tough, it will act far more dovishly than currently expected.

position in BAC

Diplomatic Immunity

Arjen Rudd: Diplomatic immunity..!
Roger Murtaugh: Has just been revoked!
--Lethal Weapon 2

EU leaders are increasingly calling for diplomatic solutions to end the Ukraine conflict. The leaders of France, Germany, and Italy have all spoken directly with Putin.

Meanwhile the US continues to be MIA on the diplomatic front. Biden has not spoken with Putin since the war began. The secretary of state has not spoken with his Russian counterpart either.

Instead, the US has been subsidizing Ukraine's military.

The message behind this behavior is obvious. This administration is declaring diplomatic immunity. It favors war over peace.

Real Reds

"I would say they were WAY off course. This is very unusual."
--Mr Teasdale (Red Dawn)

Ironic that the email thread among public health officials that spawned the lockdown mess was internally labelled 'Red Dawn.' In this version of the 80s classic (and remade in the 2010s to feature North Korean/Chinese antagonists rather than the original Soviet bloc brigades), the virus was the invader and public health officials seemed to view themselves as the groundswell insurgents staving off the incursion.

The bureaucrats seemed to be engaging in a behavior that seems characteristic of their ilk: projection.

In reality, public health officials were working to impose an authoritarian program rivaling anything that socialist outsiders could conjure.

Public health officials were the real reds.

Embargo Better

"You know how I'm always trying to save the planet? Here's my chance."
--David Levinson (Independence Day)

Intuitive thesis about the real reason behind the EU/NATO drive to embargo Russian oil. Build Back Better zealots will stop at nothing to reduce fossil fuel production and (especially) consumption. Regulation has morphed into more extreme measures such as pandemic lockdowns and even war--perhaps of the nuclear variety.

The Russian oil embargo fits right in. Heck, if these folks could enact a law that banned all fossil fuel tomorrow, they would surely do it.

It doesn't matter how many people are destroyed in the process. In the eyes of the BBB crowd, it's all in the interest of the greater good.

Fibo Optics

Not long ago 
I could feel your strength and your devotion
What was so clear
Is now overcast with mixed emotions
--Gloria Estefan

Stocks continue their slide, with the COMP drawdown from highs exceeding 30% last seen during the credit crisis. The SPX just missed the -20% bear market proxy today.

Because stocks pretty much went straight up off their corona lows to all time highs, there's not many branches of support to hang onto on the way down. Consequently, technicians are resorting to Fibonacci retracement levels to generate estimates of possible support levels.

Coming up fast is the 38.2% retracement level. For the SPX that equates to 3815. The SPX touched 3859 intraday before rallying back up to 3930.

Will be interesting to see what happens if/when the current 'wide and loose' action takes prices down to that Fibo level.

Another Hot Print

It's too close for comfort
This heat has got
Right out of hand
--Bananarama

Measured inflation still coming in hot, with monthly CPI printing at +8.3% YOY. This is far higher than the 'expert' predictions in the 6% range as pundits postulate that 'peak' inflation has already occurred.

Futures immediately sold the news, as the knee jerk reaction is that the Fed will have to behave more hawkishly.

That said, I wouldn't want to be short here. Seems like there's a lotta bad news already baked in--at least in the near term.

There is also the question about how far the Fed can actually raise rates without breaking the system. I personally suspect the answer is much lower than current consensus.

Bear Crowd

Well, I got one foot on the platform
The other foot on the train
--The Animals

Tend to agree with this post. Lotta bearish sentiment. When sentiment gets this lopsided, trend reversals are often imminent.

AAII sentiment chart pictures the extreme field position.

Have been nibbling long here and there.

No Refuge

You got me running
Going out of my mind
You got my thinking 
That I'm wasting my time
--ELO

Bitcoin has been proposed as an alternative money. Such a money should have little correlation to other asset classes--particularly risk assets.

However, the correlation between Bitcoin and tech stocks is high and has been getting higher.

Anyone seeking refuge from current stock market volatility by owning Bitcoin has been sorely disappointed.

no positions

Proud Moms

Her children rise up and call her blessed.
--Proverbs 31:28

A beautiful Mother's Day that doubles as a special Graduation Day.

I can think of at least three moms who are very proud today.

Speech and the Despot Franchise

"You can break a man's skull. You can arrest him. You can throw him into a dungeon. But how do you control what's up here? How do you fight an idea?"
--Sextus (Ben-Hur)

Escalating pushback against free speech reminds us once more of just how radical the notion of liberty is. The history of the world has been dominated by those who desire to dominate. Authoritarians who seek to control others through use of force.

Our founding ancestors developed a constitutional framework that proposed otherwise. At the top of the list was speak and write with no government interference.

Authoritarians despise this freedom to no end. They understand that minds exposed to alternative viewpoints threaten the despot franchise.

As current events demonstrate, statists will stop at nothing to silence dissent.

Whippy Trippy

Jared Cohen: Sam, how long under normal operations would it take your people to clear that from our book?
Sam Rogers: What?
--Margin Call

After the +900 Dow pt day post Fed on Wed, Thurs saw -1100 pts. This am the Dow opened -400 in the hole only to claw back to even.

Chatter is that there was forced liquidation yesterday--which makes one wonder about the force behind the post Fed announcement rally that serendipitously brough higher prices for the folks who needed to sell...

On the Zoom

Well she ran into this guy
Who was down at 54
Had a lot of gold and chains
And he got her in the door
And he knew so many people
Who made her lots of pretty promises
--Don Henley

FOMC announces 50 bip hike in the fed funds rate and QT to being on June 1. QT will be capped at $30B in Treasuries and $17.5B in agencies/MBS for the first three months, and then doubled after that.

Let's see, $90B monthly in runoff on a $9T balance sheet--with the stipulation that the Fed intends to "maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively."

Seems to me that the FOMC is signaling that the it will take its sweet time pulling down its balance sheet--inflation or not.

Maybe that's why stock and commodities are zooming post announcement.

Three Peat

When my back is broken
When the mountain moves away
All the dreams and promises
That we give
We give away
--INXS

Ten yr yield touched 3% yesterday. Not terribly high by long term historical standards but noteworthy given recent context. Last time at 3% coincided with Fed chair Powell folding like a cheap suit and reversing the Fed's tightening policies in 2018.

The above chart shows the relative field position then vs now. Last time, the Fed had already raised rates several times by the time 10 yr yields touched a 3 handle. This time, we're at 3% after only one measly 25 bip increase.

More fuel for the argument that the current tightening campaign will cease far sooner than currently forecast.

Supplying War

War, children
It's just a shot away
It's just a shot away
--The Rolling Stones

Country A is at war with Country B. Country C's government begins supplying A with military resources (e.g., firearms, military vehicles).

Country C is no longer 'neutral.' It is now at war with B.

Disinformation Governance Board

Funny how I blind myself
I never knew
If I was sometimes played upon 
Afraid to lose
--Talk Talk

In what could hardly be a more overt validation of George Orwell's 1984 message, the federal government has created a 'Disinformation Governance Board" under the Department of Homeland Security. The objective is to 'police' what is deemed (by the overseers, of course) to be 'misinformation' or 'disinformation.'

The censorship drumbeat among progressives has reached a fevered pitch, pushed over the top by Elon Musk's buyout of Twitter (TWTR) announced last week.

How the establishment of such an agency is not a direct violation of the First Amendment is beyond me.

 At the same time, we should also note that this is not the first time the feds have sought to thwart free speech through formal structure. John Adams' Alien and Sedition Acts, Lincoln's muzzling of unfriendly press during the Civil War, Wilson's Committee on Public Information and Sedition Act of 1918, information shapers in FDR's 'brain trust,' et al.

To borrow Locke and Jefferson's term, this 'train of abuses' has been running in fits and starts since the ink was newly dry on the Bill of Rights. And in the most noteworthy authoritarian regimes in history...

I hope this is challenged in the courts. Meanwhile it will be interesting to see how much legitimacy this agency acquires from the people. 

Stated differently, widespread rejection of the Disinformation Governance Board by the citizenry could bury the censors and vault awareness of liberty to levels not seen in some time.