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A Recipe for Disaster

We’ve written a lot on this site about inflation and the effects Covid Lockdowns have had on money supply and supply-chains. But these issues just scrape the surface of how bad this 2022 recession is going to be.

Cathie Wood recently came out and said we’re already in a recession – others are saying we’re on the cusp of one. Regardless of the timing, we can all agree that the economy in its current state is absolute dogsh*t and the probably for things getting worse is – to put it mildly – really f*cking high.

This isn’t only about the money supply. This is about substantially poor decisions made by inept politicians who have compromised the economic position of the United States and the Dollar because of “feel good” policies that catered to a weak, emotional, and economically illiterate demographic of the U.S. in the hopes to get more votes. The same can be said about Europe, but we’ll focus this discussion on America.

The sad reality is there is no “free market” – there hasn’t been in decades. The Federal Reserve, the Treasury, and the Executive Branch have had exclusive control over the markets in both subtle and overt ways – from increasing interest rates on the banking side to the totalitarian, hard-lined lockdowns we saw during the pandemic on the political side.

It’s almost comical when governments offer solutions to the very problems they’ve created in the first place.

The Recipe

It’s expensive to live – gas, groceries, utlities, and construction costs have all doubled or tripled in price since the pandemic. It’s expensive to borrow money; mortgage rates have more than doubled since the pandemic bottom. Federal interest rates have also skyrocketed as the Fed attempts to recklessly control inflation. All the meanwhile, consumer debt is reaching new highs.

Mortgage rates are the highest they’ve been since 2008 and are likely to go higher if the Fed continues to increase interest rates.

Consumer loans, specifically credit card debts, are the highest they’ve ever been. The chart for All Consumer Loans is even worse.

Arguably the worst-looking metric, the Consumer Price Index is at an all-time-high. And it’s gone up exponentially from 2020. This is a good indicator that prices are wildly inflated; and the fact that they’ve shot up since 2020 indicates that panemic lockdowns – the fact that central authorities forced businesses to shut down – had a lot to do with supplu chain disruptions and why the cost of goods and services went up exponentially.

Where it’s Going

Given this recipe for disaster, there are two possible plays for the world economy moving forward: either we’re already in a downturn and assets crab in price from here or we just got started and the collapse hasn’t happened yet.

If commodities are increasing in price and purchasing power is decreasing in value, it will be increasingly difficult for consumers to pay back debt, resulting in bankruptcies and defaults. If the Federal Reserve continues to raise interest rates, the odds of recession and unemployment are substantially increased. If the Federal Reserve does nothing, the U.S. may experience hyperinflation, or worse – stagflation.

Wages are going down, but inflation is making new highs.

It gets worse. If companies increase the costs of their products to pay higher wages to their workers, inflation goes up. If companies increase wages without increasing the costs of their products, they could go out of business or would have to lay off employees to stay afloat.

In an ideal world, for a market correction to take place, consumer prices would have to stay the same and wages would have to go up – that’s not going to happen, but that’s what central authorities want.

Government created the problem so now they want the private sector to come up with the solution at the private sector’s expense. They hate you.

Silver Lining

Taking a look at charts for commodities like oil, agriculture, gold, and natural gas, what we’re actually seeing an inverse of what was expected; they’re beginning to decrease in value. If this trend continues, it might be good news for consumers – there’s a chance that this recession will actually be a deflationary one, but it’s still too early to tell.

Gold is down ~15%
Southwestern Energy Company is down 42%
Energy Index is down ~22%
Grain Index is down almost 30%

It’s possible that companies will be forced to lower prices for their commodities if they want to continue making sales during a recession – unfortunately, the way they usually do this is by reducing their overhead, which is a good indicator that unemployment will rise going into the recession.

Unemployment is down right now, but likely to go up if commodity prices keep falling. No such thing as free lunch.

The Way Out

Recessions could also be seen as opportunities for those with cash on hand. Asset prices are usually at historically low levels during recessions and are generally seen as good opportunities to build positions.

Cash is King.

That’s why on Breaking Metrics we spend a considerable amount of time researching and analyzing assets and commodities like cryptocurrencies, stocks, energy, and precious metals. If you enjoyed this read, you’ll like being a Member even more. Members get exclusive access to trading charts, economic projections and watchlists for free. What are you waiting for?