I’m Bullish on These 2 Assets…Despite the Impending Recession 

So many dots, so many connections. Let’s begin… 

As I walked to get a haircut this week, I was, as usual, scrolling the newsfeed on my phone and several stories popped up, back to back to back, that underscores so much of what I have been writing to you about over the last many months. 

Item 1, from Fortune:  

Inflation is forcing more Americans to live paycheck to paycheck—including half of people who make over $100,000 a year. 

Item 2, also from Fortune:  

The U.S. will “likely” have a recession because “inflation is embedded,” Goldman Sachs CEO David Solomon said early this week at Saudi Arabia’s Future Investment Initiative conference, known as Davos in the Desert. 

Item 3, from Bitcoin.com:  

Treasury Secretary Janet Yellen: U.S. Financial Stability Risks Could Materialize, Cites ‘Dangerous and Volatile Environment.’  

Yellen, the news site noted, said that “Inflation remains too high, and we are contending with serious global headwinds” and the Treasury Department is “closely monitoring the financial sector, as global developments have led to increased market volatility.” 

Item 4, from Reason magazine:  

Debate now rages about whether the Federal Reserve should continue to raise interest rates to tame inflation or slow down these hikes and see what happens. The lesson we should learn…is that government officials and those advising them from inside or outside the government don’t know as much as they claim to about the interventions they design to control the economy. 

Those stories are interconnected. They all stem from the arrogance of Political Man to assume he can control the economy and market forces. 

But that’s simply not so. 

The Fed, as I have written many times, thinks it can bend inflation to its will by raising interest rates. However, as the Fed is learning, this is not the case. It was never going to be the case. 

Inflation is not an American phenomenon. It’s tied to global issues over which the Fed has precisely zero power. 

There was a global pandemic (still ongoing) and the impacts of that are still being felt. Even today China continues to shut down its economy if anyone sneezes the wrong way. That sends meaningfully large ripples across the global supply chain. 

There is the ongoing war in Ukraine that’s body-slamming the global food market, given that Ukraine and Russia are both top-five wheat exporting countries, and combined represent nearly 22% of the global dollar volume of exported wheat.  

Meanwhile, a severe drought in Europe has seen corn production decline by 15% from a year ago, while wheat production is off by about 4%. 

Drought in the U.S. has hit California almonds, Midwestern wheat and corn, and livestock herds and chicken flocks across much of the nation…while drought in South America has slammed the soy crop in Brazil, one of the world’s more important producers. 

In China, a record-breaking heatwave and drought has seen wheat and rice crops wither, and has severely damaged the pork industry, one of the most important meat industries in the country. And in India, lack of rainfall and ongoing pandemic reverberations have seen the country ban rice exports—and this is a country that’s typically responsible for 40% of all rice exports globally. 

None of these events are confined to local borders. They all spill out across the world because the global economy is so intertwined. 

Which brings us back to the Fed… 

The arbiters of America’s economy think that raising interest rates here at home will somehow curtail inflation here at home. 

Last I looked, however, the Fed doesn’t control war in Europe, nor climate across the world, nor global food shortages, nor China shutting down its economy every other Wednesday to fight a single case of COVID somewhere. 

Vladimir Putin and Xi Jinping and Mother Nature really do not care that Fed Chair J. Powell and his Inflation Mouseketeers are aggressively hiking interest rates.  

Inflation goes well beyond Fed monetary policy, and as Goldman Sachs CEO David Solomon noted, it is “embedded” now, meaning that inflation is here to stay for a long visit. 

Of course, inflation will come down in time.  

But that’s only going to happen when climate patterns change and we move into a crop surplus period…when the war comes to an end and food shipments out of Ukraine and Russia return to something resembling pre-invasion levels…and when China’s industrial economy is back to functioning normally. 

Until then, inflation will stick around.  

And the Fed will come to the realization that it is not an all-powerful inflation killer but, instead, is a victim of its own arrogance and forces well beyond its sphere of influence. 

It will at that moment stop raising rates and, if Janet Yellen is right about the “dangerous and volatile environment” globally, we will see the Fed begin to cut rates again and pump money into the economy to prevent the recession devolving into a depression. 

This is what I am betting on—a Fed reversal. It’s why I remain bullish on foreign currencies such as the Swiss franc and why I think bitcoin has supremely bright days ahead, when it will race to break the $100,000 mark. 

Connect the dots and that’s pretty much where I see we’re headed. 

Plan accordingly.