Weekly Digest: This Makes Me Mad as All Hell…

Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up this week, Jerome Powell just made me mad as all hell.  

Speaking this week at a European Central Bank forum, the Federal Reserve boss man said that the ongoing inflation crisis spotlights “how little we understand about inflation.” 

When the moderator responded, “That sounds very reassuring,” Powell’s retort was “No, honestly, this was unpredictable.” 

Unpredictable? Really? The inflation crisis was unpredictable? 

Give me a break. 

I began writing about the return of serious inflation early last year.  

It was…OBVIOUS! 

I’ve shared this stat many times, but it bears repeating: 81% of all the dollars that exist today were created in just the last two years as part of the government’s massive COVID stimulus spending. 

You don’t need to be a Nobel Prize-winning mathematician, NASA rocket scientist, or even a Fed policy analyst to understand what that means. 

If you dump tons and tons of dollars into the economy, it devalues the dollars already in the economy, causing inflation.  

That’s Economics 101. 

So, either Powell and his advisers are as ill-informed as he says they are. Or he’s lying to try and cover he and his cohorts’ collective butts. 

Either way, that was one of the dumbest things I’ve ever heard uttered by a Fed chair. And let me tell you, that’s a competitive event. It’s right up there with Ben Bernanke tweeting in 2008, after the beginning of the housing crash, that the “The Federal Reserve is not currently forecasting a recession.” 

The takeaway is that we can’t trust the Fed to A). Tell us the truth, or B). Solve this crisis. 

Instead, look to gold and I-bonds (inflation-protected Treasury bonds), because inflation is gonna be with us for some time to come. 

*** 

Sticking with inflation for a moment… 

While Powell, by his own admission, doesn’t understand inflation, he claims he’s committed to fighting it by further hiking interest rates. 

For a while now, I’ve believed that won’t happen. Sure, the Fed will hike rates once or twice more. But then, I’m betting it backs off. 

The reason: debt. 

The U.S. has a massive amount of debt, well over $30 trillion, or about 130% of GDP. 

Raising interest rates increases the cost of borrowing for everyone, from consumers to businesses to Uncle Sam. 

And already, interest costs on the U.S. national debt are soaring due to the Fed’s rate hikes. 

According to Treasury data, government spending on net interest costs in the fiscal year that began last October reached $311 billion through May, a nearly 30% increase from the same period in the previous year.  

That is unsustainable.  

The speed and aggressiveness of the Fed’s rate hikes will push the economy into a recession, and then it will be forced to back off and reverse its moves.  

That’s what I’ve been saying for months. Now, more and more mainstream economists are coming around to this way of thinking. 

As Morgan Stanley economist Julian Richers this week told The Wall Street Journal, “The more aggressive the Fed is right now, the more rates rise in the front end and the more the risk of a recession going forward rises, which means rates should fall again in the future.” 

*** 

Finally, it’s a tough time for crypto, as the Fed’s rate hikes put heavy downward pressure on prices. 

But while the market is down, companies are continuing to invest in crypto because this technology remains the future.  

Case in point: This week we learned that major luxury brands L’Oreal and LVMH are expanding their plays in the metaverse. 

The metaverse is a new vision for how we’ll use the internet using crypto technology.  

Instead of staring at a computer monitor or smartphone and using the internet in two dimensions, in the future we’re going to view the internet in three dimensions…all around us. We’ll use virtual reality glasses and augmented reality tech to access these 3D virtual, metaverse worlds. 

Recently, L’Oreal unveiled a digital wallet where customers can request up to 10,000 free NFTs, or non-fungible tokens. Customers will be able to use these NFTs to get access to both real-world and metaverse experiences, events, and products. 

Meanwhile, LVMH—which owns clothing and accessories brands Luis Vuitton and Christian Dior, jewelry brand Bulgari, and the wine band Moet & Chandon—said it is planning to accept crypto as payment. 

It’s also working with the Italian advertising agency Experiency, which specializes in metaverse commerce, to create a new Bulgari metaverse. 

This is a smart move by LVMH. I’m betting that the early adopters will do very well as online shopping migrates to the metaverse over the next several years. 

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.