2022 Week 48

Recession fears, the Fed Rate and resetting energy expectations

TOPICS

• Fed Rate
• Energy
• Recession

Fed Rate

To understand Modern Monetary Theory, understand why the banker in Monopoly can never run out of money. - MMT aphorism

OBSERVATION :: A tale of two recessions; some see an end in sight and others think it’s just beginning

• (Keith Fitz-Gerald) :: Most investors are NOT prepared for what happens next

  • Keith’s prediction = The markets will take off like a rocket if there is even a hint of a pause

• (Mish) :: 2-10 Yield Curve Inversion Recession Signal is the Strongest in Over 40 Years

  • The 10-year to 3-month inversion is 64 basis points, the deepest since January of 2001.

• (Mark Zandi) :: The US Treasury yield curve has inverted to its deepest level since the early 1980s. Is this a recession red flag or is this time different? Tune in to the latest Inside Economics so I can persuade you that this time IS different.

• (DiMartinoBooth :: “The only time you see the curve invert when we’re already in recession…I think to jay Powell’s point he is watching the right thing f he continues pressing forward with tightening he is tightening into recession. Another fed official said as much today.”

Energy

The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil. - Sheikh Ahmed Zaki Yamani

OPINION :: High energy prices will drive inflation and cause global recession

• (Over My Shoulder) :: Gasoline in Perspective
  • Electric vehicle owners have traded gasoline price exposure for grid power exposure
  • Distant Wind - Most of the wind production is located a long way from major population centers.

• (Ken Fisher) :: Fathom Perking Positives Pessimists Can’t See
  • International Energy Agency says Europe’s storage is 95% full—above the five-year average! Germany is at 100%
  • MY COUNTER ARGUMENT: Doing so by stockpiling and building LNG terminals; Liquefaction is most expensive way to transport natural gas
• (Liz Ann Sonders) :: Record spread between average diesel and gasoline prices in U.S.
  • COMMENTARY :: Time to start burning that waste oil (if you have mechanical injection)
• (Peter Zeihan) ::
  • Europe paying spot prices to avoid long term contracts
    • Seeing higher inflation
  • Germany shutting down industry to reduce demand
    • Seeing a de-industrialization (cars, fertilizer, etc.)
    • Can’t purchase from to US b/c we need it
    • Natural gas is our only flexible fuel that can spin up/down to match demand
    • Next winter will be tougher on Europe

Recession

It’s a recession when your neighbor loses his job; it’s a depression when you lose yours. - Harry S Truman

OPINION :: Recession will be shallow in US, it will suck for a year but US will snap back; not sure about Europe and parts of Asia

• (LizAnnSonders) :: Global shipping rates still in free-fall … only route not participating in drop is from Rotterdam to New York

• (Lyn Alden) :: Us manufacturing PMI is now in a contraction.