By year end 2022, the trade deficit was $948 billion. Highest in US history. Printed money from the Fed, all used to import goods from China:
Then, look at the 2 year - 10 year yield curve inversion. It is at -87.2 bps! Highest in over 40 years:
The probability of a 2023 recession, we know we are already in one now, yet, this probability is the highest it has been since 1982:
The difference is this time, M2 money supply is almost $22 Trillion. Total debt to GDP ratio is about 130%. This unwinding of debt, the sovereign debt crisis, is worse than past recessions because of the sheer volume of debt. Here is the chart again, on the broad money supply of USD:
Despite the fact that the Fed is pushing to get CPI inflation back down to 2%. As per Neal Kashkari on CNBC last week. He said “no matter how long it takes”. That means these rate increases will continue, even though they have been shaved down from 75 bps increases, to just 25 bps increase in mid February. They will continue, per Neal Kashkari. If we take that for what it is, then can we conclude oil demand will have to come down substantially, to get CPI inflation that low? Oil, Coal, and Natural Gas development is blocked as an outcome of policy, since January 2021. Energy prices have jumped 60%+ since January 2021. In order to reach the inflation target of 2% CPI inflation, Energy demand has to come down -50%! Let that sink in, energy demand has to come down -50%, to meet the Fed’s CPI inflation targets!
Why? Because Oil, Coal, and Natural Gas are the raw material cost basis of the following goods and services:
All of these items will be inflated as gas and energy are inflated. It is called cost push inflation, and despite raising rates, this type of inflation is driven by anti-fossil fuel policies! These policies cause the fuel, power, and heating to get more expensive. Then that extends to these goods and services used everyday, which we listed above. Cost push inflation has gotten worse in 2023, and our fear is, as the SPR (strategic petroleum reserve) is diminished further, cost push inflation will only get worse!
If we are right about cost push inflation, caused by anti-fossil fuel policies, then what will that do to investments? Stocks crash after a yield curve inversion 100% of the time. The only question is when. Whenever that does happen, later in 2023, what will inflation be at that time? After the summer driving season, we expect Gas prices to be much higher than they are now. This will drive cost push inflation, so we expect that aspect of real inflation to be higher. The CPI calculation absolutely minimizes the impact of cost push inflation, because of the way the calculation has been manipulated over the years. It does not account for the impacted goods and services we listed above. Real inflation does account for those goods and services. So, if we have inflation and stocks crashing, that is stagflation. This can take a long time to pull out of. See Japan’s lost decade. However, as inflation persists and worsens over time, this will be a catalyst for Bitcoin demand. Especially if the war on cash we wrote about, actually occurs, click here to read more.
The war on cash already started, it’s also a matter of timing, regarding when it comes to it’s conclusion. If CBDC’s actually roll out in the US in 2024. One could assume the stock market crash would have already happened by then. Cash would be waining in the US, and inflation would be rising. Stagflation. This is a likely outcome, but the timing is the unknown variable. In this situation, Bitcoin demand would be very high, because inflation would be rising after a stock market crash. Not a good situation. Yet, the US finds itself heading into this type of scenario at the present moment. Things could change, and we hope they do. This is the direction things are going right now! Bitcoin demand rising with inflation, around the time of the 2024 halving. That is a recipe for a very strong bull run next year! In the chart below, notice the bullrun always peaks 12 to 18 months after the halving (verticle lines on chart):
2024 will be an exciting year! We are not financial advisors and this is not financial advise. Buy these lows and hold into 2025, you’ll be glad you did! Bitcoin will be the life boat out of this tumultuous year, 2023.