The Fed has a mission. Stop inflation. Americans need to hurt.
The economy recovered from COVID. More people are working than before COVID. Unemployment is 3.5%. The rapid recovery came at the price of inflation. The Fed wants businesses to be less hopeful and potential buyers of things to be more cautious. The Fed wants layoffs. Unemployed people serve as a cautionary example to employees who may be thinking about pay raises.
The Fund1 returned about -33% in the second quarter, bringing its total decline to approximately -51% in the first half of the year. This has been the U.S. market’s worst start to a year in over a half century and, unfortunately, our losses were quite outsized during the period, largely due to our concentrated, long-term bets in growthier areas. With the vast majority of my liquid net worth invested in our funds, my extended family and I have sustained the losses in lockstep with you. I am frustrated by our returns – this is deeply unpleasant and a significant step backwards.
The investment company's owners don't want customers to bail out of the fund. The fund won't be raising fees anytime soon
The vast majority of our losses have been driven by the continued compression of multiples across the board. These prices may persist for a time, but in my view, they are not reflective of the underlying value or company prospects. If multiple compression were to cease, we would expect our returns to compound at high rates. If multiples ever begin to re-expand, we would expect these rates to be even higher.
This is an example of the triple-effect of Fed rate hikes on inflation. Anticipated profits are down so stock prices are down. Owners of stocks have less wealth, so they spend less freely. Businesses scramble to keep the customers they have, so they abandon any hope of raising prices.
There is a good reason to fear future "stagflation." The U.S. is net fossil fuel independent, but Europe is not. There is a world price for oil. OPEC just agreed to pump less oil, an accommodation to Russia's desire to squeeze Europe. Oil prices will rise. That cost will filter through everything, including gasoline. We may get a return of simultaneous inflation and stagnation. That would be miserable for Biden and Democrats--and Saudi Arabia knows it.
Biden is vulnerable here. This administration's relationship with Saudi Arabia is complicated. We like their growing friendship with Israel. We don't like their sponsorship of Islamic terror. We don't like that they murdered Jamal Khashoggi. The OPEC move is a transparent signal to U.S. domestic politics. Trump doesn't care about Khashoggi, and he likes selling U.S. weapons to the Saudis. Russia is a fellow OPEC nation, and Trump is comfortable with Russia's ambitions, while Biden is not. Trump is comfortable with autocracy. Trump is a better friend to Saudi Arabia than is Biden. Saudi Arabia returns the affection by investing $2 billion in Jared Kushner's new hedge fund. Friends help friends.
Saudi Arabia has the power to put a heavy thumb on the scales of the 2024 election and to shape U.S. policy toward Russia and Ukraine. They don't need troll farms to influence American public opinion. They likely have the power to create stagflation and high gasoline prices in the U.S. That would probably be enough to sink any Democratic candidate.
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5 comments:
For decades the government has been spending far more than it takes in. Our national debt is now higher than our GDP. Meanwhile, climate change is an ever-worsening disaster that also adds to our cost of living. If you think Americans are hurting now, wait until the debt comes due, the disasters get worse one of our two political parties remains mired in its Big Lie. The clueless are fond of mocking the “woke,” but we'd all better wake up soon or we'll really be in a world of hurt.
The oil industry and OPEC+ is giving us a lesson in how artificial scarcity can ripple through world economies and affect the price of goods. I saw this happen first hand in the middle70s to early 80s. People wrote about the oil-caused price increases as if you were watching a "pig (the high price of oil) being eaten by a python (the economy in general)". The sectors first affected were transportation and heating, followed by price increases in fertilizer and farm produce, and so on through the economy. The purchasing power of a 60s dollar fell rapidly, taking more dollars to buy everything (inflation). Wages did not keep up, pricing the middle class out of the normal rising tide that had increased their standard of living. Poverty deepened and the middle class, that had been expanding after WW2 shrink, and the wealthy became more wealthy, commanding a larger portion of the wealth.
We see artificial scarcity in other things from diamonds to lumber. These scarcities affect subsets of the market and do not broadly affect the price of goods in the grocery cart.
Jimmy Carter saw the effect of artificial oil scarcity as a threat to our national security. Rising the price of oil directly attacked our economy and affected our lives as if we were on a war footing. Becoming energy independent was the goal of Carter's policies. The hurt and pain on the economy made Carter vulnerable to Ronald Reagan's flashy message of a rebirthing of the American economy. Suffering real economic pain we are about to see a similar effect in the upcoming midterms. Unfortunately, the policies the GOP are advocating, sunsetting Social Security, Medicare, Medicaid, and other safety net policies while repealing the 15 percent minimum corporate tax, will cause a deep recession similar to the Great Session of the 30s. I do not make this claim lightly, Democrat policies improve the overall economy while tax-cutting, anti regulation, anti-safety net policies benefit the wealthy. I am not gleeful in making this prediction as I see a divided electorate unwilling to act in the national interest, unwilling to recognize the danger we all face. Presently the United States is in the strongest economy in the world so why tinker with what's working?
Insulation needs to be stopped, despite the pain that stopping it will cause.
The alternative is Venezuela or Weimar Germany. Wheelbarrows full of almost-worthless currency being used to buy a loaf of bread.
That should have been “inflation.“ Voice recognition strikes again… 🤷♂️😀
Complicated, indeed, concerning Muslim regimes across the board. The right in America doesn’t care about Jamal Khashoggi, the left Salman Rushdie. Republican elites are happily in bed with the Sauds, while members of The Squad are strangely silent about the Iranian regime’s murderous misogyny. Many scales need to fall from many eyes.
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