The Year Growth Died

McAlvany Recap • Jan 23 2023
The Year Growth Died
MPM Posted on January 23, 2023

It’s ironic that the question, “How did you go bankrupt?” is posed in Ernest Hemingway’s book titled The Sun Also Rises. In the context of the United States, and more specifically, the world of equities investment, the more appropriate observation might be, “The Sun Also Sets.” After 40 years of the Fed’s easy-money support of the stock market, it’s getting a little dark out there.

That said, the response to the question is telling: “Two ways. Gradually, then suddenly.” Through most of 2022, the Fed tightened the money supply. Still, equities markets and the economy generally kept a smile on their faces and a song on their lips. And as Doug Noland notes in his weekly CBB summary, media voices in January 2023 still overwhelmingly reflect industry hopes—to wit: That red sky out there doesn’t herald the ending of the day, but it’s beginning. The Fed is nearing the end of its tightening cycle, inflation is dying a well-deserved death, and happy days are almost here again.

But if that’s what the media are saying, more sober and informed voices tell a very different story. The Empire State Manufacturing Survey; numbers on capacity utilization, industrial production, and the production of business equipment; real estate sales; job layoffs; and retail sales data all tell a dire tale, as Morgan Lewis reports in his HAI. The latter is particularly dire, as the consumer has been propping up the tired economy almost alone for the past year.

The economy declined gradually in 2022. However, despite the Fed’s money-tightening endeavors, nothing fundamental has been done to alter the facts: The world is awash in debt and dollars, supply chains remain severely challenged, globalization is being reversed, and commodities are facing severe shortages vis-à-vis projected demand as China ends its Covid-zero policy and the West tries to starve the climate-change bogeyman by denying him raw materials. In that light, will 2023 bring us the “suddenly” part of the United States’ bankruptcy?

The nation that brought us Covid-19, TikTok, and antifreeze-tainted toothpaste also gave us another curse: “May you live in interesting times.” We most certainly do. And it can indeed be a curse, but there are good things, too. Opportunities abound, beauty surrounds us, family and friends await, and we yet enjoy many of the benefits of our parents’ and neighbors’ hard work—not to mention our own. These also should occupy our minds and find their way into the reports below. So tune into the McAlvany experts’ communiqués each week for the good, the bad, and the ugly.

Key Takeaways:

· US Government: If our efforts come up short, we’ll change the standard

· Hopium returns for the major media: “The Fed’s gonna pivot. The Fed’s gonna pivot. The Fed’s gonna pivot.”

· The new year begins with sharply negative economic news on a number of fronts

· Gold is following an eerily familiar path; will it continue?

The McAlvany Weekly Commentary: For decades—if not centuries—the US government has played fast and loose with the data that reflects on its performance. This fact is particularly evident in regard to economic performance, where numbers should tell an unbiased and unvarnished tale—Mark Twain’s observation about statistics notwithstanding. Perhaps this government tendency is unsurprising in our current truth-challenged culture, but it’s as problematic as it is morally indefensible. Meaningful reform of government policies is thwarted, payments to fixed-income recipients such as Social Security beneficiaries is skewed downward, and the entire culture is affected by the high-level example of self-serving prevarication. David and Kevin examine this topic, along with many others—including the similarities between marriage and mountaineering, US oil independence, and President Biden’s current document drama.


Credit Bubble Bulletin: There are times when one might be forgiven for believing Doug is really an AI robot who reads, assimilates, processes, analyzes, curates, and presents data from an unbelievable number of weighty sources. He begins his weekly analysis with nine significant headlines from major media and ends it with his usual review of an entire library of current event reports. Given the intense focus he gives to his day job of money management, it’s difficult to see where he finds the time for such extensive and in-depth analysis of events. When does the man sleep? Well, his loss is your gain. Don’t miss his daily or weekly summations of what’s being reported about world events.


Hard Asset Insights: Market moves are, in at least one respect, like battles. Momentum seems to shift constantly before one side prevails (until the next battle). In the current market battle between bulls and bears, the bears have had the best of it since the end of 2021. Still, the bulls have staged some significant reversals. Morgan, therefore, notes Deutsche Bank’s claim that, “we’re in a ‘sweet spot’ between, on the one hand, market perception (right or wrong) that we are past peak-Fed hawkishness and policy uncertainty and, on the other, what DB describes unequivocally as ‘the eventual recession.’ ” But that sweet spot seems to be just a short breather before the bears take over the battlefield. Morgan cites the evidence at length—and it’s ominous.


Golden Rule Radio: Tory and Miles channel Yogi Berra—it’s déjà vu all over again. Recent movement in the gold price looks strangely similar to what happened just over a year ago in December 2021. Will the charts continue to trace a similar pattern? Will gold head for the stars or give back some of its recent gains? The hosts claim no clairvoyance nor any knowledge of what will happen with specific reference to the metals markets, but they do have some ability with “if-then” scenarios. This comes largely from long experience in the market, along with careful study of charting patterns and cause-effect relationships. Such analysis can work to your advantage. Knowing that a given reaction is likely if a certain action occurs could give you a leg up in your investing decisions.

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