UNCLE JOE WANTS YOU TO DO NOTHING
Steel prices are up, iron prices are up, and copper is soaring. Lumber has skyrocketed 300% and yet Treasury Secretary Janet Yellen doesn’t think we should be worried? She thinks we have “tools” for that... as Jerome Powell has also suggested. We have tools all right... They’re called HIGHER INTEREST RATES. Now, how’s that going to go over with the stock market when the Fed says, “Sorry, guys. Things are getting too hot. We’re going to raise rates.” Former Treasury Secretary under Bill Clinton and former head of the National Economic Council under Barack Obama Larry Summers is one of the few honest economists left these days. Summers has repeatedly warned against massive amounts of stimulus coupled with record-low interest rates and bond-buying asset purchases from the Fed because he knows what everyone (really) should know... Free money will lead to inflation . It’s happened over and over again throughout history in many emerging-market countries. Consider Argentina, Brazil, Venezuela... Spending and printing comes with consequences. I don’t believe the stock market or the general economy will take the news of higher interest rates well. Do you? When the market is trading at all-time highs and is priced for perfection, it would be naive to think investors wouldn’t care about a pullback in rates. Summers believes that if inflation picks up
(which it has), the Fed might even overreact. I don’t see why it wouldn’t... Typically, the Fed is always a day late and a dollar short. The timing on rates is tricky and unfortunately, pretty much any asset bubble and bust can be attributed to the Fed’s failure. Consider that in 2000, Greenspan allowed irrational exuberance to flourish. In 2008, the financial crisis was primarily a result of interest rates being too low for too long... thereby encouraging banks to become too creative and aggressive in their loans and fueling a market for subprime mortgages that never should have existed. And now, thanks to the pandemic, the Fed thinks it must save the world again... And it’s doing its part through low rates and money printing. The issue now, however, is that it’s doing this at a time when we don’t really need it and it’s joining forces with a spendthrift group of lawmakers who want to transform America into, I believe, a socialist society. This is what you call a recipe for a fiscal disaster. And I’m not sure how we get out of it... There will be pain in the years ahead because, sadly, this won’t end well. America is already struggling. We know what to do – and instinctively, we know how to manage these treacherous times. But poor policy choices are in the way... and I worry the ramifications will be significant for America.
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May 2021
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