If you follow any media, I am sure you are aware that this week is supposed to be some major turning point in history. Well, maybe not history, but if you listen or read anything over the weekend, this week was going to be a big.
The war in Ukraine will be at a turning point. The fight against inflation. NFL 2022 Free agency period begins today at 4pm ET. This is going to be a big one.
Maybe not.
The fight for Kiev and Ukraine will wage on for a bit longer. The Ukrainians are giving the Russians all they can handle and then some. However, in the end, the Russians will eventually take over a country they have ruined and feel victorious. Vladimir Putin will now have a country of over 40 million that will do anything to get him and his military out of their country. Insurgency, when supplied, can be a formidable opponent so that fight actually is long from being over. Putin’s move will eventually bring his downfall and I will say it again, I do not think Vladimir Putin will be there ringing in the New Year in Red Square.
The next turning point will be the Fed’s decision this afternoon regarding interest rates. The facts are pretty clear, we will be seeing a 25 basis point hike in rates and markets will yawn. All those business media types will crow about being right and then try to parse down the comments after the announcement. That has always been a game the Fed plays. They will never stand up and stand out. They use wordy explanations to say pretty much nothing and the cycle will repeat itself five or six more times this year.
Not that this would ever happen but if I were Fed Chairman it would be simple. No way to interpret and reinterpret what I said. No windy explanations of what they think I mean. Say what you mean, do what you say.
It will never happen. While the Fed is supposed to be apolitical, everyone knows there are politics running through the veins of every Fed Governor and Chairman. You don’t think so. Look at how they explain Fed Policy. If ever there was a politician buried inside an economist, this would be it.
Double speak, wavering between this point and that point. Making sure no matter what direction things go, they can never be outright blamed for it.
I may have issues with Jerome Powell, mainly being three steps behind everything that is happening in the economy, but I realize that even though he is not supposed to appease his masters, he does. Just like every other Fed Chair, he is beholden to the President and Congress, so he can keep his job as long as possible. I get that. What I don’t get is why he can’t speak to the American public honestly. Make a decision and go with it. Leave no doubts about what you are doing and say that as clearly and concisely as possible. If, for some reason, things change abruptly. Change course as quickly. I know that economic movements play out over longer periods of time but if the Fed is front of the movement instead of trailing that movement, I think people would believe in their policies a lot more. Rather than leaving the window open to see which way the wind blows, close the damn thing as soon as it gets cold, reopen it when it gets warm.
Some turning points huh? A devastating war that has taken thousands of lives continues. The Big announcement that will surprise no one and do little to slow a “transitory” inflationary period.
What would my Substack be without some bold ideas. One I believe can happen, the other I hope happens.
First, The Biden Administration has flip flopped on many ideas since the invasion began last month and honestly, that is to be expected. They were definitely behind on preparedness (Sound familiar?) but have recovered fairly well. There is one item that I do think they need to rethink, allowing the Poles transfer those Mig fighters to Ukrainian forces. I know that it is a risky gamble and Putin has said numerous times that sending those fighter to Ukraine is an act of war by NATO.
Because I believe that Putin has dug himself into a trench he can not climb out of, I think he will act on that and that could go one of three ways:
He can declare War on NATO and have his troops deploy Westward and once again mistake the will and the expertise of NATO allies and suffer a horrendous defeat.
He can have his pilots battle the Ukrainian pilots in the air over Ukraine and most likely win that battle and move forward with his plans.
Or, he can come up with some excuse and deploy tactical nuclear weapons in Europe and things will get foggy fast.
A rational leader would look at all of the scenarios and see which one he believes will accomplish the goals he set out in the beginning. Putin is not a rational leader. He looks at emergency supplies to help starving, trapped civilians as acts of war and he could care less about the rules of engagement.
In the three weeks since this invasion started we have learned several things. The Russian military is not what it’s cracked up to be. Putin does not see that. The Ukrainian people are up to the task of defending their sovereign nation. Putin does not see that either. Economic sanctions and draining the Russian system of its economic functions will bankrupt his country and it will take decades for that system to work properly. Putin doesn’t see it and doesn’t care. The Russian people may have had enough of seeing their sons and daughters come home in body bags and they will end Putin and he won’t see that coming either.
Now that would be a turning point.
The second concerns the Fed. Raise rates 50 basis points. Tell America that you will raise it another 50 basis points in three months. Wait! That will cause a recession. Uh, dealing with 7 1/2 - 8 % inflation for six months or more will do more to bring on a recession than any 1% move in interest rates will. Get it done, get it over with. Let the market absorb the first one knowing there is a second similar one coming. That will slow what it needs to slow. Reprice securities for a short duration and I bet a lot of the supply chain issues will correct. They seem to correct pretty fast when we were going through the pandemic and the shelves lacked toilet paper and paper towels. Real prices are up 15-20% on the ground. Manufacturers now have the cushion they need to get the system working properly.
You want a turning point, I got your turning point.
Excellent article. You hit every point. I've shared this article many times today. Thank You for Your views, spot on!