The Bubble Monitor printed mostly in the red for the week ending Thursday, June 30, 2022. Crypto continues to get hammered as the US dollar strengthened against the Euro – all of which may be part of the strategic goal to defend the world’s reserve currency that is currently under attack by efforts to launch a new BRICS competitor. Just as a reminder, we need the US dollar to continue as the reserve currency if we hope to fund our huge trade deficits and ongoing money printing excesses. To this end, there is talk of the Fed taking another large interest rate hike in July which could help defend the US dollar, but at a dear cost to both the economy and the capital markets. Conversely, some investors believe that the recent Fed rate hike has wreaked enough economic damage such that we have seen the last of the rate hikes, with maybe even the possibility of rate cuts in short order. Such wishful thinking may have contributed to last week’s stock market rally. In any case, there is a developing liquidity crunch brewing for several crypto hedge funds and their lenders which threatens to spread into a contagion along the lines of the 2008 financial crisis. That would be a bad thing
What is the government’s report card for handling the economy? We start by revealing how government expenditures/GDP has steadily risen over time to a point where it seems fair to say that Uncle Sam is badly crowding out the private sector. Along the same lines, we question whether taxes are now even considered as a means to fund government spending, or perhaps just a lever to moderate consumer spending. However, nothing better highlights the crisis of out-of-control government spending than the $5.7 trillion covid stimulus experiment which drove economic demand much higher while the lockdowns, and an associated fear over returning to work, choked-off supply. The results are something much more catastrophic than “transitory inflation” given a supply chain that never fully returned. To this end, we share highlights from Darden’s (the largest casual restaurant chain) recent financial report which shows the extent of hyper-inflation on food costs that the consumer must bear. Finally, we note that the Fed’s performance is an important part of the government’s failing grade, and its decision to hike interest rates through the roof to address a supply shock stands out. We explore how the doubling of mortgage rates in so short a time could impact home prices but, of course, there are many more long-term consequences from this action that cannot yet be measured.