Out of the Frying Pan… 

The Fed raised interest rates last week, the last cut of seven this year meant to curb 40-year-high inflation. The benchmark federal funds rates stood at near zero in March. With this last raise of 0.5%, it now stands at a 15-year high of 4.25% to 4.5%.

The federal fund rate affects borrowing costs for businesses and consumers – everything from credit cards to auto loans to mortgages. Raising the cost of borrowing typically slows the economy, reducing profits and driving up unemployment. Nobody likes inflation. But what voters really don’t like is an all-out recession.

It’s a tough problem for the Biden Administration, something they would very much like to get control of before the 2024 election. To bring down inflation, Powell must hang tough and continue to raise rates in 2023. But every tick up puts the economy that much closer to a serious recession.

Unemployment is rising. The GDP is slowing down. If that continues, the administration will do everything it can to pressure Powell into reversing course. But if he does, inflation will spike. Either way, the Republicans and Fox News will blame it on the Democrats.

It will be interesting to see how this plays out. And to figure out an investment strategy to respond to it.

Cathie Woods vs. Warren Buffett 

Cathie Woods (of Ark Investing) is a crypto/disruptive technology investment superstar. She attracts the young, hip, and adventurous. The Hustle recently published a short article on her track record over the past five years compared to Wall Street’s favorite investor.

See who’s done better here.

Energy Supply and Demand Likely to Be a Big Topic This Winter 

That’s because of sanctions against Russia for the war on Ukraine, the unwillingness of OPEC to increase production, and the politically driven campaign to move too quickly away from fossil fuels towards green energy.

Some facts:

* NYC natural gas prices for January are 60% higher than they were last January.

* Consolidated Edison expects power bills to climb 22%.

* In France, the scarcity of oil and gas has spurred the government into reactivating nuclear power plants that had been scheduled to be retired – and even pressured them to increase production.

England faces an especially cold winter as the reduction of oil and gas from continental sources is compounded by an historic dip in wind activity. The reduction so far is equivalent to 16 gigawatts, or the amount of power that would be generated by 16 nuclear power plants.

Mark Rossano, an energy expert, made these points in a recent episode of “The Wiggin Sessions” podcast:

* Dispatchable power is dwindling, and it can drop off quickly due to the intermittent nature of renewables.

* The variability creates broad issues that only get amplified in the winter months as solar efficacy drops off considerably.

* Wind flows can adjust abruptly, and the remaining capacity (mainly fossil fuels) is stressed further.

* The harder you run these assets, the more wear and tear and maintenance that will be required to ensure their continuous use.

* The shift between baseload and peaking capacity is only getting worse as more coal is slated to come offline over the next six to 12 months.

Slight Uptick in GDP, but Pink Slips Are Up, Too! 

There has been a bit of positive news on the economy recently. GDP is up slightly. And inflation is slightly down. Neither is significant. It feels temporary to me. On the negative side, US companies continue layoffs. I listed about a dozen examples on Nov. 22. Here are some more:

* Meta is backing out of a major New York office deal as it prepares to cut budgets across the company.

* DoorDash will lay off 1,250 employees.

* Crypto firm Kraken is letting go of 30% of its workforce.

* The mainstream media is doing it, too. CNN slashed more than 200 jobs, Gannett (owner of USA Today and dozens of local newspapers) cut 6% of its news staff, Paramount Global laid off 30 employees, and NPR is cutting more than $10 million from its budget and freezing hiring.

More Layoffs: A Sign of… What? 

As you know if you’ve been reading this blog for any length of time, I’m pessimistic about the economy. American GDP is down. Inflation is up. And rising crime and taxes are driving big companies and wealthy taxpayers from our major cities.

One of the bright spots has been employment. Starting with the COVID shutdowns and accelerating with the government bailouts, the number of Americans looking for work dwindled. That created a workers’ market, with two openings for every person looking for a job.

During that time, most of the businesses in which I’m involved were finding it challenging to hire and retain good employees. Many of their CEOs told me that their biggest worry was about losing those good employees. I told them that I didn’t feel that way. I felt that the imbalance was temporary. That the job-seeker/ job-opportunity pendulum would swing to the other side. And before long, millions of Americans would be looking for work.

As I mentioned here many times during those years, I believed the US was moving into a deep and extended recession. One reason for my pessimism was the fact that when sales ebb in the financial information industry, it’s an indicator that sales in the larger industry of corporate and personal finance will tend to drop soon thereafter. This has been the case for pretty much every economic downturn since I got into this business 40 years ago. And about two years ago, I began to see sales slowing down.

So, there was that. Then, as the months passed, I began to hear similar stories of declining revenues and profits from CEO friends in other industries. And recently, I began hearing the same story from the commercial and residential real estate markets.

It was all anecdotal and hearsay. But when the economic data alert re inflation and GDP began flashing early this year, I began to feel more certain about my worries. The assurances that these trends were temporary from the Biden administration’s economic captains, Janet Yellen and Jerome Powell, didn’t make me feel any better. No, I thought. Higher inflation and lower GDP aren’t going to be temporary. What is going to be temporary is the low unemployment numbers – the only positive economic data they had.

I’m not pretending that this is a solid economic argument. Consider it an update on a gut feeling. Take it or leave it. But since the feeling is strong, I’m going to be giving you news that serves to support or refute it.

Here’s an example – data gathered by Charlie Bilello, and published by Bonner Private Research:

* Twitter is cutting 50% of its workforce (3,700 jobs).

* Facebook is cutting 13% of its staff (11,000 jobs), its largest round of layoffs ever.

* Snap is cutting 20% of its workforce (1,200 jobs).

* Shopify is cutting 10% of its workforce (1,000 jobs).

* Netflix cut 450 jobs in two rounds of layoffs.

* Microsoft is cutting <1% of its workforce (1,000 jobs).

* Salesforce is cutting 1,000 jobs.

* Robinhood is cutting 31% of its workforce.

* Tesla is cutting 10% of its salaried workforce.

* Lyft is cutting 13% of its workforce (700 jobs).

* Redfin is cutting 13% of its workforce.

* Coinbase is cutting 18% of its workforce (1,100 jobs).

* Stripe is cutting 14% of its workforce (1,000 jobs).

There may be a way to put a positive spin on these facts. But to me, right now, it feels like recession.

The $32 Billion Crypto Scammer 

If you’ve heard about this crypto scammer but want to wait for Michael Lewis to finish his book or wait for the movie that will be made from it, here’s a good, short review of the story of Sam Bankman-Fried, who was hailed as the next Warren Buffett until his empire collapsed. Read it here.

How Ben Caballero Reinvented Real Estate Sales 

A typical agent in the US closes on 10 homes in a year, according to Mark Dent, writing in The Hustle. One 83-year-old in Texas does better than that every day. Check out this fascinating profile of Ben Caballero here.

 Backyard Rental Income 

Airbnb co-founder Joe Gebbia is launching Samara, a new venture that sells factory-produced apartments to rent out in your backyard. Click here.

Would You Ask This Question? If Asked, Could You Answer It? 

If I were in charge, nobody would be allowed to become an employee until he/she had spent some time running a business. And nobody would be allowed to run a business until he/she had spent some time as an employee.

Also, nobody would be allowed to voice an opinion about socialism unless they had lived in a socialist economy. And nobody would be allowed to say anything about capitalism unless they had lived in a capitalist country.

I know. That is illogical. Still, it’s how things should be.

I’m saying this in response to the video below. Here, you have a bright kid from a good university asking Milton Friedman what he believes is a “gotcha” question, only to learn how dumb a question it is.

It is evident that the hosts are not aware of these simple business measurement tactics. Don Lemon’s comment about Flay’s observation that we are in a bad economy (“They say we are…”) is almost mind numbing in its dumbness.

Job Growth in October Was Stronger Than Expected

Does That Mean the Economy Is Stronger Than I’ve Been Saying?

The Biden administration is telling us that the US is not in a recession. In fact, they say, the economy is “very healthy.”

Those are the very words Biden’s script doctors have put down in the binder that White House Press Secretary Karine Jean-Pierre reads from several times a week. When I see her at the podium, reciting these phrases, I have nothing but sympathy. Who thought it was a good idea to put this young woman in that job?

She knows nothing about finance or economics. And that was fine during her first few months, when the mainstream press threw her only the softest of softballs. But now that inflation is over 8% and America’s middle class, including those that watch the mainstream media, are worried, the questions she’s getting are a bit tougher.

She seems like a nice, bright, good-natured person. The kind of person you’d want as a neighbor or a book-club friend. But she’s not up to what she’s being asked to do – i.e., defending the economic policies of the Biden administration by denying that the economy is in serious trouble.

One thing they could have done, when the negative data began to emerge, was craft a message similar to the one Clinton used. Recognize past failures and chart a new direction. But they didn’t do that. Either because they didn’t believe it was necessary or because Biden was committed to his FDR delusion.

Instead, they argued that inflation was temporary, and then that it wasn’t all that big or important, and then that the economy wasn’t really in a recession, even though we had two consecutive quarters of negative GDP growth.

Every time Jean-Pierre is asked a tough question about the economy, she must flip through her binder, hoping to find some new, believable talking point. Alas, there is only one: job growth.

As she keeps pointing out, the supply of jobs in the US is growing. In fact, non-farm payrolls grew by 261,000 in October, which was significantly stronger than the Dow Jones estimate of 205,000.

So… What?

I’ve been saying that I think we are headed into a massive, long-term recession that will include, among other tribulations, the failure of tens of thousands of businesses and the unemployment of millions of Americans that are currently working.

So, how do I explain the growth in jobs?

It’s simple. For one thing, most of the job growth we’ve seen in the past year has nothing to do with the growth of our economy. It is, instead, a reflection of the millions of job openings that popped up after the government abandoned its hysterical COVID protocols and businesses were allowed to reopen. It is also a reflection of the millions of Americans that “retired” when they received government bailouts, and have now gone through most of that money and need to return to work. And though the October number was better than expected, it was still the slowest pace of job gains since December 2020.

Tom Porcelli, Chief US Economist at RBC Capital Markets, seems to agree with me. He points out that job growth is a backward-looking data point. The broader picture is “of a slowly deteriorating labor market.”

“This thing doesn’t fall of a cliff,” he says. “It’s a grind into a slower backdrop. It works this way every time. So the fact that people want to hang their hat on this lagging indicator to determine where we are going is sort of laughable.”

Some negative indicators:

* Apple recently announced it will be freezing new hires except for research and development.

* Amazon said it is “pausing” hiring for retail jobs and its corporate workforce.

* Lyft announced it will be laying off 14% of its employees.

* And, of course, Elon just laid off half of the twits at Twitter.