Mike McGlone has an interesting perspective on Bitcoin versus Gold.
Gold $3,000, Bitcoin $70,000?
Is there good reason for reversion lower? My bias is leaning that way, especially if the US hashtag#stockmarket reverses some of last year’s almost $12 trillion advance, about 40% of GDP.
Bitcoin approaching $150,000 in 2025 might suggest another $12+ trillion year of US stockmarket wealth creation, inflation and Fed tightening. Heading toward $50,000 could coincide with some typical deflation following the inflation and put the Fed at ease. Up about 10% since Bitcoin first closed above $100,000, gold may sniffing out a bit of risk-asset normalization. So it appears gold is winning.
Full disclosure: I own both. Plus silver. And a house.
Nobel prize winner in economics, Gene Fama, said recently that cryptocurrencies will eventually be worthless. Well Gene, not if The Federal Reserve and other central banks keep printing money.
Global M2 money supply is at $97T and increasing. And with the increase in global M2, bitcoin and other cryptos are likely to keep rising.
On the US side, M2 Money has increased 12.7% under reckless spending Joe Biden while Bitcoin has increased 249%.
Retail investor holdings have declined while large investor holdings as Bitcoin increases in price.
On a different note, the Philadelphia Eagles will be playing the Kansas City Swifties next Sunday.
The Federal Reserve (aka, The Green Slime) represents the Spirit of Washington DC. A glutenous pig spending trillions it doesn’t have on insane policies. And The Fed ends up funding the insane spending and racking up massive losses.
Trump is inheriting a Federal Reserve w/ not only unprecedented losses of $218 billion, but it’s still losing money; the Fed won’t send the Treasury a dime for the entirety of Trump’s term; that’s never happened since the inception of the Fed – another challenge for Trump.
Wow. Money printing by The Federal Reserve went will after the Covid outbreak in early 2020. So did Federal spending. Unfortunately, politicians are addicted to Federal spending. And Senators like Chuck Schumer (D-NY) and Adam Schiff (D-CA) are trying to obstruct any spending cuts by Trump and his DOGE.
Well, M1 Money printing is UP 365% since Covid while M2 Money printing is UP 40%.
Federal current expenditures are up 45% since the Covid outbreak. But were never returned to normal spending levels.
New York senator Chuck Schumer is opposed to Trump’s efforts to cut Federal spending. Is Senator Schumer REALLY the political boss of Tammany Hall, the Democratic Party’s political machine that played a major role in the politics of 19th-century New York City and State?
One reason that US home prices remain high (and unaffordable for many) is The Federal Reserve (aka, The Green Slime). Former Fed Chair (and Biden’s Treasury Secretary is no Luciana Paluzzi, the Italian beauty from the James Bond film Thunderball. Yellen is just a far-left economic hack.
Look at the Case-Shiller national home price index compared with The Fed funds target rate.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.8% annual return for November, up from a 3.6% annual gain in the previous month. The 10-City Composite saw an annual increase of 4.9%, recording the same annual increase in the previous month. The 20-City Composite posted a year-over-year increase of 4.3%, up from a 4.2% increase in the previous month. New York again reported the highest annual gain among the 20 cities with a 7.3% increase in November, followed by Chicago and Washington with annual increases of 6.2% and 5.9%, respectively. Tampa posted the lowest return, falling 0.4%.
The pre-seasonally adjusted U.S. National, 20-City, and 10-City Composite Indices’ upward trends continued to reverse in November, with a -0.1% drop for the national index, while the 20-City Composite saw a -0.1% decline and the 10-City Composite was unchanged.
While the Fed Funds target rate gyrates, The Fed’s balance sheet remains high.
Was Freddie King correct? Is the US economy going down??
The US Treasury yield curve (10Y-2Y) has inverted to the positive side after a prolonged NEGATIVE inversion (from July 6, 2022 to Sept 5, 2024) marking the longest period of negative inversion since August 18, 1978 – May 1, 1980. Each negative inversion was followed by a recession.
The UST 10Y-3M yield curve tells a similar tale. The 10Y-3M curve inverts prior to recessions but goes positive just prior to recessions.
Yes, if the yield curve is a good predictor of recession, the US economy is going down.
Freddie King is playing a Gibson ES-355TDC guitar.
After yesterday’s in line – but really cooler than whispered – CPI which restored hope in a December rate cut, all eyes are on this morning’s PPI print to boost dovish hopes that the Fed’s easing cycle would remain on track. It was not meant to be, however, as the PPI came in hotter than expected across the board on both a monthly and annual basis.
Starting at the top, headline PPI rose 0.2% MoM (in line with the +0.2% expected) but September was revised higher from 0.0% to 0.1%; meanwhile on an annual basis, headline PPI rose 2.4%, higher than the 2.3% expected, with the last month also revised higher from 1.8% to 1.9%.
Unlike last month when a drop in energy prices weighed heavily on the headline PPI number, this month energy subtracted just 0.02% from the final print, the lowest detraction since July. Meanwhile, Services added a hefty 0.179% to the bottom line number.
Indeed, according to the BLS, most of the rise in final demand prices can be traced to a 0.% advance in the index for final demand services. Prices for final demand goods inched up 0.1%, the first increase in the index since July.
Taking a closer look at the components:
Final demand services: The index for final demand services increased 0.3 percent in October after rising 0.2 percent in September. Over three-fourths of the broad-based advance in October is attributable to prices for final demand services less trade, transportation, and warehousing, which moved up 0.3 percent. The indexes for final demand transportation and warehousing services and for final demand trade services also increased, 0.5 percent and 0.1 percent, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)
Product detail:
Over one-third of the rise in the index for final demand services can be traced to prices for portfolio management, which advanced 3.6 percent. The indexes for machinery and vehicle wholesaling; airline passenger services; computer hardware, software, and supplies retailing; outpatient care (partial); and cable and satellite subscriber services also moved higher.
In contrast, margins for apparel, footwear, and accessories retailing fell 3.7 percent. Prices for securities brokerage, dealing, investment advice, and related services and for truck transportation of freight also declined.
Final demand goods: The index for final demand goods inched up 0.1 percent in October following two consecutive decreases. The advance can be traced to a 0.3-percent rise in prices for final demand goods less foods and energy. Conversely, the indexes for final demand energy and for final demand foods declined 0.3 percent and 0.2 percent, respectively.
Product detail:
An 8.4-percent increase in the index for carbon steel scrap was a major factor in the advance in prices for final demand goods. The indexes for meats, diesel fuel, fresh and dry vegetables, and oilseeds also moved higher.
In contrast, prices for liquefied petroleum gas fell 18.1 percent. The indexes for chicken eggs, processed poultry, and ethanol also decreased.
Even more problematic for the doves, however, is that core PPI jumped to +3.1% YoY (hotter than the 3.0% exp) with the prior month revised higher to 2.9% from 2.8%. This was the second hottest print going back to March 2023 with just the June outlier surge hotter than October…
… as sticky Services costs continue to rise.
The hotter than expected PPIs have pushed yields and the dollar higher, even as the market waits to see the details of what impact today’s numbers will have on the Fed’s preferred core PCE metric – according to UBS key PPI components to PCE look hot – although Bloomberg noted a big jump in air passenger services (3.2%), which suggests some upside risks (i.e., 0.3% core PCE).
The most notable takeaway from the data appears to be the increase in final demand for services in October, which is similar to the factors that increased CPI yesterday — shelter, food and energy, which are components the Fed cannot control with interest rates.
Bottom line: this is a long way from the Fed’s mandated 2%, and it’s moving in the wrong direction, something which has not been lost on the market, where Treasury curves are flattening after the data, which suggests traders are wavering over the prospects of a December rate cut. That has yet to be reflected in rates markets — bets have been trimmed but marginally, not enough to really change the swaps market outlook as of now. According to BBG’s Vince Cignarella, sizeable block trades are going through Treasuries, mostly in the five-year tenor and some ten-year tenors, which looks like positioning for higher yields and flatter curves.
The US is the expensive tower of power … but it should be cheap. Getting rid of coal power was idiotic and The Left’s fear of nuclear power is laughable.
Europe’s fertilizer plants, steel mills, and chemical manufacturers were the first to succumb. Massive paper mills, soybean processors, and electronics factories in Asia went dark. Now soaring natural gas and electricity prices are starting to hit the US industrial complex.
On June 22, 600 workers at the second-largest aluminum mill in America, accounting for 20% of US supply, learned they were losing their jobs because the plant can’t afford an electricity tab that’s tripled in a matter of months. Century Aluminum Co. says it’ll idle the Hawesville, Kentucky, mill for as long as a year, taking out the biggest of its three US sites. A shutdown like this can take a month as workers carefully swirl the molten metal into storage so it doesn’t solidify in pipes and vessels and turn the entire facility into a useless brick. Restarting takes another six to nine months. For this reason, owners don’t halt operations unless they’ve exhausted all other options.
At least two steel mills have begun suspending some operations to cut energy costs, according to one industry executive, who asked not to be identified because the information isn’t public. In May, a group of factories across the US Midwest warned federal energy regulators that some were on the verge of closing for the summer or longer because of what they described as “unjust and unreasonable” electricity costs. They asked to be wholly absolved of some power fees—a request that, if granted, would be unprecedented.
Michael Harris, whose firm Unified Energy Services LLC buys fuel for industrial clients, says costs have risen so high that some are having to put millions of dollars of credit on the line to secure power and gas contracts. “That can be devastating for a corporation,’’ he says. “I don’t see any scenario, absent explosions at US LNG facilities’’ that trap supplies at home, in which gas prices are headed lower in the long term.
EIA Average Electricity Cost Cents
EIA cost data chart by Mish
EIA Cost Data January 2021 vs May 2022
Residential: 12.69 to 14.92
Commercial: 10.31 to 12.14
Industrial: 6.39 to 8.35
Transportation: 9.61 to 10.79
All: 10.36 to 12.09
Those prices are through May 2022. Much electrical energy comes from natural gas.
US Natural Gas Futures
US Natural Gas Futures courtesy of Trading Economics
US gas prices fluctuated wildly in June and July. I suspect the average price is 7.33 or so for both months. Things are decidedly worse in Europe.
EU Natural Gas Price
US Natural Gas Futures courtesy of Trading Economics
From 25 or even 50 to 200 is one hell of a leap. It’s somewhere between 300% and 700% depending on your starting point vs 100% or so for the US.
Let’s now check the latest PPI data for a look at where things are and more importantly headed.
PPI Electrical Power Index 2020-Present
PPI data from the BLS, chart by Mish
From pre-pandemic to January of 2021, the PPI electrical power index was flat. It has since surged on a relatively steady pace.
From May to July the index went from 231 to 238. That tacks on another three percentage points since the EIA report.
PPI Electrical Power Index 1991-Present
PPI data from the BLS, chart by Mish
Long Term Trend
The long-term trend does not exactly look pretty.
And as Bloomberg noted, Century Aluminum Co. says it’ll idle the Hawesville, Kentucky, mill for as long as a year, taking out the biggest of its three US sites.
The beer industry uses more than 41 billion aluminum cans annually, according to a Beer Institute letter to the White House dated July 1.
“These tariffs reverberate throughout the supply chain, raising production costs for aluminum end-users and ultimately impacting consumer prices,” according to the letter signed by the CEOs of Anheuser-Busch, Molson Coors, Constellation Brands Inc.’s beer division, and Heineken USA.
This letter to the president comes amid the worst inflation in more than 40 years and just months after aluminum touched a multi-decade high. Prices for the metal have since eased significantly.
Whatever victory beer makers and drinkers may have with aluminum prices may not last with US aluminum plants shutting down.
Then again, the cure for everything is likely to be a huge recession.
Zero Consumer Inflation
I am pleased to report there was no consumer inflation in July.
The CPI report resulted in a nonsensical Twitter debate on the meaning of zero. For the record, assuming you believe the numbers, there was indeed zero inflation month-over-month.
The accurate rebuttal is: One month? So what?
Moreover, zero is not as good as it looks. All of it was due to a 7.7 percent decline in the price of gasoline. And year-over-year inflation was a hot 8.5 percent.
Meanwhile, rent and food keep rising and the price of rent will be sticky. Gasoline is more dependent on recession and global supply chains.
The above reports and this one industrial costs puts a spotlight on the silliness of the Fed’s focus on consumer inflation as if that’s all that matters.
The Fed has blown three consecutive bubbles trying to produce two percent consumer inflation while openly promoting raging bubbles in assets and missing the boat entirely on industrial matters.
Confounded Interest - Anthony B. Sanders 
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