Good morning. Here’s your Early Warning for Tuesday, 18 December 2018.
ADMIN NOTE: Early Warning will not be published the week of 24 December 2018.
Fault Lines: Former U.S. Representative and perma-bear Ron Paul was on CNBC last week, again warning of fiscal catastrophe. “Once this volatility shows that we’re not going to resume the bull market, then people are going to rush for the exits. It could be worse than 1929.” Paul criticized the Fed’s easy money policies which led to the 2008 crisis, and said that a continuation of those policies has led to the “biggest bubble in the history of mankind”. [source]
Analyst Comment: My usual caveat that “The more extreme the prediction, the less likely it is to come true” applies. Ron Paul is among many — Jim Rogers, Marc Faber, Jim Rickards, David Stockman, and many, many others — who have consistently predicted near-collapse conditions or worse. And many of them have been very publicly wrong, which is why I discontinued reporting on their incessant doom and gloom warnings.
This isn’t to say they’ll never be right, but if their calls are ever correct, the United States is going to go through some very tough times. For some parity in this discussion, however, I’ve been tracking “conventional wisdom” from financial elites (banking and hedge fund figures) and “alternative wisdom” from alternative economists (like the aforementioned group). Right now, the conventional wisdom crowd isn’t warning of anything worse than 2008; in fact, many of them believe, or at least express to believe, that the next recession won’t rival 2008. (There are some in the financial industry who disagree.) And here we are with another major divergence in thought. In this case, I think irreparable damage could be done if financial elites “miss” this catastrophe in waiting again like they did in 2008. I will continue to read their letters to investors and shareholders for any signs or warnings that they expect something worse than 2001 or 2008.
I understand where the “alternative wisdom” crowd is coming from, as they expect that multiple bubbles will pop simultaneously, which will lead us into this doomsday scenario they’ve been predicting. So far, the warnings from financial elites seem to focus more on longer term effects, like social unrest resulting from wealth inequality, income inequality, and a permanent economic underclass. I take heed of those warnings, and have piled on with my own thoughts about successive generations’ inability to save and invest. Millennials and Generation Z are likely to experience a bottleneck in their formative economic years that will negatively impact their lifetime earnings, which will lower their lifetime savings and investments. We’ve seen the data on Millennials’ economic setbacks due to the 2008 financial crisis, and Generation Z could very well experience that themselves. Nearly a decade of near-zero interest rates and middling economic strength (until recently) have lead to lower rates of savings and asset ownership. The average Millennial has orders of magnitude more debt than savings or assets. (One estimate puts the average debt held by Millennials aged 25-34 at $42,000; most of that’s credit card debt. Compare that with the results of a survey showing that a majority of Millennials have less than $1,000 in savings. [source] and [source]) That’s forming a long term trend likely to affect the social and political landscape for decades, although that warning is not quite as sharp as warnings of a Great Depression Redux or economic collapse.
Bottom line: I’ll continue to look for examples of financial elites warning of catastrophic or impending financial doom, and report them when I find them. I can understand why major banks and financial institutions might mute their warnings, but there are hedge fund managers and others who have a vested interest in being public with their calls of financial collapse, if one were to occur. I do expect those indications and warnings to precede a major financial crisis like Ron Paul is describing. We should take the warnings from Ron Paul and others seriously. I do. But I also look at the future on a spectrum: it’s very likely that we undergo some level of financial, economic, and social turbulence. Right now, I expect a 2020-2021 version of something on the level of 2008. Anything worse is less likely, but still possible.
The President is scheduled to hold a roundtable discussion on the Federal Commission on School Safety.
Of Note: There’s been no reported movement on an agreement between the president and Democrats that would avoid a partial government shutdown on Friday night. Sen. Schumer (D-NY) said on a Sunday talk show that President Trump didn’t have in the votes in the House or the Senate to pass a spending bill with a $5 billion border wall. At this point, President Trump seems squeezed between upholding his promise of a border wall and risking an increased sense of political instability. Between rising interest rates and what’s probably the beginning of a global economic slowdown, markets are already jittery; investors don’t want to see a government shutdown or anything that leads them to believe elected officials are incapable of governing. Yet here we are.
There’s a chance, however, that a short-term spending bill is passed, which would delay the border wall battle until next year and replace House Republicans with Rep. Nancy Pelosi (D-CA) as Trump’s primary foil in the next Congress. With reports that House Democrats will pursue an aggressive, progressive agenda; that may be exactly the battle President Trump thinks he wants heading into 2020.
Secretary Pompeo is scheduled to meet with the foreign minister of Nepal.
Of Note: Undersecretary Thompson (Arms Control and International Security) is scheduled to meet with the president of the Nuclear Threat Initiative. (We’ll follow up on this and report on anything significant.)
Defense Secretary Mattis: Nothing significant to report.
These are the last publicly reported locations of these ships. Conflict requiring an aircraft carrier/carrier strike group does not appear imminent.
The Carl Vinson (CVN-70) was last reported as having returned to San Diego.
The Abraham Lincoln (CVN-72) was last reported as having returned to Norfolk.
The John Stennis (CVN-74) was last reported as conducting joint operations in the Arabian Sea.
The Harry Truman (CVN-75) was last reported as having returned to Norfolk.
The Ronald Reagan (CVN-76) was last reported as having returned to home port in Yokosuka, Japan.
The George H. W. Bush (CVN-77) was last reported as having returned to Norfolk.
Bold indicates significant changes to last reported location or other amplifying information.
Significant House Activity:
- Nothing significant to report.
Significant Senate Activity:
- Nothing significant to report.
* Only events pertinent to national security are listed. Significant reporting will appear in this week’s Strategic and National Intelligence reports.
The Federal Reserve begins a two-day meeting to determine whether or not interest rates should be hiked. You’ve probably seen the news that the stock market’s had the worst December performance since the Great Depression, and some of that’s because the markets have already priced in another rate hike tomorrow. If rates are hiked, we can expect President Trump to again be livid that the Fed is tempering economic growth. Additionally, several well-known financial elites are warning that another Federal Reserve hike would be a mistake that leads to further tightened financial conditions and economic weakness. Billionaire investor Paul Tudor Jones warned last week that the Fed was hiking us into another recession.
What I’m Looking at this Morning
“The goal [for Trump’s 2020 re-election campaign and the RNC] is to create a single, seamless organization that moves quickly, saves resources, and — perhaps most crucially — minimizes staff overlap and the kind of infighting that marked the 2016 relationship between the Trump campaign and the party.” – Alex Isenstadt reporting for Politico