Posted on 01/13/2022 5:10:48 PM PST by blam
During an interview with CNBC Thursday afternoon, Hayman Capital founder Kyle Bass joined Jeffrey Gundlach and other astute observers of the market by postulating that the Fed won’t be able to succeed with its planned 4 interest-rate hikes by the end of the year.
“Gundlach said that the Fed could get to 1.5% on the Fed funds rate, which might happen in the next 12 to 18 months. But that would trigger a recession,” he said.
But by the time the Fed gets to the second hike, markets will tank, forcing the central bank to backtrack.
Kyle Bass agrees with Gundlach (and the market): “The Fed can’t raise rates more than a 100-125 bps before they have to stop”
— zerohedge (@zerohedge) January 13, 2022
Speaking during his first CNBC interview of the year, Bass argued that there’s a “huge mismatch, I think, between policy and reality…when you look at the reality of hydrocarbon demand…the reality is that…we’ve been pulling CapEx out of the oil patch because we so desperately want to switch to alternative energy. The problem is you can’t just turn off hydrocarbons. It takes 40 or 50 years to switch fuel sources,” Bass explained.
And as the global economy shakes off the impact of the pandemic, Bass predicted that “the same forces that applied to bring oil below zero [back in April 2020] will apply on the upside. We will get the world reopened by the middle of the year…you can’t just flip on an oil well…the only people funding the oil patch are family offices.”
As demand for oil intensifies, the dynamic will send prices on front-month contracts “well above” $100/barrel”, Bass projected.
“There are so few people out there funding CapEx…if we reopen, you’re going to see numbers that people aren’t ready for.”
Bass’s interlocutors then opted to switch gears with some questions about China. After Wilfred Frost gently accused Bass of being a China bear, Bass insisted that he considers himself a “China realist” before launching into a discussion of China’s real-estate market.
As many investors may have learned from all the reporting about Evergrande and other deeply indebted China developers in recent months, roughly one-third of China’s economy is driven by real estate.
The surge in prices has contributed to China’s demographic nightmare, Bass said. “…the average birth rate of women in China fell below 1.2…you had an aggressive population decline because men can’t afford to buy homes because they’re priced at 20x to 30x their annual income.”
This has become a problem for China’s leaders.
“Xi needs real estate prices down and he needs them to stay down,” Bass said.
As for those who are betting on a bounce in Chinese stocks, Bass characterized this as “a fool’s game.”
As for whether or not he’d ever invest in Chinese stocks again, Bass replied:
“Fool me once but you’re not going to fool me twice…I feel like people who are investing in Chinese equities are breaking their fiduciary duty to their investors.”
Circling back to a discussion about the Fed, Bass pointed to Goldman’s call for 4 hikes this year. When the Fed does deliver on the rate hikes it has led the market to expect, “the curve is going to flatten, the long end of the curve will invert and the Fed” will likely need to throw it in reverse.
“My personal view is they can’t raise short rates more than 100-125 basis points before they have to stop,” Bass said.
Once this happens, a recession in the US will likely follow.
“I think they’re going to have to back away from that plan once they start hiking…that’s my view.
With all this in mind, “there’s no way the stock market goes up this year and it probably goes down pretty aggressively,” Bass concluded.
And once the Fed starts hiking rates, this, compounded by surging oil prices “will compound people’s inflation problems.” And that is already very modestly bring priced in… March rate-hike odds are rising to cycle highs but the odds of 4 rate-hikes by year-end are sliding…
So, after more than a decade of easy money policies, 2022 is shaping up to be a difficult year for American consumers.
Ya, I’m concluding that “money” is now mostly debt. Perhaps oversimplifying, seems the Federal Reserve creates money by the math $0 = $1 + -$1. They start with nothing, loan a dollar, and note that someone owes them a dollar. So yes, once all the accounts get balanced out (trillions of dollars) it all returns to $0.
Of course the details are more complex, injecting real M0 money (physical currency) and other real value into the system, but on the whole a dollar (the virtual stuff we claim to have, not the paper & coin we mostly don’t) is a promise someone somewhere will pass a dollar back thru the vast chain of debt and it all returns to what’s left of M0. Of course, settling up won’t happen - it all collapses at some point, like the loan guarantee debacle when a bump made everyone realize they were insulting themselves with nothing.
Whew. I dunno but there’s an old axiom that says don’t bet against a streak. I think I read that the price of gold is rising so if it were me, and I owned gold, I would not sell at this time.
But seriously I am not someone who can reliably give investment advice. I’m not qualified.
Would be happy to. You mean about money disappearing if all debt was paid off?
“the entire federal government financing scheme would crash with higher rates”
The financing scheme would change & may crash, but that doesn’t mean cheap money is here forever.
Here are the top 6 cumulative outlays for 2021 in billions.
1) Income Security 1,649
2) Social Security 1,135
3) Health 797
4) National Defense 755
5) Medicare 696
6) Net Interest* 352
* The Net Interest category could double and I still won’t worry about it. Look at all that fat above it.
I think rate hikes are coming, regardless of what naysayers think.
Physical currency is nothing more than a representation of Treasury bills, notes, and bonds.
If that debt were paid off then currency would disappear.
Look at the Fed's latest monthly H.4.1 report and let me know if you still think the same.
Sorry - meant weekly
This countries corporations are going to be forced to do what Trump wanted them to do.
Bring all manufacturing back here.
I think rate hikes are coming, regardless of what naysayers think.
interest rate increases?
inflation
tax increases.
door 1, 2 , or 3?
They'd be on CNN telling anyone who'd listen Biden was a terrible mistake. But they're not. That tells me they support being looted by government, they support sky high prices, they support open violent borders, they love deadly military catastrophes, they support turning a pandemic into a dictatorship, a 3 ring circus of lies, endless threats, they support high crime, look at the big cities...they want a shaky risky economy etc, etc... Are Democrats and all Republicans outraged about this disaster? No, for most these posers, this is all business as usual. They got theirs.
“You mean about money disappearing if all debt was paid off?”
Yeah.
Check out the link I posted from the Bank of England. Straight from the horses mouth, as it were...Fed does things exactly the same way.
They raised the FF rate between June 2004 and July 2006 from 1.00% to 5.25%.
Paying off a credit card destroys money.
So what?
If all debts were paid off then there wouldn't be any money.
Why would all debts ever be paid off? What would people do with their savings?
Peter,
Good points on all 3. You mentioning tax increases perked my interest.
I’m actually surprised the democrats aren’t proposing more tax hikes.
Tax hikes without recycling monies immediately back into the economy are anti inflationary. I prefer interest rate hikes instead of tax hikes, especially when democrats have control of Congress.
Democrats like to nickel & dime producers, its what they’re good at.
The "slight" problem is that the debt is actually toxic and worth zero.
It's US Treasury debt and guaranteed MBS. Why is it toxic?
They can't sell it. They can't give it away. It's no different than the toxic waste at Fukishima.
Why would they have to do either?
I don't think so. Oil prices are high because we've had more than 5 years of tremendous under-investment in oil & gas exploration and refining. All the money has been going into green energy, and we are NOT getting a proportional return on the money.
The MOMENT global demand exceeds what the greedy Saudis can produce, prices will ROCKET up. After that, the price might crash again. But, not before we repeat 2008.
If that debt were paid off then currency would disappear.
If someone else pays off their debt, why are my $20s disappearing?
They hold bonds. They always hold bonds. When rates are falling and when they're rising. And?
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