Posted on 03/12/2023 8:41:39 AM PDT by Diana in Wisconsin
Expectations were great. When 2023 started, there was a general sense that the stock and bond markets had turned over a new leaf. A repeat of 2022 was out of the question.
The primary assumption was that inflation would relent. After that, everything else would neatly fall in line. Specifically, interest rates would decline, and the next great stock market boom would bubble up just in time to bailout the meager retirement savings of aging baby boomers.
That was the general outlook when 2023 commenced. But instead, the opposite is now happening. Inflation is persisting. Interest rates are rising. And stock and real estate prices are headed down, down, down.
This week, for example, Fed Chair Jerome Powell, in his semi-annual Congressional testimony, clarified that interest rates would go “higher than previously anticipated.” He also noted that, if needed, he’s “prepared to increase the pace of rate hikes.”
In other words, the much-anticipated Powell pivot has gone on indefinite hiatus. You can fight the Fed and buy stocks if you must. But you won’t likely be very happy with the results.
Moreover, Fed rate hikes are only part of the story. To be clear, the Fed’s rate hikes are to the federal funds rate. However, they do, in fact, influence Treasury rates.
Since March 2022, the Fed has hiked the federal funds rate from a target range of 0 to 0.25 percent to a range of 4.50 to 4.75 percent. As a result, and over this duration, the 2-year Treasury yield has jumped from 1.75 to over 5 percent.
What to make of it…
Radical Action
Rising interest rates mean higher borrowing costs. And higher borrowing costs mean a greater percentage of income is needed to service the debt.
This has various ramifications. For example, if more income is being used to service the debt there is less income available to use for savings, investments, or to buy other goods and services.
With less money available to spend or to invest in capital markets, economic growth stagnates. This, in short, intensifies the problem.
With less capital and savings available, and less spending taking place, there’s ultimately less economic activity. And when there’s less economic activity taking place there’s less cash flow available to service the debt.
To then make up the difference, consumers must use greater amounts of consumer debt to attain the consumer spending needed to preserve their lifestyle. This, again, is a dead-end street. Applying additional amounts of debt is a short-term solution for a long-term problem.
The debt, unfortunately, doesn’t magically disappear. It piles up until a point where radical action must be taken. Creditors get stiffed. Or debtors massively reduce spending to pay down the debts previously incurred.
It is all very basic. A simple acceptance of reality, and the determination to take the necessary footwork, can result in great things. In this case, it can turn the pain involved with digging one’s way out of debt into the foundations for building wealth.
A debtor that is successful at digging themselves out of a hole by massively reducing spending will then have the opportunity to build real wealth. Because once there is no debt left to pay off, the excess money can be saved and invested.
Americans on the Hook
Structuring your lifestyle and spending habits to be less than your income is fundamental to building real wealth. The best investment opportunity in the world could be right in front of your face. Yet if you don’t have the capital, you won’t have the ability to capitalize on it.
We’re not sure why, but few people have the discipline to spend less than they make, and then save and invest the difference. This is why most people should be prepared to eat canned lima beans in retirement – the puke green ones the cafeteria served you in grammar school.
Over the years, U.S. debtors – including consumers and the government – have spent their way into a massive debt hole. For several decades, these massive debts have been masked by low interest rates. The days of refinancing at ever lower rates are over.
Interest rates are rising. But what if interest rates must increase much, much higher than Powell anticipates?
The truth is, there are groundbreaking events that are well beyond Powell’s control. For example, Japan may be the world’s largest holder of U.S. Treasuries. But the appetite Japanese investors have for Treasuries may be souring. In this respect, the Wall Street Journal recently posited the following:
“Last year, the Federal Reserve’s interest-rate increases weakened the yen and lifted the cost of hedging against currency fluctuations for Japanese investors buying U.S. assets. That drove many to unload U.S. bonds, in a shift from years of purchases that made Japan the world’s largest foreign holder of Treasurys. Now, investors are growing worried the selling will resume, especially with Treasury yields hurtling toward decade-plus highs.
“Without that support, Americans could be on the hook for higher borrowing costs on everything from single-family mortgages to business loans.”
Are you an American? Do you delight in the prospect of being on the hook for higher borrowing costs? What Comes After the Great Liquidation
Fed rate hikes, to contain the inflation of its own making, are contributing to higher Treasury rates and higher borrowing costs. This will continue to push borrowing costs higher and higher until something breaks.
What will that something be? And what will be the first something to break?
Will inflation break first? That’s the soft-landing scenario that Powell is after.
Or will the economy and big banks break first?
In this scenario, there would be mass layoffs, business closures, and a giant wave of bankruptcies. There would also be the blow-up of several big investment banks or significant investment funds.
Alas, we believe the soft-landing scenario is highly unlikely. The recklessness that was committed in the run-up to the coronavirus panic, which then went into complete overdrive when the whole world lost its mind, must be reconciled.
There’s no easy way out of this one. Mass liquidation is coming. Still, when the dust settles consumer prices will remain higher than they were at the start of 2020.
There’s no going back to the prices of January 2020 for the same reason there will never, ever be penny candy again. The dollar debauchery that took place has permanently disfigured prices.
The central planners, eager to deliver something for nothing, caused an epic disaster. And they won’t stop. They’ll continue to act – and they’ll say they’re acting with courage. What then?
More than likely, through money supply expansion and currency debasement, the central planners will continue down the inflationary path. Maybe it will continue at a subtle or moderate rate over many years or decades. Or they could trigger runaway inflation, where velocity spikes up and prices double and triple in just a few weeks.
No doubt, we’ll all find out soon enough. In the meantime, pay down debts, save cash, buy gold, and stack silver. With a little luck, you’ll make it though with a slimmer waistline and a greater mistrust of the planners in charge.
How many businesses are there in the Wineries industry in the US in 2023?
There are 7,475 Wineries businesses in the US as of 2023, an increase of 3.9% from 2022.
How many winery businesses in California and other states:?
Which States have the highest number of businesses in the Wineries industry in the United States?
California (3,103 businesses), Washington (696 businesses) and Oregon (560 businesses) are the States with the most number of Wineries businesses in the US.
Economic forecast:
1 Single and Double wide Trailer prices will rise.
2 People will buy all the available sleeping bags.
3 Fights will break out for the best spots under the bridge.
Wisconsin has two of local note (Wollersheim and Botham, which is just ‘over the hill’ from me) and a few others that brew wine in big vats from mixes. ;)
So we’re probably safe. For now.
Luckily, homemade wine is easy to make. :)
Can I bring my chickens with me when I’m living under a bridge? Will they each need a sleeping bag, or can I pile them all into one? ;)
I remember penny candy - and some that was two for a penny. We're probably at the stage now where folks in the future will marvel we once paid only a $1.29 for a dozen eggs.
Is this a case of the proverbial ‘putting all your eggs in one basket’ - - at an industry wide level? What percentage of wineries used this same bank?
I think the writer meant that was the narrative that had been created. Not necessarily that he believed it.
(And if the courts have not seized them bring your guns to impress your indigent neighbors who might be tempted to make "pets" of your chickens.)
Hygene....I would bring a second sleeping bag for your “poultry”!
What percentage of wineries used this same bank?
Apparently, a very high % across the US.
We may find out later this week or month.
It depends on what % or actually money each winery has/had deposited with this so called bank.
“People will buy all the available sleeping bags.”
With the PG&E bills setting records each month in California, good sleeping bags have become a need instead of a camping luxury item.
In the event you lose power and heat and you are still in your house, get a big tent (w/o stakes) for your living room and a smaller pop up tent inside that. Sleep in your sleeping bag inside your small tent. Your body heat should keep you warm and your need for additional heat should be minimal.
(Remember to turn off your water and drain down your water system or you will burst your pipes!)
Thanks. I passed your suggestions on to a younger relative living an area which gets a lot colder. They have the bags and smaller tents.
Tee-Hee! :)
“In the event you lose power and heat and you are still in your house, get a big tent (w/o stakes) for your living room and a smaller pop up tent inside that. Sleep in your sleeping bag inside your small tent. Your body heat should keep you warm and your need for additional heat should be minimal.”
It really works. I remember doing that with my sister and folks in 1976 when we had a huge ice storm that shut down most of Wisconsin. He put all the furniture along the walls and Dad set up ‘camp’ in the Family Room. It faced South and had huge windows, so it was warm all day and well into the evening. One tent for them and one for me & Sis and the dog. Pads, sleeping bags and blankets on top. We didn’t have power for about a week and it was sub-zero outside. The WORST part? Being a 16 year old girl WITH NO TELEPHONE!
I’m surprised I survived! *SMIRK*
He set up a camping bucket toilet for us in his basement shop area. I mean, Dad was PREPARED!
If we wanted to go across the street to the neighbors, you had to crawl on hands and knees because everything was coated in ice. I remember our beautiful Birch tree losing one of her three ‘trunks.’ That must be why I’m a tree-hugger, LOL!
Meat was going to spoil in the freezer, so he set up the charcoal BBQ and started grilling. We lived and ate like KINGS that week, I tells ya! ;)
And weren’t those fun times! (Unlike these....)
And this year I purchased a second Mr. Buddy propane heater so I would not have to worry about a double tent like the last time I spent 10 days in the dark. (And three school age girls at the time! )
I used to listen to Dave Ramsey until it became depressing. I can’t imagine being in the financial hell hole that some people are in.
Luckily, the only debt I ever really had was whatever farm/home I owned at the time. I do love the ‘We’re Debt Free!’ calls/clips for inspiring others. :)
The FIRST thing to do when you’re in a financial hole is to STOP DIGGING! People miss that part until it’s too late. :(
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.