Biden’s Billionaire Tax

 President Biden has proposed a new 20% “billionaire tax” for his 2023 budget. 

Here’s a dumb question: given that (a) it targets the uber rich (b) the current top personal income tax rate is 37% starting at over $540.000… why is the billionaire rate only 20%? Wouldn’t 37% be more just - to say the least?  Better yet, shouldn’t there be an even higher bracket - say, 50% ?

After all, 22% tax is levied on those with income over just $40.500. Not exactly members of the Billionaire’s Club..

Cut Consumption, Kill The Bear

 Conventional wisdom: The West has shown remarkable unity in imposing sanctions against Russia.  They will hurt the invader so much that it will quickly back down and stop the war.

An alternate version: Russia and Ukraine combined control huge percentages of global exports of the most essential goods of all: energy, grains and fertilizers. Russia can sustain a lack of mega yachts, Mercedes, Louis Vuitton and Dom Perignon indefinitely, while the West freezes and starves.  Put another way, Russia is already using its WMDs, while the West is reduced to brandishing pop guns.

Only way for the West to prevail is to give up its Permagrowth model and go 100% Green, Sustainable, Vegan, and Local. 

Cut consumption, kill the bear.

Plan A, B, and C: Don’t Feed The Bear

What’s Wrong With These Pictures?

“This battle will not be won in days or months. We need to steel ourselves for a long fight ahead." US President Biden speaking in Poland March 26, 2022.

Now, look at the following charts. 

Then, ask yourself: are markets fairly priced vs. Mr. Biden’s statement?

Yield Curve Warning

 One of the better predictors of recessions is the yield curve, especially when it inverts and/or flattens out very fast (ie when short term interest rates are higher or near long ones).  

An easy way to visualize this is the 10-2 year Treasury yield spread, see chart below.  Notice how the spread drops before recessions (in grey).  Will today be any different? Maybe - we didn’t get a recession in 1996-97, for example.

Another major difference after 2010 is the slow persistent decline culminating in 2019 right before the pandemic  - a period characterized by near zero inflation and very, very low interest rates, long and short. 

So, is there a recession in the cards? With inflation at 40+ year highs and interest rates still way below it, I don’t see how the Fed (and ECB) can avoid tightening further. Put it another way: the next recession may very well be a “punch bowl” type, where the Fed is forced to stop the party from getting out of hand. We haven’t had one of those in a very long time - I wouldn’t be surprised if younger readers don’t even know what I’m talking about 🙃🙃

I Don’t Want To Title This Post…

 Inflation at the highest in 40 years. Government debt at the highest ever.  Interest rates jumping. 

What could possibly go wrong??? Put another way, at which point does the US debt become unmanageable?

I’ll let the charts tell the story.

USA: CPI inflation (red line) and Yield on the 7 year Treasury Note (blue line)

Average Maturity Of US Government Debt Held By The Public

Yield of the 7 Year Treasury Note (ie near the govt. debt average maturity)

Government Debt Interest Expense At Various Interest Rates

Charts with the yellow background are from Yardeni Research

America's Empire Challenged

 Russia's invasion of Ukraine may be explained in many tactical ways but the bottom line is this: Russia and China have decided that now is the time to confront and challenge Pax Americana.  What do they see?

• A country sharply divided along economic, cultural, religious and political lines. Actually, as Trump’s MAGA campaign made very clear, it all boils down to the sharp divide between the ultra rich 1% and everyone else.  (A student of Roman history instantly sees the pattern repeating itself.)
• A line of increasingly weak political leadership, going back at least 20 years to GW Bush.
• The emasculation of American industry, now focused entirely on “software” ( I use the term loosely).  Manufacturing has been gifted almost entirely to China.
• A stunning disregard for fiscal and monetary responsibility.  It started with the Great Debt Crisis in 2007 and has been going on ever since. The pandemic tsunami of free money is just the final act.
• A massive bubble in everything: stocks, bonds, commodities, cryptos, real estate, NFTs. It has infiltrated every aspect of American life, so much so that even the Fed is terrified of doing anything that will burst it.

Seen from this perspective, Russia’s  invasion of Ukraine may have nothing to do with territorial claims. Instead, it may be just a tool, a geopolitical force-multiplying lever to unseat the US from its Empire throne. 

The most interesting thing to watch, in my opinion, is China’s ultimate reaction. It always plays the patient Long Game, but at some point it will pull the trigger.  Will it be now?

Gas Attack

 A gas attack was the most fearsome weapon in the trenches of World War I.  A century later in another European war, it has taken a whole new meaning.  But it may prove no less lethal…

Natural Gas Futures (ICE)