Authored by Contra Corner’s David Stockman via The Brownstone Institute,

New material Musk released over the weekend confirms the very worst. The banal boys and girls previously ensconced in Twitter’s top echelons were not only having a jolly time attempting to steer the nation’s news narrative; these executives were actually meeting weekly with FBI, Homeland Security and national intelligence officials to discuss “disinformation” they wanted removed from the site, including the notorious suppression of the Hunter Biden laptop story.

That’s just one step removed from a state-run Ministry of Truth and is perhaps even more insidious. That’s because it didn’t even involve unwanted and unconstitutional coercion. Instead, the executives of this private enterprise were voluntarily neglecting their day jobs (maximizing corporate profits and shareholder value) in order to spend a huge amount of corporate time and resources propagating official narratives and suppressing dissenting views.

It was as if the Washington powers-that-be had nationalized a multi-billion company, drafting it to propagandize on behalf of their own political and policy agenda and continued tenure in power.

So the question recurs as to why Jack Dorsey, Parag Agrawal, Vijaya Gadde, Yoel Roth and countless more top executives were not attending to corporate “biness”, but instead were ostentatiously moonlighting on behalf of an extra-curricular agenda that had absolutely nothing to do with making money at Twitter.

The answer is actually no mystery. The Twitter Files published so far by the trio of intrepid journalists given access to the company’s internal files—Matt Taibbi, Bari Weiss and Michael Shellenberger—provide a screaming case of the dog which didn’t bark.

Not once do any of these executives predicate their “content moderation” and thought control actions on the need to mollify advertisers and thereby protect corporate revenues and profits. Not once!

Actually, of course, the risk of losing advertising revenue would be a valid free market reason for “de-amplifying” content that caused revenue sources to wither. But no one averred that the NY Post’s dropping the dime on Hunter Biden would send GM or Proctor & Gamble advertising dollars packing or even that the user eyeballs on which those dollars depended would suddenly blink-shut owing to the horror of it.

Indeed, the eyes of the company’s collective leadership were so far off the eight-ball of profit maximization that they had seemingly endless time for the pursuit of all manner of foolishness and trivia on Twitter’s network. For instance, former Governor Huckabee’s obviously facetious tweet about fraudulent voting got the attention of the entire upper echelon:

Stood in the rain for hour to early vote today. When I got home I filled my stack of mail-in ballots and then voted the ballots of my deceased parents and grandparents. They vote just like me! #Trump2020,” Huckabee tweeted on Oct. 24, 2020.

The blatant attempt at humor here should have escaped no one’s attention with an IQ above 80. But as Matt Taibbi revealed, the bigwigs using the Slack channel titled “us2020_xfn_enforcement” actually hosted a lively debate about whether Huckabee’s tweet should be removed.

“Hello putting this tweet on everyone’s radar. This appears to be a joke but other people might believe it. Can I get your weigh in this?,” a Twitter employee wrote, linking to Huckabee’s tweet.

Twitter’s former Head of Trust & Safety, Yoel Roth, said in the Slack channel that while he agrees “it’s a joke,” Huckabee is “also literally admitting in a tweet to a crime.”

“Yeah. I could see us taking action under ‘misleading claims that cause confusion about the established laws, regulations, procedures, and methods of a civic process’ but it’s not one that we could really label in a useful way, so it’s removal (of a stupid and ill-advised joke) or nothing. I’m maybe inclined not to remove without a report from voting authorities given it’s been a while since he tweeted it and virtually all of the replies I’m seeing are critical/counterspeech,” Roth said.

There are countless other examples in the Twitter Files of what amounts to trivia and pure partisan sniping garnering top corporate attention. In one tweet, Donald Trump referenced a mail-in voting problem in Ohio that was found to be true.

Nevertheless, Twitter executives were praised for their speed to impose “visibility filters” so the tweet could not be “replied to, shared, or liked,” and the staff received a censorship “attaboy”: “VERY WELL DONE ON SPEED.”

Still, that was Donald Trump the sitting president—so presumably he was worthy of top level censorship. But what about one John Basham, a former Tippecanoe County, Indiana, Councilor?

The latter had apparently caught the attention of the FBI, which sent a report to Twitter for action owing to the fact that Basham claimed,

“Between 2% and 25% of Ballots by Mail are Being Rejected for Errors.”…

Let’s see. Does the opinion of an ex-official from a place that no one has heard about since the election of 1840 (“Tippecanoe and Tyler, Too”), implicitly claiming that the mail-in error problem was either huge (25%) or relatively trivial (2%), really matter when it comes to running a global corporation, or even a government-contracted censoring operation for that matter?

That is to say, these kids and half-baked partisan ideologues were in so far over their heads that it was only a matter of time before the whole enterprise ran aground. Indeed, they had formulated so many rules for content moderation and such complex multi-stage forms of penalty, including parental-style “timeouts”, that much of the internal debate revealed in the Twitter Files amounted to arguments about the application of sheer stupidity.

This was more than evident in the case of Twitter’s seven suspensions of the “LIBs of Tik Tok” (LTT) account. This Twitter account was launched by one Chaya Raichi in November 2020 and now boasts over 1.4 million followers. Each time, Raichik was blocked from posting for as long as a week.

Yet what was the offense? The committee justified her suspensions internally by claiming her posts encouraged online harassment of “hospitals and medical providers” by insinuating “that gender-affirming healthcare is equivalent to child abuse or grooming.”

Actually, that’s a red hot matter of judgement and opinion that can be argued either way—the exact kind of thing that is supposed to be debated in the town square. But either way, the Twitter claim that the LTT viewpoint on the matter amounted to “hate speech” reveals just how far off the deep-end these wokish juveniles had descended.

Still, what matters here is the wording of the Site Policy Recommendation: It’s all about school playground style punishments, and nothing at all about the needs of the business or viewpoint of advertisers.

Meanwhile, what was happening back at the ranch in 2020-2021 when the Twitter HQ was being transformed into the Village of the Damned?

Well, on the one-hand the company’s stock price was coming up roses. After hitting the skids in 2015-2016, the Twitter’s market cap had risen from $12.5 billion in the fall of 2017 to $27 billion by the fall of 2019 to a peak of $54 billion in July 2021.

In short, given a quadrupling of the company’s stock price in just four years and the resultant massive gains in the value of executive stock options, the top echelon apparently felt free to become moonlighting volunteers for the Deep State. That is, doing well they faced no penalty for doing good at the shareholders’ expense.

And we do mean shareholders’ expense. During its 2020 and 2021 fiscal years combined, which encompassed the peak period of the C-suite insanity chronicled by the Twitter Files, the company did harvest $8.8 billion of revenue from the Lockdown-world’s acceleration of the advertising migration from legacy to digital venues.

Moreover, collecting those sums only required $3.2 billion in cost of goods sold, resulting in sterling gross profits at $5.6 billion and 64% of sales. In turn, that should have resulted in a shareholder bonanza on the bottom line. Except it didn’t.

In fact, the company’s moonlighting management spent far more than that—$6.1 billion—on R&D, sales and marketing, general overhead and other top-side expenses. That is to say, Twitter’s putative business model went bust, with cumulative operating losses of nearly one-half billion dollars during the two year period.

Likewise, its bonafides as a cash-burning machine were reinforced. During 2020-2021 it generated $1.6 billion of cash from operations, but spent nearly $1.9 billion on CapEx. Accordingly, Twitter’s operating free cash flow came in at -$260 million.

In short, when the company reached a peak valuation of $54 billion in July 2021 it was bleeding red ink and burning cash. It essentially had an infinite valuation multiple, which absurd valuation, in turn, amounted to a flashing green light for rampant moonlighting by not only its top management, but nearly the entirety of its the 7,500 work force.

In that regard we have been waiting for our Twitter screen to go dark ever since Elon Musk fired the employment rooster back to at least its December 2017 level (3,372). But, alas, the tweets just keep on coming, even as expenses have been pared back to the levels extant when Twitter was valued at the aforementioned 25% of its eventual peak.

The Twitter story is not a one-off case, nor is it evidence that Wall Street and the homegamers alike are comprised of greedy fools who will fall for anything.

To the contrary, the destructive outbreak of corporate moonlighting in behalf of woke ideology and partisan causes was born, bred and matriculated by the money-printers at the Fed.  At the end of the day, it is bad money that leads to bad, value-destroying behavior in the C-suites—just one more instance of the “malinvestment” which is the inherent result of monetary inflation.

In this context, the unjustified bubble in the Twitter stock is actually small potatoes compared to the giants of Silicon Valley—all of which have been infected with the same bad money based descent into political moonlighting.

As it happened, the stock of the FANGMAN (Facebook, Apple, Netflix, Google, Microsoft, Amazon and NVIDIA) got enormously bloated by the Fed’s rampant money-printing during the last decade.

Thus, in 2013 these seven tech giants were collectively valued at $1.19 trillion, which figure represented 15.9X their combined net income of $75 billion. Arguably, that PE multiple was reasonable and appropriate given the fact that most of these companies were growing rapidly but were also benefiting from a one-time headwinds.

These included—

• the shift of advertising from legacy to digital media;

• the migration of merchandise sales from bricks and mortar stores to e-Commerce;

• the shift of computer technology from standalone boxes and their packaged software to the cloud; and

• the full adoption of smart-phone technology by the mass public.

These one-time tailwinds did result in a 20% per annum earnings growth for the seven FANGMEN during the 2013-2021 period. But the flood of Fed liquidity during the same period caused the PE multiple to more than double to 34X based on the view that the Fed would never let the market decline; and also that the rock-bottom interest rates would remain in place indefinitely, resulting in the baleful reign of TINA (there is no investment alternative to stocks).

Accordingly, the market cap of the seven companies soared to $11.5 trillion by the fall of 2021, representing a 33% per year gain. In turn, this meant not only that market caps had grown 1.5X faster than unsustainable one-time earnings gains, but that C-suites throughout Silicon Valley had no trouble taking their eye off the profits maximization ball in order to pursue political agendas that had nothing to do with good management of their respective businesses.

Alas, the worm has turned. The market cap of the FANGMEN has already dropped by a staggering $4.5 trillion to just $7.1 trillion at present. At the same time, collective earnings of these allegedly perpetual “growth” stocks have declined by nearly 14% since their summer/fall 2021 peak of $336 billion.

By our lights, companies experiencing double-digit earnings shrinkage—even before the upcoming recession—do not deserve the 24.5X multiple the market is now putting on their collective profits of$290 billion.

Likewise, shareholders never deserved the $4.5 trillion that has already vaporized, even as they were being badly served by management that had gone AWOL, moonlighting on wokeness and politics.

In all, bad money is the ultimate devil’s workshop. The bloodbath in Silicon Valley stocks and the Twitter Files disclosures enabled by the proprietor of Tesla, its most hideously over-valued company, are finally proving exactly why.

Billionaire hedge fund owner Ken Griffin has sued the IRS and the Treasury Department after his tax information was ‘unlawfully disclosed’ as part of a 2021 leak published in ProPublica.

In a Tuesday complaint filed in the Southern District of Florida, the Citadel founder and CEO accused the IRS of violating its “legal obligations to safeguard and protect his information from unauthorized disclosure,” and for willfully and intentionally failing to “establish appropriate administrative, technical or physical safeguards” to prevent such a leak, CNBC reports.

In its report, ProPublica – the recipient of the leaked data, revealed how top billionaires such as Elon Musk and Carl Ichan have been able to avoid paying federal taxes in certain years. The outlet said it the information was obtained via an anonymous source.

Griffin reported an average income of $1.7 billion between 2013 and 2018, according to the report.

One ProPublica article focused on Griffin’s opposition to an Illinois ballot measure – which he spent $54 million to oppose – which would have increased his state tax bill by over $50 million a year.

Griffin was not listed as one of the billionaires who paid zero or low tax rates in any one year, and, in fact, the ProPublica tax information showed Griffin pays a higher effective tax rate than many top earners. It also showed he was the second-largest American taxpayer between 2013 and 2018. -CNBC

According to the lawsuit, Griffin is “proud of his success and has always sought to pay his fair share of taxes,” but that after 2019, “IRS personnel exploited the IRS’s willful failure to establish adequate administrative, technical, and physical safeguards for the IRS’s data and records systems to misappropriate confidential tax return information for the highest earning U.S. taxpayers, including Mr. Griffin, and then unlawfully disclosed those materials to ProPublica for publication.“

The IRS inspector general and the DOJ have been investigating the leaks, but have yet to file charges. Republicans, meanwhile, say they’re frustrated by a lack of progress. In October, GOP members of the House Ways and Means Committee sent a letter to Treasury Secretary Janet Yellen which insisted that “the American people remain in the dark about who was responsible and how the Treasury Department allowed this to happen.”

Conservatives have also highlighted the leak in their opposition to the Biden administration’s $80 billion in additional funding, which was passed this summer.

Griffin notably spent $60 million during the midterm elections, becoming the second-largest donor to Republicans.

“IRS employees deliberately stole the confidential tax returns of several hundred successful American business leaders,” Griffin said in a statement. “It is unacceptable that government officials have failed to thoroughly investigate this unlawful theft of confidential and personal information. Americans expect our government to uphold the laws of our nation when it comes to our private and personal information – whether it be tax returns or health care records.”

Bloomberg reported that as soon as this week, the Biden administration could place Chinese chip maker Yangtze Memory Technologies (YMTC) and over 30 other Chinese firms on a trade blacklist that would prevent them from acquiring US semiconductor components.   

The action would mark another escalation in the deepening US-China technology war. Washington is trying to crush China’s ability to develop and manufacture advanced chips for military applications. 

People familiar with the US Department of Commerce’s move expect YMTC and the 35 other companies could be added to the so-called “Entity List” as early as this week. Once the companies are on the list, US suppliers must apply for special licenses to ship even low-grade items overseas. 

Bloomberg pointed out that Huawei Technologies Co.’s consumer smartphone business was severely impacted after it was placed on the list. 

The latest action, whether this week or in the coming month, comes after President Biden and President Xi Jinping held their first in-person meetings at the G20 summit in Bali, Indonesia. Also, the potential action comes two months after the US unveiled harsh export controls on YMTC and 30 other Chinese companies.  

On Wednesday, Foreign Ministry spokesman Wang Wenbin said at a regular press briefing that the US has “politicized and weaponized economic cooperation,” adding that Washington’s actions are causing supply chain disruptions. He said Beijing would take steps to protect its chip industry. 

More broadly, Washington is negotiating with Japan and the Netherlands in a trilateral deal to prevent companies from selling chipmaking equipment to China. The goal is to slow down the progress of China’s accession as it aims to become the top economic superpower. 

It’s not just Academy strategist Peter Tchir who bucks the prevailing consensus of at least two more rate hikes in 2023, and expects that today’s 50bps rate hike will be last one by the Fed: Bloomberg strategist Simon White is also in this contrarian camp, and here’s why – looking at historical data back to 1972, White finds that the last Fed hike takes place, in average terms, about 22 weeks after the peak in CPI. With the peak CPI in this cycle hitting in June, about 22/23 weeks ago, that would put the last Fed hike of the cycle at today’s meeting. After that, the first cut then happens – in median terms – about 16 weeks later, which in the current cycle would put us in early April 2023. In short, today the tightening cycle and, and the easing cycle begins in 4 months.

Here is White’s full forecast which, if correct, will be sufficient to spark the next bull market:

A Fed pivot could happen faster than even fairly dovish market expectations anticipate.

Tuesday’s softer-than-expected CPI report cemented the notion that peak Fed hawkishness is behind us, and makes a 50 bps hike today a very high likelihood.

The market is expecting the first full 25 bps cut from the Fed by November next year. But the historical record says it could come even sooner, surprising the market and (further) disappointing the Fed’s desire for higher-for-longer.

Looking back to 1972, the last Fed hike takes place, in average terms, about 22 weeks after the peak in CPI. Peak CPI in this cycle was in June, about 22/23 weeks ago, which would put the last Fed hike of the cycle at today’s meeting. The first cut then happens, in median terms, about 16 weeks later, which in the current cycle would put us in early April 2023.

Restricting the above analysis to the inflationary recessions of the 1970s and early 1980s does not much alter the length of time between peak CPI and last Fed hike.

There is no reason for history to repeat, of course, but this ties up nicely with the state of play. Traders in recent months have pushed the expected peak in Fed Funds ahead of the Dots, meaning for the first time that the market was amplifying rather than inhibiting desired Fed policy, and increasing the chance that peak Fed hawkishness has indeed elapsed.

Further, recession risk is rising and while one is not likely to be imminent, recessions often come on faster than expected. Jobs data still look fairly robust on the surface, but cracks are appearing, e.g. in unemployment claims, and there is a material risk that the data we are seeing today could be revised much lower.

Even though the Fed has talked tough on keeping policy restrictive for longer than normal, a rapid deterioration in the economic outlook could easily push policy makers to reverse course much quicker than most expect.

This is especially the case if inflation keeps falling at its current pace. This week’s report showed that the transport component (which was contributing the most to CPI) continues to fall at a rapid clip, overwhelming the steady rise in shelter, and keeping pressure on the headline number.

The college kid who created the @ElonJet Twitter account before Elon Musk bought the social media platform has had the account “suspended.” 

Last Friday, Jack Sweeney pointed out @ElonJet was “search banned,” though he mentioned the account had been “search banned for months before Elon’s takeover. “

It’s true ElonJet is search banned. But I’m not sure who to blame, it’s been search banned for months now way before Elon’a takeover. https://t.co/kYpSdFS6Tw

— Jack Sweeney (@JxckSweeney) December 9, 2022

But now it appears the account that shared publicly-available information about Musk’s private jet locations and had over half a million followers has been “suspended.” 

On Wednesday morning, Twitter users are chatting away about the suspension. Here’s what some had to say:

Elon Musk’s position on free speech pic.twitter.com/zvxTLf4Jhz

— Daniel Uhlfelder (@DWUhlfelderLaw) December 14, 2022

Hey folks (@RonFilipkowski @DWUhlfelderLaw ), not only has Elon suspended @ElonJet, he’s now prevented Flight Aware from publicly tracking his airplane. I guess it’s good to be rich.

This should be publicly available information. I’m sure someone can figure out how. pic.twitter.com/VQ2xCmBHra

— globetrotter (@globe55trotter) December 14, 2022

Nearly a year ago, we told readers about Sweeney and how Musk requested the college kid to take down the account because of security risks. 

At the time, Sweeney told Musk the price to take down @ElonJet would be a “Model 3.” Musk rejected the offer and told the kid: “I don’t love the idea of being shot by a nutcase.” 

As we’ve told readers, tracking the private jets of CEOs is nothing new in the hedge fund industry. There are services that some traders pay upwards of $100k to retrieve flight data of the movements of deal-makers. 

We also said Sweeney would have better luck selling his technology to a hedge fund or even Quandl, a flight-tracking company, rather than letting it stay on Twitter. Now the account has been nuked. 

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Nouriel Roubini, a former advisor to the International Monetary Fund and member of President Clinton’s Council of Economic Advisors, was one of the few “mainstream” economists to predict the collapse of the housing bubble. Now Roubini is warning that the staggering amounts of debt held by individuals, businesses, and the government will soon lead to the “mother of all economic crises.”

Roubini properly blames the creation of a debt-based economy on the near-or-at-zero interest rate and quantitative easing policies pursued by the Federal Reserve and other central banks. The inevitable result of the zero-interest and quantitative easing policies is price inflation wreaking havoc on the American people.

The Fed has been trying to eliminate price inflation with a series of interest rate increases. So far, these rate increases have not significantly reduced price inflation. This is because rates remain at historic lows. Yet the rate increases have had negative economic effects, including a decline in the demand for new homes. Increasing interest rates make it impossible for many middle- and working-class Americans to afford a monthly mortgage payment for even a relatively inexpensive home.

The main reason the Fed cannot raise rates to anywhere near what they would be in a free market is the effect it would have on the federal government’s ability to manage its debt. According to the Congressional Budget Office (CBO), interest on the national debt is already on track to consume 40 percent of the federal budget by 2052 and will surpass defense spending by 2029! A small interest rate increase can raise yearly federal debt interest rate payments by many billions of dollars, increasing the amount of the federal budget devoted solely to servicing the debt.

The federal government’s fiscal picture is made worse by the fact that the Social Security “Trust Fund” will begin to run deficits by 2035 while the Medicare Trust Fund will run deficits by 2028. The looming bankruptcy of the two major entitlement programs, combined with the unwillingness of most in Congress to reduce either welfare or warfare spending, puts the Fed in a bind. If it raises rates to the levels needed to really combat price inflation, the increase in interest payments will impose hardships on individuals and businesses, as well as raise federal interest payments to unsustainable levels. This will cause a major economic crisis including a government default on its debt causing a rejection of the dollar’s world reserve currency status. Also, if the Fed continues to facilitate federal deficits by monetizing the debt, the result will be an economic crisis caused by a collapse in the dollar’s value and rejection of the dollar’s world reserve status.

The crisis will lead to social unrest and violence, as well as increased popularity of authoritarian movements on both the left and the right. This will lead to government crackdowns on civil liberties and increased government control of our economy. The only bright spot is this crisis will also fuel interest in the ideas of liberty and could even help bring about a return to limited, constitutional government, free markets, individual liberty, and a foreign policy of peaceful trade with all. Those of us who know the truth have two responsibilities. The first is to make the necessary plans to ensure our families can survive the forthcoming turmoil. The second is to do all we can to introduce as many people as possible to the ideas of liberty.

Russia has responded Wednesday to the prior day report from Pentagon sources that the Biden administration is finalizing plans to send Patriot anti-air defense missiles to Ukraine, in what will constitute the longest range defense systems transferred from the West to date. 

“The Kremlin said on Wednesday that U.S. Patriot missile defense systems would be a legitimate target for Russian strikes against Ukraine, should the United States authorize them to be delivered to support Kyiv,” Reuters reports.

The Russian military has long sought to target both Western arms depots inside Ukraine, as well as inbound shipments traversing the country, which is part of the reason why early on in the invasion it heavily targeted the national rail network.

Deputy chairman of the Security Council of Russia Dmitry Medvedev posted the following warning statement directed at the US to his Telegram account (machine translation): 

“If, as Stoltenberg hinted, NATO supplies Kyiv fanatics with Patriot complexes along with NATO personnel, they will immediately become a legitimate target of our Armed Forces. I hope the Atlantean impotents understand this.”

As for potential delivery of Patriot systems, The Washington Post reports according to the latest, “The plan is not yet approved by President Biden or Defense Secretary Lloyd Austin, but it could be soon, the officials said, speaking on the condition of anonymity to detail sensitive internal deliberations.”

An initial CNN report said approval could come as early as this week, but it could take a significant amount of time to train the Ukrainians on the sophisticated Patriots’ operation. Training would likely occur in Germany and could take months.

The Washington Post notes further that the “Patriot-launched missiles can fly to altitudes as high as 79,000 feet, with an operational range, depending on the type of munition used, from a dozen to 100 miles, for use against ballistic and cruise missiles, as well as aircraft. It was not clear what kind of munitions the Pentagon will propose supplying.”

Ukraine now gets US Patriot missiles that cost the US taxpayer $3 million per missile to shoot down $30,000 Russian drones. The Russians can fire 100 drones for each US Patriot missile. The Pentagon strategists call this ‘unbalancing Russia’. pic.twitter.com/33kHrTEYk1

— Kim Dotcom (@KimDotcom) December 14, 2022

Range largely depends on the specific missile munition used, and it’s possible the Pentagon could limit ranges – as it reportedly did with HIMARS recently shipped to Ukraine, in order to prevent its systems being used by the Ukrainians to strike inside of Russia.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Often, boaters take the warning blow of a foghorn for granted and disregard it. However, all skippers seem to pay attention when they hear the scraping of their hull against a reef.

The yield curve is a financial foghorn of sorts. Currently, it is bellowing that something is drastically wrong. As evidenced by earnings growth estimates for 2023, financial skippers are going about their business as if a recession is unlikely.

Yield curve foghorns are often unheeded by investors as they blow well before danger is apparent. As such many investors are unprepared when problems arise.

Today, the 10-year/3-month UST yield curve is at its most negative level since 1982, as we share below.

The blast of the financial foghorn is deafening, but the financial waters and economic environment appear relatively calm.

Given the strong possibility that history repeats and the yield curve correctly portends danger, now is the time to examine how and when the yield curve will un-invert, or steepen, and what that might mean for asset prices.

In this article, we use the terms un-invert and steepen interchangeably to describe the yield curve rising from a negative value to a positive one.  

The Market’s Foghorn

An inverted yield curve, whereby the yield of a shorter maturity bond is higher than a longer maturity bond, is an omen that something is wrong. Yield curves are often positively sloped. In free markets, investors should receive a higher yield for taking on the potential risks that grow with time. Since 1986, the 10yr/3m yield curve has been in a state of inversion less than 5% of the time.

The three graphs below show why an inverted yield curve is a foghorn worth following, even if the current environment doesn’t appear too worrisome.

Since 1986 every yield curve inversion has been followed by a recession. We only show the last four inversions, but be mindful that each of the previous eight inversions led to a recession. However, and this is a common theme in the following graphs, economic and financial hardship did not occur until after the curve steepened to a positive slope. It has taken anywhere from three to thirteen months and .53% to 2% steepening until a recession began.

The next graph shows stock market drawdowns follow a similar pattern. In all four inversions, the maximum drawdown in the market occurred after the curve started to steepen.

Lastly, and not surprisingly, stock earnings tend to fall appreciably after the yield curve troughs and regains its positive slope.

How Do Curves Un-invert?

Quickly and in a “V” shaped pattern, as the graphs above show.

The following graph compares the three un-inversions side by side to appreciate the speed and degree to which they normalize. The black vertical lines break the data into one-year increments. We leave out the 2019 example due to the unusual circumstances surrounding the pandemic and the massive fiscal and monetary responses.

Based on the three episodes, we should expect the curve to be positive by at least 1% and as much as 2.75% within one year of the maximum inversion. Within three years, a +3.5% slope is likely.

In the three cases, the large majority of the curve steepening was due to the short three-month rate plummeting. On average, the ten-year yield fell by 61 basis points, and the 3-month yield fell by 4.62%.

How Will the Curve Un-invert This Time?

Currently, Fed Fund futures forecast a terminal Fed Funds rate near 5%. Assuming that comes to fruition and the ten-year yield stays put, the yield curve will further invert to negative 1.50%.

This is where the analysis gets both problematic and concerning. What conditions might cause the yield curve to normalize?

The following scenarios help us consider the future shape of the curve.

Soft Landing

In this scenario, the economy slows or enters a very mild and short-lived recession. At the same time, the inflation rate falls rapidly.

Assuming this plays out, which we assign a low probability, we expect the Fed to keep rates at 5% or so until inflation is much closer to 2%. In the soft-landing scenario, the 3-month yield is likely to stick around 5%, and the curve might further invert as longer-term yields fall due to weak economic growth and lower inflation. The curve would steepen when the Fed is comfortable that they have slain inflation and can lower the Fed Funds rate. The steepening would be gradual in this scenario, not “V” shaped like the prior inversions.

Something Breaks

In this outcome, which we think is most likely, liquidity reductions and sharply deteriorating economic activity cause financial instability. Under such a scenario, something breaks. It may be a market, a significant financial institution, or even a foreign country. Whatever the cause, the Fed would lower rates aggressively to stop a Lehman-like contagion.

Such would likely entail ending QT and possibly starting QE to boost liquidity in the system. Short-term yields would plummet as the Fed lowers rates. Longer-term yields would initially fall as investors seek the safety of U.S. Treasuries.

Lower inflation, weak economic growth, and a flight to quality/safety argue for much lower rates. However, the monetary and fiscal response, if aggressive like in 2020, might stoke inflationary fears. We saw in the three prior inversions that long yields might decline moderately, but short-end yields could plummet to near 0%.

Fed Forces a Steeper Curve

An inverted yield curve poses problems for banks as it shrinks their net interest margins (NIM), which makes lending less profitable. To help boost their profitability and fortify their balance sheets, the Fed might want to steepen the curve by forcing long-term yields higher.

Per Michael Kao, there is about $2.7 to $3 trillion of floating-rate corporate debt outstanding and a similar amount of floating-rate mortgages. As rates reset higher for floating-rate borrowers, bankruptcies will rise. At the same time, banks are seeing increasing losses on corporate loans and debt, their margins are severely contracting. By steepening the yield curve via higher long-term rates, the Fed could improve bank margins which may help banks better weather a credit storm.

What happens when you cut off a bank’s NIM lifeblood and saddle it with loan losses at the same time? CREDIT CONTRACTION ACROSS ALL LENDING ACTIVITIES AND POSSIBLY EVEN BANK BANKRUPTCIES. – Michael Kao

Two More Warnings

We share two graphs to provide further credence to the roaring yield curve foghorn.

The first graph shows that the last eight times the Chicago PMI report was below 40, as it is now, a recession occurred. While the yield curve tends to precede the recession by months or even a year, this graph argues a recession may be on our doorstep.

The second graph from Jim Bianco shows the recession odds in 2023 are greater than at any time since 1970.

Summary

Bear markets do not end until recessions start. The yield curve, Chicago PMI, and other analyses argue it’s a matter of when but if a recession occurs. Based on what we have shared, those claiming the market has already bottomed better hope this time is different.

The financial foghorn is blowing. Historical odds greatly favor a recession, stock market drawdown, and a much lower Fed Funds rate.

As they warn in the HBO series Game of Thrones- “Winter is Coming,” the foghorn tells us so.

It doesn’t look like anyone can stop the recent selling in Tesla, and Goldman Sachs doesn’t seem interested in stopping that party. Ever since Elon Musk has been diverting his attention to Twitter, shares of Tesla have suffered. They are down about 10% in just the last 5 trading days and the company is trading near 52 week lows that are about 60% lower than the company’s 52 week high of $402.64.

Shares of the automaker are down again about 1% in the Wednesday morning pre-market session – following a plunge of about 15% over the last month – after the investment bank downgraded the name on “softer supply and demand” worries. 

Goldman Sachs analyst Mark Delaney also cut his price target on the company by nearly 25%, slashing expectations on the company to $235 per share from $305 per share. The target still marks a 46% increase from current levels, Bloomberg noted in a Wednesday morning wrap up.

The same report said that Delaney says “his reduced estimates are consistent with the added incentives and price reductions for certain Tesla vehicles this quarter, reduced wait times and soft macro indicators”. We have noted many of these price plunges and factory slowdowns as they have played out over the last few months.

Despite this, Delaney still believes Tesla is “well-positioned for long-term growth”. 

The signs of a slowdown in demand have been presenting themselves. We have written recently about Tesla shuttering production at its key Shanghai plant, responsible for a majority of the company’s overseas output. We noted days ago the company was planning on suspending production at the plant at the end of the year. Tesla, for the most part, has refuted that there are demand issues – but obviously the concern is starting to become real.

Model Y and Model 3 production lines are expected to be suspended in the last week of December, according to Bloomberg, citing people familiar with the matter. They said Model 3 production could resume in early January, though Model Y output disruptions could be prolonged. Another person said Model 3 production could be suspended again later in the month for the Chinese New Year. They added that this would allow for more upgrades and equipment maintenance to produce an enhanced version of the model. 

In a separate report, Reuters cited two people with direct knowledge and an internal memo about the automaker’s plan to suspend Model Y production at the plant between Dec. 25 and Jan. 1. The two people said the suspension of the assembly line would result in a 30% reduction in Model Y production for the month. They added this type of production halt isn’t a common practice for the plant. 

“The Shanghai factory, the most important manufacturing hub for Elon Musk’s electric vehicle company, kept normal operations during the last week of December last year,” Reuters said. 

Earlier this week, Bloomberg said that slumping Chinese demand would result in the factory reducing production by 20% from full capacity. And almost immediately, a report from Shanghai Securities Journal called it “false information.” 

Authored by Todd Hayen via Off-Guardian.org,

Zero Covid, zero disease, zero suffering, zero death. Unrealistic goals? You bet – although many countries (particularly China) have seemingly adopted a “Zero Covid” stance and have made a rather destructive effort to eliminate any occurrence of Covid-19 from their citizenry – boarding people up in their apartments, attacking people trying to escape, all those fun things fascists like to do.

This effort to maintain a “Zero Covid” environment is yet another piece of the agenda intended to brainwash and thus control the populace. The powers that be know that, but most of the people they are controlling do not.

The people might think “Zero Covid” sounds like a good idea, but it is fantasy, and typically you can’t count too much on fantasy in a nitty-gritty real world.

Now, I’m not knocking fantasy. Sometimes it is just what we need to get through the day. But this isn’t our own personal fantasy, this is fantasy put upon us by an authority that has a nefarious agenda. It is a slight of hand card trick, it is an intentional deception—a deception premeditated to cause harm to some (most) and benefit others (a few).

What is the card trick regarding “Zero Covid?” Well, it is once again an effort to convince us that being human is a problem. Isn’t all that is going on in the world right now have the same intention?—the “Woke Culture,” the “Cancel Culture,” the “transgender/identity” issue? Need I list more examples?

It seems that whatever “power that be entity” that likes to dabble in human cognitive dissonance has been assigned the task of doing whatever possible to make humans confused, and thus dissatisfied, with their human-ness.

Should people born a certain biological (human) sex really be encouraged to mess with their humanness and alter it to “look like” a different sex? Sure, psychologically people can “feel” all sorts of “identities” and even act out on them, but why destroy the physical “human” part of ourselves as a result? Why be encouraged to insert microchips in our brains to make us smarter or more efficient than what nature intended us to be?

As a result of all of this fluidity to “alter” our nature, we become more and more comfortable with this idea that there is something wrong with how we came out of the box. We find our inability to live forever, or ward off all disease, or remove all physical danger from our lives, to be a defect—a manufacturer’s error. And then we go bonkers to compensate for our human problem.

I shouldn’t say we “become comfortable” with the idea of innate imperfection, because it is anything but comfortable, in fact, it is downright crazy making. Of course this doesn’t apply to all of us, but those that it does apply to are among us.

Where did this insane desire to alter our normal human “is-ness” come from? Well, we certainly have seen it from day one. Humans obviously have not evolved from their origin into creatures that integrate with the natural environment the way all other creatures have done. This is an age-old question, and nearly everything “human” has become part of that all-important question, from all the “good things” such as art, music, and other creativity from the heart, to all the bad things such as weaponry, pollution, and genetic engineering.

I find it difficult not to include any advancement in technology with the “bad things.” Any of the things we could say are “good” have only been effective in providing convenience, avoidance of hard work, and the extension of life, which are not necessarily noble accomplishments.

If hard pressed I would say hygiene, and the mitigation of suffering can definitely be included in the “good human advancements,” but advancements in hygiene, such as clean water, waste disposal, etc. is only needed after humans moved from a natural environment to a man-made one…any other suggestions?

Needless to say this argument can get complicated and dicey, possibly moving into the other argument, which suggests that we should never have moved out of caves—which obviously is not plausible nor necessarily desireable. Is there a way to be human without entering into the obsession to be “better than human?” Probably not, and possibly we have just reached the level of technology where becoming “better than human” moves us most definitely into a phase of transhuman ascendance.

But there is another element to factor in here—is our advancement a natural movement, or is it a coerced movement? Are we, as a whole, being manipulated into advancing too fast, or in a particular trajectory that will eventually destroy us? Maybe a little bit of both is at work here.

Obviously in cave days some overlord with the intention of destroying the masses with fire did not trigger the quest for fire—that desire more than likely came naturally. But can you say the same for the invention of the atomic bomb? Was it really for the good of mankind as a whole to destroy Imperial Japan, or was the incentive for creating such a horrific form of destruction have less humanitarian underpinnings?

We have reached a point in human development where it has been made clear that the development of the mRNA vaccine to treat another human engineered invention, the SARSCoV2 “virus,” does not have a humanitarian intention.

This all has clearly happened for the benefit of a few at the expense of many. And part of what has made this possible—the ease in implementation of these bioweapons in the complying bodies of those masses—is to convince people their “god given right” is to live forever and not face nature’s natural challenges.

If we follow the “rules of nature” and take care of ourselves naturally—eat healthy foods (which also is nearly impossible due to the pressures from above to do otherwise), exercise, fill the mind with less toxic thoughts, have meaning and purpose in our lives, didn’t pollute our environment, and never became possessed to consume everything in sight—then in my humble opinion very few diseases and “challenges of nature” would always be powerful enough to make us suffer intolerably, or to, as an end result, kill us—unless we have lived long enough or nature decided it was time to cull our species.

We all die. We all suffer. We seem to have mostly come to a conclusion that we can skirt the natural systems and rely on technology to erase all of life’s dangers and dispel with nature’s wisdom.

People have been brainwashed to believe that only man-made medication and medical intervention can cure us. Most people give no credit to the human immune system and its miraculous ability to confront nearly any pathogen and give it a run for its money. Of course part of the agenda is to create an environment so toxic and contrary to the natural way of things that we are indeed faced with more formidable pathogens for our immune systems to deal with. Again, it is a complicated issue.

But the Covid hoax, to be successful, had to be released on people who believed a limited belief: humans are not capable of withstanding a natural phenomenon (a virus). This is what the people were told, which was always an illusion, yet still created as a fantasy bogeyman, and that the only way to face it and dispel it was to rely on man-made preventions (masks, social distancing and lockdowns) and cures (bogus vaccines).

Couple this with our insane insistence that we continue moving toward transhumanism (which at this time is still primarily a fantasy) and are above pain, suffering, illness, and particularly death, and you have the formula for madness.

If we are human, and not machines, or dependent on the assistance of machines (nano or macro), then we are going to get sick. Plain and simple. It is nature’s way of doing things and has been since humans crawled out of the primordial muck. Get used to it.