The Worst Drought is in Truth

David Haggith

Jul 20, 2023

The S&P and Nasdaq finally took a real fall this morning upon some bad earnings reports. Funny thing is, this has started as the worst earnings season in a long time, and stocks have been soaring anyway as if it is the best earnings season only because companies have managed to hit above the most deeply reduced earnings expectations in recent history.

It is as if investors don’t know that all companies routinely do their best going into earnings season to reduce expectations just so they can beat them! When has that not been the case? Have we ever seen an earnings season as lousy as this one where companies did not manage to beat expectations? What reality-denying investors do is tell themselves, as expectations are lowered, that it doesn’t matter all that much because companies are just being conservative in the expectations they are raising, so stocks falter for a day then go back to rising. Later, when the companies beat those lowered expectations, investors act as if they were surprised that the news was so grand, and stocks soar.

Today was anomalous in that stocks fell upon bad earnings reports because the earnings reports were so bad they actually managed to fall below deeply lowered expectations. Still, I suppose we can expect the delusional market to beat those concerns off by the end of the day. It has simply decided it wants to rise; so, it will. These delusions, of course, set up the biggest corrections later when reality finally crashes through the fakery hard enough that bullish investors cannot figure out a way to deny it any longer.

Economists may be as deep in denial as stock bulls now that they re betting almost in unison that the Fed’s July rate hike (a virtual certainty in everyone’s book) will be the Fed’s last because of the recent falling inflation report. I covered that report extensively in my last “Deeper Dive,” but the upshot of that analysis was that, yes, inflation is falling, even in areas that could foretell further declines down the inflationary pipeline. However, the huge increase in government spending under Bidenomics with its demand for labor in an already tight and widely-viewed-as-inflationary labor market, along with surging demand for materials to build those projects, is a stiff headwind to the Fed’s fight that could quickly blow inflation’s flames back up.

It is simply too early to tell whether the Fed is done because of numerous complexities I laid out in that “Deeper Dive” over whether sticky inflation will force the Fed to tighten some more. There is no value in assuming anything because the Fed will have ample time between its July meeting and its next September meeting to watch the data and see if inflation is truly turning, and time was the only thing they wanted to gain with their last pause.

An example of a very sticky inflation factor that can easily force the Fed’s feet to the fire came in today’s news as unemployment once again fell, leaving the Fed with no slack from its employment mandate to back off on fighting inflation.

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, touching the lowest level in two months amid ongoing labor market tightness and defying efforts by the Federal Reserve to slow demand.

Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 228,000….

The number of initial jobless claims came in well below economists estimates:

“The claims data show that the labor market remains resilient and businesses have yet to start shedding workers at a rapid pace, despite five percentage points of tightening,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York….

Claims, relative to the size of the labor market, are way below the 280,000 level that economists say would signal a significant slowdown in job growth.

Today’s news already aligns with the counterforces I said we might expect to see in last week’s “Deeper Dive,” which demonstrates it is simply too early, given the complexities, to assume anything about how close the Fed is to the end of its inflation fight. However, investors will all hear what they want to hear because they are driven by emotions and greed. The truth is more complicated than their Neanderthal feelings.

Another example of these delusions came today from China … again … where I have been saying expectations earlier this year year that China would rise from its lockdowns and become a re-energized economic force in the world and even longer expectations that its economy would overshadow the US are all greatly exaggerated. Worse still are expectations over the last couple of years that the yuan would be replacing the dollar soon as a global currency.

Once again, we see the exact opposite in the news today. It’s not happening:

China’s latest pledges to rebuild a shattered private sector fell flat with investors, underscoring the damage two years of crackdowns and pandemic controls have had on confidence in the world’s second-largest economy.

Not only did Xi’s big promise felt to deliver any umph, now that China’s central planning caved in its economy by deploying the most draconian Covid lockdowns in the world over a flu virus China created, but its currency got clobbered some more, forcing it to — AGAIN — take extraordinary rescue measures, something I’ve been saying would continue to happen.

This time China’s largest state-owned (i.e., Communist) banks sought to punish the dollar and save the yuan in one stroke by selling tons of US dollars in order to buy tons of Chinese yuans. China attempted several other fixes for the yuan, as well, as it has done more often than weekly for the past couple of months.

The yuan, which slumped more than 5% against the greenback last quarter, is under pressure from growth concerns as well as China’s widening monetary policy divergence with the US. The PBOC has been signaling its discomfort with the weakness by setting the fixing at stronger-than-expected levels since late June.

Today’s fixing failed to deliver any meaningful impact as the dollar climbed back up a little in value, and the yuan remains in crisis mode. The yuan got a small bounce but is …

still down about 4% against the dollar year-to-date, making it one of the worst performing Asian currencies for 2023.

And, of course, the bounce ends each time the day it begins, so the yuan will fall more tomorrow, as I keep predicting and as keeps happening because China’s central planners are not the undefeatable geniuses the world has pretended they are. China is in deep trouble due to its own badly failed policies — not just its Xiro-Covid but its ridiculous stimuli policies that drove its economy so rapidly (and vacuously) years ago by building ghost towns. Now that is catching up to it in a massive real-estate crash.

It is a problem that just keeps happening

“The rise in dollar-yuan yesterday was worrisome for the PBOC, so it had to act more forcefully today,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

Black here in the world of American governance, the brilliant Marjorie Taylor Green took the news today by putting the “R” in “Republican” and “Representative” as she flashed congress and the entire US population with nude pictures of Hunter Biden. (As if anyone wants to see that!) She has given Republican “ratings” a new “R” meaning. No one has any idea what Hunter’s elicit sex had to do with the matter actually being investigated, but the nation got a long look at something no one really wanted to see.

In other news of questionable note, today’s screams of global warming show more tell-tale signs of being exaggerated. I am not doubting that the heat is horrible and that it breaks records, but I do note that Miami meteorologists are leaning heavily on reporting broken records in the “heat index,” rather than broken actual temperature records. The heat index, which attempts to quantify the impact of actual temperatures on the human body, is as subject to human errors and biases as “seasonal adjustments” are in economic data. If things are really as bad as all that, why do meteorologists have to rely on Miami breaking “heat index” records, instead of just breaking actual temperature records? Well, for one thing, the heat index, generally shows higher values, which look scarier. It’s like reporting the wind chill temperatures in every winter storm as if they are the actual temps.

Another story that betrays the climate hype is one from the UK where a talking-head weather reporter has claimed that Phoenix is the first city to become uninhabitable without air conditioning. No doubt, the heat there is much worse than usual, but the weather caster betrays her own hype when she notes that it is a city where numerous people do not have air conditioning in order to heighten her fear-mongering. Well, how is it, then, that all those people are still inhabiting the city if it is “uninhabitable” without AC?

In fact, the first heat-related death of the year was reported in Texas today. Since heat was just reported in earlier stories carried in The Daily Doom as the number-one cause of death, how is it we only have one person in the nation who has died from heat prostrate so far? I live near the Canadian border, and I nearly collapsed from sun stroke one normally hot August day working out in the garden because I didn’t take breaks often enough and didn’t drink enough cold water. I had to get down on my hands and knees to keep from falling.

Now, if that can happen on a typical hot summer day in the northern reaches of the lower 48, how is one heat death in Texas during a “heat dome” event even remotely significant to anyone other than the person who died and those who know that person? So far, the heat dome’s toll is small.

But, hey, at least the geniuses in Scotland who intend to save the world from CO2-caused global warming via wind power got reported today for chopping down 16-million carbon-sequestering, oxygen-producing trees in order to make room for building windmills! So, that’s something! I didn’t even know Scotland had that many trees. Sounds like they practically deforested all of Scotland in order to reduce CO2! They are as brilliant as the central planners of China! Keep up the good work, guys, and you’ll achieve population decline yet, starting with the decline of the tree population.

One other news story today of major note is one I will be covering in this week’s “Deeper Dive,” a good part of which I am going to make viewable even to free subscribers of The Daily Doom. The Fed is finally making the major roll-out of its digital ledger system, which may be the core platform of its eventual CBDC. I’ll be talking all about the latest in CBDCs and the advent of a global cashless society and making some past privileged content from months ago available to all subscribers, and I’ll email that “Deeper Dive” to everyone so free subscribers can read the substantial portion that will be open to all. So, don’t hesitate to open it when it comes in your email if you are a free subscriber because this particular edition will have solid content for you, too.

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