Can (or Will) the Fed Paper Over the Coming Recession?

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Originally published at: https://peakprosperity.com/can-or-will-the-fed-paper-over-the-coming-recession/

In our latest Finance U podcast, Paul Kiker and I dove deep into the current economic landscape, focusing on some critical indicators and the implications of recent policy changes.

We started by discussing the surprising contraction in U.S. GDP, which was largely influenced by a surge in imports ahead of Trump’s tariffs. This led to a significant trade deficit, pulling down the GDP figures. However, we noted that this might not reflect true economic weakness but rather a distortion due to the tariffs.

We also touched on the labor market, where job openings have decreased, signaling a potential economic slowdown. This aligns with other indicators like reduced consumer spending in sectors like dining, which could be a precursor to broader economic challenges.

There’s been a notable increase in investment, which Trump might claim as a victory for his policies. However, the real concern lies in the sustainability of this growth amidst rising economic uncertainty and potential policy missteps.

We discussed the complexity of Trump’s trade policies, particularly how they might affect our trade deficit and the broader economic implications. There’s a lot of uncertainty about how these policies will play out, especially with the potential for a significant devaluation of the dollar, which could be part of a larger strategy to rebalance trade.

Paul and I also discussed the market’s psychological state. There’s a sense of complacency, with investors perhaps too hopeful that past interventions will continue to prop up the market. However, we’re cautious, noting that historical patterns suggest we might be in a phase where the market could be setting up for a significant correction.

Lastly, we touched on the broader implications of these economic shifts, including the need for more truthful economic reporting and the potential for a more sustainable economic model. The conversation was a mix of concern over immediate economic indicators and a broader discussion on long-term economic health and policy impacts.

Thanks for tuning in, and remember, these are complex times requiring careful analysis and prudent decision-making. Keep your eyes open, and we’ll keep you updated.

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Description gives lot of deja vu to march 2020 of covid caused similar events (demand crashed, delayed purchases, risk of shortages coming in couple months).

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Chris, please share details about your run for office and the role it serves for the local government.

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I’m looking forward to my initial phone meeting with Paul tomorrow morning.

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Is St Onge wrong in his Redacted interview today showing in the breakdown numbers, the latest GDP drop is largely due to reduction in government spending and not tariffs?

Like Paul said about truth, how can you know or use GDP when it includes making bombs to blow up bridges in Ukraine, the money given to illegals who buy US goods, salaries to government employees to study uses of transgender pronouns in Pakistan, medical spending on drugs used to “fix” diseases caused by ultraprocessed foods and vaccines, in addition to “legit” things like a Bobcat purchase to improve property? Counting the federal government’s digging holes and filling holes as product that raises the GDP makes the number useless to my small brain.

And with endless increasing bad debt which makes up most of ours, there necessarily must be a Game Over day. I wonder if AI can predict when if someone knew how to ask it that question. There seems to be too much “so far so good” to get most people to believe a game over day is even possible.

Good Kiker interview as usual.

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Or democrats took giant loans and handed them out to illegals… GDP bumped for a while, numbers look good, couple years later rates and debt skyrocketed. This is why GDP is extremely bad metric and abused by politicians. Banks also look income side.
Well building 100mn apartments is also possible to build bubble… it takes longer than handouts to pop.
Funny that you mention building rthyings, then “curing” them… ie that’s exactly what happens to apartments, overbuilt, then demolished, repeat, yet people laugh about 1930s,40,50s policies to shovel ditches, when this “modern” stuff is potentially worse wasting lots of non renewable resources just to demolish them later.

This is very likely… vague memory Argentina had same next weeks when Milei started… normal for cutting fat in spending. US gov spending was near 50% of economy or something totally absurd in Biden administration.
Part of that is modern economists and bunch of others have learned that any reduction in GDP is automatically bad… bad education I would say, as this example shows. But maybe self interests and myths drive also education and educated people to cloud their judgements. It has simply been “way of the land” over 50 years in west. Can easily see that bias when other culture (eg middle east or russian government) say they try to have slightly positive budget and not take debt, westerners scold and laugh at them.

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Planned obsolescence in American cars is what allowed Japanese cars like Toyota and Honda to pull ahead.
Cruddy products that (are designed to) breakdown right after the warranty expires isn’t a “place of manufacture” problem, it’s a corporate mindset and consumer mindset problem.
Beware of survivorship bias.

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If that’s what he said (I haven’t seen the clip) then, yes, he was mistaken.

Government was only a very slight negative.

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Which is a good thing, don’t get me wrong. Usually it’s a big, fat positive.

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But the main drivers were investment to the upside and tariff-beating imports to the downside.

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I just saw GM has to recall 877k vehicles due to serious engine flaw. So planned enshittification can backfire costly.

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My Friday notes to self if anyone cares to read.

Day 8 of S&P500 positive territory and another rip today 5/2! I would call it a classic Soft Reset Melt Up but … seems early. I haven’t redone my numbers and timeline, which were originally done well prior to election, AND were not skewed for Recession, but my original Melt Up timeline is late Q2 and Q3 2025. Note to self - Recession tailwind may be ramping up timeline.

Stage2 Overshoot Risk active but remains stable and narrative well under control… as can easily be seen by overall US Market activity. Personal preference and Stage2 timeline is for pot to stew some more and gold to come in end of Q2 $3200-$3500. The slower gold grinds up, the higher it will go. Ideally we want gold top prior to S&P bottom, allowing for some rotation out of commodities into equities.

I had Gold support at $2950 and sub $2850 as a structural risk to Soft Reset thesis and maybe support is at $3200… so still plenty of room if $3200 floor falls though $3200 floor preferred.

China ETFs sold off 30+ tons of paper 4/30 before 5day holiday weekend dropping gold to about $3200, but with China ETFs and PBoC on holiday, gold/silver was acquired 5/1 by sovereign government(s) and/or Central Bank(s) and had a great run WITHOUT China’s backing. I thought this was rather huge and telling… and crickets from sources I follow.

Silver still decoupled from Gold and any GSR compression appears to be happenstance.

GDP contraction news short lived and appears forgotten

DXY < 100, Equities UP LARGE, 10Y UP, Gold hasn’t cracked and no longer chasing risk => Not a combination you expect and Sentiment Distortion Cluster. Combination is expected in Soft Reset.

BTC no longer leading gold and perhaps on it’s own track. Quiet rise confirms alternative monetary flows.

Treasuries, though I saw very public arguments to the contrary, IMO, no longer primary safe haven, unless those that buy treasuries are mass migrating to Caymen Islands, Luxembourg, and Ireland. UK Treasury numbers appear suspect as well.

Strong evidence that Middle Eastern countries, particularly those in Gulf Cooperation Council like Saudi Arabia, UAE, and Qatar, are increasingly rolling petro-dollar surpluses into gold instead of US Treasuries or Western Equities.

PBoC Official gold holding flat Feb-April though shadow accumulation likely.

Expect $100+ short lived gold drop if China tariffs paused

Stage 3 On Deck for Q4 2025 to early 2026 (Gold > $3500 2+ weeks)
Official Stage 3 Late Q1-Q2 2026 $4200 and I will discuss the importance of this number when and if it comes. All just crazy talk.

Other accelerating factors to look for:
- Gold surges past $3500 in June
- DXY cracks < 95
- 10Y < 3.5 … resulting in QE or Stealth QE
- Treasury crisis (failed auction)
- BRICs announces gold linked settlement or sovereign FX switch
- MSM or major central bank begins open discussions on monetary “reform”

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ME investing their excess balance sheets to gold means more comex events and price going way higher… gold miners cannot produce much more even if they wanted to.
What I ponder in this situation, would petroeuro (some countries able to buy oil via euros) be stabilizing factor in this moment? Too much is resting on one card, US monetary policy.

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My 2010 challenger still has the original mfg battery. My 2022 F350 batteries failed at 38 months :frowning: F350 is driven almost every day. Challenger can sit for days or weeks on end. In the winter it was alway on a trickle charger.

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After some thought and reading some headlines and forums, I am thinking not a melt up and more of a controlled transition phase giving institutions some time to thin out positions while MSM pumps, replacing institutional money with retail money that has been sitting out.

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There are significant areas where Trump can cut spending that does not require Congressional action.

(1) Declare a “debt emergency” allowing …
(2) Instead of shoving U.S.A.I.D. into State he could close the entire department.
(3) Similar for BLM, instead of offering “early retirement”, close it completely along with a bunch of other 3 letter agencies: ATF, DoE, EPA …
(4) With regard to military as Commander in Chief (you will like this):
(4a) Close all foreign bases (no more rent and returning soldiers spend their pay in the USA)
(4b) Merge all USA bases into bases in Republican States.
(4c) Close the CIA. (no more war facilitation)
(4d) Lay off all but 1 General/Admiral per branch of service.

… With war ended we would now have access to cheap Russian oil!

(5) Close many of the Federal Judicial circuits - we know which ones to target and I would think the ‘Circus Clown in Chief’ might know who they are as well.

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I think national park system should be expanded

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Really? I think the National Parks should be privatized at best, or at least returned to the States.

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We travel semi full time. Some of the best maintained parks are federal. Some states do a good job, others not so much. Private parks go from outstanding resorts, to ghetto. I also like with federal parks, as a senior with a lifetime pass, I get in for “free”. BLM was specifically mentioned, we snow bird in AZ, where there’s a lot of BLM land. They do an awesome job out there, and have to deal with a lot of shit, literally and figuratively. It was impressive flying over the BLM land and seeing the vast numbers of people camping in the desert.

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97.7% chance of no change in FED policy this meeting today

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A lot of parks and other BLM land is land that could be very productive particularly for raising cattle. Federal government should not own or control any land … as per the US Constitution.

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