The US economy is now in recessionary macro doo-doo! Time to bailout?

Jay Powell has put cold water on a December FOMC rate cut as inflation risk triggers dissent at the Fed. Yet Uncle Jay is now a lame duck and the world awaits his first MAGA Fed Chairman. My bet is on Kevin H as I doubt if even a supine Senate will confirm yes man – Stephen Miran. Why even bother to hold the FOMC conclave with 19 people pontificating their views on the future path of rates in the boardroom of the Federal Reserve’s white marble palazzo in DC’s Constitution Avenue? Why not make it simpler and make the FOMC a two man show with Trump barking orders in the Oval Office to the next Fed Chairman to slash rates to zero or even lower given that he has publicly admired the Japanese and Swiss central banks for engineering negative interest rates in their respective banking systems in the recent past?

Why bother with all the formalities of Beige Books, dot plots, votes, statements and pressers? The First and Last Commandments of US central banking now is – when the Big Guy barks “jump”, the only thing the Fed Chairman can do is scream “how high boss?” The St. Louis Fed estimates that Q3 GDP has slumped to 0.6%. Corporates have announced 200,000 jobs cuts since July and AI deployment is about to wreck havoc with white color employment all over the world. Brace for the next wave of Gen-Z led revolutions to break out from Bangalore to Manila, Queens to LA.

We are already in a job recession and the latest Fed Beige Book suggests that a mere 18% of the US economy is in growth mode. The political Big Chill begins in the Big Apple when the self styled Marxist-Socialist takes over as Mayor of New York City, the holy temple of peekaboo finance. 50% of consumer spending in the US is generated by the top 10% of taxpayers whose stock portfolios have zoomed higher because the Mag-7 have added trillions to their net worth in the last 5-years. A world in which Nvidia is worth $5.04 trillion but the 1.4 billion Indians share a GDP of $4 trillion is bonkers.

The government shutdown means no sanitized Uncle Sam statistical mumbo-jumbo but the University of Michigan consumer sentiment index has plunged to the bottom 1% of all time readings. Default risk in consumer credit is already causing a spasm of risk aversion and bankruptcies in Wall Street’s illiquid, unregulated, opaque $2 trillion credit casino, with teenage mutant ninja cockroaches threatening mass extinction events for go-go credit hedge fund and shlock buyout gunslingers. The smoke signals from the Philly St. Louis and Dallas Fed are crystal clear to me that the US economy is now in a manufacturing and jobs recession whose shock waves will be felt all over the world next year. The Atlanta Fed Flash GDP? Weirdo City Peachtreewallahs. Never made sense to me. So I conclude that the duration trend is my friend, until even this trend comes to end. Viva long T-bond futures!

My critics diss me as Dr. Doom but the fact remains that my long equity calls this summer have often been money gushers from PANW at 160 to LLY at 640, Airbus at 160 Euros to RTX at 145, ISRG at 430 to Uber at 60. These are only the tip of the iceberg and my friends know that we did score our fair share of home runs in the states, let alone in more exotic locales like Brazil (NU?), Japan and Argentina (ARGT).

Valuations in Nasdaq are now insane at two-sigma above the mean. Classic mania twilight zone. We have seen the Shiller Cape metric surge from 33-40 this year on the momentum of the AI mania, as in 1929 and 2000. This is Tulip Mania on steroids and it too will end in tears.

Commercial real estate is in the doo doo. The residential housing market is a $50 trillion asset class that straddles the literal summit of America’s $30 trillion Mount Olympus. So when I see resi REITs in Wall Street tank by 22%, I know the stock exchange is housed in a Roach Motel. Why are homebuilder shares slammed by 15% on the NYSE? Non-AI capex is flatlining. King Dollar has made a bid to regain his throne with a DXY a tad below 100 and Doctor Auric, a painful 8% below its $4380 recent high.

The ADP data tells that default risk is even more mispriced in the bank loan/credit markets than it was in the summer of 2007 when Chuck Prince was our pied piper and we all lived in CDO boogie wonderland. Real personal disposable income is now negative 1% so the US economic super tanker with 70% GDP generated by Joe/Jane Sixpacks is in real distress, as the grim housing and labour market data suggests. This Bud’s for you for all the work that you don’t do!

I know Mag-7 earnings were a beauty and I surfed Nasdaq myself to the siren songs of the Wall Street Lorelei but countless sailors found their heads bashed as they drowned in the Rhine for the crime of falling in love with the blonde tress nymphet on the rock. Jim Morrison said it best – “come on baby light my fire”.

The Bible says, man does not live by bread alone. Matt says, man does not live by data centers alone, especially since we do not have the power grid or the strategic metals to remotely realize zillion dollar AI Champagne wishes and caviar dreams.

If I was a savvy UAE investor, I would not wait for the National Bureau of Economic Research to call a US recession, as the talking head on CNBC tell us. The NBR called a US recession in December 2008, when the US banking dominoes, led by Lehman, Citi, Bear Stearns, Mother Merrill, Goldie and even Morgan Stanley had gone belly up or on the way to going belly up. No wonder more Goldman partners joined the Obama White House than any other in history. Barack Bin Hussein, aka POTUS-44 and not Dubya is the real messiah and savior of Wall Street.

The real recession started in the autumn of 2007, when all our private bankers told me I was nuts to expect a global financial crash and my Morgan Stanley broker (sorry, wealth advisor) wanted me to bid for the Blackstone IPO MS was underwriting at $32. All the big hammour funds in the GCC dutifully obeyed Morgan Stanley’s oracles and rode down Blackstone from $32 to its $4 bottom. History is so cruel, sad but true!