This is the interview that crashed the market today and will likely lead to inflation panic and hard sell offs in stocks in the future:
https://www.youtube.com/watch?v=Vf9AjSahONg
This is what panic looks like. Notice how the market racked-up continuous red candle after red candle as Powell and Yellen spoke:
This pattern is preserved across indexes and even gold and silver, which strongly supports the extent of panic and selling the markets showed today. We don't often see a dive in all asset classes, hell, even BTC sold off today too. This behavior is what happens when people panic.
The fed made it clear today why they are still pumping the economy even though it is doing surprisingly well - they need to make it strong enough to withstand a tax hike to justify printing another $2-3T for Biden's infrastructure bill. Politically we know this needs to happen before the 2022 midterms, which is why we are getting mixed signals from the feds at the moment - they say the economy is great and yet are continuing to drown it in money.
What the Feds are actually doing is printing as much money as possible so they can force inflation to pay for US debt and another $3T if this infrastructure bill ever gets done.
I need to split some hairs for a moment to really hammer home the point that taxes will not pay for this bill, and particularly taxing the rich or auditing them more. I still believe taxes should be collected, but once you understand that taxing the rich will not solve our problems you will realize who did all the selling today. Ill give you a hint, rich people are selling because they know they aren't evading their taxes to the extent to pay for another $3T spending bill and what the fed is really doing is inflating the currency on purpose. Last time this happened was in the 60s and 70s, and after accounting for inflation the market had a net loss for almost two decades. Rich people are exiting equities and will be moving into other asset classes.
On to splitting hairs: As much as the current administration wants you to think taxing the rich or holding the rich more accountable will somehow cause all the money to pay for all this debt to magically appear, if you read the fine print of these sensational headlines about the rich evading taxes you will notice many of these figures are generated across decades of evasion, and most of the articles freely available to us somehow leave that part out. So when MSN posts this article today saying the following:
Lawrence Summers, the Treasury Secretary from 1999 to 2001, and director of the White House National Economic Council during the Obama administration, has previously estimated the federal government could collect another $535 billion if it got back to 2011 audit rates and trained its focus on millionaires and billionaires.
The part that was conveniently left out was that the study said the IRS could collect that much over the course of 10 years and that is assuming everyone is doing it and everyone is then caught, requiring a massive increase in the IRS budget to do so (more gov spending, so there needs to be an upfront investment to even try). If you follow the links back to the NBER, you realize they are citing a working paper, as in work that is not yet done, and all of these citations are coming from Lawrence Summers. Here is the paper everyone is referring to.
Lawrence says:
Between 2011 and 2013, the IRS estimates that it failed to collect over $380 billion in taxes per year, across all tax categories. Extrapolating this estimate to present to allow for inflation and income growth, in 2020 the IRS will fail to collect over $630 billion, or nearly 15 percent of total tax liabilities and that the tax gap will total $7.5 trillion over the 2020 to 2029 period.2,3
The $630B is a figure generated from Obama era data, not Trump's new taxes in which many of these loop holes were closed, so that figure is wrong. Lets pretend it's right though. Lawrence then says the following:
Individual tax returns make up the largest share of the tax gap (over 70 percent) and have the highest rate of noncompliance (nearly 20 percent)
Per Lawrence, if we multiple $630B by 70% to remove companies and focus on individuals that gives us and estimated $441B in evaded taxes by all individuals in 2020. That is a lot of money, Lawrence then gives this table showing the amount per income people under report (aka evade):
Lets do some quick calculations to see if this paper is correct or not. To be considered in the 1% in 2017, per this Bloomberg article that does correctly cite the IRS , you need to have made an estimated $515,000 a year. For the sake of convenience, lets say that number is lowered to $500K so it aligns with Lawrence's table, and lets assume it didn't increase from 2017 to now. This will result in more theoretical people to tax and thus give Lawrence a better chance. The average wage for the 1% is $737697, data taken from here. In 2018, we had 157M Americans employed, data from here. Using 2018 gives us the highest number of 1%ers so we can try to exaggerate the figure as much as possible, again trying to help out Lawrence. 1% of 157m people is 1.57m people employed and living the good life.
Based on the total taxable income the 1% earned in this scenario, you get $1.158T. Lets say Biden does increase taxes on these people to 39%, you get $616B of total taxes. Now, according to Lawrence, these people under report by a maximum of 13.9%, though we know it should be a distribution and thus not as high of a number as I am going to calculate. Anyway assuming all these people under report by 13.9% like the 10m+ crowd, that would give us an extra (1.158T*0.139) 161B of taxable income. Now lets multiple that by 0.39 to get $62.1B in uncollected taxes from the rich every year. I find it odd how the rich are ones being crucified when they account for only 62.1/441 = 14% of the evaded taxes from individuals. So we believe Lawrence's numbers, but not his conclusion that this could be solved by focusing on the rich, and all main stream media sources that choose to leave out very relevant details:
IRS could aspire to shrink the tax gap by around 15 percent in the next decade—generating over $1 trillion in additional revenue by performing more audits (especially of high-income earners)
To put this in the context of how this could effect the budget, 62.1B*10 years = 621B maximum taxes lost to evasion. In the context of this post that accounts for 2.8% of our current debt. By taxing the rich for every dollar they owe, we only pay off 2.8% of our debt. And yet, there is no emphasis placed on the other 99% who evade taxes resulting in the other $379B of missing money. Even more perplexing, they will not be be pressured to pay their fair share or have their taxes increased. Instead of trying to get all the $441B back, we are just going after $62 and pretending like it will solve all our problems. If we got it all, that equals $4.41T in ten years - now that makes a dent!
The real rich people know that increasing taxes on them and making them cough up the extra 13.9% of their taxable income will not pay these bills. In fact, if you add another $3T as Biden wants to do, the new US debt hits $25T, and thus taxing the rich more/preventing evasion will only pay for 2.5% of the national debt in ten years. Of course my calculations aren't inflation adjusted or accounting for wage growth, but the point remains, the amount of money even when exaggerated (but not inflation or wage adjusted) is insignificant in the grand scheme of things. Lawrence says he thinks we could maybe get about $1T in evaded taxes from all sources over this 10 year period... still only accounting for 4.5% of our debt in ten years and only 4% if Biden's plan is passed.
Even if we over estimate Lawrence's own numbers and take this wildly out of context, fixing tax evasion and increasing taxes on the rich doesn't solve the problem. If these MSN articles want to continue to skip over the fact that these $500-600B in evaded taxes are actually over the course of a decade, the general public might be inclined to go along with it out of ignorance. Be honest, how many of you would have taken these number at face value and not gone to the actual paper and checked their calculations?
The final conclusion is: either we have elected the dumbest bunch of people to office in a long time, or they are lying to us and will deliberately inflate the dollar to try to get out of this debt. What makes me the most angry is if they just said it, we could prepare and be fine. But instead so many people will be hurt.
Inflating the debt away will likely cause a secular bear market like we had in the 60s and 70s or the 2000s. Rich people will be buying houses, gold, silver, BTC, and other inflation-proof asset classes. And the poor and middle class will suddenly not be able to afford anything and will suffer more, and those who are invested in pensions will also get screwed because they don't get to control the destiny of their retirement anyways.
On top of all that, the Feds also said they agree the market is highly valued by historical metrics, but said investors are speculating on a vaccine and other economic events, which is stupid because all of us know the economy is doing awesome and the Fed literally said so them selves last week at the FOMC.
When you add in our bear porn series to this and the recession predictions, we will have the 2000s and 1970s all over again.
I predict we have downward trending volatility for the foreseeable future as more and more inflation concerns are confirmed. Small caps will keep getting slammed because they need cheap money more than ever. Cash rich large caps will do ok, though will likely be pretty neutral for some time once inflation is adjusted for.
And I used to wonder why people like Michael Burry have been ranting about inflation for over a year now - because it is the only option our gov has left. https://dailyhodl.com/2021/02/22/big-short-investor-michael-burry-issues-warning-on-future-of-bitcoin-and-gold/.
I'll be sure to start including gold, silver and BTC in my future TA posts from now on. Lets take a peak now though, yeah?
Here is what happened to gold during our last secular bear market in the 2000s (up 400%):
And silver (up 1000%):
-PDT
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