There’s a crisis in America. It’s tearing at the fabric of society strand by strand. It’s a crisis of leadership.
Where are the leaders?
Where are the truthtellers?
Where are the visionaries?
We can’t find them. Neither can everyday, hard-working Americans.
Gallup’s poll of U.S. adults just notched an all-time low for “confidence in major U.S. institutions,” a survey that goes back 43 years. This declining confidence in American institutions wasn’t isolated to the political or media spheres either. We see an across the board decline – from banks to police to small businesses – in Americans reporting a “great deal/quite a lot” of confidence in American institutions.
The biggest decline? The U.S. presidency.
It’s easy to understand why. Statements like what Press Secretary Karine Jean-Pierre said this week (“We are stronger economically than we have been in history”) directly undermine the President.
Seriously, does the White House actually think Americans aren’t aware that U.S. inflation just hit a four-decade high? Come on now. (We could go on and on about the White House but we digress.)
What the Gallup poll data reveals is that bending the truth isn’t isolated to the White House. In the investing community, for instance, the Federal Reserve just spent the last year and a half telling us that inflation was “transitory.” The Fed didn’t drop the term “transitory” until inflation had already hit 7.1% towards the end of 2021.
(Not to remind anybody or anything, but we identified the bottom in inflation in June of 2020 when our CEO Keith McCullough said, “Calling an inflection in inflation is the easiest call I can make.” Now we’re bearish on Commodities as we think inflation is peaking. So we think we have a bit more credibility than the wombats at the Fed.)
In a shocking bit of truth-telling this week, Fed Governor Chris Waller spilled the beans when asked “How did the Fed screw up so much last year?.” Here’s the quote:
“We didn't do a good job of risk management. ‘We bet the farm’ on inflation coming down. We should have been asking, ‘What if it doesn't come down?’ We had to do an abrupt and fast pivot to try to catch up.”
There you have it. So now the Fed is aggressively tightening monetary policy to catch-up to inflation risks they dismissed during all of 2021.
The disconcerting bit is what the Fed is saying now. They’re aggressively hiking rates while insisting they don’t see a recession on the horizon.
So let’s get this straight. After the Fed said inflation was "transitory" for all of 2021, we’re supposed to trust them that there’s no risk of recession today? Meanwhile, the Atlanta Fed’s own “GDP Now” forecast just moved lower to -1.2% in Q2 growth. In other words, the Atlanta Fed is forecasting… wait for it… a recession!! (Back-to-back quarter-over-quarter negative GDP prints is the traditional measure of a recession. The actual Q1 2022 GDP print was -1.6%.)
Once again that brings us back to why the Gallup poll’s confidence in U.S. institutions just hit an all-time low. The average American isn’t fooled by Fed or White House BS about the supposed “strength of the U.S. economy.” Get this. Google search interest for the word “recession” just eclipsed “inflation.”
Go figure.
If you take a big step back and survey what all this means for society, politics and markets, the breakdown in confidence in American institutions makes a lot of sense when you understand world-renowned demographer Neil Howe’s theory “The Fourth Turning.”
We’re living through a demography-induced time bomb that won’t relent until sometime in the 2030s. As Neil has detailed, there’s a historical rhythm to these patterns of crisis and rebirth in American history.
“Make no mistake. Winter is coming,” writes Neil Howe in this post describing his landmark theory. “How mild or harsh it will be is anyone’s guess but the basic progression is as natural as counting down the days, weeks and months until Spring.”
Zoom back in…
Q: What should investors do with the Fourth Turning’s 10 more years of insanity?
A: That’s an easy one. Do what we do at Hedgeye. Every day we measure and map the data – across markets and economies, across durations and across factors – input these into our predictive models and calibrate an answer to the highest probability bet.
It’s certainly not an easy task but one we strive to help investors with each and every day.
