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Joel Bowman, checking in today from Buenos Aires, Argentina...

Is the “river of no returns” finally running dry? 

Amazon plummeted nearly 10% after Thursday’s third quarter results forecast a dreary outlook for the rest of the year. This was after Meta, Alphabet and Microsoft all tanked on earnings earlier in the week. 

Together, the aforementioned quartet of tech darlings coughed up $350 billion for the week on poor (or, in Meta’s case, declining) revenue growth. Meta shares alone plunged more than 20% on Thursday after the company reported a 52% drop in third-quarter profit.

Zuck’s anti-social media platform is now valued at $270 billion... which seems like a lot for a virtual space to share cat videos and “like” photos of your friend’s brunch, until you remember that it was once “worth” over $1.1 trillion. (For those of you keeping score at home, that’s an $830 billion “loss,” top to... well, wherever it is now.)

It was enough that even Jim Cramer offered up a teary, made for TV apology. And it’s got the bay area millennials looking for a safe space, too. Here’s the headline, from the SFGate: 

Speaking on condition of anonymity, employees at the embattled tech giant said they were being told to shape up or ship out. From the New York Post:

Meta employees are reportedly being pushed to work twice as hard to protect their jobs at the troubled tech titan as workers brace for sweeping layoffs.

“Zuck’s message was loud and clear: You have three months to prove your worth, put in 200% effort, or you can resign now if you don’t like it,” one unnamed Meta employee told Insider, referring to CEO Mark Zuckerberg.

One report said as many as 12,000 Facebook employees – about 15% of the total workforce – may be let go in a series of “quiet layoffs.” Aside from it being impossible to imagine 12,000 jilted millennials going quietly into that good night, one wonders what it is the other 68,000 remaining employees actually do? 

And what of the trend of maximizing executive compensation at the expense of the actual company, sometimes referred to as “managing the share price instead of the business?” Mr Zuckerberg presumably won’t be missing any steak dinners in the near future, but it can’t have been easy watching $100 billion disappear from his net worth (from a high of $142 billion a year ago to a “mere” $38 billion today).

Through the Looking Glass

Reading the above news, one might be forgiven for assuming the markets had a tough week... au contraire! All three major indices rallied, and hard, for the fourth straight week. In fact, the Dow Jones Industrial Average (which benefits from not having any of the aforementioned stocks listed) is on track to log its single best October in... ever!

What gives? Weren’t earnings weak? Aren’t profits falling? Isn’t the forecast sour and a recession imminent? (By the way, what happened to the recession that wasn’t a recession but actually was a recession? Remember that one?) 

Well, yes... all that’s still true. But in today’s upside down, back-to-front world, bad news is actually good news. As in, the worse things get, the more likely the market’s Sugar Daddy over at the Fed will swoop to the rescue, like so many parents allowing their feeble, recently Face-furloughed twenty-somethings to move back into their basement. 

Here’s MarketWatch:

Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting next week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%.

“The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS.

The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee.

What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught.

So the focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December.

Could investors, who are pricing in the possibility that the Fed may be nearing its “terminal rate,” whatever that is, be wrong? Things are already starting to break, as we’ve seen, and we’re only at 4%. What might things look like as they inch closer to 5%... or even – gulp! – go beyond?

Bonner Private Research’s Investment Director, Tom Dyson, was on the case earlier in the week. This snippet comes from he and Dan’s October Strategy Report:

Our simple model says “inflate or die.” 

Right now, the economy is dying. 

That might seem a little dramatic. Even hyperbolic. But remember what we're talking about. We're talking about a 40-year period of easy money and low interest rates. They built whole industries on cheap credit. 

The system now requires a constant expansion of credit and debt to survive. The minute that debt stops expanding (or being refinanced at affordable rates) the system collapses in what economists call a “debt deflation.” Think of a hot air balloon that suddenly loses its hot air. It does not float gently to the ground. It plummets. It's as simple and unavoidable as that.

Why have the major stock market averages risen for the last three weeks? 

Markets are making the same calculation now that they did in June. That the Fed is closer to being done and inflation will trend lower. But they were wrong in June. Are they wrong now?

Well, the Fed probably IS closer to the 'terminal' rate, whatever rate that is. But that rate may be higher than 5%. A few months ago, most pundits said it was 3.5% or maybe 4%.

The Wild Card is that with so much debt and leverage in financial markets, the financial economy can't afford a terminal rate higher than 5%. It's barely keeping it together at 4%. Yet the 'real economy,' the one you and I live and eat and heat our homes in, can't stomach inflation at these levels (at least not without a huge surge in credit card spending).

The Fed appears to think the answer to inflation is to destroy consumer demand by creating a recession, sometime in 2023. The stock market is focused on last quarter's earnings. It should be worried about next year’s earnings – when the recession predicted by the inverted yield curve slams corporations and stock prices.

My guess is, we’ve entered the stage of the crisis where inflation and commodity prices collapse and the liquidation begins. I’m expecting the bankruptcies, defaults and layoffs to begin soon. In other words, the decline is about to turn “disorderly.”   

The last place you want to be caught is in a stampede for the exit. Which is why we’ve urged readers to panic now and beat the rush. If you’re not already receiving all Tom and Dan’s in-depth research, including their monthly strategy reports and weekly market updates, now’s the time to get on board. Find a plan that’s right for you, here...

Cash Rishi

Also in the news this week was the anointing of Britain’s third prime minister in as many months, Mr. Rishi Sunak. (We’ve got an entire Fatal Conceits Podcast on the goings on across The Pond, with UK investor Robert Marstrand, which we’ll publish along with your regular Sunday Session, tomorrow. Stay tuned...) 

One thing that people perhaps haven’t paid much attention to, amidst the rest of the Shakespearean drama that is modern UK politics, is Mr. Sunak’s stance on Central Bank Digital Currencies (CBDCs). 

Recall that Mr. Sunak was Chancellor of the Exchequer before he had the nation’s top job, a position he used to lay the groundwork for what is now the highest inflation rate in the UK in almost half a century. (When it comes to politics, no bad deed goes unrewarded.) Now that the government there is facing a financial crisis, civil unrest and political instability, might Mr. Sunak be tempted to expedite his pet CBDC project? 

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