Carry Trade Heaven now Hari-Kari Hades

Crypto carnage as FTX declares bankruptcy

Recession looms while stock market celebrates 7.7% inflation

Learning the art of living backwards

Carry Trade Heaven Now Hari-Kari Hades

November 16, 2022

“So the markets are a daily engagement. Last week’s activity was so radical in nature as to the off-the-bell-curve-centerline and more out on the edges of professional experience. We reflected many times midweek, the whole team, about how only once, twice, maybe three times in your professional career, in the context of money management, do you see this kind of radical behavior, interest rate volatility, currency market volatility, equity, digital asset volatility, all on a spectrum that was fitful and very atypical.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

It’s amazing, Dave, you sent me notes this morning. We didn’t get a chance to meet last night, so you sent me notes, just scribbled notes, actually typed notes from the Dallas airport, and I had my assistant print them from Phoenix into the Durango printer. I came in and it’s like, oh, so Dave’s trip to Dallas went well. You landed at 10:15. It’s noon now. We’re recording. It’s just— Technology, it’s amazing how we can pull these things together. You from Dallas. The recording studio is up in Idaho. We were just talking to John in the recording studio. The notes were printed from Phoenix to Durango. All this stuff comes together and it sounds almost like we’re just sitting in the living room, doesn’t it?

David: Everything is speeding up. You had Moore’s Law, which explains some of how things are moving faster and faster and faster.

Kevin: How about volatility in the markets this last week? Have we ever seen what we’re seeing right now? In bonds and geopolitics it just feels like something is really brewing, like the froth on the top of your espresso that you’re sipping right now.

David: Everything is speeding up, and maybe that’s a consequence of getting older, and we tell ourselves that. We know that’s true, but it has this sense of speeding up. In the markets, some of this has to do with structural changes that happened in 1999, 2000. We were two decimalization from fractional shares, which allowed for a more rapid transaction to occur. We really didn’t have—

Kevin: Or transactions per second. High frequency trading, you can have 500 transactions in a second.

David: Looking at last week, markets decided to melt up, not melt down. I think it’s important to look at the context. We’ve got the bond market, which is in the middle of its worst year in modern history. You’ve got pending home sales, which have dropped 31% year over year.

Kevin: 31%.

David: And that’s as higher rates are starting to impact real estate, and I will say just starting. We passed the 31 trillion mark on our national debt as of October.

Kevin: I thought Biden said he cut that in half. Was he mistaken?

David: I think he might have misspoken. It doesn’t happen often, but we’ve since then already added a quarter trillion dollars more, a quarter trillion in less than a month. So some estimates put our 2023 interest payments at a trillion dollars. That’ll be a first in US history.

Kevin: Wow.

David: A trillion dollars interest payment for the year. Run the math on what percentage that is of our tax revenue, and you realize that this is really becoming something. The Fed is still reducing its assets by 95 billion a month and—

Kevin: Well, who’s going to loan us money then? The Japanese and the Chinese have been doing that, but I don’t know that that’s going to continue.

David: It’s a big question because we’re on track to add, next year, $2 trillion to our debt. So again, over the next 12 months, we have to find replacements for the Japanese, for the Chinese,