2021: The Year In Review, And A Wee Light In The Tunnel
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2021-12-27 07:00 by Karl Denninger
in Editorial , 1404 references Ignore this thread
2021: The Year In Review, And A Wee Light In The Tunnel *
[Comments enabled]

As is my practice I will do this once again....

But first, scoring last year.

  • Harris/Biden inaugurated.  Yep.

  • Senate NOT going 50/50.  Miss.  It did and is.

  • Rumblings of secession.  Yep.  Multiple states, with the most-noted being Florida, surprisingly enough.  Nonetheless this was not really much of a rumble and a "Cesar" in DeSatan is arguably worse than Biden, so on balance its a miss.

  • Covid insanity collapsing.  Nope.  Karen still screams.

  • Dooming public acceptance of jabs.  Depends on how you count it.  If you count it on coercive tactics that's a solid score. Acceptance is just that -- not a gun up the nose.  I'm taking that point.

  • Inability to interdict spread will be resisted -- and won't matter.  Yep.  Delta and now Omicron have proved all the "mitigations" were worth zero.  Now even CNN admits it, yet it doesn't matter, as I predicted.  I said we'd learn an effective nothing, and, well, we learned an effective nothing.

  • Bread and circuses still work.  Indeed.  Now the backlash, but that's for this coming year, isn't it?  Yep.

  • Inflation is coming.  Oh boy, did it.  Do I get two points for that one?

  • The money-printing grab-bag will continue.  Alright, do I get two for this one as well?

  • The left will go back to violence.  Well...... I guess that one is tougher.  On the one hand yes, but on the other no.  This one is a tough call, but what I thought I'd see is not what we got, although we got plenty with wildly-elevated murder rates and monstrous amounts of smash-n-grab and similar.  I'm going to be tough on myself and score that as a miss, as what I thought we'd get was more-akin to "burn it all to ash" ala "I can't breathe!" style nonsense.  We didn't, so it's a miss.

  • They'll ignore the lessons of Christmas Day in Nashville in 2020.  Yep.  And we have paid for it, but not in really ridiculous terms.  Yet.  Log2j, lots of service outages, but.... no "grand" exploit.  I said I wouldn't be surprised, so that wasn't a "it'll happen", and what I did expect (ignoring it) did, so I'll take that point.

  • Political violence escalation. Nope.  Not yet anyway.  Clean miss.

  • Bond market coming apart.  No, although you have to wonder what Powell is actually thinking.  He's lying by the way, but so far getting away with it.  Miss.

  • Strum and furor out of DC, but no real progress. Check.  I don't know how in the Hell I could have predicted that one better.  Let's Go Brandon!

  • My cat will remain my best friend.  Indeed.  The list of people I hang around with and actually like (as opposed to a purely-transactional experience) has gone to nearly zero, and I doubt it will change in the future.  Point.

So I score it as 9 to 6.  Not terrible for a one year prognostication.

How about for 2022?

Well, here we go, because why not?  I will intentionally omit anything related to the virus directly because of where this is posted, and because of the censorship of the big techs.  Never mind that you all know where I come down on most related topics in that respect anyway, so let's keep it to social, political and economic for this year.

  • Inflation will not calm down.  Yes, it will ebb and flow some, but this is a math problem at the end of the day and until Congress cuts it out it isn't going to stop unless The Fed says "nuts!" and, so far, they haven't.  Incidentally for those who say it will be "hyperinflation" you're nuts; I'll take the other side of that bet every day and twice on Sunday.  But in terms of trouble in the supermarket, yep.

  • The Democrats are going to get obliterated in the midterms.  Let's define that: They absolutely lose the Senate and I'll give it 50/50 they lose The House.  In any event without the Senate anything Biden wants is done, and so is anything Pelosi wants, no matter if she keeps the gavel or not.  My prediction is that the Senate will be at least 52-48 and it might be worse than that for the "D" side, so even if they can peel off a defector it doesn't help.  In short Biden's administration has about six months of actual life left in it after which its a dead letter with the upcoming elections and then the change in power comes the following January.  As I've pointed out for 20 years despite the screaming people always vote their wallet and the Democrats have literally stolen their wallets with inflation.  They're done, even though Trump caused half of it or more they're going to eat the blame for it, just as Carter did.  If the bracketing predictions (above and below) prove up in 2023 inflation will ebb as the Republicans take control of the legislature and 2024 will mark the end of the current Democrat party; all that will be left is the screaming Socialists like AOC who will be lucky to have 150 seats in The House.

  • The Fed is going to get forced into actual liquidity drains.  Not the lies of the last couple of months, real drains.  By spring, with inflation still raging, they'll have little choice -- and inflation is shifting away from fuels (which become less relevant in terms of "need" as heating season winds down anyway) into other core staples.  There comes a point at which the exponential nature of this deterioration is going to force their hand and I think we're a couple months away from it happening.  They won't like it, but they'll do it.

  • The USSC will "split the baby" on the abortion decision and nobody is going to like it.  This could be very dangerous in terms of court-packing except for one problem -- the Democrats can't get it through Congress, and they lose this upcoming November.  Ditto for any other decision that could threaten "court-packing."  It's not going to happen folks; you can't do that on reconciliation and there's not a snowball's chance in Hell you get it past a filibuster.

  • The equity market is extremely vulnerable over the next six to nine months.  Risk:reward is wildly unfavorable.  It will shift coming into the elections but for the time being I would be very, very selective about anything with exposure to a blow-up in the term structure (meaning any firm with potential debt coverage issues), any of the "social" stocks and anything levered to government tax farming.  I'll put the odds of a blow-up from now until the last few weeks before the election, defined as a 25% draw-down or worse, at 50:50.  The compounding effect of that on the midterm elections, if it occurs, will be substantial.

  • There is no short-term supply chain relief coming.  The problem is simply this: It's only smart to offshore labor to China when you can use wage and environmental disparities; it is otherwise stupid since transportation is never free.  In an inflationary environment this is especially nasty because if the supply chains lengthen you also increase your risk in that regard.  Being unable to quote prices with a reasonable degree of forward accuracy makes long-duration, long-distance supply chains wildly dangerous.

  • Business is going to get it in both holes.  Between labor productivity and costs, which will continue to deteriorate due to multiple factors (inflation, how business has treated employees, supply chain issues and more) and the inability to put any sort of forward pricing certainty in place there is serious trouble afoot.  Those with the longest international supply chains and heavily labor-intensive outfits get it the worst, but nobody is immune.  Businesses can claim its about "mandates" all they want but from the perspective of the employee it is all the fault of their boss, period, and they're right.  Businesses can tell the government to screw goats and shut down, refusing to comply with mandates by refusing to operate.  How long does DC or any other city or state survive without food, fuel, power and similar?  Hours.  Who has the power in this relationship again?  Yeah.  May I remind you (again) that the only difference between sex and rape is consent?

  • The blue hives are in particularly-serious trouble.  Mandate all you want; you can't force people to come.  All of these locations are wildly dependent on leisure, business travel or both.  Those who live in such places can and will go out of said cities on a temporary basis to do things such as eat, and if it continues they can and will move.  This is a losing game in a big way for these cities and towns.  The losses when it comes to hospitality and optional firms such as theatres, restaurants and similar, along with the tax revenue losses, will be catastrophic and once someone packs and moves they're gone and won't be coming back.  I'm expecting a quarter to a third or more of all remaining restaurant and similar firms in the blue hive cities to permanently close within the next 12 months and without the tax revenue city services cannot be provided.  If the city governments do not relent before warmer weather comes Detroit will be reprised in multiple places including New York, Chicago, Boston and elsewhere.

  • Significant geopolitical trouble breaks out.  I'll give it one of two places -- Ukraine or any of the Chinese issues, specifically their Muslim population and Taiwan.  Of the two Ukraine has the higher probability.  The facts of the matter are that Europe has sucked off our military spending for decades when it comes to such matters and frankly, if they're pissed off about both energy and defense they should have done something about it instead of whining and shutting down their existing energy sources.  I have zero sympathy for them and I don't care if Putin decides he's had enough of NATO.

  • Ghislaine Maxwell's trial is not the end of that story.  I'll predict that it blows up this coming year in a lot of people's faces.  What you've seen at CNN, for example, I'll bet is just a start.  This crap has been going on for a very long time and the "bench" on it in terms of who's in it up to their necks is deep and long.  It does not end with her by any stretch of the imagination, nor with one dude at CNN either.  While I don't expect the entire sordid mess to come apart in 2022 I do expect serious cracks in the dike and they don't have enough fingers to try to plug the holes.  Watch this one closely as it could easily go prompt critical and if it does all bets are off in terms of the scope and depth of the damage.

  • Biden is finished this year.  He's done.  Either he dies literally or he bows out due to "health."  It's wildly clear at this point the man is an empty head with advanced mental deterioration.  Repeated strokes, and he's had several, have a way of doing that to people and so does age-related dementia generally.  Like it or not here comes Kamala but it won't matter because of the above; she's even less liked than Biden is, so Seat Warmer Harris it shall be.

  • Business uncertainty lifts in the back half.  Yes, I know, I said it looked like crap up front and will be for most of the year.  But not all, and with the Federal Government basically out of the picture as of the first of 2023 economically and market-wise the forward view looks better.  Beware holding a bearish view politically or economically beyond the November elections; you are likely to get your face ripped off.

  • Housing, as a bubble, is done.  God help you if you overpaid and it wasn't a lateral move.  For those whom it was, you traded one bubble for another so provided you didn't dump your equity percentage blowing the rest on other things you won't be hurt badly.  For those who entered into it from 2020 forward and especially for those who thought the investment side was going to continue to skyrocket you're going to get it in both holes.  Between cities doing rankly stupid things (such as NY mandating no natural gas in new buildings) that will wildly raise operating costs, tax term structure going to Hell in anywhere blue and the collapse in real labor value among productivity and costs you've got pressure on all sides in this part of the market.  My base case is that returns are wildly negative accounting for that over the next five years and 20-50% capital losses are possible from top to bottom.  Those who reset their leverage thinking the current prices were "a floor" are in for a date with Mr. Hands.  This is not a one year story and the worst of it is not a 2022 story either, but it will become apparent this year.  I do not expect things to clear until 2024-25 or even perhaps later.

  • The Medical Complex has a serious problem on their hands - both in credibility and cost.  Sure, some will be ok, but not much of it.  I suspect this trend is generational and may not clear for a decade or more.  It will be quite interesting to see the screaming and whining that comes out of these folks as their naked swimming becomes exposed for all, and it will.  This is the year it becomes apparent to enough people to matter.  Since this is 20% of the economy, one dollar in five, its an economic earthquake that will send shockwaves through colleges, government agencies and businesses.  This has been a long time coming and both fully earned and deserved, especially for the TikTok dancers and those exhorting othersIf you're in that sector with investments get out -- it will be radioactive within six to twelve months and stay that way for years.

  • The credentialism of the so-called "top schools" will deteriorate markedly and some may collapse.  The idea that you can con people into paying $50,000/year to sit at home and watch zoom calls is flat-out insanity.  It has long been apparent that the majority of the "value" in such places is the "ins" you get by going there, living there and hob-nobbing with people in low places -- not the education "per-se."  That these institutions are so arrogant as to believe they can destroy the social interaction that is the very basis of their current value equation and not have that blow up in their face is astounding, but here we are.  This is a realization that should have come 20 years ago, but like all such ego-driven nonsense it tends to go on a lot longer when the red warning light is on before someone blows off their own hand -- or head.

  • Trump is done, and so are those who cling to him.  Run away now or be run over.  The man will become glowing nuclear waste before the election.  Exactly who fills the vacuum is not currently known, but the leading odds dude is likely DeSantis.  I don't like that very much but it is what it is and the bench sucks on both sides of the aisle -- it's not just the GOP in that regard.

As always I may add more to this and revise predictions until 12:01 on January 1st, 2022 at which point other than typos its a time capsule and we'll see how it all plays out come the end of 2022.

Oh, as for that wee light in the tunnel referenced up top?

IT'S A TRAIN.

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