“The most immediate disturbing factor is that we have a Double Directional Change in 2022. This, combined with the Panic Cycle in politics, simply implies it is NOT going to be a nice normal year.”
~ Martin Armstrong

Isn’t that cheerful? No, but neither are the Omicron restrictions – the dramatic rise in energy prices in Europe – 175,000 Russian troops on the Ukrainian border – 6% inflation – and the ongoing supply chain problems. Should I go on?

How about the BNN/Rate.com survey that found that 29% of Canadians who have a mortgage, or are looking to get one, don’t understand the negative impact of higher interest rates with the market forecasting at least 5 rate increases this year.  (Please note I am resisting the urge to say that qualifies them for a career in politics.)

Bank of Canada Governor Tiff Macklem and the Fed’s Jerome Powell have both acknowledged they got the inflation story wrong and now say that inflation will be higher and run for longer than they’d anticipated.

No kidding – a trip to the grocery store makes that crystal clear. Apples up 21% vs last year, bacon up 22%, chicken up 28%, milk’s going up another 8.4% this year and gas just hit a record high in BC and other parts of Canada and the US.

A year ago during the 2021 World Outlook Financial Conference we issued a major warning that the bond market carried inordinate risk with virtually no upside. So we’re not surprised that 2022 kicked off with one of the bond market’s worst weeks in history as the prospect for higher rates had major investors worried about being the “bag holder” as rates rise.

In a world awash with $296 trillion US in debt this is a big deal.

The interest rate on a 2 yr Government of Canada bond has already moved from 0.16% this time last year to just over 1% but with the consensus forecast calling for inflation averaging 4% this year – why would anyone buy a bond yielding 1% when inflation is running at 4%. In other words, a guaranteed loss of 3% in buying power.

The yield on a 5 yr government of Canada bond has increased 300% from 0.43% this time last year to 1.5%. The point to understand – and the Bank of Canada’s big worry – is that as investors’ inflation expectation start to rise, they in turn demand higher rates of interest to compensate.

And that’s a problem given the record consumer, mortgage and government debt levels.  For example, as University of Calgary economist Jack Mintz points out, for 2021–22 the federal deficit and the rollover of federal debt will require the Canadian government to seek over a half-trillion dollars in new financing. Just a one-point increase in interest rates would increase the annual deficit by close to $5 billion.

It’s not that a few quarter point rate increases coming off record lows will have a huge impact – the question is where to from there.  As I said, if perception is that rates will go even higher with central banks still continuing to create money and buying the government bonds at low interest rates – then an even more significant fall-out in the bond market will take hold.

Both the former head the Bank of Canada, Stephen Poloz, along with the Parliamentary Budget Office have already stated that the Bank of Canada is near the limits of its bond buying without doing major damage to the currency and overall monetary system.

The question is what will bond market rates do in the absence of central bank manipulation? How high will rates rise?

Most troubling is the record emerging market debt of $96 trillion because interest rates in emerging countries are already rising much faster. Compounding the problem is that trillions in emerging market debt is denominated in US dollars so as the greenback rises against the local currencies the interest obligations become more onerous.

We’ve consistently said on Moneytalks that serious debt and credit market problems would begin in emerging markets.  My worry is that we’re already seeing the beginning of what could become a global monetary crisis in El Salvador, Turkey, Argentina, Lebanon, Brazil, Syria, Nigeria and other countries with big jumps in inflation, interest rates, and non functioning bond markets.

That would be a major problem for the financial institutions, hedge funds and individuals who lent the money to emerging market countries. Make that a really big problem that could have global repercussions.

I appreciate the numbers are so large that they are unfathomable but the point is everything revolves around the debt levels and interest rates, which are determined by investor confidence or government manipulation.

This is the context for February’s 2022 World Outlook Financial Conference and one of the main reasons Martin Armstrong’s model concludes that 2022 “is NOT going to be a nice normal year.” He will be at this year’s conference to elaborate and prepare you for what’s coming.

Our goal on MoneyTalks and at the Outlook Conference is to protect you financially and help you thrive by understanding the major trends. The track record makes clear we’ve done a great job with our Small Cap portfolio never achieving less than double digit gains. We’ve heard from hundreds of attendees and many more who listen to MoneyTalks that our decision to call the February 2020 Conference “The Coming Commodity Boom” has made them big money. I hope you’re one of them.

Prediction

My bet is that despite the tumultuous last two years, 2022, indeed the rest of the decade could be even more chaotic with finance and economic problems producing even more social upheaval and massive political change.  I appreciate you might be thinking “no kidding, Sherlock” but my point is that it’s  only getting started.

Rising food and energy prices, which are the inevitable consequences of discouraging fossil fuel production and investment, is all-star recipe for social unrest – and we’re going to get both over the next 5 years.

It’s already happening in Europe with consumers forecast to pay an additional $540 billion more for energy this year while the associated jump in fertilizer costs will intensify food shortages.

Protect Yourself

The World Outlook Financial Conference on Feb 4th & 5th will help prepare you for what’s coming with the help of some of the top analysts in the English speaking world. All have been chosen because of their exceptional track record. For example, Paul Beatty, whose BT Global Fund is up 100% in the last 2 years and Mark Leibovit, winner of Timer’s Digest Timer of the Year who this year will be talking crypto currencies. And Greg Weldon, the analyst other professionals follow. Whether you’re interested in stocks, gold, oil, real estate, cryptos, interest rates or the currency markets the 2 day Conference will cover them all.

And the best part is that once again we decided to go online to avoid all the uncertainty surrounding Covid and government restrictions.

You’ll be able to watch the conference at its regular times starting Friday night, February 4th through to Saturday, the 5^th late afternoon – but you’ll also be able to watch it again and again whenever you’d like with unlimited access to the on-demand archive. I hope you take advantage of this opportunity. It couldn’t be easier or more convenient.

To get your access pass or for more information on the agenda and speakers CLICK HERE.

My sincere best wishes for you and your family in 2022.

Mike