Hold my non-Bud Light beer.

Romel Dhalla
On The Money

Crypto is going to change the world, they say. AI is going to change the world, too. None of that matters though, because the world won’t even be habitable by 2030 if the UN IPCC is correct. They call it “Global Boiling” now. Also consider that we are collectively experiencing massive ideological culture wars, woke-corporate boycotts, and that anyone who disagrees with Wall Street’s post-modernist view is a racist and a bigot, so we are told.

Despite all this fearmongering, noise, and craziness, many corporations are posting big earnings on Wall Street, beating expectations by a country mile and leading many bank economists to forecast a “soft landing” for the economy. What does a soft landing mean, anyway? Well, a soft landing means the economy still grows and does not contract as it would in a recession, albeit the growth is minimal. Think back to the Obama years where, after 2008 financial crisis, the economy recorded a tepid 1.6% average annualized growth rate. Dare I say it, this time it’s different.

The first big difference is that interest rates are the highest in 20 years and climbing and this is finally having an impact. The middle class is scrounging for change to afford the necessities of life. Consumers are choosier than ever, also, and delaying major ticket items. Airline passenger traffic is showing signs of slowing, air freight is down, new and used car prices are lower, consumer spending is still increasing but just barely, and housing, well… housing is still a major problem.

The second difference is that back in 2008 analysts were actually recommending that the US burn down empty or condemned homes to create more demand. But today there is not enough housing supply, and demand is being driven even higher partly due to wide open borders and a flood of immigrants and asylum seekers. However, more and more homes are not for sale because sellers know they won’t get the same mortgage rates they currently have for their next home. Buyers are holding out because prices are still near record highs. Housing prices must come down. Also, in a bizarre twist commercial properties are empty and can’t be filled because of work at home policies. Major skyscrapers are being handed to the banks that financed their purchase or construction, because their owners know they have lost profitability. What is terrifying is that commercial property owners are willing to walk away from assets worth hundred of millions instead of taking losses to their income, maybe because they can foresee what is to come.

The third is that the state of information in the world is not uniform, people are more polarized than ever and the culture wars have taken a big bite out of companies adopting DEI/ESG policies. Take a look at what’s happening to Bud Light, Target, or Disney. Sales are down double digits in some cases, entire departments and distribution networks are gone, not because the product changed, but because consumer sentiments toward the brand did. This is happening on a massive scale for many companies who thought to do the right thing in a post-George Floyd world, but who are simply alienating their customers. The culture wars are adding significant weight to already very wonky markets as corporations needlessly shoot themselves in the foot.

The next major difference is that climate alarmism is at an all time high. Despite the fact that not a single long-term climate related prediction made by any major governmental body has come true, we are beholden to a trampling of news media telling us the world is on fire and that the rich people in the West are to blame. No one seems to be talking about the billion plus impoverished people out there who are burning wood and dung for energy (one of the most pollutant and significant contributors to CO2 emissions) or that China and India are building numerous new coal power plants. Imagine the decline in CO2 and pollution that investing in LNG exports would have brought to that part of the world, but we didn’t. Instead, governments of the West are hell bent on spending whatever it takes to support bank syndicated investments into massively industrial solar and wind power, regardless of their low and unreliable power output and high cost versus going with cheap and safe nuclear power and planting a billion trees that literally suck the CO2 from the air and put it in the ground. The fiscal irresponsibility, cronyism, and environmentally harmful infrastructure built around the “green industrial complex” to strip mine the world for rare earth elements and build everyone an electric car, even if it is powered mostly by coal, is a flat out lie and wasting significant resources. Unfortunately, there does not seem to be an end to this madness.

Lastly, governments around the world went on a massive spending spree and got addicted to lower rates. Every government program that could be imagined got funded and cheap money allowed for historic increases in debt without a high interest payment. All stripes of government, left and right, are to blame and the spending got dizzyingly worse during COVID-19 which fuelled the inflation we are experiencing today. One has to ask, when will the government run out of money? I’m not exactly sure how much more we can spend. Tax rates are already near their highs and borrowing, even for government, has become very expensive. The biggest, and scariest, difference between now and then is that the government will not be able to come to the rescue this time and spending will have to be cut, massively. This will only serve to greatly enhance the pain that will mostly be borne by those who tend to rely on government assistance and programs: the poor. Expect crime to rise even higher, leading to what some predict will be the forced adoption of central bank digital currencies that will give the government total knowledge and control of your money.

I could go on and discuss other sectors, like higher oil prices thanks to the West preventing investment in domestic production, or provide more examples of what I am seeing in the macro-economy, but I think the point is clear. So, I’m sorry folks, but please don’t be fooled. A very painful recession that can’t be fixed with a bailout is coming, and soon. Please note that all comments herein are my own opinions and not representative of any other organization.

Romel Dhalla, is President of Dhalla Advisory Corp., provides strategic corporate finance advice to companies and high net worth individuals and was a portfolio manager and investment advisor with two major Canadian banks for 17 years. Contact him at [email protected]. Any views or opinions represented in this article are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.