• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Fat Tail Daily

Investment Ideas From the Edge of the Bell Curve

  • Menu
    • Commodities
      • Resources and Mining
      • Copper
      • Gold
      • Iron Ore
      • Lithium
      • Silver
      • Graphite
      • Rare Earths
    • Technology
      • AI
      • Bitcoin
      • Cryptocurrency
      • Energy
      • Financial Technology
      • Bio Technology
    • Market Analysis
      • Latest ASX News
      • Dividend Shares
      • ETFs
      • Stocks and Bonds
    • Macro
      • Australian Economy
      • Central Banks
      • World Markets
    • Small Caps
    • More
      • Investment Guides
      • Premium Research
      • Editors
      • About
      • Contact Us
  • Latest
  • Fat Tail Series
  • About Us
Latest

A Catch-22 for Investors

Like 0

By Ryan Dinse, Monday, 22 August 2022

‘He was going to live forever. Or die in the attempt.’

Joseph Heller, Catch-22

Well, the consensus is clear…

This stock market rally is about to fizzle out.

If you believe the experts on Bloomberg TV, that is.

I caught an episode of the ‘Opening Bell’ segment on Friday morning while on the treadmill at the gym.

Usually, I go for an interesting documentary.

The history of the Celts or Romans, something on the great artists of the Renaissance…occasionally Maradona’s best goals.

But last Friday, I thought I’d take a risk and see what the mainstream pundits were saying about my day job.

And let me tell you, it was depressing viewing…

Shock and awe

As I said, the consensus from nearly every single one of the guests on the show was that interest rates would continue to rise.

That the Fed would stick to their guns, no matter what.

And in turn, this current stock market rally would fizzle out fast.

Certainly, it’s been a fierce rally so far — we’re up more than 16% from the June lows on the US S&P 500 — and a pause or pullback wouldn’t surprise me at this point.

Our very own charting wizard Murray Dawes has been saying much the same recently. He’s yet to get confirmation from his signals that the bull is back for real.

And Murray is one voice I trust on this, so I’m playing it cautious right now.

But the pundits’ reasoning — sustained interest rate rises as far as the eye can see?

On that, I’m not so sure…

You see, the economy is so indebted that higher rates for longer isn’t sustainable.

And my base-case view is we’ll see a pivot to lower rates faster than many predict. Maybe not this year but in early 2023 for sure.

Why?

It’s just maths…

Take the biggest debtor in the world, the US government.

Their annual interest bill is around US$400 billion. If the coupon (interest) rate on government bonds increases to 3.2%, then that’s an increase of US$600 billion to US$1 trillion a year.

That’s just to pay the interest on their debt.

Now, the US annual GDP — the total value of all the goods and services produced — is around US$23 trillion.

So, a trillion dollars of interest is 4.3%. In other words, you’d need the economy to grow at a nominal rate of 4.3% just to pay the interest bill.

The historical average from 1948 to 2022 is 3.13%, and with a recession looming, it’ll likely go backwards over the next 12 months.

Which means this debt is only going to grow thanks to budget deficits as far as the eye can see — including a new US$750 billion spending bill passed this week.

Part of this bill, called the Inflation Reduction Act, hired 87,000 new tax agents.

I can’t imagine shaking down taxpayers for more money will go down too well in November’s primary elections.

And ironically, with stock markets falling sharply with increased interest rates, it’s likely capital gains tax receipts will fall too.

Making the budget situation even worse…which can only be covered by…yes, you guessed it…more debt!

The Fed is shooting itself in the foot and contributing to an unstoppable debt spiral.

This is why, in my opinion, forget what the pundits on Bloomberg say, any rate rises can only be temporary.

In my opinion, they’re really trying to ‘shock and awe’ inflation into coming down fast. And for that to work, they need punters to believe they’ll go hard and high.

Herein lies the paradox for investors.

The more jawboning inflation down works, the less they’ll do on interest rates.

But if markets call their bluff and rise, knowing a pivot is coming soon, the Fed will increase rates faster to prove they’re serious.

Even if the economic consequences are terrible.

It would all be funny if people’s jobs and livelihoods didn’t rely on it…

Peak insanity

How did we get into this situation?

A point where the Fed can play God?

What they’re saying, what they’re thinking, what will they do next…?

It’s all anyone cares about these days because it’s the only thing driving markets.

And it’s not normal.

I mean, the stock market is meant to be where real businesses are sized up.

Where stocks are bought and sold on the basis of the competition of products, management, marketing, and everything else that makes a good (or bad) business.

Instead, we’ve got trillions of dollars slushing around on the whims of 12 people meeting in private and dictating terms to everyone else.

It’s literally a financial dictatorship we’re living under.

I’ll admit, I sometimes feel a bit crazy for even suggesting this in polite company.

Certainly, no one on Bloomberg TV was!

And in that spirit, I’ll leave you with a quote from Joseph Heller’s masterpiece, Catch-22:

‘There was only one catch and that was Catch-22, which specified that a concern for one’s safety in the face of dangers that were real and immediate was the process of a rational mind.

‘Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions.

‘Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to.

‘Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle.

‘“That’s some catch, that Catch-22,” he observed.

‘“It’s the best there is,” Doc Daneeka agreed.’

Good investing,

Ryan Dinse Signature

Ryan Dinse,
Editor, Money Morning

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Ryan Dinse

Ryan is a former financial advisor who over seven years helped more than 600 clients and had more than $150 million under management. This experience taught him that the mainstream investment industry has no interest in helping clients strive for greatness. He was told to make ‘safe’ investment plays and settle for average returns. It wasn’t good enough for Ryan.

In 2016, he embarked on a renewed mission: to help ordinary people lock onto extraordinary trends before they go mainstream. He’s an experienced small-cap trader and an expert in cryptocurrencies. He first bought Bitcoin [BTC] in 2013, when it was around US$600.

His crypto advisory is a must for anyone looking to make digital assets a part of their long-term portfolio. Check it out here. His tech advisory Alpha Tech Trader aims to identify and latch onto strong emerging opportunities in the tech sector, wherever they are in the world. Get more info here.

Ryan’s Premium Subscriptions

Latest Articles

  • The rock hunters are back in the game
    By Callum Newman

    Expect more capital raisings and drilling campaigns from the junior gold sector. It’s another example of things heating up.

  • The ‘Rich Dad, Poor Dad’ of Mining
    By James Cooper

    Former geologist, James Cooper, outlines his ‘Rich Dad, Poor Dad’ experience as a geologist by contrasting two companies he worked for.

  • America’s next Vietnam begins
    By Callum Newman

    I remember George W Bush on a US carrier declaring ‘Mission Accomplished’ when it came to Iraq in the second Gulf war. That was in 2003. The war was still going in 2011. Iraq became a failed state, instead of a flourishing democracy. The Iranians aren’t stupid.

Primary Sidebar

Latest Articles

  • The rock hunters are back in the game
  • The ‘Rich Dad, Poor Dad’ of Mining
  • America’s next Vietnam begins
  • Are we at war with China?
  • Looking for the Catalyst: European Rearmament

Footer

Fat Tail Daily Logo
YouTube
Facebook
x (formally twitter)
LinkedIn

About

Investment ideas from the edge of the bell curve.

Go beyond conventional investing strategies with unique ideas and actionable opportunities. Our expert editors deliver conviction-led insights to guide your financial journey.

Quick Links

Subscribe

About

FAQ

Terms and Conditions

Financial Services Guide

Privacy Policy

Get in Touch

Contact Us

Email: support@fattail.com.au

Phone: 1300 667 481

All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

Fat Tail Logo

Fat Tail Daily is brought to you by the team at Fat Tail Investment Research

Copyright © 2025 Fat Tail Daily | ACN: 117 765 009 / ABN: 33 117 765 009 / ASFL: 323 988