Juggling Dynamite

Hoisington Management’s Third Quarter 2021 Review and Outlook (5 pages) is now available here and well worth taking in.  The bottom line is that the recent bout of supply-driven inflation is likely to be self-correcting because the pandemic dramatically increased debt throughout an already highly indebted global economy.  The debt weight further reduces forward growth prospects and increases the deflationary gap (level of real GDP below potential), which erodes demand and inflation once more.  Full circle:

During the 1970s, unlike currently, the velocity of money was stable (although not constant). As a result, the aggregate demand curve (C + I + G +X = M x V) also shifted steadily outward. This allowed the inflation from the supply side disruptions to become entrenched. Currently, however, the decline in money growth and velocity indicate that the inflation-induced supply-side shocks will eventually be reversed. In this environment, Treasury bond yields could temporarily be pushed higher in response to inflation. These sporadic moves will not be maintained. The trend in longer yields remains downward.

The Cullen Commission, mandated to examine whether inaction or corruption enabled money laundering to take root in B.C. casinos and real estate,  is set to conclude final submissions on Tuesday.  As reported by investigative reporter and “Wilful Blindness” author, Sam Cooper, the evidence presented has been clear:  stopping the flow of dirty cash into casinos would reduce profits for the BC lottery corp and the provincial government, so it continued.  Pretty straightforward.  See BC government waited 9 years to heed recommendations to reject drug cash in casinos, inquiry hears:

“The gamblers were paying back the bags of suspected drug cash they used to buy casino chips with electronic fund transfers in China and Canada, according to a 2011 RCMP report, meaning that the “loan sharks” were not only profiting from interest on their criminal loans, but also successfully washing criminal money in international banks.

From at least 2009, many high officials in British Columbia were repeatedly warned of a massive escalation of “bulk cash” flooding into BC Lottery Corporation casinos that “undoubtedly has its origins in the drug trade,” according to the RCMP.

…in October 2015, after [BC gaming minister Mike] de Jong learned of the RCMP’s money-laundering investigation at the River Rock Casino, [his office] the enforcement branch directed the BC Lottery Corp. to not accept any cash in casinos unless the source of funds could be determined.

However, the [BC Lottery] corporation responded with a letter, saying: “You have directed that BCLC evaluate the source of wealth and source of funds prior to cash acceptance in all instances… Implementing a process that will require source of wealth and source of funds confirmation prior to any transaction will in all likelihood put much of the 77 percent of slot and table revenue that is cash based in jeopardy,” B.C. provincial lawyers submitted.

Danielle was a guest with Jim Goddard on Talk Digital Network talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.