Today’s note, “Storm Warning,” looks at the Category 5 deflationary hurricane forming off the Chinese coast as Beijing accelerates the devaluation of the yuan against the dollar under the guise of “reform”. I say forming … the truth is that this deflationary storm has already laid waste to the global commodity complex, doing trillions of dollars in damage. I say forming … the truth is that this deflationary storm has driven inflation expectations down to levels last seen when the world was coming to an end in the Lehman aftermath. And now the Fed is going to tighten? Are you kidding me? The Fed owns capital markets today, like it or not, and raising rates now, as opposed to a year ago when there was a glimmer of a chance to walk back the Narrative of central bank omnipotence, isn’t “brave” or “prudent” or “necessary” or any of the other laudatory adjectives you’ll hear from Fed media apologists after they raise. It’s simply buyer’s remorse.

The Fed is apparently dead-set on forcing a low-level currency war with China AND whacking our own manufacturing and industrial base on the kneecaps with a crowbar, just so they can get out of the communication policy corner they’ve painted themselves into. So much for the American manufacturing renaissance. But don’t worry, the global recession in the industrial and commodity complex is well contained here in our vibrant services-led economy. Right. You want some fries with that?

Unfortunately for mariners, the total amount of wave energy in a storm does not rise linearly with wind speed, but to its fourth power. The seas generated by a forty-knot wind aren’t twice as violent as those from a twenty-knot wind, they are seventeen times as violent. A ship’s crew watching the anemometer climb even ten-knots could well be watching their death sentence. – Sebastian Junger, “The Perfect Storm: A True Story of Men Against the Sea” (2009) [the crew watch emergency surgery performed on the ship’s deck] Able Seaman: Is them ‘is brains, doctor? Dr. Stephen Maturin: No, that’s just dried blood. THOSE are his brains. – “Master and Commander: The Far Side of the World” (2003) [the Konovalov’s own torpedo is about to strike the Konovalov] Andrei Bonovia: You arrogant ass. You’ve killed *us*! – “The Hunt for Red October” (1990)