The most important question is whether we’re going to have stagflation
themarketNZZ/Christoph Gisiger interview of Howard Marks/1-30-2023
“If we have slow growth, might we have stagflation? In other words, low growth and high inflation. That’s the worst of all worlds. This is what matters, not if we are going to have a recession in the second quarter or the third quarter and not whether it’s going to last three months or four months. But that’s what most people think about. They’re literally wasting their time thinking about short-term events and worrying about all the daily noise in the media.”
USAGOLD note: The latest from Howard Marks – much offered here in the way of practical advice for the private investor. Is the old-fashioned armchair investor making a comeback? All things considered, it seems to be the approach Marks is recommending, i.e., the opposite of the day trader mentality that has dominated markets the last several years.
Notable Quotable
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“The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.”
Pearl S. Buck
Novelist who was in Germany during the hyperinflation in 1923
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Cash is no longer trash, says Dalio, who calls it more attractive than stocks and bonds
MarketWatch/Joseph Adinolfi/2-2-2023
“Over the past year, cash has become “pretty attractive” relative to both stocks and bonds, the famed hedge-fund manager said during a Thursday interview with CNBC. While bonds might offer investors a higher yield, swollen public-sector debts in the U.S., Europe and Japan and negative real yields have made debt securities less appealing, Dalio said.”
USAGOLD note: Investor cash holdings are approaching record highs, according to the Investment Company Institute……Cash, though, remains vulnerable to inflation. Even at a 4.5% yield, the investor is still losing money if the inflation rate stays at 6.5% or goes higher.
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Fiat Money Inflation in France
How It Came, What It Brought, and How It Ended
Andrew Dickson White ends his classic historical essay on hyperinflation, “Fiat Money Inflation in France,” with one of the more famous lines in economic literature: “There is a lesson in all this which it behooves every thinking man to ponder.” This lesson — that there is a connection between government over-issuance of paper money, inflation, and the destruction of middle-class savings — has been so routinely ignored in the modern era that enlightened savers the world over wonder if public officials will ever learn it. In this essay, Dickson White explores France’s hyperinflation at the end of the 18th century in exhaustive detail – its politics, its economics, and the social consequences which led, in the end, to Napoleon’s rise as emperor. It also details gold’s performance as a hedge during the period – a history that explains the French people’s ongoing attachment to gold from that period through the modern era
1812 Napoleon 1 (Bonaparte) 40 franc gold coin
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Gold Trading Hours
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Opinion: The Fed expects a ‘soft landing’ and no recession for the economy. We could get stagflation instead.
MarketWatch/Robert Brusca/1-31-2023
“The sense that yes, this is enough, means that Fed policy will depend on the kindness of strangers. Since the Fed funds rate currently is not above inflation, the Fed’s view will continue to be that inflation is going to fall by itself. When inflation has been this far out of control, I do not see this as an aggressive remedy. This is more like the halfway, what-the-heck policy that got us into this mess in the first place.”
USAGOLD note: Something that needed to be said…… Policy reduced to a coin flip.
Gold demand trends full year 2022
World Gold Council/Staff/1-31-2023
“Colossal central bank purchases, aided by vigorous retail investor buying and slower ETF outflows, lifted annual demand to an 11-year high Annual gold demand (excluding OTC) jumped 18% to 4,741t, almost on a par with 2011 – a time of exceptional investment demand. The strong full-year total was aided by record Q4 demand of 1,337t.”
USAGOLD note: Some very positive numbers from the World Gold Council to launch the new year…… This report garnered considerable attention in the global financial media. We offer the link above for those who like to dig into the numbers.
Chart courtesy of World Gold Council • • • Click to enlarge
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Top US air force general predicts China conflict in 2025
Financial Times/Demetri Sevastopulo/1-28-2023
A top American air force general [General Mike Minihan/US Air Mobility Command] has predicted that the US and China will probably go to war in 2025, in the most dramatic warning yet from a senior military officer about the likelihood of a conflict over Taiwan.
USAGOLD note: Let’s hope he’s wrong. A war, in our view, benefits neither side. The status quo is a better option – a thought, in retrospect, Russia may now be entertaining with respect to its Ukraine incursion. Minihan is concerned that circumstances have embloldened China’s Xi.
‘The Fed-fueled fantasy bubble has popped.’ Stock investors are detached from reality — but they’re about to get a big dose.
MarketWatch/Michael Sincere/1-23-2023
‘If it looks like a duck, walks like a duck, and quacks like a duck, it’s a duck! Most stocks are far below their 200-day moving averages. Also, even when good news comes out, most stocks can’t get any traction. Finally, during the last few months, money has been flowing out of stocks and into bonds. All of these clues suggest a bear market.” – Jeffrey Bierman
USAGOLD note: Bierman sees a 20% drop in the S&P to 3200 as in the cards…… “You can’t be 100% in stocks,” he says.
How Jerome Powell’s ego could trigger a recession
MarketsInsider/William Edwards/1-30-2023
“Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics and a former Federal Reserve Board associate director, told me that Powell is willing to do everything he can to avoid becoming known as the central banker that let inflation get away. ‘Powell doesn’t want his name to go down in infamy,’ he said.”
USAGOLD note: The popular Wall Street view is that Fed would like to engineer a soft landing, but that goal and controlling inflation might not be compatible. This less-than-sympathetic article does a good job of presenting the dilemma facing the Fed chairman with opinion from a number of heavyweight market analysts.
Crash test this week for market versus real world
Bloomberg/John Authers/1-30-2023
“The Fed, [former Treasury Secretary Lawrence Summers] says, is ‘driving the vehicle on a very, very foggy night, when the economy could yet go either way.’ The market is rallying, meanwhile, as though it’s a clear day with a long straight road ahead and not a car in sight. And in doing so, it comes up against the paradox that has dogged every attempt at a rally over the last year. Central bankers want to slow down the economy, and hope to use tighter financial conditions to achieve it.”
USAGOLD note: Authers worries that the rosier conditions and the recent stock market rally will induce surprise hawkish outcome to this week’s Fed deliberations. He quotes Academy Securities’ Peter Tchir: “If the demons are getting to the Fed, the financial conditions give them a real world metric to support them being more hawkish than markets have priced in. At this point I believe that markets have priced in what the Fed ‘should’ do and not what the Fed ‘will’ do.”
There are signs of a ‘second chapter in the pandemic price surge
Bloomberg/Joe Weisenthal/1-30-2023
“In a note to clients, Ben Emons of NewEdge Wealth LLC writes that ‘there are signs of a second chapter in the pandemic price surge’, noting that outside of the US we’re starting to see inflation surprise to the upside again.”
USAGOLD note: There are signs of price acceleration within the United States as well – gasoline price being one example. Too, we do not know what the net effect will be on inflation once China gears up production……
Notable Quotable
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“I never met Arthur Burns — Volcker’s predecessor, but one, as Federal Reserve chairman — who preferred puffing on a pipe to cigars. But I think I’ve read enough about Burns to suggest plausibly that the current Fed chair, Jay Powell, has more in common with him than with Volcker. This is unfortunate and potentially disastrous for the US economy.” – Niall Ferguson, Stanford historian, in a Bloomberg opinion piece.
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Black Swan author Taleb: Stock market ‘way too overvalued’ relative to current interest rates
MarketWatch/William Watts/1-31-2023
“[I]t’s difficult to justify current levels for stocks ‘unless you miraculously bring back interest rates to [1%], which they won’t be able to,’ he said. ‘Why should you put your money in the stock that gives you 2% dividend yield, if you’re lucky, when you can get 4.75% from the bank while playing golf?’ Taleb asked.”
USAGOLD note: Some straightforward logic from Mr. Taleb……
A barbarous relic no more?
“Two hypotheses suggest themselves as potential explanations for this reversal. First, gold is seen as a safe haven and desirable reserve asset in periods of high economic, financial and geopolitical uncertainty, and when returns on reserve currencies are low, two conditions that have been prevalent in recent years.…In addition, gold is favored by custom and tradition: central banks and governments have long held gold reserves.”
USAGOLD note: Three internationally recognized economists dissect what’s behind the move back to gold among emerging central banks. Arslanalp is a macroeconomist at the International Monetary Fund. Eichengreen is a well-known economic historian at the University of California, Berkley. Chima Simpson-Bell is also an economist with the International Monetary Fund.
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Silver ETFs likely to record huge upside in 2023
Yahoo!Finance/Sanghamitra/1-26-2023
“’Silver is in a shortage… and there is a notable drawdown in the available physical stocks held in New York and London’s physical hubs, more so than seen in gold,’ said Nicky Shiels, head of metals strategy at precious metals company MKS PAMP, quoted on CNBC. Shiels expects silver to record deficits of more than 100 million ounces over the next five years.”
USAGOLD note: A big pick-up in ETF demand could serve as adrenaline for the silver price. It would indicate the renewal of institutional interest. It is interesting to note that silver’s strong run-up since last November has occurred in the absence of ETF buying.