Monthly Archives: December 2021

Financial Times/Laura Pitel and Funja Geller/12-22-2021

“Erdogan hopes that the message — combined with an attractive new investment proposition — will persuade millions of Turks to turn their backs on dollars and gold and put their savings in lira.”

USAGOLD note: One Turkish analyst asks the essential question: “Why would you hold Erdogan dollars when you can hold real dollars?”……..Or even better, as the chart below shows, real gold. Over the past five years, gold is up over 400% in Turkish lira and the dollar is up almost 225%.

Gold and the U.S. Dollar in Turkish Lira
(%, 2017-2021)

Chart courtesy of TradingView.com

Mauldin Economics/John Mauldin/12-10-2021

‘If [Jerome Powell] does favor Wall Street over Main Street, the cost of doing so will be more inflation, which, as noted, is what the Fed really wants anyway. I think Powell believes the disinflationary era is over, at least for a few years. The China-led globalization that kept goods prices low for the last 20 years has mostly run its course. Add in demographic-driven labor shortages and we seem set for a meaningful trend change.”

USAGOLD note: This came out before the events of last week. Mauldin says he hopes that Powell is “made of sterner stuff” than Arthur Burns or William Miller, but the Fed took a significant step in their direction last week. As Bloomberg’s John Authers pointed out last Thursday after the chair’s news conference, Powell had “plenty of opportunities for a ‘Volcker moment,’ and he didn’t take them.”

BloombergOpinion/Narayana Kocerlakota/12-14-2021

Cartoon courtesy of MichaelPRamirez.com

“This kind of rapid shift has a troubling historical parallel. At the beginning of 1965, too, the Fed had little reason to be concerned about inflation – until the federal government greatly expanded the scope of the U.S. engagement in Vietnam. The extra demand pushed the core PCE inflation rate rapidly upward.”

USAGOLD note: Kocherlakota is not the first to liken fighting the pandemic to fighting a war. We would add to his observation that economic consequences seem to manifest themselves much more quickly now than they did in 1965. Though it wasn’t until the 1970s that the mid-1960s monetary inflation ended up in consumer prices, we are already beginning to see signs of inflation taking root as a result of the pandemic stimulus.

The New York Sun/James S. Robbins/12-13-2021

“That analysis is from John Williams’ Shadow Government Statistics, which presents data using previous Consumer Price Index frameworks. The number it comes up with for November 2021 marks the worst inflation rate since the 17.6% in June 1947 when President Truman was in office.”

USAGOLD note: One wonders where monetary policy would be had we stuck to the 1980s formulation – not to speak of the monetary framework itself.

Trading Economics/Staff/12-29-2021

“The US goods trade deficit widened to an all-time high of USD 97.78 billion in November 2021 from a revised USD 83.2 billion in the previous month, the advance estimate showed. Imports rose 4.7 percent to USD 252.43 billion, reflecting the ongoing recovery in domestic demand due to rising wages and a fast-recovering economy. Purchases rose for industrial supplies (10.0 percent), consumer goods (4.5 percent), vehicles (4.5 percent), and foods, feeds, & beverages (3.4 percent). Meanwhile, exports were down 2.1 percent to USD 154.66 billion on the back of lower sales of industrial supplies (-2.3 percent), capital goods (-3.0 percent), consumer goods (-2.1 percent), and vehicles (-2.3 percent). So far this year, the US posted a goods gap of USD 984.6 billion, and is on track to book its biggest annual shortfall on record.”

United States Goods Trade Balance

USAGOLD note: Gold had gone negative during overnight trading and was down as much as $17 at one point this morning. It began making up those losses soon after the record trade deficit was announced, and is down only $4 as we post this update.

SprottMoney/Craig Hemke/12-15-2021

“So do you see how everything is completely in flux at present? This is madness, and it’s all due to the overwhelming reliance and dependence that ‘the markets’ now have for the Fed. Perhaps this was the Fed’s plan all along? Maybe they have always desired this sort of centralized, market-controlling power? But does having this power make their jobs easier or more difficult?”

USAGOLD note: What happens, in other words, if Atlas shrugs? The sentiments Hemke expresses in this short essay likely echo what many of our readers have been thinking for some time now.

Bloomberg/Rich Miller and Mike Dorning/12-20-2021

“The U.S. economy will spend 2022 learning to live with the coronavirus without much in the way of help from the Federal Reserve or the federal government — especially with the derailing of President Joe Biden’s $1.75 trillion spending plan.”

USAGOLD note: So where do we go from here? Stocks took a major turn to the downside when the realization hit that things had changed, and perhaps radically. Moody’s Mark Zandi put it well: “It’s like landing the economic plane on the tarmac in a storm that at points has a 100-mile-an-hour headwind and at other points a 100-mile-an-hour tailwind.”

Bloomberg/Liz McCormick and Michael Mackenzie/12-18-2021

“Bond traders suspect the Federal Reserve will quickly discover it’s being too ambitious with its newly hawkish stance.”

USAGOLD note: The market thinks the Powell Fed is in a dream state …… And that has to do with a rate outlook that many analysts already anticipate sending real rates deeply into the negative. “The Fed,” says Pacific Management’s Dan Ivascyn, “is in a difficult position.”

Financial Times/Robert Armstrong/12-15-2021

“[W]e still think many observers are mischaracterising Federal Reserve policy and misunderstand what the Open Market Committee is saying. It’s not that the Fed is being subtle; it’s that some people are ignoring the literal meaning of its statements, which show that the “Powell pivot” is a tactical tweak by Fed that remains very dovish indeed.”

USAGOLD note: Another top drawer analyst comes public with a declaration of Fed dovishness …… Because of the degree to which the markets are betting the Fed is right on inflation – that the genie has not escaped the bottle –  Armstrong says it could get ugly “if the bet is lost.”

MishTalk/Mike Shedlock/12-13-2021

“Margin is a coincident indicator of sentiment towards speculation in financial and real assets.”

USAGOLD note: We alluded to the heavy margin debt load in Tuesday’s Daily Market Report. Leverage begets forced selling in a downturn which can exacerbate the trend. Also, as Shedlock points out, when it turns, it could be reflecting an important change in sentiment that feeds off itself.

Sources: St. Louis Federal Reserve [FRED], Board of Governors Federal Reserve

MarketWatch/Jonathan Burton/12-15-2021

“As an investor, Ray Dailo eyes the rearview mirror to see what’s ahead. If this paradox makes sense, then you likely agree with the view of history that ‘those who cannot remember the past are condemned to repeat it.’ Put another way, it’s hard to know where you’re going if you don’t know where you’ve been.”

USAGOLD note: Dalio issues a year-end warning saying that people are interested in the news but they are not interested in history and lessons of the past – two things he has made a fortune by studying. He sticks to his formula of the past few years: Stay out of cash, pay attention to the widening political and cultural divide, and get your finances in order by holding “a diversified portfolio of assets” which includes gold.

Image attribution: TechCrunch, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons – cropped

Institutional Investor/Hannah Zhang/12-16-2021

“The stable inflation of the last decade is unlikely to repeat itself in the 2020s, which could very well undermine the diversification benefits of the traditional 60/40 portfolio.”

USAGOLD note:  AQR Capital Management says gold, commodities, and “inflation breakevens” can provide investors with the best inflation hedges, and warned investors to be “especially wary of equity risk.” The article linked above provides interesting detail ……

Financial Times/Gideon Rachman/12-13-2021

“For decades, American military planning was based on the idea that the US should be able to fight two wars, in different parts of the world, simultaneously. But even the gloomiest strategists did not plan for three wars at the same time.”

USAGOLD note: Rachman cites three flashpoints that could flare up simultaneously – Taiwan, Ukraine and Iran. He downplays a three theater World War Three, but says “it might mean the end of globalization.” As we have begun to see over the last few months, globalization has contributed to keeping the inflation rate in check. Its diminution could encourage the opposite effect.