Author Archives: Opinion
“The real yield on 10-year Treasuries fell to a record low as concerns mounted over the outlook for economic growth even as investor flows fueled appetite for inflation-linked debt.”
USAGOLD note: If the Fed continues to hold rates in the current range and inflation continues to ratchet higher, the real yield will move further into the negative, a situation that has encouraged gold demand in past cycles, just as it is encouraging demand for TIPS now.
“If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive spending in the middle of an already hot economy. You usually get a bubble out of that, and you get inflation of that. Frankly, we now have both. This is the biggest bubble I’ve seen in my career. … What are we going to get out of this? You’re going to get a sugar high, the higher inflation, then an economic bust.”
USAGOLD note: By passing a $3.5 trillion infrastructure bill, Druckenmiller thinks the government will throw fuel on the inflationary fire that could consume both Wall Street (in the form of a burst financial bubble) and Main Street (in the form of runaway inflation.)
Repost from 7-22-2021
“Gold is an increasingly important asset for European pension funds, with new research showing many funds intend to increase their holdings of the yellow metal in the coming months.”
USAGOLD note: There was a time, not that long ago, when investing in gold would have been unheard of among pension fund managers. Now, 73% say “it offers increasingly attractive diversification benefits.” Pension funds globally, we will add, have considerable assets to hedge – over $50 trillion (2019), according to Statista.
Total assets of pension funds worldwide
(trillions of dollars)
Chart courtesy of Statista.com
Repost from 6-8-2021
“The struggle against gold, which is one of the main concerns of all contemporary governments, must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction that is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.”
USAGOLD note: This article is excerpted from von Mises’ Human Action published in 1949. It is a refutation of John Maynard Keynes’ reference to the gold standard in 1944 as a “barbarous relic” and one of the most concise, realistic and principled available even now over seventy years later. It is unlikely we will ever go back to the gold standard. Such is the stuff of dreams, but if we have learned anything at all during the last fifty years of the fiat money system, it is that gold has proven to be an adequate and reliable hedge against its excesses.
“Jay Powell, the chair of the Federal Reserve, is facing a growing rift among top officials at the US central bank over when to start withdrawing the huge injection of monetary stimulus that was deployed at the onset of the pandemic.”
USAGOLD note: For those seeking clarity on where individual members of the FOMC now stand on tapering and rates, this article offers a full rundown and is well worth a read at the link. It identifies the hawks, doves and centrists and where Fed leadership itself stands at this time. We should know more about the outcome this afternoon, but few are expecting any major surprises despite the rise of inflation and Delta variant cases.
“In the current environment of rising inflation, however, the link between gold and inflation may well become more pronounced.”
USAGOLD note: We referenced this analysis in yesterday’s Daily Market Report and repost it here for those who may have missed it. It is not simply what is said, though it is pertinent, but who is saying it. Fidelity International is the overseas arm of Boston-based Fidelity Investments – one of the largest financial firms in the world. It believes gold is on track “to rescale the record high levels it saw last July at just over $2,000.”
“The safe-asset shortage is over. Should we worry?”
USAGOLD note: The short answer is “Yes. We should worry.” Why? Because the federal government is producing debt at an unprecedented scale at a time when demand is likely to diminish due to corrosive effects of inflation. In many ways, Schrager states the obvious, but for some, the ongoing bond glut will come as a revelation.
Repost from 7-21-2021
“Investors are captive to Modern Monetary Theory (MMT) and its convenient non-answers to the vexed issues of economic stagnation, unsustainable public finances and debt. People’s savings are underwritten by high asset prices, courtesy of this novel brand of economics.”
USAGOLD note: According to Modern Monetary Theory, governments cannot go bankrupt because they can print money. At the same time, when money printing leads to inflation, it is the citizenry that is harmed. “By a continuing process of inflation,” wrote John Maynard Keynes in The Economic Consequences of Peace (1919), “governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” Mr. Das article is highly recommended.
Repost from 6-10-2021
“Any pullback in the money supply as a result of central banks pulling back will be, I think, very bad for the markets. So I think we have to watch this very carefully. We’re in a very uncertain time, that’s for sure.” – Mark Mobius
USAGOLD note: Mobius has recommended gold ownership in the recent past as a refuge in times of uncertainty.
Repost from 7-21-2021
“When the time comes to ask the question – ‘What triggered the crash?’ – remember that this is the least important question. A market crash requires nothing more than a shift in investor psychology from careless speculation to even modest risk-aversion. A market crash requires nothing more than an increase in the risk premium demanded by investors, in an environment where risk premiums have become overly depressed.”
USAGOLD note: Hussman’s latest explores the nature of overpriced financial markets and ends with the premise that “the dogmatic activism of the Federal Reserve [is] at the very center of it all” – for better or worse depending upon your own exit strategy and/or whether or not you put in a hedge.
“Economist Stephen Roach warns Beijing’s crackdown against U.S.-listed China stocks will have widespread market implications.”
USAGOLD note: Roach believes that China’s crackdown on internal businesses could disrupt global supply chains with knock-on effects in every country that depends upon it for finished goods. Inflation, one would think, would ratchet higher as a consequence. CNBC posted this article on Sunday. During Asian trading hours, Chinese techs stocks plummeted while the broad-based Shanghai Composite Index dropped almost 2.5%. Roach calls the chill in U.S.-China relations “disturbing” and “the early stages” of a new Cold War. “You can’t,” he adds, “get away from the China connection” in terms of the global economic effects.
“What bond-market guru Mohammed El-Erian said Friday was enough to make bond investors listen like they’re in an old E.F. Hutton commercial.”
USAGOLD note 1: El-Erian adds his voice to the group warning that inflation will be persistent. He adds that the Fed should take its foot off the accelerator. The Fed, however, finds itself between a rock and a hard place on that score. If it does take its foot off the accelerator, the stock and bond markets are likely to take a major tumble. If it doesn’t, inflation is likely to continue building in the economy.
USAGOLD note 2: About a year ago, in an earlier Bloomberg interview, El Erian gave a thumbs up to gold saying: “It’s a bit like what happened to big tech. People like it because it’s defensive. People like it because it’s a reflation trade. People like it because it’s inflation protection. What we are starting to see with the narrative about gold is starting to be like the narrative about big tech. It gives you everything.”
“John B Calhoun set about creating a series of experiments that would essentially cater to every need of rodents, and then track the effect on the population over time. The most infamous of the experiments was named, quite dramatically, Universe 25.”
USAGOLD note: Some unexpected results from an unusual experiment conducted in the 1970s showing that a socialist utopia in which all the mouses’ needs were benevolently provided ended in extinction. Felton offers a riveting account of what exactly happened in the mousetopia of Universe 25. “I shall largely speak of mice,” writes Calhoun, “but my thoughts are on man, on healing, on life and its evolution.”
“So, has the Fed now adopted a hawkish stance? Should markets be spooked? At WisdomTree, we don’t think so. What the central bank has done amounts to forward guidance, a mechanism for managing market expectations. This was extremely important for the Fed to do to maintain its focus on stabilising prices and maximizing employment without risking becoming the cause for major market volatility. Monetary accommodation from the central bank remains at crisis levels – something that is no longer required for an economy that is starting to find its footing.”
USAGOLD note: Gold rallies often come suddenly, sometimes seemingly without cause, and quite often when sentiment has ebbed to its lowest. As we often say, the best time to buy precious metals is when everything is quiet, i.e., time like now. “Gold’s price decline following the central bank’s latest meeting,” says Wisdom Tree, “may seem like an overreaction in hindsight.”
Repost from 7-21-2021
“The Economic Affairs Committee of the U.K.’s House of Lords, of which I’m a member, has just issued a report on the challenges of using large-scale bond purchases as an instrument of monetary policy. Its title pointedly asks: ‘Quantitative Easing: A Dangerous Addiction?’ In a word, our answer to that question is ‘yes.’”
USAGOLD note: We posted the original press release from the British parliament on this subject Monday. Mervyn King, the highly respected former governor of the Bank of England, believes quantitative easing should have been used as a temporary measure and that it should now be “dialed back” with authorities “helping investors to plan accordingly.” All of that is taken as sound advice. Much of the damage, though, has already been done as QE’s excesses filter through the economy – not the least inflation coupled with an unhealthy sense of moral hazard.
Repost from 7-20-2021
“Readers may be excused for thinking something similar about the latest stories about looming, threatening, surging, terrifying inflation. Yes, the inflation forecasts were surging months ago, and hit 8-year highs. Had they continued there would be grounds to worry. But they haven’t continued. On the contrary, they’ve been falling for two months.”
USAGOLD note: How anyone could assemble an analysis on the performance of various assets during the inflationary 1970s and exclude gold and silver is a bit puzzling. Arends includes energy stocks (+73%), REITs (+36%), T-Bills (-6%), utilities (-9%), the S&P 500 (-16%), corporate bonds (-23%), and 10-year Treasuries (-38%), but excludes gold (+922%) and silver (+596%). By the way, inflation “forecasts” may have fallen for two months, but inflation itself, as we all know by now, is surging.
Repost from 6-7-2021
“The problem is that markets have come to expect central banks to use their buying power to smooth over any hint of trouble. Governments may be tempted to lean on monetary authorities to use it to keep borrowing costs low indefinitely.…Those disparate expectations add to the unease fueled by economists who for years have warned about the long-term effects of quantitative easing.”
USAGOLD note: Central banks are between a rock and a hard place with no easy way out. A former president of the Philadephia Fed branch worries about “the politicization of the central bank.” Many think that under the Biden administration we are already there – that in fact the Fed and White House have already merged.
Repost from 6-7-2021
“We’ve seen a strong start to Q2 for silver market, with the metal easily outperforming the S&P-500, as well as the yellow metal. This is a very bullish development given that the strongest periods for precious metals occur when silver is not only outperforming gold but also the S&P-500. In addition, we are now 12 months into a new multi-year breakout for silver, and we are working towards a very similar setup to what we saw in 2005.”
USAGOLD note: 2005 was the year silver then trading in the vicinity of $7.50 per ounce began its historic move to $48 in 2011.
Gold, silver and the Standard & Poor’s 500
(In percent, one year)
Chart courtesy of TradingView.com • • • Click to enlarge
Repost from 7-20-2021
“Once our ‘activist’ central bank ventured into bolstering the securities markets and using unconventional measures to reflate the economy, it was going to be extremely difficult to refrain from venturing into all types of measures to support various groups and causes. Add QE to the toolkit, and it will become virtually impossible not to be compelled to allocate Fed money to satisfy political interests. After buying Trillions of Treasuries, supporting markets in MBS, muni bonds, corporate debt, ETFs and stocks was going to be inescapable.”
USAGOLD note: Noland takes us on a much-needed trek back to the basics in his latest weekly rendering. Washington might question and pressure the Fed at some level, but does it really in its heart of heart want the central bank to put the screws to inflation? Our guess is that it would scream even more loudly if that were the case. For its part, as we have said all along, the Fed finds itself between a rock and hard place on monetary policy, and perhaps both the markets and Capitol Hill sense its predicament.
“It’s already embedded in financial assets – sequestered in the rising prices of bonds and global equity. (Going to give myself and extra point for using sequestered without talking about Co2, darn.. just lost it..) That trapped inflation is now leaking into the real economy – just like a leaking barrel of toxic sludge dumped in a river. The mechanism is simple: investors holding financial assets are increasingly distrustful of valuations (which are impossibly high due to repressed interest rates), so they are switching from financial assets to real assets – like private equity and debt, property, and outright ownership of real assets.”
USAGOLD note: Though we do not doubt leakage is occurring, it is at the moment a very slow process, as implied in the headline atop this post. As a result, there is still untapped potential in some underpriced assets – most notably gold and silver. Blain’s latest is a good read at the link……