Author Archives: Opinion
“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.
“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.
Opinion: The Fed expects a ‘soft landing’ and no recession for the economy. We could get stagflation instead.
“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.
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.
‘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.
“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.
“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.”
“[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……
“’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.
“Yes, there was talk of catastrophic tail risks, but there was relatively little said about the most obvious threat to global well-being: stagflation. But the positive developments lightening everyone’s mood are making stagflation—slowing growth combined with rising prices—look increasingly likely.”
USAGOLD note: Like inflation (a component of the stagflation scenario along with economic stagnation), stagflation is a process, not an event. At times, it might be front and center. It can also fade in the face of other concerns. All the while, it is doing subtle damage in the financial markets (and private investment portfollios). Gold and silver were two top-performing during the stagflation of the 1970s.
Gold, silver, and the Dow Jones Industrial Average
Chart courtesy of TradingView.com • • • Click to enlarge
“Is gold a frivolous investment or a necessity of the age? Gold produces no stream of income. It has some industrial and ornamental uses, but it is chiefly valued because people expect that they will be able to find someone to take it off their hands, quite likely at a profit. That is almost a textbook definition of a bubble, but if gold is in a bubble it has been in a bubble for several thousand years.”
USAGOLD note 1: Human frailty and financial bubbles go hand in hand. Even Charles Mackay, who wrote the still widely read Extraordinary Popular Delusions and the Madness of Crowds, was drawn into the British railway stocks mania of the 1830s and 1840s, saying that the bubbles’ critics had “somewhat exaggerated the danger.” Shortly thereafter, railroad shares plummeted from their peak by two-thirds.
USAGOLD note 2: Hartford offers a fascinating look at bubbles past and present and has a somewhat forgiving attitude about the people who get caught up in them. He says Mackay was wrong when he said that you don’t need hindsight to see a bubble, that they are obvious if you keep your head about you. We come down on Mackay’s side.
USAGOLD note 3: As for gold being in a several thousand-year bubble, looking around at what cheap money has wrought, we think it still has a ways to go.
“Gold has really taken off since late October, from below $1,630 to almost $1,930 today. That’s a major move. What’s going on? You might want to argue that it has to do with inflation. The trouble with that argument is that (official) inflation has been coming down for the past few months. Meanwhile, gold seemed to massively underperform with respect to the very serious inflation we saw earlier last year. So again, why are we seeing a gold spike now? The most likely answer lies with central banks and geopolitics.”
USAGOLD note: Rickards offers his take on what has happened in the gold market over the past three months…… He essentially sees gold demand being driven by major fundamental forces seeking a true safe haven.
“Think the bear market in U.S. stocks has been rough? The hard part may still lie ahead, according to longtime stock market investor Jeremy Grantham.The legendary co-founder of Boston-based investment firm GMO argued in a Tuesday paper, cheerfully titled, ‘After a Timeout, Back to the Meat Grinder,’ that ‘the first and easiest leg of the bursting of the bubble we called for a year ago is complete.'”
USAGOLD note: The great stock market bubble deflation will continue according to Grantham who says there’s another 17% left to the downside. Love him or hate him, it is difficult to ignore the fact that he got it right so far.
“A rising chorus is urging the Fed to move its goal posts in the war on inflation – lifting its inflation target to three percent from the current two. How high might the Fed go? Morgan Stanley’s chief, James Gorman, thinks four percent inflation would make for a “happy land,” the Financial Times reports. The FT’s own Gillian Tett suggeststhat on inflation ‘four is the new two.’ Yet how did we get to the point where even two percent inflation is considered acceptable?”
USAGOLD note: This editorial goes on to quote Interest Rate Observer’s James Grant as saying the road to another 2008-style disaster is institutionalizing high inflation on the order of four percent. As one observer recently pointed out moving the target higher does not mean it will become the ceiling and that is where the slippery slope comes into play. Inflation targets aside, what it really gets down to is how much money we are printing and where it is ending up. As it is often said, once the inflation genie is out of the bottle, it is difficult to get it back in.
“Russia and China could choose to declare financial war on the major Western powers in Bloc 1 by selling US dollar assets and investing the proceeds not only in gold but in other precious metals and industrial commodities, forcing the dollar and other key currencies down further.”
USAGOLD note: Rowley considers a new alignment of nations as the world splits into two camps – one led by the United States, the other by China. “Beijing is in a relatively strong position to consolidate and strengthen its position while the US and its allies struggle with long-standing economic problems,” he says. We are not sure how much of that assessment is grounded in reality. The economic problems on both sides are profound.
“The collapse of Sam Bankman-Fried’s FTX platform, along with his arrest, offered a tragicomic rebuke to those touting the blockchain as a serious challenger to gold (and the dollar and just about everything else). In contrast to crypto’s digital vapor, gold will inarguably hurt you if dropped on your foot.”
USAGOLD note: Bloomberg commodity columnist Liam Denning weighs in on what’s going on in the gold market…… Central bank buying is certainly a factor, but what are the reasons for that buying?
“Investors spend an inordinate amount of time trying to figure out something that is beyond figuring. Their views of the economy and markets are shaped by current economic data and expectations regarding the future actions of a small group of economists who have no better chance of predicting the future than a coin flip. And their collective track record at such tea leaf reading hints that the coin might be the better choice.”
USAGOLD note: What you just read, if you accept it as accurate and we do, is the best argument for diversification – and that diversification, if history is a teacher, should include gold and silver…… Some practical advice at the link.
“Despite all the talk, previous and ongoing, this Federal Reserve is soft on inflation. Not as eager as Wall Street to declare mission accomplished, Fed officials are nonetheless signaling that their work is near completion”…It was important that central bankers pushed back against the view that QE liquidity backstops would be restarted as necessary to quash incipient market instability. Powell was hawkish during his November 1st post-meeting press conference. But Fed hawkish resolve soon dissipated. Now, messaging has become so frayed that markets don’t take hawkish resolve seriously. The paramount message that the Fed would push back against looser market conditions is MIA.”
USAGOLD note: We agree with Noland’s assessment. After all is said and done, the Fed at its core is dovish.
“As of now, the structure in gold seems to be quite bullish. And, while I would still like to see another pullback before we continue to trek much higher in 2023, I wanted to take a moment to outline my longer-term expectations for this impending rally that I expect. Back in 2011, I utilized a 100+ year structure in gold to identify the topping target for gold. And, I used the same structure to identify a bottoming target for the correction I expected, even before that correction began. So, now I am going to provide you my next target on the upside – and that is $2,428.”
USAGOLD note: Elliot Wave analyst Gilbert reprises a long history of successful gold calls to give extra credibility to his bullish $2428 target ……
“BofA said another factor that will push up inflation is a renewed spike in commodity prices as the reopening of China’s economy will spark a wave of demand for oil. That, combined with supply issues stemming from the ongoing conflict between Russia and Ukraine, will put renewed pressure on oil prices, which dropped nearly 40% from their 2022 peak.”
USAGOLD note: This is not the kind of future the Fed has in mind……Of all the big banks, Bank of America is the most bearish by far. The bank is bullish on gold.