Author Archives: Opinion
“Greenspan began his speech by reminding us that ‘at root, money—serving as a store of value and medium of exchange—is the lubricant that enables a society to organize itself to achieve economic progress.’ Sound money (i.e., money that maintains its long‐run purchasing power), is the glue that holds a free‐market system together. In contrast ‘erratic money’ (i.e., wide variations in the quantity of money relative to the demand for money), distorts market price signals and the allocation of resources.”
USAGOLD note: Cato Institute’s Dorn revisits Alan Greenspan’s famous “irrational exuberance” speech in 1996 and applies the former Fed chairman’s observations therein to the present. “Asking the Fed to do too much,” Dorn concludes, “risks further politicizing the central bank, with the consequent loss of credibility.” Of late Greenspan has been a critic of Fed policy. In a note published last October, he reiterated the dangers referenced above. “Monetizing the debt,” he said, “cannot be a long-term solution, and increases in the money supply relative to the real goods and services an economy produces will eventually lead to higher price levels.” (For more, please see Alan Greenspan’s thoughts on inflation, 11/5/2021)
Jim Rogers: Next bear market will be ‘the worst in my lifetime’ — here are 3 assets he’s using for 2022 crash protection
“Rogers has long been a fan of commodities, and silver is one of his favorites. ‘The all-time high for silver is $50 an ounce; now it’s $23. Why can’t silver go back to its all-time high? That’s the way markets usually work,’ he says.”
USAGOLD note: Bullish on hard assets and bearish on stocks, it sounds like Rogers is setting up for a bout of inflation with traditional hedges contra cyclical to stocks. Rogers also likes copper, farm commodities, and fine art.
“In recent years, accurate economic forecasting has not been the economic profession’s strong suit. In 2008, it spectacularly failed to anticipate the Great Economic Recession despite the advanced signals that the US housing and credit market bubbles were about to burst. In 2021, with very few exceptions, it failed to anticipate that inflation would accelerate to a forty-year high.… 2022 looks like it might be another year in which the economics profession in general gets caught very flatfooted with its forecasts.”
USAGOLD note: Lachman goes on to outline why we should be worried about the health of the financial system in 2022. He says economists now believe that the banks are much better positioned to weather higher rates than they were in 2008, but they are blind to the vulnerability of “unregulated hedge funds, private equity companies, insurance companies, etc.”
“With inflation in the headlines, a look back at the last experience might offer needed perspective. There is no claim here that history repeats exactly. Rather, a look back offers ways to dispel nonsense and identify what is important.”
USAGOLD note: Ezrati, an economist, thinks there are some differences between the 1970s and present, but that the overall “picture looks disturbingly like it did last time.”
“The historical record shows that Hoenig was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else. He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system.”
USAGOLD note: Is this not where we are as 2022 dawns? Former president of the Kansas City Fed Thomas Hoenig says, “There is no painless solution. It’s going to be difficult. And the longer you wait the more painful it will end up being.” Under the circumstances Hoenig envisions, there will only be two kinds of investors – those who prepared and those who did not. The full article is worth the time spent at the link above.
“Not only is it unusual to see this behavior when the S&P 500 is holding near all-time highs, but even crabby people tend to turn more optimistic during the holidays. Not this year – this is only the 2nd year time the inception of the AAII survey that the Bull Ratio was negative for the first 4 weeks of December. Returns after similar behavior were mostly positive.”
USAGOLD note: Another indication of the peculiar market action these days – and, as Jason Goepfert shows, it’s not in just the gold and silver markets.
(American Association of Individual Investors)
Black = S&P 500 Blue + AAII Bull Ratio (last = 46.6)
“Central banks’ resolve will be tested if policy-rate hikes lead to shocks in the bond, credit, and stock markets. With such a massive build-up of private and public debt, markets may not be able to digest higher borrowing costs. If there is a tantrum, central banks would find themselves in a debt trap and probably would reverse course. That would make an upward shift in inflation expectations likely, with inflation becoming endemic.”
USAGOLD note: The shifting sands of central bank policy, in our view, will become the major story in financial markets in the coming year. Roubini concludes, “Come what may, investors are likely to remain on the edge of their seats for most of the year.”
“In December 1997, The Financial Times ran an article entitled ‘The Death of Gold.’ Since then, the gold price in US dollars has increased 519I% from $288 to $1,780. Today, after many political events and crises we have evidence of the continuous and in many ways spectacular growth of the gold price. This confluence of many current events is creating a perfect storm for gold to increase dramatically more than we imagined.”
USAGOLD note: This article by Nick Barisheff caught our attention because financial press gold naysayers are out in full force once again proclaiming the death of gold, even as storm clouds gather on the horizon. Given the record demand for gold coins and bullion over the past 12-months, we suspect that the reports of its death are greatly exaggerated.
Image attribution: MichaelKirsh, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons
“It almost feels as if there is a universal collective denial of the obvious facts. And, truthfully, I believe there is something much more insidious at play, and the precarious state of the U.S. financial system is, in fact, known to those who pull or influence the levers of monetary policy.”
USAGOLD note: A thought-provoking look at what’s been and what’s likely to be from a deep thinker who has made a fortune in the gold mining business. Giustra says we are living in a “collective delusion aided and abetted by a loosely aligned club of players.” This no-punches-pulled editorial is highly recommended ……
“Gold’s turn to shine again is nearing, with major bullish drivers aligning heading into this new year. The Fed’s vast deluge of new money remains intact despite QE tapering, continuing to fuel raging inflation. A new rate-hike cycle to fight that is looming, but gold has thrived during past cycles. This Fed tightening will weigh heavily on QE-levitated bubble-valued stock markets. As they fall, gold investment demand will surge. Gold mostly spent 2021 grinding sideways-to-lower in a high consolidation. That lack of upside progress left this leading alternative asset increasingly out of favor with speculators and investors alike as the year marched on. Heading into year-end midweek, gold was down 4.9% year-to-date. While psychologically-grating, maybe big gains needed to be digested after gold surged 18.4% in 2019 then another 25.1% in 2020.”
USAGOLD note: We often read about investor rotation from one asset class to another, and sometimes those rotations begin as a trickle that ultimately turns to a flood. The World Gold Council reports record coin and bullion investment demand in 2021. The trickle before the flood? Much will depend on what 2022 brings to the table, but the strong on-going worldwide demand for precious metals implies an uneasiness among investors not likely to be easily placated.
“Investors are primed for the dollar to climb next year. But the juiciest trades may be over even before 2021 ends.”
USAGOLD note: In other words, the speculative tide may be set to turn against the U.S. dollar as 2022 unfolds. The Fed, one analyst points out, may prove to be “a bit more dovish than people were expecting.”
“Private investors and money managers bought unprecedented quantities of bullion and gold-backed ETFs as the Covid Crisis began in 2020, and new inflows in 2021 have naturally lagged that surge, even as pundits and headline writers pointed at inflation and declared that ‘Gold is broken!’ Yes, the vast bulk of last year’s allocations remain in place, showing confidence in gold’s role as long-term portfolio insurance.”
USAGOLD note: When quantifying the long-term prospects for gold, it is sensible to keep things in perspective, as Adrian Ash does in this entertaining year-end review and outlook. In the end, gold is really portfolio insurance more than it is a speculative investment. On that score, its long-term value as a hedge against depreciating currencies is a matter of record.
“As the world learns to live with Covid-19, gold prices in 2022 will be influenced by how inflation shapes up and central banks’ reaction to it. The persistence of higher inflation may boost the demand for the yellow metal, but it also increases the odds of a more hawkish Fed, hurting prices.”
USAGOLD note: Quantum Mutual Fund’s Mehta lays out a positive scenario for gold in 2022 saying it “will have the last laugh.”
“Investors now need to brace for higher volatility. The Fed has acknowledged it needs to react to high inflation and adjust its policy; this will limit its ability to support and stabilize asset prices, and markets will need to adjust and get used to it. On top of this, the economy remains subject to significant uncertainty: from developments in the COVID-19 pandemic to the way companies are adjusting to supply chain disruptions, to changes in economic policy around the world. It looks like 2022 is going to be another interesting and challenging year. In some ways, perhaps, not at all the kind of interesting we were looking for – but let’s try and make the best of it.”
USAGOLD note: Kind of a soft warning from Franklin Templeton on the year to come … but one worth filing for future reference. One thing is certain: The new year will offer its fair share of surprises, a good portion of which will be centered around what the Fed does or doesn’t do.
“With inflation a serious practical problem for the first time in a generation, the assumptions that ‘there is no alternative’ to stocks, or that independent central banks can defend confidence in the currency, finally come into question.”
USAGOLD note: Returning to a theme he first raised in June, Authers asks if 2022 will be the year of market regime change.
From the July 2021 edition of News & Views, our monthly newsletter:
“As the new regime is being deployed, it has become increasingly clear that the Biden policy mix is an attempt to overturn the framework that has been in place since the early 1980s – what the Reagan-Volcker team were to disinflation the Biden-Powell team might be to inflation. Among those early insights from Authers, he offers the following from Alex Lennard of Ruffer LLP. “Volcker said he was going to tame inflation, unemployment be damned. Now it’s the other way around. I don’t think people have quite realized that you’ve had this huge change in the mandate of policymakers.” There is no mystery in all of this with respect to what it means for gold. If we have indeed returned to the 1970s, then gold will play a vital role in the well-balanced portfolio and will be the subject of more than a few financial headlines.”
“It’s important to compare commodities to stocks and see where we stand in the cycle…You see, learning to read commodity market cycles can be a very lucrative proposition – and it can offer excellent diversification during times of poor equity returns.”
USAGOLD note: Ferris points to two distinct eras in commodity values (See chart below) and says we are now approaching a “turning point” in the current cycle – one that will usher in a decade of higher commodity prices. Of course, gold and silver are two key players in the commodities complex that also enjoy a high degree of investor interest as long-term stores of value.
Chart courtesy of TradingView.com
“Economically at least, this holiday season feels a bit more like it belongs to Ebenezer Scrooge than Santa Claus. Amid a resurgent pandemic, there are shortages at the grocery store and the highest inflation in almost 40 years.”
USAGOLD note: In this video interview, former Treasury Secretary Summers, the leading apostle of secular stagnation, warns that “we are already reaching a point where it will be challenging to reduce inflation without giving rise to recession.” And, we might add, it will be a challenge for the Fed to reduce the risk of recession without fueling inflation.
“As 2021 comes to an end and 2022 approaches, we are actively searching for clues of possible changes in next year’s global and regional gold markets. Unlike other key markets, China is entering into a different economic cycle and stepping up its easing monetary policy. We believe this could be supportive for local retail and institutional investors’ interest in gold.”
USAGOLD note: China’s physical gold demand is foundational to the overall market structure, and ramped-up monetary stimulus from the Peoples Bank of China is likely, as Jia suggests, to further stimulate the Chinese people’s already strong interest in the metal.
“The coming new year will be fraught with risk due to the removal of central bank and government supports. This could very likely lead to the collapse of the most overvalued stock market in history.”
USAGOLD note: That great reconciliation can be either nominal, i.e., a direct deflation of asset values, or it can occur through an inflation that diminishes the purchasing power of those assets. Pento offers much food for thought in this solid overview of where financial markets might be headed in 2022.
Cartoon courtesy of MichaelPRamirez.com
“Today, close to 90 percent of the world’s central banks are classed as independent. But, as finance ministers wrestle with record debt burdens, the Covid-19 crisis and fast-rising inflation, worries are growing that central banks will become increasingly instrumentalised by governments.”
USAGOLD note 1: Last week, when Senator Joe Manchin stuck a fork in Democrat spending plans citing inflation concerns, a progressive Congresswoman was quoted as saying “The Build Better Act combats inflation and invests in what we need for a strong, stable, globally competitive economy.” The president himself went public in full inflation denial the same day, blaming the recent dip in the stock market on Manchin’s decision to vote against his $1.75 trillion spending program.
USAGOLD note 2: So, to what degree does pressure from the political sector affect central bank policy? Need we worry about too close a connection between the White House and the Fed? Jenkins quotes a former central banker now fund manager as saying, “The idea of independent central banks these days is a fiction.”