Tag: central banks Page 1 of 2

Policy Malarkey

On June 28, 2021

The “inflation standoff” continues.

On one side, .gov, Central Banks and Central Bank cheerleaders, aka mainstream Financial media, selling, “if it’s happening it won’t be for long”! On the other side, consumers all over the world wondering how high, and for how long prices will continue rising.

As a consequence, a little over a week ago, markets had a couple of ~~down~~ bad days after The US Federal Reserve changed its language from “not even thinking about thinking about thinking about tapering or raising rates” to “thinking about thinking about raising rates” IN 2023!!

The (stock) market reaction to the threat of one less thinking about thinking of raising rates due to inflationary pressures was so bad that all hands were called to deck.

So, last week, we had the A-Team, The Plunge Protection Team and 16 Team Fed speakers from all walks of life, walk up and down the Freeway of “everything is actually fine, nothing to see here”.

What is most alarming about the US Biden administration calling in all of its most senior economic “advisors” at the same time the Fed rolls out all available mouthpieces is that this utter panic was caused by only two down days for stocks. Is the ‘bubble” so long in the tooth that two down days (modestly down) is considered a pop?

By the end of last week (see timeline below), the week ending the 25^th of June, markets were back at ease, there will be no change to emergency stimulus and 0 rate hikes, for the foreseeable future! In the chart below, the green is equities, the flat line is Gold!

Success looks like this:

To further the theme of Central Bank policy reach, it’s nothing for the Bank of Japan to step up the bid for equity ETF’s. The fact that they stepped up to halt the slide two days before the US Fed intervention is a sure tell we’ll be looking for again. For now, we should be relieved that the BOJ purchase of ETF equities to “save” the market was only the first since April.

Regular readers of these pages need no reminder that the Central Banks, in our opinion, will do nothing about inflation because they can do nothing.

The events of the last 2 weeks have proven this. Now might be a good time to go back and reassess the sizing of one’s inflationary positioning in asset portfolios.

One might also want to re assess one’s “ESG blowback” portfolio, if you have one. Talk about two birds with one stone for Energy investors right now!!

But hey, this could all be transitionary, right? As far as oil is concerned OPEC could open the spigots wider, a deal could be done with Iran, don’t get too excited.

For the rest of this note, time to enjoy some pictures. We’ve said enough of this malarkey.

One more thing though, news out of China that they may be tapping into their enormous stockpiles of key commodities amidst price concerns may turn out to be the only transitionary aspect of this inflation bout.

Global markets are now in a position where the only thing that will alter the direction to inflation/stagflation will be the actual bursting of this bubble, the one thing we know Central Banks are hell bent on preventing.

Nothing like a safety net to draw in a bit of retail margin debt near a “peak”.

Couple of gems below from Jesse Felder.

We can only hope.

What bubble?

Anyway, let’s hope there is no bubble pop, and life just sustainably ticks on??

Speaking of “sustainability”, how does this look for a “budget” position?

The explanation of this chart below can be a little complex but it could be telling Central Banks, we’ve got enough money!! #Chockabloc!!

This one we included this as we just liked it.

Didn’t really like this next one but it does tell a story or two.

And this:

Yes, we know we’ve severely neglected Precious Metals in this note, more to come.

Peace.

Countdown

By Gold Macro

On October 26, 2020

In Blog

Welcome to a new week, the last of October 2020!

Another week of markets treading water whilst awaiting the next “stimulus” fix, knowing that its coming down they pipe, for if it didn’t, well……let’s not worry about letting air out of MOAB.

It feels fitting to have a US presidential election in late 2020, same day as the Melbourne Cup, November 3^rd and almost as hard to pick a winner.

2020, the year that Covid “green lit”, any and all unconventional fiscal and monetary policies as conventional, by all sides of politics.

We mean ALL sides of politics, even the current conservative Australian administration recently handed down spending, deficit and debt policies that had its “Left” Labor party rivals drooling with envy.

And currently, in the US, the current “new” fiscal stimulus package is being held up by an argument over a mere USD200b, in a (another) multi trillion dollar package.

All this is happening just as the populist “Modern Monetary Theorists” are gaining serious traction. Tearing down any remaining resemblance of fiscal restraint appears to be the primary objective. After listening to their main cheerleader this week (through Macro Voices), Professor Stephanie Kelton, we think they’ll get there. Very persuasive.

This MMT lot believe the only problem with what money printing has been done so far is the size, or more specifically, lack of “size”!!! As in not enough money printing and “stimulus”. An attractive proposition to any Bureaucrat.

So, as they make their way into the corridors of US Fed and ECB policy buildings, they’ll stretch your imagination beyond what you thought was possible. How much money can a government can truly print, WITHOUT consequence. We’re going to find out very soon. More on this to follow over the next few weeks.

As we’ve mentioned before, it’s not really who wins in the US that matters, from a monetary point of view, what matters is, for now, US treasuries still occupy the “bedrock” of the current financial system.

It’s also important to remember the contribution, for now, of the US economy to global GDP. Represented below.

The US represents 4% of the world’s population and 24.42% of GDP, according to World Bank numbers.

Unfortunately, it’s hard to watch, but the economic and ideological social divides in the US seem irreconcilable right now.

The financial policy outcome of who wins the US election should matter little to investors portfolio’s, what matters is recognition that the financial system as we’ve know it, since Brenton Woods in 1944, is in its last innings.

Add this to the, hard to watch, seemingly irreconcilable, social and economic divides in the US and it makes for some worrying reading.

Investors are well advised to steel themselves for more violation of their fiscal peace and the associated response of Global Central banks to prevent any change to status quo.

Recognising key risks is essential. One key risk being written off as “manageable” by the MMT crew is inflation. The confidence of the aforementioned Professor Kelton to control inflation, from where and whence it came, is outstanding. It’s just not been done before.

Some central banks are directly warning of inflation, for example, the Reserve Bank of Australia (RBA) had this to say a couple of weeks ago, “not to increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band’.

So, interest rates are almost 0% and inflation is x + whatever they say it is, or whatever the increase is in your living costs?? 3%+ is ok?

How does one plan to combat this? It’s really time to think about one’s asset allocation with this background.

We are moving to a different phase now.

The very consistent message from our benevolent Central banks, particularly in NZ and AUS is we should worry about how low Gov debt is and increase it immediately. For those feeling a little alarmed, the RBA had this chart below in a presentation from earlier this month. We’ve got so much “catching up to do”, they say, if you want to catch Japan that is.

We also now know, from the last six months, directly injecting money into peoples bank accounts for doing nothing, has no downside. No wonder MMT is super popular.

With all this “background” above we still find it amazing how few investors own gold, let alone profitable, low cost producers.

We might touch on the possibility of gold returning, in some form, to the bedrock of this financial system in coming weeks.

For now, it’s fair to say that just about anyone can see that we stand at the doorstep of an epochal change in the global monetary system. The Great Keynesian Experiment is failing, as the monetary growth needed to service the existing global debt is finally exceeding the capacity of the system to provide for itself. Put another way, the global central banks are now permanently in a mode where only the continual and rapid creation of additional fiat currency can feed The Beast of exponential debt.

We wonder what former Managing Director of the IMF and current European Central Bank President, Madame Christine Madeleine Odette Lagarde, has to say about all this.

Lacking Exposure

By Gold Macro

On September 21, 2020

In Blog

Looks like we’re going to start the week like any other over the past, however many, years, all eyes on central banks.

The rhetoric will be the same, “whilst we don’t believe there is a bubble in any asset market, we’ll do every accommodation we can think of to make sure that we replace all air currently leaving any bubble with more air into any bubble, that doesn’t exist”.

Accommodation like, money printing on scale never seen, like below:

And, like last week from the US Fed, the promise of low interests rates ~~until~~ almost forever. Even in Australia, rates are arguably already negative.

Even though “there is no bubble”, the bubble has created a new type of speculator, the types that are using the fresh $ their benevolent .gov has gifted them and instead of pursuing a weekend on sports bet, have migrated to the stock market.

The reason is represented in the background of the “poster child” of this new type of “investor” below, Dave Portnoy. Cripes, this guy has been so “hot” in recent months, he’s even met the POTUS.

The problem is, through unhinged self-belief and a solid dose of leverage he’s feeling quite a bit of pain right now. But he knows it’ll be ok because, “stocks only go up”, or ‘buy the dip”, has been a solid strategy over the last 12 years or so.

Now here is where things get interesting. Dave may or may not realise that his entire investment strategy is completely dependent on the Europeans, Japanese and US Fed catching up to the Japanese and Swiss Central banks in the money printing caper, to keep the asset bubbles afloat, that don’t exist.

See chart below and don’t say we never send you anything positive. There “appears” to be so much MORE to do!!

We also understand that these international Central Banks machinations may seem a long way from the business news that may come through domestic news feeds but please remember the financial system as it exists today, has the USD as a global reserve currency, of sorts. This is why it matters most!!

As such, US Treasuries have been the bedrock of this current system since inception post WW2, give or take a few weeks, like the US removing any “relevance “ of gold to the USD in 1971.

The largest looming problem to this system is the perilous state of US finances, even compared to “normal” and its relationship to its currency.

Those that argue the point of “the clean dirtiest shirt” in defence of the US dollar are also the ones that argue there can never be change to this system as there is no viable alternative. We certainly agree with the second point but as to the first, not so much.

Here’s some context as to the trajectory of the US budget!

Now, if you add the quadrillion pieces of derivative paper attached to every asset class……don’t worry, it all nets out.

With the USD looking increasingly weak as a “petrodollar” reserve currency, particularly in view of battery tech emergence, how amazing that it’s taken this long for some asset managers and private family offices to start allocating some serious money to gold, either through shares or actual bullion. It is interesting that most private investors still use ETF’s for precious metal exposure.

Even so, according to many analysts, gold as a percentage of overall investable assets sits somewhere between 0.4% and 0.5% currently versus a multi decade average of over 5%, including multi-year allocations of 10% not being uncommon.

It was with interest that when we came across this chart in Marc Faber’s latest monthly analysis.

Global Family Offices’ Strategic Asset Allocation 2019ealth

So, even professional family offices have less than a 1% exposure to gold right now? Even with the current money printing madness and inflationary threats breathing down our necks?

It’s hard to see this staying under 1% for much longer. Precious metals have the smallest market share of savings and investment products they’ve ever had globally. The question will be, what price will those late to the party have to pay for entrance?

We look forward to collating some commentary on allocating to Precious Metals in the near future!! In the meantime, this 1930’s analogue for equities remains in play!! Dead cat bounce anyone?