Tag: inflation

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.

The Good, The Bad, The Ugly

By Gold Macro

On February 22, 2021

In Blog

After a continued jack up in rates at the long end of the US Govt Bond Yield curve last week, markets are serious questioning how long the US Fed allow this to continue.

Before we look put our 2c worth into an answer, lets assess the state of some key players.

The Good

The Bad

More Bad

The Ugly

Quasimodo

Totally Awesome

In the first “bad” chart above, you’ll hopefully notice the correlation between Gold and said rising rates. As Rates have risen, the US Gold price has come off, this has been the trend since last August.

USD gold has been in a downward channel since last August but certainly not a -40% channel that gold stocks have produced! Cripes, AUD Gold still sits at $2270 this morning.

As stated above, for investors and markets, the biggest question of the moment is, “how long will the US Fed allow rates to rise”.? There are some pretty large effects of rising rates in a world drowned in debt.

Louis Gave, of Gavekal fame, was asked on Macro Voices last week, whether he thought Central banks will resort to “Yield control” (rate suppression through printing money to buy more bonds), or, let rates run.

He said, “A 50basis point (0.5%) increases borrowing costs to the US govt that which is equivalent to the cost of running the entire US Navy”. “A 30 basis point rise is close to the cost of running the US Marine Corp”. “The US 10 year has risen by at least 80 points since August last year”.

It’s fair to say he thought rising rates are quite damaging to the US budget position.

Furthermore, The Fed (without having decided on Yield Control yet) printed another $100 BILLION last week alone, to help things out. If you add up all the money the US has ever printed, 40% was in 2020 alone. In three months last year, the US increased its deficit by more than it had in the previous 5 recessions, COMBINED!! Under Jerome Powell, the Fed bought more Treasuries in 6 WEEKS than in 10 years under Bernanke and Yellen.

And coming to you soon, from all quarters of Central Banking is the “Build Back Better” BS rhetoric and associated “stimulus” chatter.

It’s with this background we find it very difficult to imagine anything but more of the same and rates not to rise. As usual, we could be wrong and timing is the ultimate unknown.

We raise the rate issue, again, to reiterate how important it is to have a view on rates when making asset allocation decisions.

The reality so far is, after 12 years of rate compression and “mission accomplished”, Central Banks have completely distorted the price of money and cost of capital to the point where the steep “blow off” charts in this note above, have become the new normal.

For us, meaningful tinkering in December, such as increasing allocations to industrial metal commodity positions have been rewarding. As well, we continue to add to our “non ethical” energy positions.

It’s also been entertaining watching the crypto space as we’ve long held small Ethereum and Bitcoin positions. They have now reached the moon, on their way to another galaxy.

And, we’d love to see some real time weakness in global equities in the near future in order to increase emerging market positions, Asia specific.

As far as Asia goes, you just need to look at the container ships continuing to line up off the West Coast of America to appreciate how much better certain Asian economies are going to come out of this Covid funk.

A view we’ve been sharing for a few years now is that Central Banks have signalled, globally, that they are going to continue to de base currencies through inflation, whatever acronyms they may use as disguise.

The reason is quite simply known as “TINA”!! There Is No Alternative!!

Place your bets accordingly!!

And none of the above is advice!! DYOR!!

On a side note, Could this:

Be related to this:

NO BOUNDARIES

By Gold Macro

On August 31, 2020

In Blog

If the US market closes Green tonight, the 31^st of August, it’ll mark the best August performance for the US stock market (and, by default, global) since 1986!!

It matters little that the entire “market” is being dragged along by 5 stocks and a not so passive group of “passive” ETF index hunters (more on this to come).

Nor does it matter that GDP growth entirely disputes the claim of “greatest economy ever” by certain global leader(s).

But we do think that there is one share that is the poster child of all this malarkey. Tesla, one Tesla share (losing sh#*loads of $) is worth more than an ounce of gold! All this whilst trading on a on a trailing P/E multiple (price to earnings ratio, an “old” way of valuing companies) of 1000 times earnings is most definitely….awesome?

Its market capitalisation (value) is almost larger than ALL of the other brands in this chart below!!

As fun as it may be to go through the endless distortions central bank monetary policy creates in trying to hold this house of cards together, nothing should matter more to investors than last weeks US Fed Reserve update (compliments of the US Fed Chair J-Pow Powell) – specifically, on the new concept of “Inflation Averaging”…..inflation averaging?? Seriously? We almost spilled the popcorn.

To save you from the torture of trolling through the convoluted made-up dung this statement was, it can be summarised by “we now accept a higher than 2% INFLATION target band to make up for the years it wasn’t, after decades of targeting 2%”!

Is that like, because they wonked the numbers to seem like less than 2% for the last 10 years, it can be 5% for the next two years, or more, to make up for “lost ground”, and you need not worry?

WOW! We reckon a riled up civil population can’t wait for faster rising prices! Don’t forget, this is global, most other major central banks are on board.

Anyway, if you really go back and read or look at the way mainstream financial media reported on this most serious matter, our best summary is this:

Or,

‘Inflation Averaging’ means “don’t worry about rate-hikes, or any normalization of rates, we are so desperate for inflation we are going to encourage it and we want markets to love it… it’s a way of reassuring markets that there’s never going to be another interest rate rise!”

It will pay investors to take this seriously, even in Australia.

Most investors realise their purchasing power is diminishing, now it should be clearer central banks have chosen currency debasement as the “fix” of choice.

The only problem is, it is no fix. It’s a method of buying time so nothing serious (like reform) happens on the their watch. SNAFU.

This is happening, even during a “pandemic”, although we really hope most investors realise the financial issues started way before 2020.

This, below, is what Governments have had to do to retain order.

So, if you are now thinking about what else you can do to protect against the risks these policies pose, you should.

We think this bloke knew.

And so might this guy below.

After decades of dismissiveness, he’s now on board?

The fact he’s buying Mining shares (Barrick) not ETF’s tells you where he thinks the value is. He’s a value guy and the masses follow!!

Even if it was one of his other “managers” buying the Barrick position, there is absolutely no way it was done without his approval.

We also noticed, from the last filing of Buffets Berkshire Hathaway positions, was a large sell down in US Financials and, most surprisingly, the purchase of shares in Japan’s 5 most powerful trading companies.

Known as “Shosha”, these companies have long been the destination for the best and brightest “minds” in Japan. We watch that space with much interest.

As to whether ordinary stocks can soon start to reflect economic reality or take a bit longer is irrelevant. Stocks are overvalued on any criteria and anyone who stays over invested may have their greed severely punished!

And finally, this, below, from the ever great Grant Williams of TTMTGH fame!

Peace!