Vivid Signs
The show goes on in financial Lala Land! It took less than a week for the “new” US Biden administration to announce an immediate 2 TRILLION dollar, “interim”, economic stimulus program.
The numbers, globally, are just so large now they matter little to most. That is, until they do! The “when” of when it matters is actually more difficult to discern than the “what” consequence. More on this down the page.
In the name of Covid Relief, Climate Change, Interest Rate Suppression, Defence, Welfare and Economic/Racial wars, you can rest assured this US administration will do more than the previous two, everywhere!! They’re just going to keep handing out freshly printed loot, what could go wrong?
The costs of the above commitments matter little to anyone anymore, Central Banks, Free Money, no one LEFT behind, at any cost.
Then lack of commentary on potential financial blowback, or worse, is just so lacking its laughable, and for those investors that also lack the instinctive fortitude to pay attention, maybe this chart below helps.
Naturally, those that exited this bubble early are up for criticism, depending on the performance of their remaining investments! Those that are piling into the poster children of this current mania are going to pay a serious price.
It’s not too hard to see where the hype is now.
It was fascinating to listen to Paul Singer on Grant Williams’ “End Game” podcast recently. The Crypto and Tesla “Bulls” will call someone like Paul Singer a relic of a bygone era, like gold. To us, he’s an experienced investor, a realist, understanding centuries of economic history.
He is bamboozled by the unwavering current belief of, “the many”, that nothing can go wrong with central banks distorting the price of money for as long as is necessary. The effects of this distortion are becoming more obvious by the day, as are the Central bank and .Gov policy responses.
It’s for this reason we completely agree with Mr. Singer on a vital point. The inevitability of something going completely “haywire”, driving a “spanner in the works” of the financial system, under its current construct, is 100%.
But what will it be?
We generally hesitate to discuss Bond market machinations in these notes for fear of sending readers further to the “Twilight Zone”, but Bond markets matter.
Mr Singer’s conclusions that the systemic breakage will be first confirmed in the bond market is traditionally correct. Why wouldn’t Bond investors they want to protect their capital?
But for one small problem. If he thinks rates will rise, as has been signalled in the first half of January, he is seriously underestimating the global central bank commitment to interest rate suppression (capping capital losses for Bond holders).
Then reasoning is simple, if Bond rates (Sovereign and Corporate) rise THERE IS NO CAPACITY TO PAY THE EXTRA INTEREST without further printing monetization!! Earnings you say? Who cares about earnings when you can ALT-Print, you have to when the debt is too large.
The inflationary conclusion Mr. Singer comes to is correct, but you won’t see it in Bonds rate rises,
To those that don’t know about “inflation”, it’s been happening under your very nose for the last 10 years, in ASSET markets, including, and especially Bonds.
This is precisely what central banks wanted, asset price inflation, “hoping” the wealth effect flows “down” to the general economy. We argue, it didn’t.
And because the inflation has manifest in rising asset markets, many people (without assets) have been left behind, hence, the growing wealth inequality gap and its social manifestations.
We feel most investors instinctively feel “something” is going to break. They’re right about that, what they’re wrong about is confidence in their own ability to exit before it breaks. Seeing the “vivid sign” that everyone misses!! So, if you made it this far you may be interested in what we’ve shared on our own portfolio movements in the previous month to subscribers, or not!! We believe more than ever that the reflation trade is on, you only need to go back to previous posts to see the thesis on Aurum Echo.
Back to macro matters, the ineptitude of the previous US Trump administration to do anything they were elected to do (MAGA, Balanced budgets, fiscal responsibility) has simply given the Green light to the current elected administration to do whatever they want. And they will. Did we mention Covid Rescue Stimulus (build back bitter), Climate Change/New Green Deal, war on Economic/Racial inequality, Interest Rate Suppression and Defence?
All of this matters and the flow on effects to investors, globally (this includes Australia) are better flagged that ever! We reiterate, it’s the timing you don’t know and our view is its happening now!!
If inflation is the manifestation of this mess, what do you do?
Well, the first thing is don’t wait to read it in in mainstream economic media, and physical assets have always stood the test of time.
On the topic of Inflation, you must re acknowledge that rising bond rates and precious metal prices are the surest sign of inflation expectations from serious investors!!
Hence, why would Central Banks not want to control Bond rates/prices as they do, through interest rate suppression. Bond holders lose capital when rates rise, and this cannot be allowed to happen!!
There are other inflation signs that have been around for a few millennia, like precious metals, especially gold and silver!
To think that the gold price is not on the radar of central BIS types, in the same way Bond rates/prices are “managed”, through outsized derivative leverage is just naïve.
Like below, as usual this dump was on no news. 2.6 BILLION USD in a minute, preparation for more stimuli??
We are not saying this is co-ordinated manipulation, the chart above is not ours. We don’t want to be cancelled, but Smoke/fire??
Regardless, for those underinvested in the inflation protection of gold and silver, you just need to say thanks for the price you can buy the metals and miners at now!!
The set-up has never been better.
Particularly for Silver, the cheapest metal (it used to be precious) you can get!
In other commodities related “unintended consequences” of this Global Build Back Better thing, how’d you like to be a “fossil” fuel energy producer going to capital markets for money?
Unintended consequences abound, like rising energy prices!! Haha, the irony!
And as we’ve covered before, you can see the price manifestation of the not so new green deal in Copper, Nickel, Manganese, Platinum and Rare earths, everywhere.
Don’t you think, relative to equities, commodities are a good position? No advice here.
Bonus Chart:
What the hell would those sneaky Russians know anyway?!?!
Peace.
