Summary
- Wealth inequality has historically increased in full fiat monetary regimes, leading to the disappearance of the middle class.
- The Federal Reserve's dual mandate is seen as maintaining government power, moderating financial crises, and sustaining nominal asset prices to prevent the collapse of the fiat monetary system.
- Powell's recent rate hike pivot, coupled with commentary by Tavi Costa, suggests a significant macro event, with a focus on the decline in real yields.
- In response to the dovish communication and anticipated rate cuts, gold, silver, and other inflation-linked assets experienced a surge.
- The current US debt levels and structural deficits limit Powell's ability to emulate the policies of the early 1980s.
- Gold has historically performed strongly during rate cut cycles, outpacing the US stock market in previous eras.
- The blog discusses the bullish fundamentals supporting silver's upcoming bull run, including insights from industry spokesmen in India.
- The post highlights the rising prices of essential items since 1990, emphasizing the erosion of purchasing power attributed to the Federal Reserve's policies.
- Physical bullion is presented as a proven way to defend against the ongoing corrosion of purchasing power caused by fiat Federal Reserve actions.
- The update concludes with an analysis of the overvaluation of the US stock market compared to global counterparts, suggesting a potential shift in relative valuations amid a multi-polar world. The longest S&P 500 versus Gold and S&P 500 versus Silver charts are provided to illustrate potential future scenarios.
It's also natural to know that in the history of full fiat monetary regimes, the masses get squeezed and the middle class vanishes as wealth inequality explodes between the currency creator classes and the average citizens.
Regardless of what the fiat Federal Reserve claims there dual mandate is, their job is essentially to keep the US Federal Gov in power, to make the business cycle less drastic in financial crises and severe recessions, and to try and sustain nominal asset prices at levels that prevent our debt based fiat monetary system from collapsing due failing confidence or the sheer hard to pay off weight of record debt levels that accompanies our aging entropic, still unipolar dominate, fiat US dollar debt based fiat financialized system.
Onwards to Powell's latest rate hike pivot announcements this week.
Tavi Costa tweeted the following commentary and negative real yield chart.
"The Fed's press conference from yesterday is likely to be remembered as one of the most important macro events of this decade.
Any policymaker seriously committed to fighting inflation would never publicly announce an intention to start cutting interest rates before achieving their ambitious price stability target.
Keep in mind that this dovish communication happened on the back of a core CPI still at 4%, with government spending exceeding 20% of GDP, rising deglobalization forces, widespread labor strikes, and an exceptionally supply-constrained commodity market.
Interestingly, this historic moment was also evident in the movement of real yields, which saw its most significant decline since the Global Financial Crisis and the Covid recession.
This reflects how, in such a highly leveraged economy with asset valuations reaching absurdly expensive levels, financial repression must always be reinstated, even if it means inflation remains higher than historical standards.
Hard assets are imperative to navigate this next market cycle."
So, now our modern growing record sized US debt loads and the coming further ballooning structural deficits on promises increasingly coming due we never saved for, they don't allow Jerome Powell to pretend he is early 1980s Paul Volcker in this year 2023.
Our current system has been in a delayed slow motion fail mode since the 2008 Global Financial Crisis where we increasingly spend more than we bring in, in ongoing tax receipts.
Gold, silver, and many other inflation linked asset classes popped on the news of Powell's all but admitting rate cuts are coming pivot.
Thus far in the 21st Century gold has performed strongly during three prior rate cut cycles, with spot prices ramping up +66%, +189%, and up +50% in the prior three rate cut cycles past.
During those three specific rate cut eras the US stock market got quickly outpaced by gold's then gains.
Add on the likely fact that a structural bear market in the fiat US dollar is likely to eventually coincide with this coming rate cut cycle and both gold and silver are poised for good years upcoming.
Moving to specifically cover some of the building bullish fundamentals underlying silver's coming bull run, we turn to India to hear from industry spokesmen as they sound off on the growing case for silver bullion allocations now, not later.
More on the coming outperformance of commodities and especially precious metals in physical bullion investment grade formats versus the US stock market to come later in this week's bullion market update.
But next let's take a trip back in the Christmas past, to 1990 and revisit why the internet was recently aghast at how cheap groceries were shown in the successful Christmas comedy movie "Home Alone".
You can press pause right here and stare at this average 1990 US price sheet, if you are interested in further data showing that typical prices for many important items have often more than 3 folded since 1990 to now today in 2023. Most people's incomes have not kept up.
This is the fiat Federal Reserve's policy results by action over time.
Owning prudent allocation of physical bullion in your liquid net worth, is one proven way to defend your wealth against this ongoing corrosion of purchasing power.
Both the silver and gold markets rallied on the fiat Fed's all but rate cut 2024 pivot announcement this week.
The spot silver price rose most in percentage terms to close at just under $24 oz bid price while the spot gold price again closed the week above the important building $2,000 oz support line with a finish near $2020 oz bid price.
The spot gold silver ratio fell to 84 with silver's relative strength over gold.
While spot prices in the west languished early in this week, interesting to note the massive premiums for physical gold and silver being paid in Shanghai, China. Not how the white lines illustrate that gold and silver prices in China did not fall all that far in the start of this week as bullion buyers continue coming pounding the bid for more bullion.
Turning to close this week a few long term charts to show how severely overvalued the US stock market is versus the rest of the world. And I am not talking by a little.
This chart going back to the start of this post World War 2 global debt super-cycle likely coming undone this decade into next. We see the current US stock market bubble vs other global stock prices is now near 2.8 standard deviations beyond the mean red line of 1, that has been the persistent line of eventual gravity over time.
If we took a time machine back to the mid 1980s, by all means buy US stock and hold them for the long run.
Do you think the same plan over the next coming decades will yield similar results from these elevated record high levels?
This is an inverse chart valuing US stocks versus emerging markets where most of the world's coming commodity bull market output will come from.
Do you think they are not going to get their fair share in relative value returning back toward the red line mean and likely spiking again beyond a decade or more from now?
Again this coming rate cut cycle is likely the close of relative valuations gone berserk from fiat US dollar financialization as we move towards a more multi-polar world to come.
This is the longest S&P 500 versus Gold chart I have ever come across.
Note that it is only updated through the end of the Covid stock market ramp at the end of the year 2020.
Of course over the last 200 years we have gotten better at mining more gold at less costs so the general slope upwards on this logarithmic chart makes sense.
But if you look closely what you will find are wild swings over a few decades up and down over time.
Often the higher the bubble of US stocks versus gold goes, the larger the dip that ultimately follows.
At the moment today it costs about 2.33 oz of spot gold to get one share of the near nominal record high S&P 500.
Yet if we have a similar repeat of the 1970s bull for gold bullion the eventual mania for gold could take its relative value versus S&P 500 stocks to potential 10 fold outperformance should history ultimately rhyme ahead.
Silver is even nuttier.
This is also the longest S&P 500 versus Silver chart I have ever come across.
Note that it too is only updated through the end of the Covid stock market ramp at the end of the year 2020.
At the moment today it costs about 198 oz of spot silver to afford one share of the near nominal record high S&P 500 now.
Yet if we have a similar repeat of the 1970s bull for silver bullion the eventual mania for silver could take its relative value versus S&P 500 stocks to a potential 20 fold outperformance should history ultimately rhyme in time.
A mint tube or 20 oz of silver being able to buy one share of the S&P 500 has been the historical norm of US history.
What I am suggesting may sound extreme, but what the fiat Federal Reserve has done to our fiat financialized markets I would argue has been the most extreme and therefore the eventual backfire in real value terms will likely get crazy to the downside on this chart someday.
That will be all for this week's SD Bullion Market Update.
As always to you out there, take great care of yourselves and those you love.
