Gold & silver continue to come under pressure as the stock market and Bitcoin hit fresh new all-time highs, again. There is a storm brewing in the markets, however, and it is best seen in the commodities and in the bond market, and this is not just any storm, but an inflationary storm at best.
And at worst?
At worst it is a hyperinflationary storm, which I think it will be, or a seemingly never-ending stagflationary storm, which others think it will be. Yet comparing and contrasting inflation, hyperinflation, and stagflation are the topics of another article for a different day, like today, I’d like to take a step back for a moment and review the current fundamentals on Main Street and on Wall Street.
MAIN STREET WOES
In the United States, more or less as a whole, we’re approaching the one year anniversary of the closures, the lockdowns, the shutdowns, the travel restrictions, the quarantines, and more, and it seems everybody has been optimistic and even looking forward to the economy “running hot” with Main Street not only opening back-up but opening up with a vengeance (pent up demand) and life coming back to some sense of normalcy after being upended and discombobulated for an entire year.
Yet, as luck would have it, or Mother Nature for that matter: BAM!
The vast majority of the United States is grappling with challenging winter weather, and that’s probably an understatement. I’m one of the lucky ones in that while the sidewalks in my neighborhood are starting to resemble the trenches from WWI, others have lost power and are having to deal with Old Man Winter roughneck style. Here’s the point: Just as it was starting to look like the economy on Main Street was springing back to life, Murphy’s Law kicks in, and we’ve got another week of lost productivity for the nation as a whole, and a lot of that lost productivity will have spillover effects into the upcoming weeks. In other words, Main Street is bearing the brunt of yet another expensive setback, only, this time it was not instigated by the government but by the weather, and whereas Main Street may have been looking forward to finally earning a little money again, instead, the expenses continue to mount, and savings, if they haven’t already been spent, continue to deplete, with the cost of broken water pipes and other weather-related accidents and incidents needing immediate and potentially costly attention, care or repair.
The bottom line?
Right now, the economy on Main Street is trying to make a comeback, but unfortunately, what we really have is yet another setback. Furthermore, if one is of the belief that things will “get better” once the coronavirus vaccine roll-out has reached a certain level, well, there were setbacks in that too with many cities and counties across the United States having to cancel their vaccination clinics due to the weather.
Unfortunately, the inclement weather is not totally behind us. This epic winter storm is still with us and wreaking havoc, including to the millions of Americans without power for their homes or businesses right now.
Translation?
Just when brick-n-mortar retail outlets need a break, they get bad weather, and this could have an impact on first-quarter growth, or GDP, or recovery, or whatever you’d like to call it.
MARKET STORMS
As I stated earlier, there is a storm brewing in the markets, and this storm happens to go by the name of “inflation”.
Check out the jump in yield on the 10 Year Note:
Yikes!
A move in yields like we’ve seen since the start of the year is going to become problematic for the markets for several reasons, which is also the topic of an article for another day, but suffice it to say that right now, when the analysts, experts, and pundits are discussing the US government bond market, they're discussing it with one word above all else: Inflation.
That said, for the Fed and the Federal Government, it’s danged if you do and danged if you don’t. Rising yields are problematic because the debt is unsustainable, but the debt also needs to be ever-expanding, because we have an unbacked, debt-based fiat currency monetary system, and as such, we can only afford to borrow more and more money at lower and lower rates, and rising rates, depending on how high and how fast they rise, will blow-up the entire financial market system because the debt cannot be serviced if higher rates must be paid (danged if you don’t drive rates back down).
So the Fed can simply monetize US government debt to drive interest rates back down, but this comes at the cost of the US dollar:
So that’s danged if you do, as in, drive interest rates down by the Fed is the “buyer of first resort” because that means your currency turns Zimbabwean, or Venezuelan.
If it were true we could just print our way to prosperity; then nobody would be talking about the American Empire, but rather, the world would be talking about the Zimbabwean Empire or the Venezuelan Empire, but that's not the way money works, and those unprepared are going to learn a very hard lesson in what it means to have one's paper/digital wealth "vaporize" in a hyperinflationary death spiral.
I say this week after week after week to make a point, and that point is "market participants" are oblivious to this fast-evolving US dollar currency crisis:
Or is the Exchange Stabilization Fund, the Fed, or agents acting on behalf of one or both in there suppressing the VIX so as not to raise eyebrows?
Either way, a surging stock market may not be all that it's cracked up to be not if, but when the US government changes the rules on-the-fly:
Of course, if those "winnings" are able to cash out of the "market", depending on what stage we're at in the US Dollar Hyperinflation, those winnings may not actually be able to buy anything.
Furthermore, it's not just one person that will be looking to cash out his or her winnings as the US dollar hyperinflates, but everybody will be looking to convert their paper/digital funny money into real things, and that dynamic will serve to complicate matters even more for people with their wealth tied up in our current but dying financial system.
As I discussed earlier, the commodities are signaling surging inflation is here.
Crude oil has shot up to over $60 per barrel:
Adding fuel to the inflationary fire in the short-term are increasing geo-political tensions in the Middle East (Iran, Iraq & Syria) and weather-related disruptions in the United States.
Copper is signaling surging inflation is here:
Copper has doubled since the spike low last March!
Platinum, which is both a commodity and a precious metal (money), has been on fire:
Platinum is up over 15%, year-to-date!
Palladium continues to perform as expected:
We're at the upper end of the sideways choppy channel we've been banging around in since the market mayhem last March, and I would expect palladium to continue marking time in its sideways choppy channel until the other three precious metals catch up.
Speaking of which, gold kind of needs to catch up to the performance of silver right now:
I'm not really liking that divergence, at all, and I think what is more likely to happen, this time around, is that for gold & silver to re-couple, I think it will be silver catching down to gold.
In part because the technicals on gold's daily chart have been bearish for some time:
And now there's the "death cross" to deal with.
There is the case to be made that silver is "overextended", even if the technicals are not extreme:
That's all things considered, of course, including the "silver squeeze" surge and especially including any upcoming interventions taken by the Exchange Stabilization Fund, the Fed, and agents acting on behalf of one or both.
Thanks for reading,
Paul Eberhart
