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How Will Gold Price Perform During Stagflation?

Analysts think stagflation might be the boost gold needs right now

The gold market continues to experience strange action, having most recently fallen to $1,720 only to bounce back to $1,760 by Friday’s time. It was a repeat of the week before, where strong selling pressure was met with a lot of buyers.

Kitco interviewed a number of market analysts for their take on the bigger economic picture and how gold will respond. Daniel Ghali, a commodity strategist at TD Securities, told Kitco that the headwinds gold seems to be facing come primarily in the form of the markets pricing in scenarios that may or may not happen:

What’s been driving gold these days is market pricing of Fed’s exit. Both the tapering and a potential rate hike on the horizon were being priced in. As a result of that, we’ve seen substantial repricing of the Treasury markets, and that has been primarily weighing on gold.

Even though it has been consistently pointed out that the Fed is poorly positioned for either tapering or rate hikes, the markets seem determined not to be surprised.

Ghali thinks the re-emergence of the threat of stagflation, a mixture of rising prices and a static or weakening economy, could be a wake-up call to market participants. Indeed, there seems to be little to support the idea of any kind of economic strength that would cause the Fed to act in a hawkish manner, and worries over inflation are by now ubiquitous.

Walsh Trading co-director Sean Lusk reiterated that gold ended the week with a bullish note:

…click on the above link to read the rest of the article…

The Threat Board is Looking Busy

September 29, 2021

The Threat Board is Looking Busy

Markets are never as bad as you fear, but never as good as you hope. The Threat Board has seldom looked so complex: we can try to predict outcomes, but its notoriously difficult. The list of potential ignition points seems to be expanding exponentially: Energy Prices, Oil, Inflation, Stagflation, Supply Chains, Recession, China, Politics, Consumer Sentiment, Business Confidence, Property Markets, Liquidity, Bond Yields, Stock Prices.. you name it and someone is worrying about it.

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Blain’s Morning Porridge – 28^th September 2021: The Threat Board is Looking Busy

“Many people have speculated that if we knew exactly why the bowl of petunias had thought that we would know a lot more about the nature of the Universe than we do now.”

This morning – Markets are never as bad as you fear, but never as good as you hope. The Threat Board has seldom looked so complex: we can try to predict outcomes, but its notoriously difficult. The list of potential ignition points seems to be expanding exponentially: Energy Prices, Oil, Inflation, Stagflation, Supply Chains, Recession, China, Politics, Consumer Sentiment, Business Confidence, Property Markets, Liquidity, Bond Yields, Stock Prices.. you name it and someone is worrying about it.

Relax. Calm. Breathe Deep.

…click on the above link to read the rest of the article…

The Looming Stagflationary Debt Crisis

July 3, 2021

roubini153_OLIVIER DOULIERYAFP via Getty Images_USdebt

The Looming Stagflationary Debt Crisis

Years of ultra-loose fiscal and monetary policies have put the global economy on track for a slow-motion train wreck in the coming years. When the crash comes, the stagflation of the 1970s will be combined with the spiraling debt crises of the post-2008 era, leaving major central banks in an impossible position.

NEW YORK – In April, I warned that today’s extremely loose monetary and fiscal policies, when combined with a number of negative supply shocks, could result in 1970s-style stagflation (high inflation alongside a recession). In fact, the risk today is even bigger than it was then.

After all, debt ratios in advanced economies and most emerging markets were much lower in the 1970s, which is why stagflation has not been associated with debt crises historically. If anything, unexpected inflation in the 1970s wiped out the real value of nominal debts at fixed rates, thus reducing many advanced economies’ public-debt burdens.

Conversely, during the 2007-08 financial crisis, high debt ratios (private and public) caused a severe debt crisis – as housing bubbles burst – but the ensuing recession led to low inflation, if not outright deflation. Owing to the credit crunch, there was a macro shock to aggregate demand, whereas the risks today are on the supply side.

We are thus left with the worst of both the stagflationary 1970s and the 2007-10 period. Debt ratios are much higher than in the 1970s, and a mix of loose economic policies and negative supply shocks threatens to fuel inflation rather than deflation, setting the stage for the mother of stagflationary debt crises over the next few years.

…click on the above link to read the rest of the article…

“This Is All About Stagflation… The U.S. Is Walking Into The Early Stages Of The Fourth Turning”

May 15, 2021

“This Is All About Stagflation… The U.S. Is Walking Into The Early Stages Of The Fourth Turning”

We believe the U.S. is walking into the early stages of the Fourth Turning, a subject entertained below. In this note we break down the ideal 2020-2030 portfolio and why it is so different from the 2010-2020 vintage. Above all, by now it should be clear to a five year old; Global Central Banks are working together in a dollar containment regime. With conviction, we laid out this thesis a year ago (April 2020) in our “Lessons from Omaha” and it became the foundation under our overweight positioning in commodities, global large cap value, and emerging markets.

The good news is, the commodity cycle is still in the early innings.

There are trillions of U.S. dollars married to deflation bets (fixed income bonds and tech stocks) and the lawyers are writing up the divorce papers as we speak. Unintended consequences are popping up weekly, the latest variety points to a significant labor shortage developing in the U.S. with colossal side effects moving our way.

It’s going to be hilarious. Just when the last economist threw in the Phillips Curve towel, wrote the long winded obituary it will come roaring back to life. Wage inflation is about to explode, and this sword is swinging in the direction of profit margins.

Above all, the Fed is staring down the barrel of runaway inequality, inequality that the Fed itself has created. The American Dream just isn’t the 1950s-2000s bright blue, a touch of grey has moved in forging left wing populism. If you listen carefully to U.S. Treasury Secretary Janet Yellen and Fed Chair Jay Powell, they are focused on U 6 unemployment near 11% and the 9 million Americans who have left the Non Farm Payrolls since January 2020.

…click on the above link to read the rest of the article…

Crisis of the 70s Compared to the 20s

April 2, 2021

Crisis of the 70s Compared to the 20s

COMMENT: Hi Marty,

Your post today on inflation(when people see it coming) reminds me how things have changed from the 1970s. Then, the inflation we saw came from oil rising(Opec raising prices), unions demanding wage increases, and currencies untethered to the abandoned Bretton Woods agreement. Governments then seemed clueless how to stem this rise, with interest rates rising relentlessly, pressuring bonds and eroding earnings of still largely manufacturing-based economies. Globalization was not an issue as half the world still lived under communism.

Today, it seems central banks have “learned” how to rig interest rates by flooding markets addicted to debt. What is different today is governments now, instead of fearing inflation, actually want it. In fact, desire it to bring about the Great Reset. They appear to want to drive oil prices higher to such levels that this makes Green Energy cheaper and helps to accelerate the conversion over to electric cars. All at the expense of the consumer. On top of this, taxing old tech, principally oil and gas, only helps to fuel shortages, since companies have cut back on oil exploration. When you force people to stay home, the demand for energy shifts from driving to people staying home, more demand for computers, more energy required to supply the grid, more companies delivering products to the home. What has been accomplished? People fleeing high tax states to ones that remain open, those with no state income taxes, those in the south. The burden shifts to northern states, the advantage gained by southern states.

Today, governments are deliberately fueling these shortages…encouraging them, to expedite the transition away from globalization to one centrally controlled. No longer do they need access to debt markets, they can supply guaranteed income without fear of inflation or failed bond auctions…

…click on the above link to read the rest of the article…

inflation, martin armstrong, armstrong economics, 1970s, stagflation

Stagflation Subterfuge: The Real Disaster Hidden By The Pandemic

March 8, 2021

Stagflation Subterfuge: The Real Disaster Hidden By The Pandemic

In recent economic news, headlines are being dominated by concerns over rising bond yields. Increased bond yields are a sign of a possible spike in inflation and, logically, they call for the Federal Reserve to raise interest rates in order to prevent that inflation.

Higher bond yields also mean there is a competitive alternative to stocks for investors – both factors that could trigger a plunge in the stock market.

If one studies the real history behind the stock market crash during the Great Depression, they will find that it was the Federal Reserve’s interest rate hikes that caused and prolonged the disaster after they had created an environment of cheap and easy money throughout the 1920s. Former Chairman Ben Bernanke openly admitted the Fed was responsible back in 2002 in a speech honoring Milton Friedman. He stated:

“In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn. Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

This then raises the question – inflation or deflation? Will the Fed “do it again?”

Probably not in exactly the same way, but we will see elements of both inflation and deflation soon in the form of stagflation.

…click on the above link to read the rest of the article…

brandon smith, alt-market, stagflation, government stimulus, pandemic, lockdowns, central banks, fed, us federal reserve, great reset, globalists, globalism

The Battle of the ‘Flations has Begun

August 16, 2019

The Battle of the ‘Flations has Begun

Inflation? Deflation? Stagflation? Consecutively? Concurrently?… or from a great height (apologies to Tom Stoppard).

We’ve reached a pivotal moment where all of the narratives of what is actually happening have come together. And it feels confusing. But it really isn’t.

The central banks have run out of room to battle deflation. QE, ZIRP, NIRP, OMT, TARGET2, QT, ZOMG, BBQSauce! It all amounts to the same thing.

How can we stuff fake money onto more fake balance sheets to maintain the illusion of price stability?

The consequences of this coordinated policy to save the banking system from itself has resulted in massive populist uprisings around the world thanks to a hollowing out of the middle class to pay for it all.

The central banks’ only move here is to inflate to the high heavens, because the civil unrest from a massive deflation would sweep them from power quicker.

For all of their faults leaders like Donald Trump, Matteo Salvini and even Boris Johnson understand that to regain the confidence of the people they will have to wrest control of their governments from the central banks and the technocratic institutions that back them.

That fear will keep the central banks from deflating the global money supply because politicians like Trump and Salvini understand that their central banks are enemies of the people. As populists this would feed their domestic reform agendas.

So, the central banks will do what they’ve always done — protect the banks and that means inflation, bailouts and the rest.

At the same time the powers that be, whom I like to call The Davos Crowd, are dead set on completing their journey to the Dark Side and create their transnational superstructure of treaties and corporate informational hegemony which they ironically call The Open Society.

…click on the above link to read the rest of the article…

Do You Remember The Oil Crisis And “Stagflation” Of The 1970s? In Many Ways, 2019 Is Starting To Look A Lot Like 1973…

April 23, 2019

Do You Remember The Oil Crisis And “Stagflation” Of The 1970s? In Many Ways, 2019 Is Starting To Look A Lot Like 1973…

The price of gasoline is rapidly rising, economic activity is slowing down, the Middle East appears to be on the brink of war, and Democrats are trying to find a way to remove a Republican president from office. In many ways, 2019 is starting to look a lot like 1973. For many Americans, the 1970s represent a rather depressing chapter in U.S. history that they would just like to forget, but the truth is that if we do not learn from history it is much more likely that we will repeat our mistakes. And without a doubt, right now a lot of things are starting to move in a very ominous direction.

“Stagflation” was a term that was made popular in the 1970s, and it occurs when there is a high rate of inflation but economic growth is declining or stagnant.

The U.S. hasn’t had a serious bout with stagflation in quite a while, but it appears that we may be moving in that direction.

Let’s talk about the slowdown in the economy first. On Monday, we learned that sales of existing homes in the U.S. were way down in March…

Home sales are struggling to rebound after slumping in the second half of last year, when a jump in mortgage rates to nearly 5% discouraged many would-be buyers. Spring buying is so far running behind last year’s healthy gains: Sales were 5.4% below where they were a year earlier.

On a year over year basis, existing home sales have now fallen for 13 months in a row.

That is terrible, and there is no way to “spin” that fact to make it look good.

…click on the above link to read the rest of the article…

The Coming Inflation Threat

October 22, 2018

The Coming Inflation Threat

Falling asset inflation plus rising cost inflation equals stagflation.

Inflation is a funny thing: we feel it virtually every day, but we’re told it doesn’t exist—the official inflation rate is around 2.5% over the past few years, a little higher when energy prices are going up and a little lower when energy prices are going down.

Historically, 2.5% is about as low as inflation gets in a mass-consumption economy like the U.S. that depends on the constant expansion of credit.

But even 2.5% annually can add up if wages are stagnant. According to the Bureau of Labor Statistics (BLS), what cost $1 in January 2009 now costs $1.19. https://www.bls.gov/data/inflation_calculator.htm

That 19% decline in the purchasing power of dollars is tolerable as long as wages go up by 20% over the same period, but for many American households, wages haven’t kept pace with official inflation.

While the nominal hourly wages keep rising, adjusted for inflation, wages have stagnated for decades. Here’s a chart based on BLS data that shows median weekly earnings adjusted for official inflation rose $6 a week after five years of decline:

But stagnant wages are only part of the inflation picture: official inflation under-represents real-world inflation on several counts.

First, the weightings of the components in the Consumer Price Index (CPI) are suspect. Many commentators have explored this issue, but the main point is the severe underweighting of expenses such as healthcare, which is only 8.67% of the CPI but over 18% of the U.S. Gross Domestic Product (GDP).

Second, the “big ticket” components—rent/housing, healthcare and higher education—are under-reported for those who have to pay the unsubsidized cost. The CPI reflects minor cost decreases in tradable commodity goods such as TVs and clothing that are small parts of the family budget, while minimizing enormous expenses such as college tuition and healthcare that can cost $20,000 annually or more.

…click on the above link to read the rest of the article…

“Shocking” Turkish Inflation Hits 15 Year High, Unleashing Stagflationary Shockwave; Lira Plunges

October 3, 2018

“Shocking” Turkish Inflation Hits 15 Year High, Unleashing Stagflationary Shockwave; Lira Plunges

A few days ago we discussed how soaring oil prices have been a stagflationary double whammy to emerging markets, which have been hit not only by a surging dollar, resulting in a collapse in local currencies and spiking import costs, but a spike in local currency oil and gasoline prices resulting in a surge in inflation and a slowdown in the economy as local infrastructure grinds to a halt.

This morning, this dynamic was revealed clearly – and painfully for Turkish residents – when Ankara reported that consumer inflation climbed to one of the highest levels since President Recep Erdogan came to power 15 years ago, spurring more calls for higher interest rates to rein in prices or at least for Erdogan to normalize relations with the US.

Turkish inflation soared to 24.5% in September from a year earlier (up 6.3% on the month, the highest since April 2001), rising for the 6th consecutive month driven by an across-the-board spike provoked by the lira’s meltdown; it was also the highest since June 2003 and rising above all Wall Street expectations where the median estimate was 21.1%. Worse, the CPI print was higher than the central bank’s policy rate of 24% suggesting more rate hikes are now imminent… but will Erdogan agree?

Medley Global analyst Nigel Rendell said the inflation figure was “a shocker” but said he was cautiously optimistic that weak consumption might offset inflationary pressures at some point.

“Interest rates of 24 percent provide some protection, and there is a sense that the weakness of domestic demand will be the dominating disinflationary force in a few months’ time once the foreign exchange pass-through has fed its way through the system.”

As the following key highlights from the Turkstat report show, the price increases was broad based across virtually all categories (via Bloomberg):

…click on the above link to read the rest of the article…

Watching America’s Collapse

August 27, 2018

Watching America’s Collapse

Existence is running out for America

In the 1950s and 1960s the United States was a vibrant society. Upward mobility was strong, and the middle class expanded. During the 1970s the internal contradiction in Keynesian demand management resulted in stagflation. Reagan’s supply-side economic policy cured that. With a sound economy under him, Reagan was able to pressure the Soviet government, which was unable to solve its economic problem, to negotiate the end of the cold war.

This happy development was not welcomed by powerful forces, both in the US and Soviet Union. In the US the powerful military/security complex was unhappy about losing the Soviet Threat, under the auspices of which its budget and power had soared. Right-wing superpatriot conservatives accused Reagan of selling out America by trusting the Soviets. The American rightwing portrayed President Reagan as the grade-two movie actor dupe of “cunning communists.”

In the Soviet government Gorbachev faced a larger problem. With trust established between the two nuclear powers, Gorbachev released the Soviet hold on Eastern Europe. Hardline elements in the Soviet Communist Party saw too much change too rapidly and concluded that Gorbachev had sold out the Soviet Union to Washington. This conclusion resulted in Gorbachev’s arrest, and the consequence of his arrest was the collapse of the Soviet Union and the Communist Party.

With communism departed, the Russians forgot all of Marx’s lessons about capitalism and naively concluded that we were all now friends. The Yeltsin government opened to American advice and, by naively accepting American advice, Russia was looted and reduced to penury. Russia under Yeltsin became an American puppet state, and the Russian people paid for it with a great reduction in their living standard.

…click on the above link to read the rest of the article…

A Hard Rain’s a-Gonna Fall

June 16, 2018

A Hard Rain’s a-Gonna Fall

The prospects for the rest of the year are awful

Après moi, le déluge

~ King Louis XV of France

A hard rain’s a-gonna fall

~ Bob Dylan (the first)

As the Federal Reserve kicked off its second round of quantitative easing in the aftermath of the Great Financial Crisis, hedge fund manager David Tepper predicted that nearly all assets would rise tremendously in response.

“The Fed just announced: We want economic growth, and we don’t care if there’s inflation… have they ever said that before?”

He then famously uttered the line “You gotta love a put”, referring to the Fed’s declared willingness to print $trillions to backstop the economy and financial makets.

Nine years later we see that Tepper was right, likely even more so than he realized at the time.

The other world central banks followed the Fed’s lead. Mario Draghi of the ECB declared a similar “whatever it takes” policy and has printed nearly $3.5 trillion in just the past three years alone. The Bank of Japan has intervened so much that it now owns over 40% of its country’s entire bond market. And no central bank has printed more than the People’s Bank of China.

It has been an unprecedented forcefeeding of stimulus into the global system. And, contrary to what most people realize, it hasn’t diminished over the years since the Great Recession. In fact, the most recent wave from 2015-2018 has seen the highest amount of injected ‘thin-air’ money ever:

Total Assets Of Majro Central Banks

In response, equities have long since rocketed past their pre-crisis highs, bonds continued rising as interest rates stayed at historic lows, and many real estate markets are now back in bubble territory. As Tepper predicted, financial and other risk assets have shot the moon.

And everyone learned to love the ‘Fed put’ and stop worrying.

…click on the above link to read the rest of the article…

A Summer Of Disappointments Will Lead To An Extended Economic Crash

May 24, 2018

A Summer Of Disappointments Will Lead To An Extended Economic Crash

The summer season is often about renewed hope and revelry in comfort, and this goes for economic comfort as much as anything else. In parallel to the old tale of The Ant And The Grasshopper, we are all tempted to act like the grasshopper, forget about the trials and tribulations of the world and take a vacation from awareness.

I am seeing quite a lot of this in the past month as mounting global tensions appear to have subsided. But appearances can be deceiving…

I am reminded of the summer of 2008 when those of us in alternative economic analysis were warning of the overwhelming evidence of a debt based deflationary disaster. There seemed to be widespread complacency back then as well. September finally struck and reality began to sink in, and the rest is a history we are still dealing with to this day. Right now, economic optimism is desperately clinging to news headlines rather than data fundamentals, but this can just as easily sink markets as it can keep them artificially afloat.

Consider the numerous powder keg events coming our way over the next few months and what they will mean for economic sentiment if they go the wrong way.

Federal Reserve Meeting June 12-13

The next week will be packed with public statements from various Fed officials which may hint at how aggressive the central bank will be for the rest of the year in its tightening program. However, I think I can guess rather easily what they will do. The Fed has been sticking to its policy of interest rate hikes and balance sheet cuts as I predicted they would for the past couple years. Nothing has changed under new Fed chairman Jerome Powell.

…click on the above link to read the rest of the article…

Stagflationary Crisis: Understanding The Cause Of America’s Ongoing Collapse

May 9, 2018

Stagflationary Crisis: Understanding The Cause Of America’s Ongoing Collapse

It is at times frustrating, but also interesting, to witness the progression of the mainstream’s awareness of economic crisis within the U.S. over the years. As an alternative economist, I have had the “privilege” of perching outside the financial narrative and observing our economy from a less biased position, and I have discovered a few things.

First, the mainstream economic media is approximately two to three years behind average alternative economists. At least, they don’t seem to acknowledge reality within our time frame. This may be deliberate (my suspicion) because the general public is not meant to know the truth until it is too late for them to react in a practical way to solve the problem. For example, it is a rather strange experience for me to see the term “stagflation” suddenly becoming a major buzzword in the MSM. It is almost everywhere in the past week ever since the last Federal Reserve meeting in which the central bank mentioned higher inflation pressures and removed references in its monthly statement to a “growing economy.”

For those unfamiliar with what stagflation is, it is essentially the loss of economic growth in numerous sectors coupled with a marked spike in consumer and manufacturing costs. In other words, prices keep going up while employment growth, wages, production, etc. decline.

I have been warning about a stagflationary crisis as the ultimate result of central bank bailouts and QE for many years. In 2011, I published an article titled ‘The Debt Deal Con: Is It Fooling Anyone?’ in which I predicted that the Fed would resort to a third round of quantitative easing (they did). This prediction was based on the fact that the previous two QE events had not resulted in the kind of results the central bankers were obviously looking for.

…click on the above link to read the rest of the article…

Velocity of Money Picks Up: Inflation Coming? Stagflation? How About Deflation?

May 2, 2018

Velocity of Money Picks Up: Inflation Coming? Stagflation? How About Deflation?

The velocity of money is picking up. What does it mean?

Velocity of money is defined as (prices * transactions) / (money supply). Economists substitute GDP for (prices * transactions).

This tweet caught my eye today.

Velocity of Money has increased for third quarter in a row after a long steady decline, strong evidence that inflation is heading higher. Given weak economy and tighter monetary policy, based on the data we have today, we are clearly entering a period of #STAGFLATION imho.

9:23 AM – May 1, 2018

I suspect that opinion represents the majority view, but does it make any sense?

Let’s investigate with a series of charts.

Velocity of Money vs. CPI

Velocity of Money vs. CPI (Percent Change From Year Ago)

The above chart is particularly amusing. There are periods of correlation, inverse correlation, and periods of major random meanderings of velocity while the CPI does nothing at all.

Velocity vs GDP

Since 1998, the year-over-year trend in velocity has strongly correlated with the year-over-year trend in GDP. In the stagflationary 1970s Velocity and GDP were often inversely correlated.

Velocity “Magic”, Tax Receipts, and GDP

I have written about velocity several times previously. Please consider some snips from Velocity “Magic”, Tax Receipts, and GDP.

Velocity Magic

Austrian economist, Frank Shostak, took apart conventional wisdom years ago with his column Is Velocity Like Magic?

“The Mainstream View of Velocity

According to popular thinking, the idea of velocity is straightforward. It is held that over any interval of time, such as a year, a given amount of money can be used again and again to finance people’s purchases of goods and services. The money one person spends for goods and services at any given moment can be used later by the recipient of that money to purchase yet other goods and services.

…click on the above link to read the rest of the article…

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