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Culmination of Fed Interventions Inflates Historic "Everything Bubble"

via HistoryDaily

We reported on last year’s partial deflation of the “everything bubble,” aided in part by the COVID-19 pandemic and erratic response to it.

But it could be a bit premature to consider that partial crash a singular event, followed by another period of economic recovery.

In fact things seem a lot worse economically, and this time in the worst way possible. At The Hill, Desmond Lachman describes how the U.S. may have reached the end of the economic road:

Herb Stein famously said that if something cannot go on forever it will stop. He might very well have been talking about today’s everything bubble in U.S. and world financial markets, which has largely been fueled by the Federal Reserve’s extraordinarily easy monetary policy.

The “everything bubble” Lachman refers to is easy to see in the current Shiller Price Earnings Ratio. It’s higher than the 1929 Depression, and on a trajectory towards “dot-com bust” levels from 2000. You can see for yourself on the latest Shiller PE chart below:

Everything Bubble: Shiller Price Earnings Ratio Chart

Schiller PE measures the price to average earnings from the past ten years. Today, on average, an investor pays $34.87 to secure $1 annual earnings.

Both of the past economic peaks, the Great Depression and the Dot-com crash, were “everything bubbles”. Today’s Shiller PE ratio has already surpassed Black Tuesday‘s…

You’ve seen charts before – why care about this one? A few reasons: its inventor, Robert J. Shiller, won the 2013 Nobel Prize for economics (and a bucket of other prizes). He’s been on the list of 100 most influential economists in the world since 2008. His book Irrational Exuberance came out in March 2000, warning that the stock market was in a bubble. (He was right.) Almost exactly one year before Lehman Brothers collapsed, Shiller authored a prescient warning – here’s the summary:

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

Yellen Challenges Powell’s Unlimited Control of the Markets

February 21, 2021

Yellen Challenges Powell’s Unlimited Control of the Markets

Yellen Challenges Powell's Unlimited Control of the Markets

Source: Federal Reserve

The Fed attempts to maintain control of various rates (including inflation, unemployment and long-term interest rates) through its monetary policy decisions. In the past, poor choices arguably led to both the dot-com bubble and the Great Recession. But that’s old news.

Today, Fed Chairman Jerome Powell is trying to get the U.S. economy moving. A combination of near-zero interest rates and “quantitative easing,” which means buying bonds directly. Both these interventions increase the amount of money in circulation. Ultimately, this would lead to inflation, as you’d expect.

And of course, inflation is closely tied to market rates. In response to the pandemic, the Fed rate policy that Powell currently advocates is keeping money market rates close to zero for an extended period of time. The Fed also seem to intervene quite a bit, attempting to maintain tight control on those rates.

Powell has to balance economic recovery and employment against market bubbles and excessive inflation. That’s a lot of balls in the air… What if one drops?

Unleashing a “tsunami” of cash

Enter Treasury Secretary Janet Yellen, who just threw a big monkey wrench in Powell’s plans to maintain any semblance of tight control over rates. What did she say? As Newsmax reported:

Already low short-term interest rates are set to sink further, potentially below zero, after the Treasury announced plans earlier this month to reduce the stockpile of cash it amassed at the Fed over the last year to fight the pandemic and the deep recession it caused.

That sounds sensible, right? There’s just one problem: the Treasury is planning to “unleash what Credit Suisse Group AG analyst Zoltan Pozsar calls a ‘tsunami’ of reserves into the financial system and on to the Fed’s balance sheet.”

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

U.S. Mint Rations Bullion Coins – Why Aren’t Prices Rising, Too?

February 17, 2021

U.S. Mint Rations Bullion Coins – Why Aren’t Prices Rising, Too?

U.S. Mint Rations Bullion Coins – Why Aren't Prices Rising, Too?

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: The disconnect between gold and silver bullion demand and price, we could be months away from $50 silver, and trove of antique Roman silver coins unearthed in Turkey.

Why bullion prices don’t seem to be in line with demand

Despite record demand for gold and silver bullion coins month after month, the prices of both metals continue to linger within limited ranges. Gold even pulled back to just above $1,800 during Friday’s trading session. So what’s going on? Why isn’t the clearly-demonstrated demand driving prices higher?

U.S. Mint director Ed Moy, whose tenure stretched from 2006 to 2011, recognizes today’s situation and draws many parallels to the start of 2008:

The last time demand was this high was during the [2008-2009] financial crisis. People were panicking and buying into gold, and prices were shooting up. Then the government started injecting both fiscal and monetary stimulus, and you saw gold correct down maybe 20-30%. And then, over the next three years, gold began to climb until it set a new record of $1,925 in 2011. Afterward, gold didn’t decline until it became clear that the economic recovery was going to be slow, which eliminated the uncertainty. The Fed also had the time to mop up all the excess liquidity before it caused inflation.

The former director explained that, besides overloaded mints and supply chain disruptions, there are several other factors that could play an interesting role in shaping up gold’s price over the coming months and years. Moy believes that perhaps the biggest reason for the disconnection between price and demand lies in Wall Street’s shorting of the metals.

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

The Foundation for Potential Price Hyperinflation is Being Laid

February 13, 2021

The Foundation for Potential Price Hyperinflation is Being Laid

The Federal Reserve sure seems to have a tough time finding and reporting signs of rising inflation — especially when it’s hidden in other sectors like a lack of demand for energy.

A recent example of the Fed’s “inflation blindness” comes from a speech Chairman Jerome Powell gave to the Economic Club of New York. According to a MarketWatch piece that reported on that speech:

Powell said he doesn’t expect “a large nor sustained” increase in inflation right now. Price rises from the “burst of spending” as the economy reopens are not likely to be sustained.

It’s odd that Powell would say he doesn’t expect a sustained increase in inflation, because food price inflation has consistently run 3.5 to 4.5 percent since April last year. That sure seems like a sustained increase in food prices.

What Powell seems to have “forgotten” is that some of the overall inflation includes negative energy price inflation (as low as negative 9 percent at one point). But now that the demand for fuel is returning, the official gasoline index rose 7.4 percent in January.

It will be much more challenging for Powell to keep downplaying the risk of hyperinflation once energy price inflation rises back to “pre-pandemic” levels.

In fact, Robert Wenzel thinks the main inflation event is “just about to hit.” If it does, and inflation does rise past Powell’s two percent target, it isn’t likely to stop there. Jim Rickards thinks that’s when hyperinflation can gain momentum:

If inflation does hit 3%, it is more likely to go to 6% or higher, rather than back down to 2%. The process will feed on itself and be difficult to stop. Sadly, there are no Volckers or Reagans on the horizon today. There are only weak political leaders and misguided central bankers.

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

Fed’s Near-Zero Rates Might Sound Good (Until This Happens)

February 12, 2021

Fed’s Near-Zero Rates Might Sound Good (Until This Happens)

Fed's Near-Zero Rates Might Sound Good, But...

In some cases, the idea of a “near-zero interest rate” is a good thing. For example, if you qualify for 0% interest when you buy a car, you save money.

But it’s much different when your retirement savings depends on getting a return on investment (ROI). In that case, near-zero interest rates can put pensions and other retirement accounts in serious jeopardy.

The Fed dropped interest rates to 0-0.25% starting last September. And according to the Wharton School of the University of Pennsylvania, those near-zero rates could stick around for a while:

Expects to hold interest rates near zero at least until 2023 because of the pandemic. That spells lower returns for retirement accounts, and it adds to the underfunding of pensions that has worried retirees for many years now.

“Low returns from the market are essentially a tax on retirees,” said Olivia Mitchell, Wharton professor of business economics and public policy.

Then there are real interest rates, which are measured by the difference between 10-year treasuries and Fed inflation expectations. We figure this out by comparing the yields on Treasury inflation protected securities (TIPS) to 10-year Treasury yields. Here’s a comparison of real interest rates (2000-present) from the official Cleveland Fed chart:

Ten-year TIPS yields vs real yields

You can see that since 2012, the real rate has struggled to get to 1%, and recently dipped into the negative.

Low rates mean low returns

According to an op-ed on MarketWatch, the drop in real interest rates isn’t a good thing:

This persistently low-rate environment means workers will have to contribute significantly more to their 401(k), or invest in riskier assets, than they did at the turn of the century.

Many of the assets retirement savers have relied on for decades, including Treasury bonds, CDs, annuities, money market accounts, even the humble savings account, cannot preserve your purchasing power any more.

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

interest rates, fed, us federal reserve, central banks, birch gold group, inflation

U.S. Mint Sold Out of Gold & Silver Coins

February 10, 2021

U.S. Mint Sold Out of Gold & Silver Coins

U.S. Mint sold out of gold and silver coins

REUTERS/Shannon Stapleton

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: U.S. Mint can’t keep pace with demand again, Goldman chief calls silver a supercharged version of gold, and amateur prospector unearths a long-lost golden treasure from Medieval times.

U.S. Mint runs out of gold and silver coins

Just when we’d hoped the U.S. Mint might’ve worked its way through the pandemic-driven backlog of gold and silver coins, a new surge in demand worsened supply shortages. Last year, the U.S. Mint saw a 258% increase in purchase of gold coins and a 28% increase in silver coins, with heavy buying continuing into 2021. They probably didn’t plan for what happened next…

On the heels of Reddit’s wallstreetbets triumphant (if brief) GameStop frenzy, the day traders searched for a new target. Some have settled on silver. Amid claims that silver’s price should be closer to $1,000 than $25, day traders have flocked to both gold and silver. This made the ongoing supply crunch even worse.

While silver’s price is still trading around $27, the supply dynamics tell a different tale. The U.S. Mint sold 220,500 American Eagle gold bullion coins in January 2021, a staggering 290% year-on-year increase from last January. It’s not just unexpected demand that’s causing problems, though.

As noted by a retailer of precious metals coins, “There was going to be a backlog in the silver bullion supply chain that rendered silver eagles more scarce either way.” This is because the U.S. Mint is currently changing designs for its American Eagle gold and silver coins, expected to debut this summer. Once available, the U.S. Mint will ration distribution of gold, silver and platinum coins to dealers due to heavy demand.

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

How to Protect Your Local Economy From the Great Reset

February 6, 2021

How to Protect Your Local Economy From the Great Reset

Over the years, I have written extensively about the concept of economic “decentralization” and localization, but I think these ideas are difficult for some people to visualize without proper motivation. By that I mean, it’s not enough that the current centralized model is destructive and corrupt; it has to start breaking down or show its true totalitarian colors before anyone will do anything to protect themselves.

Sadly, the majority of people tend to take action only when they have hit rock bottom.

In recent months the pandemic lockdown situation has provided a sufficient wake up call to many conservatives and moderates. We have seen the financial effects of pandemic restrictions in blue states, with hundreds of thousands of small businesses closing, tax revenues imploding and millions of people relocating to red states just to escape the oppressive environment.

Luckily, conservative regions have been smart enough to prevent self destruction by staying mostly open. In fact, red states have been vastly outperforming blue states in terms of economic recovery exactly because they refuse to submit to medical tyranny.

I outlined this dynamic in detail recently in my article Blue State Economies Will Soon Crumble – But Will They Take Red States With Them?

The data is undeniable: the states and cities that enforce lockdown mandates are dying, the states that ignore mandates are surviving. However, with a Biden presidency there is a high probability that the federal government will now seek to force compliance from all states. In other words, lockdowns will become a national issue rather than a state issue.

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

The U.S. Dollar Could Be Nearing Its “End Game”

February 6, 2021

The U.S. Dollar Could Be Nearing Its “End Game”

From foreign countries trying to dethrone the dollar’s hegemony as global reserve currency, all the way to rising inflation weakening it… the U.S. dollar is in trouble.

Pundits like Jim Rickards said (back in 2016): “The dollar won’t lose its reserve currency status overnight” — and he was right. But a new and disturbing signal could finally be revealing the end game.

You can see the dollar’s loss of about 10% value against other currencies and its persistent downward trend since March 2020 reflected in the dollar index chart below:

dollar index chart from March 2020-February 2021

To get an even better idea of that persistent downward trend, we need to look all the way back to 2002, when the dollar index (DXY) peaked around 117. Not only is today’s dollar worth 10% less than last year’s – it’s 25% weaker than in 2002.

In fact, one forecast reported on Bloomberg in June 2020 called for a 35% decline in value by the end of 2021, which would leave the dollar index at 65. If that plays out, the index would be reporting its lowest value in at least 35 years.

In addition, a new Bloomberg report gave three reasons why the “dollar is now trading at the lowest level against its peers since 2018”:

1) Sharp widening in the U.S. current-account [trade] deficit.
2) Rise of the euro.
3) A Federal Reserve that would do little in response to any weakness in the greenback.

There is no doubt the trade deficit is a problem. According to the Bureau of Economic Analysis, the gap between imports and exports is at its widest since 2006. That won’t help the dollar recover.

The Fed’s inflation policy isn’t likely to help the dollar much because it “printed” itself into a corner with its loose monetary policy. The same Bloomberg piece further clarifies the Fed’s inflation strategy:

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

This Potentially Catastrophic Inflation Surge Slipped Under the Radar (Until Now)

January 30, 2021

This Potentially Catastrophic Inflation Surge Slipped Under the Radar (Until Now)

FAO Food Price Index hits a three-year high in 2020, following additional gains in December

The FAO Food Price Index (FFPI) averaged 107.5 points in December 2020, up 2.3 points (2.2 percent) from November, marking the seventh month of consecutive increase.

You’ve read about housing market bubbles, stock bubbles, and even credit bubbles. But the next bubble you’re about to discover could be even more dangerous, and may have even more far-reaching consequences.

It’s called a food price bubble, and it’s been inflating under our noses since March 2020. You can also see the dangerous trajectory it’s on compared to three previous years in the FAO chart.

The official January 7, 2021 release from the Food and Agriculture Organization explains the chart above in more detail.

And according to a Business Insider piece, grain has risen in price 50% over the last six months while other commodities like industrial metals are starting to drop in price.

In fact, according to an official source, food price inflation has risen each month by at least 3.5% (year over year) since April 2020 both at home and away from home.

And December didn’t show any signs of that trend letting up, with a price increase of 3.9% over December 2019. Keep in mind, we’re talking about food here. Technically this price surge isn’t a bubble ‑ it’s inflation.

This is exactly what we expect to see when the Fed’s loose-money policies support bubbles in the housing, stock and credit markets. An excess of currency chasing a fixed supply of paper assets inflates prices, which isn’t a big problem as long as the feeding frenzy stays contained in the paper asset markets. So long as amateur day-traders stick to playing stock-market roulette with the likes of Tesla and GameStop, the day-to-day world can go about business as usual.

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

StoneX: Gold to “Maintain High Prices” on Inflation, Slow Recovery, Low Yields

January 26, 2021

StoneX: Gold to “Maintain High Prices” on Inflation, Slow Recovery, Low Yields

Reuters/Michael Dalder © Reuters

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: StoneX’s bullish outlook for gold in 2021, low interest rates to support gold for years to come, and a rare gold coin fetches $9.36 million at Texas auction.

StoneX: Expect gold to trend up for at least another six months

In their outlook for 2021, commodities and foreign exchange trader StoneX said that gold should continue trending upwards throughout the first half of 2021 on the back of numerous powerful drivers. These include economic risks and uncertainty as well as geopolitical turmoil, both domestic and international.

As the firm noted, last year saw precious metals emerge as the best-performing commodity group with a 27% rise year-on-year. Silver and gold supported each other’s prices as investors looked for a hedge amid conditions that seem to have very much poured over into the new year. In particular, StoneX sees additional stimulus by global central banks and the accompanying rise in inflation expectations as prominent vehicles for an extension of the bull run.

“The United States, the European Central Bank, and the Bank of Japan have all been active with combined asset growth of over $7 trillion last year. With Congress’ approval of a $900 billion virus relief package in the United States (tied to the $1.3 trillion government funding program) there is more liquidity coming; Europe may follow suit, while Japan is looking to extend support for the corporate sector,” explained the firm.

More than inflation on its own, StoneX noted that its effect on real rates will continue driving money managers to utilize gold as a hedge, especially due to the threat of a stock market correction…

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

Interest Rate Tremors May Spell Disaster for the Dollar

January 18, 2021

Interest Rate Tremors May Spell Disaster for the Dollar

Banksy

As the U.S. plunges further into debt beyond a staggering $27 trillion, the dollar’s time is running out. But the problem is much deeper than that.

With inflation on the rise, and long-term bond yields rising in concert with massive debt, some disturbing scenarios could develop that spell trouble for the dollar.

The most disturbing possibility on the horizon could develop in the huge bond market (about $500 trillion in size). According to the January 14 issue of One Last Thing by Three Founders Publishing, if it were to collapse, the result would be catastrophic:

“If Treasuries begin to collapse, forcing yields through the roof, it will result in crashes in stocks, real estate, corporate bonds, and municipal bonds all at the same time.”

So let’s take a closer look at what’s happening, which could bring the possibility of a Treasury market collapse or other troubling financial realities closer to the near-term.

Starting with the U.S. Dollar

The value of the U.S. dollar rose 0.55% on Monday, January 11, and that was enough for Barron’s to trumpet, “The Dollar Is Rising.”

That’s a misleading headline. The dollar’s gain vanished quickly. Furthermore, the dollar’s value has remained fairly steady since 2015. In fact, the dollar has yet to come near its most recent peak in 2002.

Barron’s explained the fall of the dollar from March until the recent uptick:

The dollar has fallen by double-digit percentages since March because economic growth is expected to rebound faster globally than in the U.S. this year, while the Federal Reserve has slashed short-term interest rates to near zero. That has reduced the appeal of dollar-denominated debt, limiting overseas investors’ need to buy greenbacks.

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

Bloomberg Analysts: “Gold the Asset to Beat in 2021”

January 12, 2021

Bloomberg Analysts: “Gold the Asset to Beat in 2021”

Bloomberg: Gold to outperform S&P 500 & Bonds in 2021

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold to spearhead precious metals’ outperformance in 2021, why 2020 was a very good year for national mints, and birdwatcher unearths biggest-ever hoard of Celtic gold in Britain.

Bloomberg analysts: A $2,000 price tag will make gold the asset to beat in 2021

Among traditional assets, it would be difficult to beat gold for the title of top performer in 2020. Having hit a new all-time high of $2,070 in August, the metal has traded around its previous all-time high of $1,911 ever since. And though gold has appeared somewhat rangebound over the previous months, Bloomberg Intelligence senior commodity strategist Mike McGlone sees this as a stepping stone on the way towards an even better year.

According to McGlone, the $2,000 level that gold appears to have had difficulty recapturing is poised to become the metal’s next support, making it the asset to beat once again. “In an investment landscape increasingly dominated by how low — or negative — central banks will set base rates, along with rising debt-to-GDP and QE, we see the foundation solidifying under the price of gold. Resistance at about $2,000 an ounce in 2020 is set to transition to support in 2021,” he explained.

McGlone added rising volatility to the list of reasons why he can’t imagine gold’s price rise stopping, especially as the metal has held steadfast to its upwards-pointing 12-month moving average. In what has by now become a common scenario, McGlone expects gold to continue outperforming the record-setting S&P 500 along with sovereign bonds.

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

Democrat Control of Washington Could Trigger Four Years of Surging Inflation

January 9, 2021

Democrat Control of Washington Could Trigger Four Years of Surging Inflation

Doug Mills/The New York Times

At the beginning of the first term of a newly elected POTUS, the first 100 days set the tone for what that administration wants to accomplish.

Joe Biden’s election has been certified by Vice President Mike Pence, so his first 100 days will begin on January 20. The new administration’s economic agenda has priorities that could differ from yours.

But that’s not all.

As the New Republic points out, a newly elected 50-50 Senate “dramatically changes the power realities awaiting Joe Biden on January 20.” Because the new Vice President Kamala Harris will represent the Senate “tie-breaker” vote. Meanwhile, Mitch McConnell will become the minority leader. That means McConnell wouldn’t be able to obstruct proposed legislation as he has been able to do in the past.

So those first 100 days that set the tone for the administration, what might they look like? According to historian Donald Critchlow, this, among other things:

Raising taxes; the Green New Deal; expansion of ObamaCare as the first step toward nationalized healthcare; a massive stimulus bill; immigration reform with border security in name only; and appeasement with China.

Critchlow added ominously, “The first 100 Days of the Biden administration might very well go down in the history books as the ‘100 Days of No Return.’”

Then there is the potential for an even more alarming shift in the balance of power, according to Newsmax:

Capitol Hill observers generally agree that one of the first pursuits of a Democrat-controlled Senate would be admission of statehood for both the District of Columbia and Puerto Rico — a move that would guarantee both two senators and a Democrat Senate majority for years to come.

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

Poll Data: Silver Stackers and Solar Panels to Push Silver Higher

January 5, 2021

Poll Data: Silver Stackers and Solar Panels to Push Silver Higher

Stackers, Solar to Push Silver Higher in 2021

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Silver to emerge as top commodity in 2021, gold and oil to create a boom in raw materials, and 5 reasons why gold is an essential part of any portfolio.

Silver will be the best performer in a bullish precious metals market

Much has been said about silver’s outperformance last year, and indeed, what should be an even better year ahead. After climbing to a seven-year high, forecasters have repeatedly stated that there’s plenty of room for silver to shoot up to $50 this year.

Kitco’s 2021 Outlook survey, which polled 1,015 investors, came back with sentiment that was very much in line with previous forecasts. Main Street investors and analysts are bullish on all precious metals, and expect silver to outperform its peers due to a combination of demand from the manufacturing sector as well as investor demand.

The rise in inflation expectations pushed gold to a new all-time high of $2,070 in August, and many participants see plenty of similar action for the yellow metal this year. However, a 56% majority of respondents listed silver as their top choice due to a push for green energy. Today’s solar panels each require 1/3 oz. of silver each, on average, so when interest in renewable energy booms, silver prices tend to follow suit. In fact, some studies suggest that silver supplies might constrain large-scale conversion to solar power, and when supplies tighten, prices rise.

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

The Year Ahead: U.S. Faces Uncertain Economic Future

December 31, 2020

The Year Ahead: U.S. Faces Uncertain Economic Future

You’re standing in the back yard, filling up a wading pool for the kids with a garden hose. If you turn the hose off, the pool stops filling. Allow enough time, and the sun evaporates the water. Over the course of the summer, the water slowly dries up, leaving you with an empty pool and unhappy children – unless you turn the hose back on.

Starting in late February, governors across the U.S. turned off (or severely restricted) their economies to try and mitigate the spread of COVID-19.

They first felt the consequences in March, and the negative ripple effects are likely to continue well into 2021. The virus is still circulating at high levels despite 10 months of lockdowns and travel restrictions (some of which are still in place).

As we enter 2021, the deeper economic impacts are starting to become increasingly apparent. Even the more optimistic economic forecasts don’t look that great.

2021: Misplaced Optimism?

When the bar for economic improvement is just “do better than 2020,” it isn’t hard to beat expectations. “We see really strong growth potentially starting in the second quarter,” says Barclays economist Jonathan Millar. “It’s a pretty strong year.”

That optimism seems misplaced once you factor in the rest of this outlook:

That doesn’t mean the economy will be back to normal. The pandemic is leaving a legacy of millions of jobless Americans and thousands of shuttered businesses that will take years to reverse.

According to Federal Reserve Chairman Jerome Powell, we’re lucky because 2021’s predicted unemployment rate fell from 5.5% to a mere 5%. That’s not much better than the current unemployment rate of 6.7%, and considerably worse than the pre-pandemic 3.8% unemployed in January 2020.

While that’s good news, it won’t offer much comfort to the millions of people who have already been out of work for much of 2020.

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

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