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In the US, the monetary & fiscal stimulus spigots are turning off as the Fed threatens to start tapering in November and Congress devolves into gridlock over both the next stimulus package as well as the debt ceiling.

The US currently spends 111% of its tax receipts on the true cost of servicing its debt & the Fed is now chained to printing up the difference. This is a no-win situation.

Outside the US, longstanding stable political regimes like Angela Merkel’s party in Germany are voted out of control. And Asia, particularly China, is experiencing a pronounced economic slowdown, exacerbated by failures like the Evergrande crisis.

Add to that rising energy costs, natural gas & petrol shortages, and electrical power rationing across the globe, and the road ahead looks downright scary.

How will this turbulence resolve? And how are markets likely to react?

To shoulder the challenge of making sense of this all, I’m thrilled to welcome Luke Gromen back onto the program.

Luke Gromen is founder of the highly-respect macro/thematic research firm Forest for the Trees.

Peter Schiff: Government Serves Grade-A B.S. on Inflation

October 5, 2021

Peter Schiff: Government Serves Grade-A B.S. on Inflation

OCTOBER 5, 2021 BY SCHIFFGOLD 0 0

Both the Federal Reserve and the Biden administration continue to insist inflation is transitory. And they are also trying to shift the blame for rising prices so they avoid any responsibility. In this clip from his podcast, Peter Schiff explains why the government inflation narrative is Grade-A B.S.!

The Fed has finally acknowledged that inflation is running hotter than they’d expected. During the September FOMC meeting, the central bank raised its forecast, anticipating core inflation to increase 3.7% this year. That compares with a 3% projection in June. But the Fed and US government officials insist that rising prices are simply a function of supply chain issues and that it will be “transitory.”

Meanwhile, they ignore the elephant in the room – the increasing money supply. The central bank created new money at a record pace in response to the economic chaos caused by government shutdowns for COVID-19. And while money creation has slowed in recent months, it continues at a very high pace. Last month, M2 grew at the fastest rate since February.

If inflation is always and everywhere a monetary phenomenon, and you have this record increase in money supply, and then you also have this big increase in consumer prices, how can you not bring up the possibility that all of this money printing is potentially responsible for prices going up?”

But the central bankers continue to focus solely on the supply chain.

Peter suggested the money printing could account for the supply chain problems.

Whenever there is a surplus of money, there is automatically a shortage of stuff, because the government can print money very easily…

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

With Stagflation Ahead, How Will Gold Respond?

October 5, 2021

With Stagflation Ahead, How Will Gold Respond?

How Will Gold Price Perform During Stagflation?

Photo by Zlaťáky.cz

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…

“Global Supply Chain Crisis To Last Until 2023,” Says Middle East’s Largest Port Operator

October 4, 2021

“Global Supply Chain Crisis To Last Until 2023,” Says Middle East’s Largest Port Operator

Global central bankers have been out and about continuing to promote a narrative that inflation is “transitory.” We’ve seen it from the likes of Powell, Lagarde, Bailey, and Kuroda. Logically, these monetary wonks are right, inflation caused by supply chain bottlenecks will resolve itself, but these officials have yet to provide a timeline because they don’t know.

For more insight on when global supply chain bottlenecks will subside, Dubai’s DP World, one of the biggest international port operators, Chairman and CEO Sultan Ahmed Bin Sulayem spoke with Bloomberg TV at the Dubai Expo 2020 on Friday and said disruptions could last for another two years.

“The global supply chain was in crisis at the beginning of the pandemic,” Bin Sulayem said. “Maybe in 2023 we’ll see an easing.”

For some context on DP World’s operations, it manages the Port of Jebel Ali, also known as Mina Jebel Ali, a deep port located in Jebel Ali, Dubai, United Arab Emirates. The port is the world’s ninth busiest port.

The world’s largest shipping line, A.P. Moller-Maersk, recently warned bottlenecks might last longer than expected, and some shippers have pledged to cap spot rates. DHL and UPS have also warned supply chain disorder will not only persist into next year but could leave a permanent scar.

Before global supply chains splinter further and lead to more shortages worldwide, the question is: How can supply-chain bottlenecks be resolved?

Since the crisis was created by surging demand putting strain on container capacity, suppliers, and logistics companies as they struggled to deliver goods…

“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

September 30, 2021

“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

Blames tangled-up supply chains but not what’s causing supply chains to get tangled up in the first place: The most grotesquely overstimulated economy ever.

Fed Chair Jerome Powell, during a panel discussion hosted by the ECB today, admitted again that inflation pressures would run into 2022 and blamed “bottlenecks and supply chain problems not getting better” and admitted they are “in fact at the margins apparently getting a little bit worse.”

“The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end,” he said.

OK, good, he almost gets it: “very strong demand” is causing this. But where the heck does this “very strong demand” come from?

Here’s where: The most grotesquely overstimulated economy ever.

The Fed has handed out $4.5 trillion to investors in 18 months, and repressed short-term interest rates to near 0%, and long-term interest rates (via the $120 billion a month in bond purchases) to ridiculously low levels, and this has inflated asset prices, including home prices, and beneficiaries are feeling rich and flush, and they’re going out and borrowing against their assets and buying $70,000 pickup trucks, electronic devices, yachts, second and third homes, and a million other things. That’s where much of the demand comes from.

The other part of the demand comes from the government, which spread $5 trillion in borrowed money around over the past 18 months – stimulus checks, forgivable PPP loans (over $800 billion), extra unemployment benefits, funds sent to states to spend how they see fit, to airlines and other big companies to bail them out, which then used this money to buy out their employees that then spent this money.

…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…

If the Fed Can’t Hit It’s Inflation Target, Why Not Just Move the Goalposts?

September 29, 2021

If the Fed Can’t Hit It’s Inflation Target, Why Not Just Move the Goalposts?

The Fed has an inflation problem.

The CPI is running well above the mythical 2% target and there isn’t any sign that it will ease soon. To deal with this problem, the central bank should tighten its monetary policy. But that would create a whole new problem, given that it can’t tighten in this economic environment. So, what is a central banker to do?

Well, if the Fed can’t hit the target, how about just moving the target?

That idea is apparently seriously being considered.

In a Wall Street Journal article, Greg Ip floated the idea.

One strategy [Powell]—or his successor—should consider in that eventuality is to simply raise the target.”

Ip buys into Keynesian economic voodoo and thinks straitjacketing the Fed with a 2% inflation target will hinder job creation.

Why would higher inflation ever be a good thing? Economic theory says modestly higher, stable inflation should mean fewer and less severe recessions, and less need for exotic tools such as central-bank bond buying, which may inflate asset bubbles. More practically, if inflation ends up closer to 3% than 2% next year, raising the target would relieve the Fed of jacking up interest rates to get inflation down, destroying jobs in the process.”

In a sense, the Fed has already raised the inflation target. Not so long ago, it was a hard 2% target. But the COVID-19 pandemic gave the Fed just the excuse it needed to move the inflation goalposts.

Jerome Powell announced the shift to “average inflation targeting” during his Jackson Hole speech in August 2020. In effect, the Fed will allow the CPI to run “moderately” over 2% “for some time” to balance out periods where it runs under that level.

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

Peter Schiff: Gold Will Explode; The Dollar Will Implode When the Markets Figure This Out

September 24, 2021

Peter Schiff: Gold Will Explode; The Dollar Will Implode When the Markets Figure This Out

Peter Schiff says gold will explode and the dollar will implode when the markets figure out the Fed is crying wolf when it comes to monetary tightening.

The Federal Reserve wrapped up another meeting without making any changes to its current extraordinary, loose, inflationary monetary policy. But the central bank did hint that it may start tapering its quantitative easing program “soon.”

That was enough for the markets. They continue to expect the Fed will tighten monetary policy and fight surging inflation. Gold sold off after the FOMC statement came out, dropping about $10.

The gold market has battled these headwinds for months. Every time the Fed hints at tightening, gold sells off. Every time inflation numbers come in hot, gold sells off. This doesn’t make sense. Why would investors sell an inflation hedge during an inflationary period? Because they honestly think the central bank can and will sweep in and successfully fight inflation.

But as we have said over and over again, the Fed cannot possibly tighten in this economic environment. In an interview on RT Boom Bust, Peter Schiff said even if the Fed does begin to taper, it will eventually reverse course and ultimately expand QE.

It knows the only foundation this bubble economy has is the Fed’s easy money policies. And I don’t think they have any actual plans to taper. And even if they just kind of feign the process by beginning it, they’ll never complete it because soon after they start the taper, again, if they even ever start, they’re going to have to reverse the process. Because ultimately, the Fed Fed is going to expand the QE program and start to buy a lot more government Treasuries and mortgage-backed securities in the future than it’s doing right now.”

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

“Quite Alarming” – UK Energy Crisis Sparks Fresh Chaos For Food Suppliers

September 21, 2021

“Quite Alarming” – UK Energy Crisis Sparks Fresh Chaos For Food Suppliers

Last week Fertilizer producer CF Industries Holdings Inc suspended operations at two UK plants because of soaring natural gas prices. As a result, these fertilizer plants that make carbon dioxide as a byproduct are in sudden shortages and are rippling through the UK food sector, according to Bloomberg.

The shortage of carbon dioxide has forced Online grocer Ocado Group Plc to halt all deliveries of frozen products to customers, and the meat industry warned slaughterhouse operations could “grind to a halt” in weeks.

The British Meat Processors Association warned carbon dioxide supplies could be exhausted by the end of the month, forcing slaughterhouses to close and result in a mass culling of animals.

Last Friday, Ocado halted deliveries of frozen food to customers because of the dry ice shortage.

“It’s quite alarming,” said Nick Allen, head of the meat association. “We’re talking between days and weeks from this really hitting hard, unless somewhere in the world — ideally here in Europe — there are supplies of this that can replace that amount of CO2 very quickly.”

The ripple effect continues as British Soft Drinks Association monitors the carbon dioxide situation as the industry could go flat.

Besides CF Industries, Norwegian fertilizer maker Yara said it would soon reduce ammonia output capacity by 40% because of record-high natural gas prices.

The broader impact could be soaring food and energy inflation across the UK, threatening the country’s post-pandemic economic recovery and financially strain consumers.

The Inflation Train Isn’t Anywhere Near Full Speed

September 20, 2021

The Inflation Train Isn’t Anywhere Near Full Speed

The Inflation Train Is Nowhere Near Full Speed

Public domain photo from National Park Service

Federal Reserve Chairman Powell and other members of the Fed have been using the term “transitory” to downplay the threat that the last 16 months of skyrocketing inflation would last.

But inflation has been sharply on the rise since March 2020, with only a minor pause toward the end of last year before rising even more sharply since January 2021. Two Fed officials dissented in June of this year, but Powell’s money-printing habit hasn’t slowed.

The “light at the end of the tunnel” for the Fed? A miniscule .1% (one tenth of one percent) down tick in the official monthly inflation report this August.

You can almost hear the relief in the Fed’s chatter… “See, we were right! It was only transitory inflation, and it’s already going down! There’s nothing to see here, move along, buy more stocks.”

Don’t crack open the champagne just yet.

Unfortunately for us, the Fed’s optimism seems misplaced. That 0.1% reduction in monthly official inflation leaves us with a 5.3% annual inflation rate, more than 2 1/2 times higher than the Fed’s official inflation target.

And if you think everyday folks have it rough, small businesses have taken a major hit:

Inflation for businesses reached a year-over-year rate of 8.3% — the metric’s highest level since at least 2010.

On top of that, consumers are waking up to the reality that inflation won’t be “transitory,” but instead will likely stick around for a few years.

That’s because once inflation begins to gain velocity, it’s hard to stop. Inflation has serious momentum, just like a train. A fully-loaded modern freight train weighs tens of thousands of tons and needs over a mile to make an emergency stop. A controlled, safe stop takes much longer.

That very momentum is what Jim Rickards was concerned about back in February:

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

What Comes After Mind-Blowing Free-Money Blow-Off Spike in Retail Sales? A Spike Doesn’t Spike Forever

September 19, 2021

What Comes After Mind-Blowing Free-Money Blow-Off Spike in Retail Sales? A Spike Doesn’t Spike Forever

Powered by price increases.

Total retail sales – not adjusted for inflation, now a big factor – inched up 0.7% in August from July, to $619 billion (seasonally adjusted), up a stunning 18% from two years ago and 15.1% from a year ago. The insert in the chart shows that this wasn’t a proper “rebound,” as it has been widely called in the media today, but an uptick in a four-month down-trend from the mind-blowing superlative historic free-money blow-off spike in April. August retail sales were down 1.6% from that April stimmie-craziness:

A spike doesn’t spike forever. But Americans are still making a heroic effort to spend the pile of free money they got … the last two stimmies totaling $2,000 per person, the $800 billion in forgivable PPP loans that just about everyone with a little or big business got, extra unemployment benefits, massive gains on asset prices, all of it fueled by the Fed’s $4-trillion money-printing binge and the government’s $5-trillion deficit-spending binge in 18 months, which created the most monstrously overstimulated economy and markets ever.

New & used auto dealers and parts stores: Sales dropped another 3.6% in August from July, to $121 billion (seasonally adjusted), fourth month in a row of large declines off the free-money spike in March and April.

There is plenty of demand, and prices have surged amid inventory shortages of used vehicles and historic inventory shortages of new vehicles. Customers face dealer lots that are nearly empty and out of popular models amid rotating shutdowns of assembly plants globally due to the semiconductor shortages.

But these $121 billion in sales in August were still up 10.7% from a year ago and 22.2% from two years ago, in dollar terms, thanks to massive price increases – 32% year-over-year for used vehicles and 7.6% for new vehicles, according to the Consumer Price Index.

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

The funny-money game

September 18, 2021

The funny-money game

The sense of general unease that I detect among those I meet and discuss economics and financial matters with is increasing —with good reason. Clearly, what everyone calls inflation, rising prices or more accurately currency debasement, will lead to higher interest rates, threatening markets which are unmistakably in bubble territory.

The consequences of rising prices and interest rates are still being badly underestimated.

In this article I get to the source of the inflation problem, which is the monetary debasement of the dollar and other major currencies. An important part of the problem is that mathematical economists have lost sight of what their beloved statistics represent —none more so than with GDP.

I explain why GDP is simply the total of accumulating currency and credit which is wrongly taken reflect economic progress – there being no such thing as economic growth. Once that point is grasped, the significance of this basic error becomes clear, and the fiat currency paradigm is revealed for what it is: a funny-money game that will go horribly wrong.

There is only one escape from it, and that is to own the one form of money that is no one’s counterparty risk; the one form of money that always comes to humanity’s rescue when fiat fails.

And that is gold. It is neglected by nearly everyone because it is the anti-bubble. The more that people believe in fiat-denominated assets, the less they believe in gold. That is until their funny-money games implode, inevitably triggered by sharply rising interest rates.
Introduction

Those of us with grey hairs gained in financial markets can, or should, recognise that after fifty years the funny-money game is ending. Accelerated money printing has led to what greenhorn commentators call inflation…
…click on the above link to read the rest of the article…

Facing Inflation Threat, German Investors Loading Up on Gold

September 3, 2021

Facing Inflation Threat, German Investors Loading Up on Gold

While most American investors have faith that the Federal Reserve can and will successfully tighten monetary policy to fight inflation — or have simply bought into the “transitory” inflation narrative — Germans are loading up on gold as a hedge against growing inflationary pressures.

Through the first half of the year, gold coin and gold bar demand in Germany hit the highest level since 2009 – the aftermath of the 2008 financial crisis. First-half demand for bar and coins in Germany increased by 35% from the previous six months, compared with a 20% increase in the rest of the world, according to World Gold Council data.

Raphael Scherer serves as the managing director at Philoro Edelmetalle GmbH. He told Bloomberg that gold sales for the company are up 25% on what was already a strong 2020.

We have a long history of inflation fear in our DNA. Now the inflation risk is picking up. The outlook for precious metals is very positive.”

Given Germany’s experience with hyperinflation under the Weimar Republic, it comes as no surprise that Germans are wary of inflation.

Gold investment took off in the country in the wake of the 2008 financial crisis and has been strong ever since. The global recession after the ’08 meltdown led to extremely loose monetary policy in Germany. The country has been in a negative interest rate environment for several years, and the Bundesbank has done billions in quantitative easing. Two and five-year government bonds have traded at negative yields since 2015.

The World Gold Council summarized why Germans tend to turn to gold when inflation looms.

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

Inflation, Covid, Central Banks and Politics – about half the things to really worry about…

August 24, 2021

Inflation, Covid, Central Banks and Politics – about half the things to really worry about…

As markets shake off their summer slumbers, what should we be worrying about? Lots..! From real vs transitory inflation arguments, the long-term economic consequences of Covid, the future for Central Banking unable to unravel its Gordian knot of monetary experimentation, and the prospects for rising political instability in the US and Europe.

“How many divisions does the Pope have?”

This morning: As markets shake off their summer slumbers, what should we be worrying about? Lots..! From real vs transitory inflation arguments, the long-term economic consequences of Covid, the future for Central Banking unable to unravel its Gordian knot of monetary experimentation, and the prospects for rising political instability in the US and Europe.

Same as, same as….

Not an Apology

I’ve been told I should apologise for yesterday’s Porridge. A reader unsubscribed because I don’t treat Tesla seriously. (Shock, horror.. somehow I shall live with the pain of rejection…) Another commented: “hating Tesla must be a very difficult way to make a living.” Sure. I agree – it is. In my private Jihad versus Elon Musk I have missed massive market upside… but then again, it’s not my job to pump up illusory market valuations. It’s to paint the picture as I see it, and caution foolish markets about their gullibility. I will continue to characterise Tesla as an unjustifiably overpriced automaker, pretending to be something else, run by a narcissistic show-boater.

Meanwhile…

What should we really be worrying about?……

China?
US Politics in the wake of the Afghan Skedaddle?
Overpriced Markets and Asset Bubbles?
The future of Tech and ESG?
Central Banks trapped by the consequences of their own monetary experimentation?
Boom or Bust post Covid Economies?
Inflation, Deflation or Stagflation?

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

Food Stamp Increase Means Higher Food Prices For All

August 19, 2021

Food Stamp Increase Means Higher Food Prices For All

With the stock market banging out new record highs each day and so many jobs available, it is odd the Biden Administration feels the need to boost the Supplemental Nutrition Assistance Program, or SNAP by 25 percent. This constitutes the largest single increase in the program’s history. This significant and permanent increase in benefits will be available indefinitely to all 42 million SNAP beneficiaries.The increase is projected to cost taxpayers an additional $20 billion per year. It coincides with the end of a 15 percent boost in SNAP benefits that was ordered as a “pandemic protection measure.” Agriculture Secretary Tom Vilsack said the change means the U.S. “will do a better job of providing healthy food for low-income families.” It will move the amount of the average monthly per-person benefits for qualified recipients from $121 to $157. Never think for a moment this is all about feeding the poor, it is also about pumping up the GDP and profits of many big companies.

Unfortunately, whenever the government increases its role in any sector of the economy history shows it generally has a profound effect on the prices charged to consumers. For proof, we only need to look at healthcare costs and college tuition. In this case, we should expect the same thing to occur to food prices. What does the big increase in the SNAP program mean to consumers both on this program and the rest of us? It means we should expect a big jump in prices in supermarkets across America.

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

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