Equity markets are very anxious. They swing based on the news after the market close, and gap up or down based on news released before the open. It’s insanity. It’s chaos. And this is the joy ride period. It will get much worse. Traders and hedge funds are frantically trying to get in and out on whatever platform they are trading on. Stocks and cryptos are attracting all the “hot” money. Amazon, Facebook, and Apple have warned that revenue growth rates are going to decelerate in the coming quarters. Scott Minerd, Guggenheim Global CEO, said he thinks
things couldn’t be better for stocks than they are now. Stocks are expensive and it may be time to sell some stocks. How do I feel about it? I think it’s a casino with a herd mentality. It feels like addicts that need their daily rush or fix. I feel many are trading stocks and investing and have no idea what they are doing. I feel that not every investor should speculate with 100% of their nest egg. I feel a portion of that nest egg should be something that will hold your purchasing power and appreciate over time. A tangible asset that will be there when you need it. Something that you own, put it aside and, leave it there. Oh wait, there is one that does that, physical gold. By the way, after the latest Fed comments, investors moved more assets into gold pushing prices near recent weekly highs.
Fed says no change in tapering
Since September 2019, the Fed has been buying monthly $80 billion in Treasury securities and $40 billion in Mortgage-Backed Securities (MBS) to add to its pile, plus it is also buying Treasury securities and MBS to replace those that have matured and come off its balance sheet, plus it’s buying MBS to replace pass-through principal payments of the MBS it is holding. Therefore, according to wolfstreet.com,
the monthly intervention in the bond market is closer to $200 billion than $120 billion a month. The economy is supposedly roaring back but the Fed still can’t stop this buying every month. Is the liquidity of these markets so dependent on the Fed? This terrifies me. After the latest Fed comments that tapering still isn’t changing now after almost two years, it’s no surprise that investors moved more assets into physical gold.
Near-zero rates means more assets into gold
Raising rates is not on our radar screen right now. Fed Jerome Powell maintains that risks to the economy remain, especially since Covid cases are increasing again. The Fed controls the short end of the Treasury market through its policy interest rates, and it manipulates the long-term bond markets with its bond purchases. QE is designed to push down long-term interest rates, and there has been $4 trillion in QE over the past 16 months in the US alone, and it has been pushing down interest rates just fine. Remember the whole world is printing. Global debt has moved from $80 trillion in 2000, $120 trillion in 2006, and close to $300 trillion in 2021. Governments must pay interest on all this debt. Higher interest rates mean higher bills. The bills are already unsustainable. Accommodative interest rates and the ongoing debt dilemma have caused investors to move more assets into gold.
Inflation is higher than expected, but it’s transitory
The inflation narrative with the Fed is getting comical. There is no way that prices are suddenly just going to be lowered back down. Powell said this himself. Maybe the rate of change of inflation would decrease. This means in English that prices will remain high, and the future increase will possibly be at a lower rate. As Wolf Richter stated recently,
“As push came to shove toward the end of the FOMC press conference on Wednesday, Fed Chair Jerome Powell, fidgeting on the hot seat of inflation and struggling with “transitory” and “temporary,” admitted that the recent rate of inflation was “not moderately above” the Fed’s inflation target but “way above target.” Today, the inflation measure that the Fed uses for this inflation target, annual “core PCE,” spiked further.”
Any rational investor knows where inflation is headed, and these investors moved more assets into gold.
Let’s briefly go through our last three Fed chairs. Ben Bernanke from 2006 to 2014, Janet Yellen from 2014 to 2018, and Jerome Powell from 2018 to today have led the Fed. They are all the best at keeping interest rates low and printing unlimited money. This is a necessary function of the Fed chairperson in today’s market. It’s the only two functions necessary besides eating and sleeping. When the interest rate environment changes and when the dollar is devalued by so much because of unlimited printing, it’s game over for stocks, real estate, and bonds. It’s a complete implosion of the global financial system as we know it. Those who don’t prepare now risk losing it all. The debasement of our money as a store of value. Those who don’t want to lose it all during the next financial crisis are moving more assets into gold now. The fiat currency in your wallet, bank account, 401(k), or IRA can only trend further lower over time.