Today James Turk issued a U.S. dollar hyperinflation warning. Turk warned that the Fed is going to “monetize everything in sight.”
James Turk: “There is a very important change taking place in the stock market, Eric. While subtle and little noticed so far, this change is starting to stick out like a sore thumb and can no longer be ignored…
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Although the Dow Jones Industrials and other major indices are making new highs, the banking sector is glaringly underperforming. This divergence is clear from the following chart showing the NYSE Composite Index of all stocks on that exchange compared to the sub-sector of companies involved in banking and finance, the NYSE Financial Index.
I’ve put these two indices at the same starting point ten years ago. The comparison presented at the bottom of the chart shows that the NYSE Financial Index is underperforming the overall NYSE Composite by -57.5%.
So this bull run into record highs for the Dow and other averages has done little for financial stocks. The NYSE Financial Index is still below its dead-cat-bounce recovery high that ended in 2015. In fact, is still about 35% below its record high reached in 2007.
Also, note that the NYSE Composite Index has not made a new high, so even it is diverging from the Dow Jones Industrials. The important point here is to distinguish between those stock groups that are moving higher from those sectors that are lagging.
Shares of companies owning real assets – like commodity producers – are glaringly diverging from shares of companies owning financial assets – like banks.
Dire U.S. Dollar Warning
The reason this is important Eric, is that this divergence is an early warning sign that the dollar is headed toward hyperinflation. When you look at countries where the currency has hyperinflated – like Zimbabwe or more recently, Venezuela – their stock markets showed this same divergence we are now seeing on the NYSE.
The conclusion is obvious. Avoid shares of companies who assets consist of financial assets in the hyperinflating currency, and instead own shares of companies with a lot of tangible assets.
I have been forecasting hyperinflation of the US dollar for some time because there are just too many new dollars being created by the Federal Reserve. So it has been my expectation that the US dollar will be destroyed in a hyperinflationary blow-off, but it hasn’t happened – yet.
Timing is always problematical and impossible to predict. So I have been focusing more on the outcome and road signs along the way that we are indeed headed to the destruction of the dollar’s purchasing power.
Fed Delaying Day Of Reckoning
So far the Fed has been able to delay the inevitable day of reckoning with their various interventions. The manipulation of the gold price is an obvious one because a low gold price impairs the signal that a rising gold price would convey, just like the rising gold price in the 1970s was clear evidence that inflation back then was building.
Other maneuvers by the Fed and their cohorts in Washington to distort the truth about what is happening to the dollar and the economy are the manipulated data released in various economic reports, like the employment number which is supposed to be painting a bright picture of the US labor force.
Higher Interest Rates Will Collapse The U.S.
But the biggest factor that has delayed the inevitable hyperinflation is the Fed’s intervention to keep interest rates near zero. With the Federal government’s debt level now approaching $20 trillion, a 1% increase in its borrowing cost would add $200 billion to its already gargantuan annual deficits.
So a 5% increase to bring interest rates back closer to normal levels would increase the federal deficit by $1 trillion, but compare this amount to the $3.2 trillion the government receives in revenue. The government would not likely cut back spending in other areas to keep its deficit from exploding.
Therefore, a 5% increase in borrowing costs would cause the the annual deficit to jump by $1 trillion, which in turn would increase the federal debt, then causing a higher annual interest expense bill. Even bigger deficits and more borrowing would consequently follow. Like a snowball rolling downhill, this debt accumulation rapidly leads to more money printing and inevitable hyperinflation.
Fed To “Monetize Everything In Sight”
Finally, another piece of evidence that the Federal Reserve is heading for a train wreck is this statement from Fed Chair Yellen on Friday: “Policymakers may wish to explore the possibility of purchasing a broader range of assets.” They are planning to monetize everything in sight, rather than admit that their policies have failed and they are destroying the dollar.”
***KWN has now released the extraordinary audio interview with 50-year veteran John Embry, where he discusses the big picture in the gold and silver markets, the coming global financial carnage and much more, CLICK HERE OR ON THE IMAGE BELOW.
***Also just released: John Embry – Powers That Be Desperately Trying To Keep Confidence Alive In Failing Fiat System CLICK HERE.
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