With stocks tumbling and bonds rallying, despite volatility expect higher gold, silver and and inflation, plus no sense of urgency and stimulus is failing.
No Sense Of Urgency
September 17 (King World News) – Peter Boockvar: Two more things post Powell presser. The Fed Chair said that three years of no rates hikes in their estimates, assuming all else equal, is essentially forward guidance and he expressed his view that this is a “powerful” stimulus. I’ll express again my belief that it is actually the exact opposite. The whole point of stimulus is to stimulate economic behavior to happen today instead of waiting until tomorrow. Telling us that rates will stay low seemingly forever creates NO sense of urgency to act now. Thus, it is an economic depressant instead. Just look at the experiments of the BoJ, ECB and the US under Bernanke and Yellen and the anemic growth rates seen under the same monetary thesis.
The 2nd thing was the last question, at 1:01.25 of the press conference, https://www.youtube.com/watch?v=jmjLFtvSvT8. Powell was basically asked how do you juggle the desire for higher inflation averaging 2% with Main Street that doesn’t want a higher cost of living. The answer from Powell wasn’t exactly clearly expressed but he essentially said that if we have inflation sustainably at 2%, that would imply a higher fed funds rate which then could be used to cut in any economic downturn. So, wanting 2% inflation is not what is good for the economy necessarily but what suits Fed policy and their tool box. The inconsistency with this goal with current policy is firstly, never cut rates to zero to begin with (what’s really the difference between zero and 1%) or below the rate of inflation and why wait until AFTER inflation is sustainably at 2% to start raising rates if you want higher rates to eventually cut in a downturn. Who called economics a ‘dismal science’ ? I believe it was Thomas Carlyle in the mid 1800’s.
NEXT 6-12 MONTHS: Expect Higher Gold, Silver And Inflation
I continue to expect higher inflation in the coming 6-12 months, off the tinder that has already been lit and seen in the data, due to capacity constraints combined with both monetary and fiscal policy where the former it financing the latter and which will keep the demand side elevated relative to where it would be otherwise. Throw a vaccine in there and the Fed will see the bond market tighten for them next year. Own stocks in energy, ag, industrial metals and gold/silver (own physical too), and the currencies such as the Canadian, Aussie $s and the Brazilian real.
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