EXTREMES IN MARKETS:
Amazon in Nov. 2008 $35. Today $1,861.
Microsoft in Feb. 2009 $13. Today $165.
Apple in Jan. 2009 $10. Today $318.
Palladium in Dec. 2008 $165. Today $2,316.
Silver in Oct. 2008 $9. April 2011 $48. Today $18.
Commodities are priced too low compared to the S&P.
What if commodity prices and the ratio rise for several years? Suppose…
a)
The ratio rises from 1 to 6,
b)
While the S&P drops 20%...
Then crude oil could sell for $260 instead of $55.
Silver could sell for $85 instead of $18.
Gold could sell for $7,500 instead of $1,570.
“You don’t have to be Garry Kasparov to figure out what happens next; stocks go down, long-term yields go up, and the Fed goes into overdrive to forestall what looks like a recession. It cuts short-term rates – a lot, possibly into negative territory – and the yield curve steepens dramatically.”
The inflation in paper assets will shift into commodities
. Prices for food, energy, metals, cement etc. will rise far higher, as they did during the stagflation of the 1970s. Resulting consumer price inflation will traumatize our economic world.
- Real consumer price inflation will jump higher.
- Higher crude oil and gasoline prices will create a recession.
- Paper profits will crash and burn. Gold and silver prices will spike upward.
- $trillions of unpayable debts will default.
- Central banks will “print” to save the wealth of the political and financial elite while proclaiming QE4ever is necessary to rescue the economy.
- Economic nonsense and fake money will fall back to earth from current delusional heights.
- The implosion and consolidation might not occur for several years. Perhaps it has already begun. The extreme ratios shown above, bubbles in stocks, bonds and real estate, political craziness, and long cycles suggest extreme risk.
Nonsense! Doom porn is counterproductive! Well, maybe. Let’s speculate.
Option One:
The boom will continue for many more years. (We want to believe this comforting delusion.)
a. Interest rates, “official” inflation and “official” unemployment remain low.
b. President Trump shouts that everything is great.
c. The Fed will inject QE as needed to keep interest rates low and the S&P high.
d. New currency units must find a home and the stock market is the “best game in town.” Dow 30,000 and 40,000 are coming…
e. It’s an election year! QE4ever will push the market higher.
Option Two:
The boom will implode. Watch out below.
a. Debt has risen faster than GDP for decades. Even with zero interest rates, debt service can become impossible as nominal debt skyrockets.
b.
Negative interest rates make no sense.
Central banks and governments are desperate, otherwise interest rates would be higher.
c. Bubbles always implode. Examples: Internet stocks in 2000, real estate and most stocks in 2008, maybe tech stocks in 2020.
d. Coronavirus could be the pin that pops the bubble. We’ll see.
e. QE4ever and repo madness may delay the crash, but they fix nothing. Those newly created QE4ever dollars are borrowed into existence and fed into corporate, individual and Treasury debt, which require debt service payments. Corporate profits are diverted to pay debt service. Government revenues are used to pay interest. A squeeze is coming.
f. The delusions and narratives change. The boom-bust cycle continues.
g. Interest rates
must
rise to contain the coming consumer price inflation. But higher interest rates will crush markets and the economy, so they
can’t
rise.
Solution: Find a scapegoat!
PALLADIUM – An Early Warning?
“As gold and silver investors, we await the day when a ‘run’ on these bullion banks exposes the lack of physical metal behind the system. The current price action in palladium suggests the possibility that this ‘run’ may have already begun.”
