From Wall Street to Main Street

I prerecorded Alasdair Macleod of Goldmoney for next week’s radio show. In that show he discusses the credit cycle and why the die is now cast for interest rates to rise and for banks to start selling Treasuries and making loans into the real economy.

But Alasdair isn’t talking only about a normal cyclical cycle. He’s talking about a major secular change in the global capital markets that is threatening in a very real way the dollar’s global hegemony. And with that, he is talking about the early signs of a possible hyperinflation, at least for the U.S. and western countries.

The idea of a secular decline in the global purchasing power of the dollar syncs very well with Michael Oliver’s structural/­momentum forecasts in his call this year for a bull market in commodities and precious metals and a bear market in bonds followed by stocks. And it is also in tune with Walter Williams’s view that America will very soon face a hyperinflationary event caused by a major decline in the global acceptance of the dollar.

Now, let me point once again to my Inflation/Deflation Watch and you can see that this measure of prices (stocks, bonds, commodities, and precious metals) has now broken out to a new high since the Watch was created on January 31, 2005. At this point, stocks are still rising, which is part of the reason for the breakout. But so too are commodity components of the Watch starting to rise in value. It’s going to be a fascinating thing to watch in 2018. The Fed wants rates to “normalize” at higher levels but as rates rise, banks lend into the real economy, which causes GDP to rise and prices counted in the CPI to also rise. What’s the Fed to do with rates rising at a time when an extremely leveraged economy cannot avoid a massive breakdown akin to or worse than the 2008-09 episode?

When push comes to shove is there any doubt but that the Fed will simply start printing massive amounts of money once again? Only this time, China won’t be there to stimulate the global economy this time because they along with Russia and a number of other countries are abandoning the dollar and trade with the West to set up their own non-dollar system. It seems clear to me that the U.S. is going to be in a world of hurt when no one is left to fund the American Empire other than the Fed’s printing presses. That’s the way I see it now, which is why once again I took on what has been a losing trade over the past few years. Once again I have allocated resources for a short against the S&P 500 as well as high yield debt in our Model Portfolio and already it has hurt the performance of this hypothetical portfolio, as you can see from above.