June 12 Week in Review

On my radio show this past Tuesday, Michael Oliver said that his structure 

and momentum work is starting to paint a picture of major markets taking the shape of those of the stagflation 1970s. Gold led the way from around $133 at the close of 1976 to $850 in January 1980. It was the excitement of that bull market that caused me to launch this letter in October 1981 as a “hobby” while working as a bank credit analyst of a major foreign bank in NYC. It was the words of Payton Yoder, my history professor at Hesston College, that set me on a path to realize that gold was extremely important, but not so much for me to get rich. His observation that throughout history, when nations debased their currency by removing the honest value of gold from money, the nation’s work ethic declined, as did its general morality. Given my strong Christian upbringing, that always made a lot of sense to me because, in essence, governments try to get rid of honest money so they can counterfeit to cheat those who create wealth and also so they can siphon it off to buy votes and fund wars to gain power and lord it over their own citizens as well as foreigners. More than ever, as I observe the move toward the evils of socialism that is taking place now in America, I’m absolutely sure Dr. Yoder was right. Dr. Yoder didn’t live long enough to watch his observation of history repeat right here in America. But as one of his students, I am keenly aware of the connection. And as the chart above left shows, the demise of the dollar as measured in honest money—gold—is still very much in play as the next massive wave of a gold bull market is now getting underway. We shall see if Michael’s view that the beginning of a commodity bull market and inflation is in process. You can listen to Michael’s commentary and other segments of my show last week here: https://jaytaylormedia.com/audio/.

Also on my show last week, Alasdair Macleod talked about the evolving currency wars between China and the U.S. and how that is bound to play into massive money printing by the U.S. as accelerating deficits require more and more foreign investors to buy U.S. Treasuries. The trouble is most of the countries around the world have little appetite to increase their holdings of U.S. Treasuries, as they have more than their fill. Many countries simply have needs of their own for financial resources and simply can’t afford to fund America’s increasing socialism and warmongering economies. Japan comes to mind as a nation that needs its resources to fund its aging population. China on the other hand needs its financial resources to expand its own empire, including the massive trillions to be spent on the New Silk Road infrastructure. While Alasdair may not disagree with Michael’s views of an emerging stagflation like the late 1970s, he also draws comparisons to the 1930s, given tariff concerns and growing beggar-thy-neighbor currency devaluations. In either case the picture is extremely bullish for gold, which leads me to the chart above left and to suggest that with gold just now rising above $1,400, we are just at the beginning of a very long bull market that may be just as large in percentage terms and possibly larger than that of the 1970s and the 10-year run that ended in 2011. There is no way out of the mess central bankers have created by going off the gold standard in 1971 but a massive inflation, which is bound to lead to an inflationary depression.

Most investors project their most recent experiences into the future because that is what seems most real to them. So rather than expecting an inflationary period like the late 1970s, they anticipate price deflation as happened after the stock market crashes of 2000 and 2008-09. But keep in mind that we are in totally uncharted waters now with ZIRP and NIRP anticipated by central bankers around the world. And as I just noted, the U.S. is for a variety of reasons running out of friendly nations willing to fund the ability of Americans to live beyond their means indefinitely. To get Americans to fund our $22 trillion debt load (which is growing by at least $1.5 trillion per year even without a recession (which appears increasingly likely this year or next), interest rates would have to rise very, very dramatically. But now with the massive federal debt, the reality of a bankrupt federal government would become obvious very quickly. And therefore, I think we need to think outside of the box.