November 8 Week in Review

It was obviously a “Risk On” week, which of course means it was a not-so-good week for gold and Treasuries. Peter Schiff summed up the week with this comment: “It’s been a tough week for gold and silver and a record week for stocks because of—you guessed it—optimism about a trade deal. In this weekly gold wrap, Mike Maharrey breaks down the news of the week. Along the way, he also compares fickle investors obsessed with the latest trade war headline to delusional sports fans who can only fixate on their team’s most recent game. If you wish to listen, here is the link: https://tinyurl.­com/y5d7k3s9.

On Thursday, my friend Tommy Thiltgen commented as follows: “Take a look: gold down 28 dollars, US Dollar and Interest Rates screaming higher. So much money to be made from those that didn’t see it coming. Like I said, I knew it was coming, but I did not know why. Could it be that the economy is going to get much better? I hope so, but it will not fix the country’s long-term problems. If it is not the economy getting better, could it be a failure in confidence in the system’s ability to meet its obligations and pay interest on its debt without falling apart?

I, like Tommy, hope that the increase in interest rates is because the markets are sniffing out a booming economy. But when I take off those rose-colored glasses, I just can’t see that. As the willingness on the part of the largest trade surplus country (China) expresses its unwillingness to buy U.S. Treasuries and Japan’s inability to do so because of their demographics, and with the U.S. debt spiraling out of control, I have to believe it has more to do with a lack of buyers for U.S. debt.

Or the risk on trade may also have to do with an accommodating Fed that has expanded its balance sheet for 10 straight weeks (by almost $280 billion) thus encouraging investors to participate in the moral hazard game that Fed Chairman Powell tried to reverse before peering over the abyss at the end of 2018 as the equity market began to tank. If investors know the Fed has their back, then why not lay more bets on the equity market casino where you can get rich quick?! Why hold those bonds with their paltry yields, or gold, which just sits there? If there is no risk in owning major stocks because the Fed is going to make sure there is no major decline in the equity markets, why not take what is given to you? Of course, that is what has been happening to make the rich get richer and the middle class disappear. For all their talk about caring for the middle class, you won’t hear many politicians of either party taking about the real cause increasing income disparity. They are enjoying the party too much themselves to promote sound money.