Playing the Game of Chicken

In the inflation-deflation game of chicken, judging by this week’s Key Market Metrics, inflation won, at least for this week. Just a hint of light at the end of the tunnel by Jay Powell was enough to trigger a gigantic risk-off week. As you can see, stocks, bonds, commodities, and precious metals threw a huge getting-out-of-jail party!

But how is that justified given this week’s latest GDP and inflation statistics? We are now in a recession, with the latest GDP decline of 0.9% following a Q1 decline of 1.6%. Nor is it likely that Q-2 will be the last quarter of negative growth. As Peter Boockvar pointed out, growth is decelerating into Q3. Nor are there any signs that inflation is being whipped. The headline PCE inflation figure for June was up by 1% m/o/m, one-tenth more than expected. For context, as Peter Boockvar reminds us, before the Biden Presidency, it was 1%-2% during an entire year! Over the last 12 months, the all-items index increased 9.1 percent before seasonal adjustment. Peter Boockvar further noted that “goods prices are slowing in the rate of gains but services inflation, as it ALWAYS is, will remain persistently sticky. The end result will be a slower rate of inflation by year end but something closer to 7% for CPI instead of 9% now. You can clip this by 150-200 bps for PCE.”

We live in a period of time known as “postmodernism,” in which words dictate policy reality rather than deductive reasoning and science. In the mind of the post-modern person, it is impossible to be able to define a woman or inflation, for example. They believe there are no moral values. Your truth is your truth and my truth is my truth and you can go to hell if you don’t agree with me. We have seen this play out with those in power refusing to permit a science-based discussion regarding Covid or climate change to name just two examples. So, this week, the Biden Administration is unable to recognize or admit that we are experiencing a recession, which had until now, always been defined as two consecutive quarters of negative GDP. This insanity is extinguishing the First Amendment. It is the road to a hellish dictatorship that is being laid down by America’s Marxist Democrat party. How can a country survive if citizens can’t talk and reason with each other? How will there be any light of truth available to make any smart investment decisions?

Meanwhile, we must continue to live our lives by the rules given to us within these four dimensions of time and space by Creator God. The climate alarmists may try to destroy western civilization by shutting down fossil fuels. But despite their post-modern mindset, the laws of physics must prevail. For survival, the world demands hydrocarbons and food. Meantime, as “Nero fiddles while Rome burns,” Russia and China are building a global economy based on hydrocarbons. A Jeff Dahl pointed out; Russia is building a gold market based on a physical standard, rather than imaginary paper gold. As American politicians and bankers “imagine” a world that doesn’t exist, that provides an opportunity for those who recognize reality to profit from the stupidity of our Harvard “educated” elites. For me this week, that meant trading a rapidly evaporating dollar for something real like ExxonMobil. Current Fed policies are like those of Chairman Miller & Burns that added fuel to the inflationary fires of the 1970s, not like Paul Volcker who extinguished the flames. With an election approaching I’m afraid Powell lacks the intestinal fortitude to save the American economy as Volcker did.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.