What Are They Smoking?

Whether market participants are smoking something funny that makes them think all is well again and/or that they think the Fed will always be there with a stock market put as soon as big trouble results from the Fed’s inflation fighting efforts, everything except U.S. Treasuries was up last week. Which leads me to the view from mainstream investors that even though long-dated U.S. Treasuries are down 31.85% this year, that’s still the best place to park money you don’t want to invest in the stock market.

Now of course if you want to build cash so you have firepower to buy assets when they become much cheaper, compliments of continued hawkish policies from the Fed, then you would be putting your money into short-term T-bills where the losses would not be nearly as large. But a quick look at the items in my Inflation/Deflation Watch shown in the table to your right reveals that that other safe haven—gold—is down a mere 6.97% so far this year compared to long-dated Treasuries that have lost 31.85% of their value.

As Adam Taggart said on my show last week, what Powell is trying to do is change the market psychology that the Fed will always be there with QE at the first sign of trouble. But to get Pavlov’s dog to stop salivating when the bell is rung is no easy task. Old habits are hard to break. The slightest hint of Fed ease causes investors to jump back into stocks.

Which brings me to another point, made by Alasdair Macleod in his latest article, titled, “Imploding credit—the consequences.” The gist of Alasdair’s latest article is that Keynesian ideology, which is what all central bankers believe, leads them to think you can’t have inflation if you have a recession. But of course, you can, and we did in the 1970s when, like now, oil prices exploded higher on supply constraints due to geopolitical changes.

As Alasdair pointed out, all economic activity and wealth in a fiat monetary system are credit, and in a fiat system, governments and central banks use the money they control to gain political power and direct wealth to their cronies by handing money out like candy, driving rates low and encouraging bad investment decisions because they are based on underpricing of credit. Then when central banks begin to take credit away, it not only decreases demand but also stops credit creation that is essential for the supply side of the economy. Then when you have the most essential commodity to modern-day life taken away by American sanctions and stupid green energy policies, prices continue to rise even during a devastating decline in GDP. It’s kind of like chemotherapy. It may save the economic patient’s life but it will disable it in the meantime.

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.