A few days ago in Not About The Dollar? I wrote
“Cracks have been forming in this pattern though. Today for example stocks sold off sharply, while gold and bonds both went higher. There was no clear evidence of a broad movement in the currency. Is the cusp of the divergence we’ve been looking for?”
Evidence continues to accumulate. Treasuries and gold have continued to rally sharply, while stock prices have gone their own way … down. Gold says the USD is crashing, but stocks are outpacing its declines. In just ten days gold has risen 9.4% in dollar terms. Gains for treasuries vary according to duration, but even the broad Treasury index fund GOVT has risen 3.7%, in addition to sporting a fat 4.5% yield.
As the esteemed Wolf Richter says, “nothing goes to heck in a straight line”. Trends are marked by opposing subtrends. But the evidence suggests the prevailing trend for stocks is down. Our patient, underweight stocks, overweight gold and treasuries bias is being rewarded.
“When its time to shine comes, it will be hard to miss.”
If the globalists have their way there won’t be any financial trading. Having real gold will be a winner, and lead.
Thanks, Rick. These events sure highlight the value of real money like gold and silver. In physical form there’s no counterparty risk. Having some physical dollars isn’t a bad idea, but the dollar itself may be thrown under the bus. I also highly recommend crypto enthusiasts get their bitcoin in physical…
since there is no blanket guarantee for larger deposits at small and medium banks…
watch this brief encounter:
https://twitter.com/DoombergT/status/1636543532654632962
i am sure that large depositors are fleeing small and regional banks for the safety of SIB’s and treasuries. this means the 4000+ non SIB’s have to 1. fail, or 2. shrink their balance sheets. this means they must stop issuing new loans and call those that are callable. those banks are responsible for half the credit issuance in the country. this credit contraction will hit demand inflation, then supply inflation.
unknown are the effects on shadow banks which are likely to face redemption pressures. some will fail, some will gate redemptions if possible, some will survive.
this seems like the early stages of a credit collapse and likely deflation.
what think you, bill?
since there is no blanket guarantee for deposits at small and regional banks….
watch this brief clip:
https://twitter.com/DoombergT/status/1636543532654632962
large depositors are, i would bet, fleeing to SIB’s and treasuries. the 4000+ non-SIB’s are responsible for half the lending in the country but will be forced to shrink their balance sheets. they will stop issuing loans and call those which are callable. or they will fail.
shadow banks will face redemptions and some will fail, some will gate redemptions, some will survive.
we are in the early stages of a credit contraction which will kill demand inflation, then kill supply inflation and likely cause outright deflation.
that think you, bill?
then there’s the question of the reflationary response. how long and what form will it take?
We’ve seen mildly deflationary conditions for several weeks now. It’s conceivable but unlikely the Fed punts Wednesday and proceeds straight to a reflationary policy without passing go. But it matters less than the media let on … the bond market has already cut rates.
The shoe left to drop is stock prices. They’re one of the most sensitive real time indicators there is, and would need to sell off further to confirm a deflationary trend. If they sell off another 20% or so that would be the nail in the coffin for this inflationary cycle. It would also provide the tightening of financial conditions the Fed has been looking for, allow it to declare victory and end the tightening cycle.
It would also soon justify easing monetary policy. The biggest problem though isn’t that the Fed eases, but that it yet again fails to timely back off the gas pedal and blows another bubble. That’s what it did after 2008 and then again after 2020, leading to the mess we’re seeing now. It’s one thing to arrest a decline in stock prices but quite another to send them back into the stratosphere. Those kinds of conditions are the fertile soil that weeds like FTX and SVB etcetera thrive in.
My best guess right now is that outlined in this post and Not About The Dollar? … that we do get that 20% or so further decline, it does quell consumer inflation, but that the response then does continue too long and sets us up for another cycle as bad or worse than this one.
I hope I’m right about those first two parts, but wrong about the last one. Failure on any of these could mean America goes Venezuela.