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10.15.21 - Stagflation Is Already Here

Gold last traded at $1,767 an ounce. Silver at $23.32 an ounce.

NEWS SUMMARY: Precious metal prices slipped back on normal profit-taking amid upbeat economic data. U.S. stocks rose on better-than-expected retail sales and third-quarter earnings reports.

Gold Gains as Traders Seek Haven Amid Persistent High Inflation -Bloomberg/Yahoo Finances

"Gold rose to the highest in a month as investors sought haven amid stubbornly high inflation and the looming reduction in stimulus.

The U.S. consumer price index rose in September by more than forecast, resuming a faster pace of growth and underscoring the persistence of inflationary pressures in the economy. The yield on 10-year Treasuries fell after an initial increase following the data released Wednesday, boosting demand for non-interest bearing bullion.

'Real interest rates fell and that supported gold,' said Giovanni Staunovo, a commodity analyst at UBS Group AG. 'There is a rising perception in the market that inflation could stay elevated for longer.'

Data on Thursday showed China’s factory-gate prices grew at the fastest pace in almost 26 years in September, adding to global inflation risks. The U.S. producer price index rose less than expected, according to a report.

Meanwhile, minutes of last month’s Federal Reserve meeting showed that officials broadly agreed they should start tapering bond purchases in mid-November or mid-December amid increasing concern about inflation. The pandemic-era stimulus measures were one of the key pillars in bullion’s rally to a record last year."

stagflation Looks Like Stagflation Is Already HereIssues & Insights

"On the same day the International Monetary Fund cut its growth forecast for the U.S. economy, Atlanta Federal Reserve President Raphael Bostic warned that the 'transitory' bout of inflation 'won’t be brief.' How do you spell stagflation? B-i-d-e-n-o-m-i-c-s.....

The economy isn’t building back better under Biden. It might not be building back at all....The first GDPNow estimate, produced in late July, had growth topping 6%...But then a flood of new data came out showing the economy had sharply decelerated. The 'nowcast' suddenly dropped to below 3% growth. The latest 'nowcast' has GDP growth for Q3 at a mere 1.3%....

Meanwhile, the latest jobs report, which came out Friday, was an enormous disappointment - Barron’s called it 'ugly' - showing just 194,000 jobs being added in September, despite predictions of 500,000....

Those of us here who weren’t born yesterday - unlike most pundits on TV and everyone commenting on Twitter - remember that the last time we saw sluggish growth and high inflation, along with energy crises and foreign policy crises. It was called stagflation and it crippled the economy.

'Investors should also be aware of stagflation risk, which is a combination of inflation with slow economic growth and the market reaction to stagflation is not typically favorable to investors, as many asset classes tend to fall in value at the same time during stagflation,' Nancy Davis, founder of Quadratic Capital Management, told The Street.

It’s starting to look like the only thing Biden is 'building back' with his combination of reckless spending and massive tax hikes is the misery of the 1970s."

How the Fed Finances U.S. Debt -Wall Street Journal

"Look behind the federal books to see the ways monetary policy has come to abet runaway spending.

Last week’s deal in Congress to raise the debt ceiling through early December may offer another few weeks of partisan wrangling, but it won’t solve the deeper problems of funding the government.

Such is the sorry state of America’s hand-to-mouth finances that White House officials have launched apocalyptic warnings about imminent financial collapse, along with hallowed invocations to preserve the full faith and credit of U.S. Treasury debt.

The White House Council of Economic Advisers, run by Cecilia Rouse, said: 'If the United States were to default, tens of millions - including families with children, retirees, and veterans - would quickly, even overnight in some cases, face the prospect of losing the regular Federal payments that help them to make ends meet.'

Defense Secretary Lloyd Austin declared: 'If the United States defaults, it would undermine the economic strength on which our national security rests.'"

High Inflation Is Here To Stay -Reason

"News that the September Consumer Price Index (CPI) rose by 5.4 percent on a year-over-year basis should be evidence enough for Federal Reserve Chair Jerome Powell, White House economists, and even the president to admit that we have more than a temporary inflation uptick on our hands. Better yet, it's proof that we should avoid adding fuel to the fire, even if it means cutting back on President Joe Biden's multi-trillion-dollar American Rescue Plan....

Avoiding the hard truth or waiting before countering inflationary forces carries a cost. In this case, delays could mean harsher action later when, for example, the Fed hits the money brakes harder to cool the economy. In such a case we might see interest rates head to the ceiling, construction activity and high-tech investment plummet, and the economy roll into a recession....

Needless to say, Washington leaders have long been reluctant to call a spade a spade. But today, the no-no isn't depression or even recession. It's referring to unqualified inflation. No one in authority wants to admit that the dollars we hold are systematically losing their purchasing power. We are being quietly robbed by Washington's dollar-printing press, with politicians calling the shots. The presses are not operating without drivers.

The price increases are widespread, which suggests they are embedded. No matter how analysts choose to slice and dice the data, the answer is the same: The U.S. inflation rate calls for taking offsetting actions, such as avoiding direct distributions of stimulus or minimum family income dollars (though not harsh, invasive measures to cool off the economy).

Let us not forget that inflation is not about rising prices. The rising price level is the result of an inflated money supply - all those trillions of stimulus dollars now out and chasing harder after goods and services.

So, what should our esteemed political leaders do? Gazing into a crystal ball and talking about things that may be transitory is what soothsayers and fortunetellers do. Just give the public the unvarnished story."

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10.14.21 - Why is Biden Making Banks a Tool of the IRS?

Gold last traded at $1,796 an ounce. Silver at $23.54an ounce.

NEWS SUMMARY: Precious metal prices rose to 4-week highs Thursday as rising inflation flattened the dollar. U.S. stocks rose following better-than-expected earnings reports from Bank of America and other major companies.

Gold prices gain as inflation concerns grow -Reuters

"Gold prices rose on Tuesday, as rising inflation fears dulled risk appetite and boosted demand for the safe-haven metal, although an advancing U.S. dollar limited bullion’s gains....

A global energy crunch has threatened economic outlook and fanned inflation fears, driving some investors toward safer assets.

'We see undertones of support coming from the general idea that inflationary pressures are going to be enough to hold gold up in the midst of an environment where we see the Federal Reserve slowly moving towards reducing asset purchases,' said David Meger, director of metals trading at High Ridge Futures....

'There’s more risk aversion in the market and gold is benefiting from that, coupled with concerns about inflation and cooling of the global economy,' Commerzbank analyst Daniel Briesemann said.

If stagflation talks come to the fore increasingly, gold could clock $1,900 by year-end as interest rates should remain relatively low even if the Fed starts tapering, Briesemann said."

IRS Why is the Biden administration seeking to make banks a tool of the IRS? -TheHill

"In an effort to catch tax evaders, the Biden administration is proposing requiring banks to report individual account transaction flows above $600 to the Internal Revenue Service (IRS). A related proposal would increase this threshold to $10,000.

Banks are a critical component of the economy that, thanks in no small part to the federal government via FDIC insurance, provide people a trusted place to protect their wealth from loss, theft or damage. The administration’s proposal seeks to exploit this status and is a significant intrusion of consumer privacy.

It’s also cumbersome, unlikely to achieve whatever legitimate goal the administration may have, and even a threat to the public’s respect for the rule of law - something that may further erode what market discipline exists in banking. In other words, it’s a bad idea.

The threat to privacy is the most objectionable consequence of this proposal. Current Supreme Court precedent may not provide a constitutional privacy protection for this type of financial exchange, but the breadth of intrusion into the citizenry’s personal accounts is excessive and unwise.

The administration estimates the provision would help raise about $500 billion in tax revenue over the next 10 years. While it is unclear where this number comes from or how accurate it is, it is not enough to justify a huge diminution in practical privacy.

The proposal’s supporters argue that banks already provide significant information to the federal government. While this is true, it is more an indictment of the status quo than a justification for compounding the error.

The 'Suspicious Activity Reports' (SARs) that banks are obligated to provide to the federal government give a view into the limited benefit and extensive burden the new proposal would put upon the banking industry.

For example, a 2016 Heritage Foundation report found that compliance with anti-money laundering rules costs at least $7 million per conviction. It’s entirely possible that the new proposal could involve costs in multiples of this amount, and that it would make preventing tax evasion through its massive search method a money-losing proposition....

To their credit, the banking trade groups have so far generally opposed the proposal."

As CPI Looms, Inflation Is Starting To Impact Equity Returns -ZeroHedge

"Fed funds futures for 2022 and 2023 have broken out to new highs, likely on the back of rising inflation expectations. As things stand now, the market is looking for three hikes by the end of 2023, with the effective fed funds moving from 8bps today to 85bps.

Just yesterday the New York Fed released its monthly inflation expectation survey, and it climbed to new highs.

Today we get September CPI readings and expectations are that it remains around the current level of 5.3%. The US CPI is pretty well correlated with China’s PPI which appears to be continuing higher. Given this relationship it is hard to see US inflation dropping until it does in China.

And here the news is somewhat disconcerting. With thermal coal prices making new highs, odds are this continues to create upward pressure on China’s PPI and in turn, the US CPI.

It is clear the specter of rising rates in response to the less-than transient inflation is starting to bite into the equity market."

The myths of ‘income inequality’ -OC Register

"It is an article of faith among progressives that income inequality is getting worse in California. In fact, claims of a widening gap between rich and poor are used nationally to justify raising taxes and accelerate the redistribution of wealth.

But like other urban myths, such as how Prop. 13 supposedly starved local governments, it is easily debunked by critical analysis of the data. As it turns out, while the rich are in fact getting richer, so are the poor.

First, no one disputes the tautological argument that the wealthy have more money than the poor. But policy leaders need to ask some important questions. For example, is that gap actually expanding? How do we measure “income?” If the standard of living is increasing for those at the bottom rung of the economic ladder, does it really matter how rich the wealthy become?....

In any discussion of income inequality, it is important to define the terms. Much of the most widely‐​cited work by mainstream media which 'proves' increasing disparity is misleading because of the definitions they employ.

Take, for example, the work of economists Thomas Piketty and Emmanuel Saez, two darlings of the left. How they defined 'income' ignored several variables that substantially inflate U.S. income inequality. Those variables include whether corporate income should be attributed to individuals (it should), whether after-tax income is a better metric (it is), and whether the value of employee benefits should be counted (it should).

In short, the work of Piketty and Saez has been substantially discredited by other economists. But it is unlikely that you’ll ever read about that in the New York Times.

Moreover, even if economists could agree on definitions, there remain many questions about income inequality. For example, is California’s relatively high disparity between the rich and poor the result of its progressive policies?

Although the data is not clear on this, there is little denying that high taxes and heavy regulations result in the outmigration of the middle class, leaving the state with many poor (highest effective rate of poverty in America) and many wealthy with a sizable gap in between.

More fundamentally, even assuming the income gap between rich and those classified as poor was growing, is this even a problem? Shouldn’t the real inquiry be whether those on the bottom rung of the economic ladder have both an increasing standard of living as well as access to opportunities which would allow them to move up?....

Both Presidents Kennedy and Reagan repeated the saying that 'a rising tide lifts all boats' to describe how a vibrant, free market economy benefits all citizens. Today, that saying is derided as simplistic hyperbole by progressives even though it is as true today as it was when uttered by the two former presidents.... Equal opportunities, not equal outcomes. Government policies to achieve the latter sink all boats, not raise them."

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10.13.21 - The Southwest Airlines Rebellion

Gold last traded at $1,792 an ounce. Silver at $23.06 an ounce.

NEWS SUMMARY: Precious metal prices shot up Wednesday on safe-haven buying as rising inflation weakened the dollar. U.S. stocks rose as investors digested fresh inflation data and third-quarter earnings reports.

Stagflation rears its ugly head -WGC

"Over the past two months, economic growth has disappointed even as inflation has exceeded expectations. A real risk of stagflationary conditions, with rising costs amid lower growth, appears to be on the cards.

Stagflation, if severe, can be damaging to both the economy and financial markets. But we don’t need a repeat of the 1970s for assets to be affected. Our analysis shows that even mild stagflationary conditions can have similar asset impacts to those in more severe stagflations.

Stagflation has historically hit equities hard. Fixed-income returns have been variable, while both commodities and gold have fared well. Gold’s historically strong performance can be attributed to: higher inflation and market volatility– supporting capital preservation motives and lower real interest rates – supporting both opportunity cost and growth risk motives....

Gold’s strong performance since 2018 could be a headwind, but our analysis shows that it need not be. Gold hasn’t benefited from record-low real rates and high inflation in 2021. We believe this has to do with rosy expectations about inflation, growth and equities.

Record low yields might constrain bonds’ hedging potential in a risk-off event, offering gold an opportunity to command some of those defensive flows, should a shock to risk assets materialize."

southwest The Great Southwest Airlines Rebellion -American Consequences

"The vaccine mandate backlash has been bubbling just under the surface, but now it has spilled out into the open, threatening to completely derail an already crumbling economy and to obliterate a deeply unpopular U.S. president and administration.

Seemingly out of nowhere, what appears to be a Southwest Airlines rebellion has taken flight this weekend.

According to media reports, scores of pilots and other Southwest employees have coordinated the taking of 'sick days' to use them up in advance of a Southwest Airlines mandate to get the jab or lose the job.

Over Saturday and Sunday more than 2,000 flights have been cancelled, with airports experiencing full-on mayhem.

The Southwest Airlines Pilots Association is suing the airline over the imposed vaccine mandate, bolstering the claim that there is a “sick out” underway among angry Southwest pilots....

Will other pilots, such as at American Airlines, follow suit? Rumors are circling that this is only the beginning…Over the past few weeks, thousands of nurses, medical workers, and first responders have either quit or been fired for refusing to receive a medical treatment they do not want or need.

The 'nursing shortage' that Democrat politicians and the mainstream media had been blaming on 'rising COVID cases' has been in reality a man-made disaster of historic proportions.

The nursing crisis is not caused by COVID – cases have been in decline in the U.S. for weeks. It is caused by the firing of medical personnel who refuse to take the experimental COVID shots....

History may record this weekend as the turning point against the Biden administration’s COVID tyranny. From nurses to pilots to truckers to even Amtrak workers, it appears that America is standing up and saying 'enough!'"

Southwest Airlines apologizes for flight cancellations, says operations are stabilizing -CNBC

"Southwest Airlines apologized for canceling more than 2,000 flights since Saturday, saying the airline’s operations are starting to stabilize after disrupting travel for tens of thousands of customers....

The Dallas-based airline since Saturday has canceled close to 2,400 flights, FlightAware data showed. The airline said bad weather and air traffic control issues in Florida kicked off the problems, which snowballed due to its own staffing shortfall, particularly a lack of backup pilots and flight attendants to step in when things go wrong. Other airlines had relatively minor cancellations....

Southwest last week said it would enforce the Biden administration’s policy that employees of federal contractors, which includes major airlines like Southwest, American and others, must be vaccinated against Covid-19, though he told CNBC he doesn’t think companies should mandate vaccines.

The disruptions sparked speculation on social media that employees were calling out sick in protest. The airline has called that unfounded and told CNBC Tuesday that that wasn’t a cause or contributing factor in the disruptions....

Over the weekend, 2,176 Southwest flights were canceled because of unavailable crews, the pilots’ union told members late Tuesday....It also said that sick calls are higher compared with previous Octobers."

The Distorted Market for Woke Capitalism -Law & Liberty

"The founder of modern economics, Adam Smith, was no fan of the merchants of his time. He regarded them as among the most responsible for how 'the mercantile system,' as Smith called it, accorded legal privileges to politically connected producers over the interests of consumers.

Nor did Milton Friedman have a particularly sympathetic view of the business leaders of late-twentieth-century America. 'The two greatest enemies of free enterprise in the United States,' he wrote, 'have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.'

To be pro-market is not the same as being pro-business. The two are at odds in some very important ways.

This is one way of understanding the phenomenon of 'woke capitalism,' and it features in Vivek Ramaswamy’s 'Woke, Inc: Inside Corporate America’s Social Justice Scam'. For if there is anything that characterizes woke capitalism, it is the desire - like the mercantilists of old - to exclude (ironically, in the name of tolerance, diversity, equality, etc.) particular individuals and groups from 'their' markets and corporate America in general.

In the case of woke capitalists, the excluded is anyone who doesn’t embrace all the usual progressive orthodoxies or who won’t play the woke game to go along to get along.

Ramaswamy provides other insights into the underlying rhyme and rhythm of the woke capitalist phenomenon that have long needed wider attention...Woke capitalists, thanks in part to their impeccable connections with the political class, are able to marshal considerable resources behind their beliefs. And it’s not just consumers who pay the price. It’s the American body politic as well....

Throughout Woke, Inc., Ramaswamy offers various suggestions for addressing these problems. Some involve removing various regulations that effectively insulate woke managers, CEOs, and boards from pressures of investors who know what’s really going on. In these cases, Ramaswamy is intent upon bringing the power of market forces to bear upon woke practices....

The process of awakening corporate America from wokeness will need to be as much a cultural enterprise as it is an exercise in returning business to its proper function in the economy and society more generally. That endeavor may take years, and the opposition will be formidable. But in the end, America will be better for it."

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10.12.21 - Gold Price Headed to $5,500 in the Long Term

Gold last traded at $1,759 an ounce. Silver at $22.54 an ounce.

NEWS SUMMARY: Precious metal prices rose Tuesday on safe-haven buying despite a firmer dollar. U.S. stocks churned in volatile trading following two straight losing days.

Gold price headed to $5,500 in the long term as central banks won't be able to exit unorthodox monetary policies -Kitco News

"In a report published Tuesday, investment bank Jefferies Group said that gold and Bitcoin remain essential hedges as the threat of stagflation – an environment of low growth and higher inflation – continues to grow.

Although the market continues to struggle in the near-term, analysts at Jefferies said that their long-term forecast remains in place for gold prices to push to $5,500 an ounce.

'This has been derived by comparing the January 1980 peak gold price of US$850/oz with the increase in US nominal personal disposable income per capita since then. The gold price was then equivalent to 9.9% of US disposable income per capita which was $8,547. The gold price is now $1,757/oz or 3.2% of US disposable income per capita of $54,671,' the analysts said.

The firm remains bullish on gold as central banks discover that it is easier to embark on unorthodox monetary policies than it is to exit them.

'The long-term view here remains the same as it has been for many years. That is that G7 central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will ultimately remain committed to ongoing central bank balance-sheet expansion in one form or another.'

'Such policies will increasingly discredit those central banks which have pursued unconventional monetary policy, threatening the stability and indeed integrity of the current fiat-paper-money system,' the analysts said."

tax payers Green energy: A bubble in unrealistic expectations? -Evergreen Gavekal

"This week’s EVA provides another sneak preview into David Hay’s book-in-process, 'Bubble 3.0' discussing what he thinks is the crucial topic of 'greenflation.' This is a term he coined referring to the rising price for metals and minerals that are essential for solar and wind power, electric cars, and other renewable technologies.

It also centers on the reality that as global policymakers have turned against the fossil fuel industry, energy producers are for the first time in history not responding to dramatically higher prices by increasing production. Consequently, there is a difficult tradeoff that arises as the world pushes harder to combat climate change, driving up energy costs to painful levels, especially for lower income individuals.

What we are currently seeing in Europe is a vivid example of this dilemma. While it may be the case that governments welcome higher oil and natural gas prices to discourage their use, energy consumers are likely to have a much different reaction.

Summary: BlackRock’s CEO recently admitted that, despite what many are opining, the green energy transition is nearly certain to be inflationary.

Even though it’s early in the year, energy prices are already experiencing unprecedented spikes in Europe and Asia, but most Americans are unaware of the severity.

To that point, many British residents being faced with the fact that they may need to ration heat and could be faced with the chilling reality that lives could be lost if this winter is as cold as forecasters are predicting.

Because of the huge increase in energy prices, inflation in the eurozone recently hit a 13-year high, heavily driven by natural gas prices on the Continent that are the equivalent of $200 oil.

It used to be that the cure for extreme prices was extreme prices, but these days I’m not so sure. Oil and gas producers are very wary of making long-term investments to develop new resources given the hostility to their industry and shareholder pressure to minimize outlays.

I expect global supply to peak sometime next year and a major supply deficit looks inevitable as global demand returns to normal.

In Norway, almost 2/3 of all new vehicle sales are of the electric variety (EVs) – a huge increase in just over a decade. Meanwhile, in the US, it’s only about 2%. Still, given Norway’s penchant for the plug-in auto, the demand for oil has not declined.

China, despite being the largest market by far for electric vehicles, is still projected to consume an enormous and rising amount of oil in the future."

Wage inflation is a monetary policy problem in the making -Briefing

"The Federal Reserve has a problem on its hands, or what we should say is that it has another problem on its hands.

The first problem is knowing when it should start tapering its asset purchases. That shouldn't be a problem. The Fed should have started tapering months ago since the conditions that drove the Fed down another quantitative easing path aren't anywhere close to being as bad as they were when the Fed went down that path....

The other problem now on the Fed's hands is wage inflation. It keeps showing up in the employment reports.

The COVID pandemic has created a lot of distortions. That was plain to see in the average hourly earnings growth in the early stages of the pandemic. It skyrocketed as lower wage earners were disproportionately affected by job cuts when business activity cratered with lockdown/shutdown measures and stay-at-home preferences.

Average hourly earnings growth fell sharply, though, as the economy reopened more fully with the introduction of the COVID vaccines and as lower wage earners went back to work.

What the September employment report showed is that there are still a lot of people who aren't back at work. In fact, there are 3.1 million fewer people in the civilian labor force than there were at the start of the pandemic.

It's a confounding reality given related reports that indicate job openings are at a record high. Meanwhile, one company after the next seems to be calling attention to labor shortages as a factor that is curtailing production/service capabilities and driving up labor costs....

These aren't going to be temporary wage increases either. They will be sticky even when the labor supply improves. Average hourly earnings were up 4.6% year-over-year in September. That wasn't because lower-wage earners weren't a big part of the labor mix either....

This wage inflation is going to persist -- or so it seems. While supply chain issues are a problem for most companies, most companies are also still extolling the strong demand they are seeing and their ability to pass through price increases to help offset their higher costs....

Higher prices, and increased demand among workers for higher wages to deal with those increased prices, could become a toxic policy problem for the Fed, whose hand may be forced to move more aggressively with tapering and tightening action to keep elevated inflation pressures in check.

It is a problem the Fed doesn't want on its hands and it is a problem the stock market doesn't want on the Fed's hands. It's becoming more evident, though, that it's a problem in the making."

Let’s Be Serious, There’s No Such Thing As A $1 Trillion Coin -Forbes

"Thoroughly confused members of the Left are presently opining that an easy solution for President Biden on the matter of the debt ceiling would be for him to mint a trillion dollar coin. Presto. Debt limit evaded in concert with $1 trillion in new spending power.

It all sounds so simple. For those who naively believe money is wealth, the easy answer to a lack of money is to create it.

Except that money isn’t wealth. Money is an effect of wealth creation. We produce or provide goods, services, and labor with an eye on attaining commensurate goods, services, and labor for our production.

Money is merely an agreement about value among producers that we producers seek in return for our production. Since it’s an agreed upon measure of value, there’s subsequent 'getting' when our work results in monetary compensation.

What’s important about this is that absent production, there’s quite simply no consumption. Consumption is what happens after production. It’s the consequence.

Applied to the economic fantasizing of some on the Left, President Biden can in no way create $1 trillion in spending power, or 'new' demand. You can’t print demand. Put another way, there’s no such thing as a $1 trillion coin....

Real economic growth is what makes government spending possible. Assuming there were a constitutional way for Biden to mint $1 trillion in spending, it would only be possible insofar as the 46th president extracted $1 trillion in private sector production.

Once again, without work money is meaningless. Which is why currencies tend to shrink to nothing when errant governments presume that they can print wealth....

The lesson seems to be that politicians exist to spend, and regardless of ideology. It’s not about deficits, or surpluses, or the oft-stated bit of nonsense of what we as a nation can 'afford;' rather it’s about production.

Government can print dollars, but it can’t create demand. Only the private sector can. There’s no government spending, nor are there $1 trillion coins. There’s just government waste of precious, privately created wealth."

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