Morning Note: Narrow Road Out

Asian equity markets were split down the middle overnight, with Taiwan and Vietnam closing at opposite extremes, +4.2% and -2.8% respectively. European equities are mixed this morning as well, with 8 of the 19 markets we track in the red. The major U.S. averages, on the other hand are green across the board: Dow up 112 points (.4%), S&P 500 up 0.5%, Nasdaq up 1.2% and the Russell 2000 up .5%.

The VIX (SP500 volatility) is off .6%, at 25.7 while VXN (Nasdaq volatility) just turned a bit green, up .4% as I type.

Oil’s down 1.7%, gold’s extending its all-time high this morning, up $36, silver’s screaming higher, once again, up 6.9%, copper’s flat and the ag complex is mixed, although leaning toward the green.

The dollar’s off .8% this morning, that’s big.

Our PWA core portfolio is off to a nice start this morning, up .76%, with silver and gold of course leading the way. 

Speaking of the dollar being down big, I spent much of the weekend immersed in macro and devoting my thoughts, and findings, to “paper”. To make a long story short, as I stated in our recent video update, the equity markets don’t make it out of this mess in a rising dollar environment. Therefore, the Fed and the treasury are I believe committed to keeping that from happening; certainly their actions of late strongly support that notion.

Here’s from the first half of my weekend writing:

7/25/2020: The Way Out of This Mess For Markets!

Given all that’s evolved over the past several decades, given the complete carry-dependent state of the global economy, there’s only one road for the powers-that-be to take going forward; a steady, unrelenting debasement of the US dollar.

Virtually everything the Fed has signaled since the fallout in Q4 2018 assures that all appetite for volatility has been essentially purged from their thought processes. COVID, ironically, has given them — they presume — complete cover to get the ball rolling sooner and more aggressively than what otherwise may have occurred. I see zero question that they’ll completely change their narrative/policy on inflation going forward, and engage in direct yield curve control indefinitely.

The treasury will issue debt without restraint and the Fed will purchase it likewise, indefinitely.

Commodities — gold especially — are the most obvious trade under these circumstances. US equities stand to ultimately benefit as well, however — and this will produce great anxiety for the Fed along the way (due to extreme global carry) — with bouts of extreme volatility, given the unavoidable economic stagnation such a scenario creates, and the potential for huge political disruption (regulation, taxation, etc.) as growing income/wealth inequality continues unabated (exacerbated, in fact) going forward.

And here’s a snip from the second half:

“A major tailwind for the dollar, and thus a major challenge for the Fed, is the phenomenal amount of global foreign currency debt swishing around in the world economy. The majority of which is denominated in the USD:


More on this to come…

Have a great day!


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