“Federal Reserve Chair Jerome Powell repeatedly stressed on Wednesday that the central bank won’t raise interest rates until the U.S. economy shows tangible
evidence it has fully healed from Covid-19. In doing so, he discarded a cardinal tenant of monetary policy to pre-emptively strike against inflation.”

“”It was a clean break,” from past Fed practice, said Lou Crandall, chief economist at Wrightson ICAP LLC. “They’re willing to take the risk of being behind the curve. They don’t think the risk is particularly severe and they don’t think the costs of a miss on that side are as large as the costs of suppressing economic growth unnecessarily.””

With all due respect to Mr. Crandall, well, no. It’s not at all that “they’re willing to take the risk of being behind the curve” — they’re already “behind the curve” — it’s that they have literally put themselves into a position that gives zero opportunity to combat inflation anytime in the remotely foreseeable future, if ever (given their desperation to not upset markets). All they can do is hope, pray and talk like mad to try and quell inflation expectations.

You see, the amount of dollar-denominated debt sloshing around the world makes for an utter disaster should, for one, the Fed actually increase its own “fed funds rate” and/or two, should treasury bond yields continue their lately rapid ascent, and three, should the dollar strengthen in a meaningful, trending, way.

I.e., not only are they not going to do anything that might result in tighter monetary conditions, I firmly suspect that by this year-end, or early into next year, the Fed will actually be forced to intervene into the longer end of the yield curve by buying, in unrestrained fashion, everything traders/investors, U.S. and foreign, will be dumping (that’s yield curve control) — as, say, $3 trillion of infrastructure spending, and heaven knows what else in terms of fiscal largesse, comes the economy’s way.

Which presents the best setup for the likes of commodities (gold and silver in particular) in years…

Now, that last sentence stated, make no mistake, we have never been, nor will we ever be, “gold bugs” (gold permabulls) here at PWA. I’ve pushed back against that thinking for virtually the whole period since we last owned gold as a core position (1999). The setup always lent itself to better, more fundamentally-sound, long-term positions. Again, not so today… Today’s setup strongly calls for a position…

Which means that if next year, next month, next week, or tomorrow for that matter, conditions change to the point where they no longer support our longer-term bullish gold thesis, we’ll be out in a heartbeat and on to whatever makes better fundamental sense for that portion of our always diversified asset mix…