Brien Lundin Discusses Inflation, Fed Policy, And The Move Higher In Yields, The Dollar, and Gold
Brien Lundin, Publisher of The Gold Newsletter, joins us today after hosting a well-attended New Orleans Investment Conference last month, and talks about the the trend of higher inflation seen in the recent hot CPI readings, and how yields, the dollar, and gold reacted by all moving higher. We then get into the potential path forward and pitfalls of the Fed policies and just what options the central bank will have when it comes to hiking interest rates to fight inflation.
Next Brien shares his thoughts on the recent technical price breakout in gold and the precious metals miners above overhead resistance levels, and what fundamental drivers he feels could continue to move the metals prices. We wrap up discussing a few mining stocks that Brien feels are doing good work to move their projects forward. Companies mentioned are (GLDC) Cassiar Gold, (HSTR) Heliostar Metals, (LBC) Libero Copper and Gold, and (MAI) Minera Alamos.
When the Fed started doing QE again in 2019 (yet claimed it wasn’t QE), and when massive amounts of government stimulus was doled out as helicopter money in 2020, many of us mentioned that we’d be seeing inflation show up in a year’s time. There is nothing surprising about what is happening now with inflation to anyone that has been paying attention the last few years.
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People argued with the call for inflation rearing it’s head again in the near future, and assured us that it wouldn’t happen and we could barely get to 1% inflation and the Fed was trying as they could and cheering on inflation to get to 2%. (looks like they cheered a bit to hard eh?)
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We told those people they were clueless (and they were) and that anyone cheering on inflation to rise, obviously didn’t care about everyday citizens, as inflation is a covert tax on everything and erodes purchasing power. That’s the whole point of why people put assets in a store of value like gold or real estate or commodities, to get something real before it goes up in price.
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People in many chat forums – here, ceo.ca, twitter, youtube, etc… claimed we hadn’t seen inflation after all that money creation from 2009-2019, for a decade so why would this time be different? They were soooo sure we’d not see inflation and dismissed it as a comical boogeyman.
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It was highlighted (repeatedly) to these doubters that we had ALREADY seen plenty of inflation into financial assets and the general stock markets as they were juiced higher and higher for a decade. They were fine with that though…. due to “The Wealth Effect.” Their stocks in the general markets were up, and thus, they were geniuses, and the good times were going to roll on forever…..
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We pointed out that since most of new money created went to bail out failed financial institutions that it wasn’t getting into everyday citizens hands, and wasn’t being loaned out to individuals and small businesses, but rather used to cook their toxic books and paper over the sins of the past. Financial institutions used the low interest rate and near zero interest rates to borrow money for next to nothing, and speculate in the markets, buy back their shares, and maximize their overweight corporate stock option bonuses.
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However, things took a turn in 2020, and changed when the government went to passing out stimulus checks directly to citizens, printing money in the PPP loans to small businesses (much of which never was used for it’s intended purpose of making payrolls and retaining employees, but instead led to blowing big wads of cash on stuff and speculations). With all that new money creation, it was impossible for it not to lead to inflation. Many scoffed and rolled their eyes and said “yeah I’ve heard that before… let me know when the inflation shows up you gold tards…”
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We mentioned that inflation had already started growing (much higher than what was seen in government stats), and that it would grow well beyond the Fed’s 2% goal [and already had]. These skeptics laughed once again, doubting it the whole time. Many savvy economic thinkers pointed out the symptoms of inflation would show up as rising commodities prices and rising wages leading to cost push inflation, and again most of the sheeple just shook their heads in disbelief.
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Even though we patiently demonstrated on charts and graphs the insanely low valuations that commodities were trading at, relative to other sectors and the stock markets, many said “so what?” When oil prices when negative last year, that was a bell ringing and made no logical sense, but most just shrugged off these valuation mismatches as a funny little blip.
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The point was obvious, a return to the mean would begin in commodities and energy, where their prices would rise relative to asset classes, like the proverbial beach ball held underwater that would eventually explode up out of the water. Wages that had been suppressed would rise. This would all be symptomatic of Cost Push Inflation with rising inputs and rising wages. The vast majority of generalists were not buying it, because they had never known inflation to show up in a meaningful way in decades, and they had recency bias. Their recency bias could not allow them to imagine a world with inflation showing up at more than the Fed’s 2% number. They were hypnotized by the prevailing financial media narrative, and had stopped thinking and reasoning for themselves long ago.
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When commodities started running (Copper, Nickel, Oil, Nat Gas, Tin, Iron Ore, Lithium, Agricultural commodities & Food) they acted surprised. “Wow, look at those commodities running…. what do you think is going on there?” {Inflation is showing up}.
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When wages started rising to keep attracting workers, people looked surprised “Wow, look at those wages rising… what do you think is going on there?” {Inflation is showing up}. Nahhhh people have been saying that for years.
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When the Fed got to their 2% inflation alright, and then it kept going, the central banksters assured the markets “That’s OK we want inflation to run a little hot.” {Oh, do you really now? And how will you contain the inflation genie when it gets out of the bottle?}
“Don’t worry everyone, we’re the Fed and we’ve got tools…” {Oh, I feel so much better. You got this.}.
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When real rates went even more negative in 2020, and gold and silver got moving higher and the commodities kept moving up, the central banksters and lame stream financial media assured everyone that this too shall pass, even though we were seeing negative real rates all over the planet. Moving into this year as more money printing continued, more stimulus bills were enacted, more bond buying by the Fed continued, and the stock markets kept inflating higher, and the everyday economy reeled from 2 years of lockdowns, business closures, employee layoffs and furloughs, and more people sucking on the government teat choosing to stay at home didn’t return to work.
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Suddenly (but not really surprisingly) there weren’t enough truck drivers, not enough doc workers, not enough staff members to deliver items, and globally ships couldn’t get into port as a result of these backups and backlogs. Fed Ex and UPS didn’t have enough workers to make delivery deadlines and started pulling the workers that were remaining from other states to make up the slack. Then the vaccine mandates started and even more workers were lost, stressing the supply chains even further. All we heard about, and still hear about, are supply chain interruptions, but is anyone really that surprised after all the stupid policy decisions for the last few years? While this is true, it definitely does not explain away all the inflation by a long shot, and neither does the base effect. Most of these problems were brewing for years leading up to the pandemic lockdown lunacy, and that simply became the excuse. In reality it was merely the pin that finally popped the BS bubble.
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Then commodities just kept running higher. Energy kept running higher (at the same time the current administration canceled the Keystone pipeline, blocked permits for new oil & gas projects, shamed oil companies into not investing in growth and pushed them into renewable projects instead). Now they act surprised that energy prices have skyrocketed (another sign of inflation) and are begging OPEC to pump more oil, while simultaneously trying to cancel the Line 5 oil pipeline in the same breath. The hypocrisy, failed policies, and failed logic is mind numbing. They make terrible and hurtful policy decisions and then act surprised when it blows up in their face, and then blame other nations for not giving us more oil & gas, when they’ve been the ones crushing the energy independence we enjoyed just 2 years ago as the world swing producer of oil and nat gas.
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Copper broke out to an all time high, Zinc rocketed up to a 16 year high, Aluminum shot up to all time highs, Nickel broke out to the upside, Tin ratcheted higher and higher, and Palladium and Rhodium shot into the stratosphere. Food costs went up. Labor costs went up. Services went up. Cost push inflation was raging on, and yet, we heard it was merely the base effect. Don’t worry markets and don’t worry Main Street…. the inflation you are seeing is merely “transitory” and after a blip in March and April, things will settle down in the late Spring or early Summer and the Fed will use their “tools.”
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When many of us challenged this mind numbing nonsense and stated emphatically that there was no way inflation was transitory, people defended Powell and the Fed goons. The Fed has your back…. right? People asked everyone to be patient and we’d see inflation cool back off again in no time….
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As time went on it became more and more obvious, even to the most dim members of society, that inflation appeared to be getting even hotter though. 2.5%, 3%, 3.5%, 4%, 4.5%, 5%, and now in October 6.2%. Wasn’t inflation supposed to cool off in the hot summer reopening trade? It doesn’t look like that happened. Then more and more banksters admitted, “Inflation is sticking around longer than expected and is frustrating.” {Oh really?}
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More and more people started scratching their heads…. “Why isn’t inflation going back down? Why are prices and wages continuing to climb? Why can’t I build that home for the cost I was quoted last year? Why are movies $15 now? Why is my grocery bill going up for the same items? Why is my energy bill going up? I thought this was all just base effect right? I thought Jerome Powell told me it was just transitory?
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At the last Fed meeting in November, Powell decided to completely redefine what they had previously stated as “transitory” ending in a few months, to the new definition that what they really meant was “not that it had a time component, but that it would come to an end eventually.” Geeze thanks for that amazing insight, but all things eventually come to an end. Our very lives are “transitory” as is all of human society at one point, but that is not what they were messaging last year or the beginning of this year at all. It’s absurd that so many swallowed their BS in the first place, but those same people just bought this latest load of horse dung again, now focused on it becoming “disinflationary.”
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Look, even if inflation doesn’t stay at 6% and ratchets down to 5% or 4% or even 3% that is STILL inflationary. Your purchasing power is STILL being eroded by 5% or 4% or 3% in that scenario. Sure the rate of change in negative real rates may go less negative, but it is still inflationary. Period. Disinflationary if we go to 0% or deflationary where all the prices drop way lower than they were for the last few decades. That is incredibly unlikely to happen. No, 3% inflation or 4% inflation is still inflation.
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Now the Fed has stared reducing the amount of bonds it is buying (emphasis on the part about them still buying…) and their balance sheet is swollen and bloated with debt. To fight inflation, they need to start hiking interest rates, but how far can they really hike them before the interest on the debt becomes mathematically untenable. (2.5%… 3% ?). Can the Fed go from classically “behind the curve” to “normalizing interest rates” at where things are now at 6%? How about hiking them to 5%? 4%? Historically those are quite “normal” interest rates, but people have amnesia now, and there is nothing “normal” about this financial backdrop.
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Next year, it will dawn on even the most dim, that the Fed is not going to be able to hike rates up to where inflation is at, and the jig will be up. At that point, many are going to have an “ah-ha moment.” That is the point where they realize the emperor is wearing no clothes. That is the point where the music will stop, and people will start scrambling for deck chairs on the Titanic. That is the point where Gold will shine once again, as more than just a pet rock, and as a hedge not against inflation, but a hedge against the loss of confidence in the Fed and government to solve this issue.
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If anything there will be no solving of this problem, but there will be fiscal insolvency. It’s going to be a turbulent period, and a time of great change, and it will shake the tree and knock all this excessive froth from money sloshing around the system. Maybe people will be able to sell their $650,000 digital art NFTs on the blockchain, their $500K Hunter Biden paintings, their very valuable Shiba Inu altcoins & Dogecoins, and their $85 farts bought on the blockchain for something real and tangible. I sincerely hope it works out for them. However, many will have chosen…. poorly.
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In contrast, some will have built a financial life-raft for their families with hard assets and planned for a rainy day. Good luck to all the good folks here at the KER in the turbulent times we have in front of us.
Hi Ex, I have been talking about The Federal Reserve here for years, the biggest inflation we are seeing is the inflation of credit. That to me is where the talk on inflation should be centered. The public doesn’t realize what is going on because the mainstream media doesn’t discuss this, if you can’t connect the reason for inflation, you will never be able to fight it. The public needs to also be able to understand that if you can’t raise rates you can’t stop speculation, and inflation will never be tamed without causing a crash and bringing down the economy. DT
Bingo DT. Well-stated.
DT: Destruction of Glass-Steagall was the greatest spur to 21st Century speculation.
Dick Tracy,
You are spot on about what would happen if the Fed began “normalizing” rates and what I mean by normalizing is 5%, which they won’t do.
However, something really strange is going on.
Why would the Fed take so long to stop bond purchasing and why are they even afraid to set rates at 1% or 1-1/2% when there is no home inventory?
(1-1/2% is still very accommodating and because of lack of inventory it won’t cause current home prices to go upside down in value)
Really the only thing that can cause home values to go upside down in value (on home purchased in the last 12 months) and cause borrowers to lose their homes, is if consumer goods and especially the price of gasoline continues to rise and cause their credit cards to max out. That is when it will be impossible hundreds of thousands of new borrowers to make their mortgage payments as they made those purchases when home prices have gotten out of hand. (Paid too much)
A small simple raise to 1% or 1-1/2% now would at least ease the growth of inflation and give new mortgage holders the ability to make their payments. But with crude still rising, 1-1/2% might not be high enough, right?
The new oil patch policy by the Biden Administration is the other variable (besides excessive credit) that will kill the economy as we are headed toward $100+/barrel really with no end in sight. The only way crude will shrink now, is when crude prices have drained all the excess liquidity out of middle-class consumers and businesses, which will force them to cut back which means job losses.
The sad truth, is OPEC will cut production and keep prices high and keep draining more liquidity from North America. Why would Biden allow North American to become slaves to other Continents? The current Fed Mandate sees any slight price drop because North American’s are forced to cut back, the Fed will see deflation and want to artificially inject more inflation into the economy.
If this policy continues and cause Dollars and Peso’s to keep leaving North American shores, the Fed will see a shortage of dollars circulating within our economies, then the Fed will be forced to start printing again in trying to prevent crude from melting down the economy.
If North American currencies become strong again and the change the oil patch policies change back to pre-2020, then we’ll be able to extract those dollars and Peso’s back into North America and circulate on our shores again. But that is not going to happen until the US gets a new Pro-growth President, which not happen either.
Nobody talks about crude. Prices are higher now with less consumption compared to Dec. 2019.
Inflation1, if The Reserve banks lift the rates from 1-1.5% the speculation has gone on so long that speculators would be willing to pay much more than that in the bid to keep prices rising. The system can’t take anymore than that without bringing about a terrific smash in the market. DT
Great discussion Inflation1 and DT.
Great Post Ex!
Ditto
Thanks Glenfidish.
Ex: Would the Money Monsters give up the Federal Reserve System (which is essentially under their control)?
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Tight Volcker was followed by Loose Greenspan.
Is there a rhyme for our time?
Hi BDC. I see it as unlikely they give up the money monster, and there is no tight Volker this time. We are going to be posting an interview with Craig Hemke soon that outlines who he think will be running the Fed next, and it will be an army of MMT doves.
Survivors of the Altair IV Aviary? (‘Altaira’ Brainard??) 😉
Yep!
Publish that commentary…somwhere…A++
Much appreciated Larry.
Rocks And Stocks News Market Commentary
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Allan Barry Laboucan – Nov 10, 2021
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> Stocks discussed:
– Sokoman Minerals $SIC, high-grade gold drilling results. Starting at 2:26.
– i-80 Gold $IAU, PEA reported. Starting at 7:40.
– Pretium $PVG, takeover offer. Starting at 12:24.
– New Found Gold $NFG, changing to a new assaying method. Starting at 14:53.
– Northwest Copper $NWST, recent drilling results and $20 million bought deal financing. Starting at 19:26.
– Canstar Resources $ROX, recent drill results from Newfoundland gold project. Starting at 23:45.
– Candente Copper $DNT, cheap copper company. Starting at 27:40.
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Brixton, BBB. Trading halt over.
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https://brixtonmetals.com/brixton-metals-provides-an-update-on-the-hog-heaven-copper-gold-silver-project-montana-usa/
Brixton, BBB, this is the news release I meant to post.
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https://brixtonmetals.com/brixton-metals-drills-19-25-g-t-gold-over-11m-within-139m-of-2-14-g-t-au-all-within-187-5m-of-1-6-g-t-au-at-the-trapper-target-on-its-thorn-project/
/GC day has big volume for 10:30 am…glta
Current GDX Crow Lines : https://postimg.cc/0KQmTnx6
Important GLD Crow Line : https://postimg.cc/f3LvFcz3
What a move by Brixton!
Ann, keep an eye on that Klondike it’s getting ready to power move like Brixton just did.
Cheers
👍Hey Glen.. very happy with the bbb move.I am trying to figure out why Kottenay Resources shares(4800) ..appeared in my account the other day. Not a life altering event imo lol and they don’t have a stock symbol attached to them..so what’s the sense of them if you vant trade them?
Ann,
You mean free shares 🤫lol.. ya that sounds like algorithms out of whack
I hope you find resolution quickly 🙂
All the best
Hi Ann, those are spinout shares in a new company where Kootenay created a new publicly traded company with some assets. So yes, free shares for you…and me in the new company 🙂
Hang tight as they just take a while to get the ticker and get them listed with the exchanges. Spin out shares are a good thing for surfacing more value for assets that were not previously getting the attention they should, and they can raise capital separately, etc…
Kootenay Silver and Kootenay Resources Announce Completion of Spin-Out Transaction
– 2 Nov 2021
https://ceo.ca/@newswire/kootenay-silver-and-kootenay-resources-announce-completion
Oh well Thanks anyways Glen. But not a big deal
Thankyou Ex… makes sense..patience
Yes indeed Ann. 🙂
Overall, I thought it was the right move by Kootenay to daylight those assets in another separate vehicle.
Why US Inflation Is So High, And When It May Ease
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By Paul Wiseman – Associated Press – November 11, 2021
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“Inflation is starting to look like that unexpected — and unwanted — houseguest who just won’t leave.”
“For months, many economists had sounded a reassuring message that a spike in consumer prices, something that had been missing in action in the U.S. for a generation, wouldn’t stay long. It would prove “transitory,’’ in the soothing words of Federal Reserve Chair Jerome Powell and White House officials, as the economy shifted from virus-related chaos to something closer to normalcy.”
“Yet as any American who has bought a carton of milk, a gallon of gas or a used car could tell you, inflation has settled in. And economists are now voicing a more discouraging message: Higher prices will likely last well into next year, if not beyond.”
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https://www.boston.com/news/politics/2021/11/11/explainer-why-us-inflation-is-so-high-and-when-it-may-ease/