China Eases Restrictions

I’ve spent the past two days listening to all of Powell’s speeches in late 2021 and the entirety of his public appearances in 2022, and I am convinced that the most important fallacy of his ways is this romantic theory that if he just gets inflation under control, we will go back to the same type of Goldilocks economy we had in the 2010s.

Wall Street has not questioned Powell’s basic and fundamental premise that, whether transitory or more entrenched, once the FED slows inflation and finally changes its course to deflation, we will resume the kind of economy we had between 2011 and 2019.

Because Wall Street fully bought into this, fund managers felt comfortable holding USD cash and Treasury bonds in 2022, because if inflation is really trending down, then real returns can be had with bonds.

But, after the most aggressive tightening cycle since the inception of the FED, after completely destroying growth and credit, real estate and consumer sentiment, inflation is still super-high.

Wall Street must accept that the FED’s game plan, its operating model of using interest rates and balance sheet maneuverings to alter trends that are getting out of hand is good only for a quick fix, but if the global forces steer the world one way, the FED just doesn’t have enough tools to really make a dent in the underlying tectonic plates that shape our world.

The region over which the Russians and the Ukrainians (aided by the west) are fighting has long been coveted by both.

Going back hundreds of years, control of Crimea and the Black Sea and the geopolitical importance of a neutral Sweden, Norway, Finland and Poland, have been crucial for Russia’s security, as it is a geographically flat country, ripe for conquest.

Indeed, Russians have fought major wars, so much so that they call their land “Mother Russia.” Therefore, I believe that they won’t capitulate or go back on their stance until they have no other choice.

On the other hand, the Ukrainians are, of course, only in the position they’re in because the U.S. and Europe are willing to pay the short-term price of higher energy prices/shortages, foreign aid costs and wartime economics, in order to firm their hold over the China/Russia bloc.

In 2023, this unity of the West might come under pressure. As Germany, France and other EU nations fall into recession, more friction and pressure will arise, but the cost of failure may be too great, as more nations are scheduled to join NATO alliance.

The takeaway is that in wartime, countries hold much fewer foreign reserves and far more GOLD.

We’ve entered a big war, one over dominance of crucial energy sources, access to the Black Sea, and prestige.

Secondly, we’re clearly seeing that while growth is slowing fast in the West, China is lifting many of its outdated and strict Covid-19 restrictions, which will invigorate its economy out of the slump and into positive growth again.

China is a commodities economy and it will further weaken the dollar in 2023, at the same time as investors realize bonds are STILL TOO EXPENSIVE to earn inflation-adjusted returns.

We are pricing a 30% rally in gold for 2023 at minimum, which could take the metal to $2,350; in an extremely bullish scenario, we could see a vertical move to $2,582, where we believe the fair value is!

Best Regards,

Lior Gantz
President, WealthResearchGroup.com