The Worst Part is Nearing
Silver is toying with dipping below $20/ounce, which means that we are in the final stages of capitulation for the markets. Wall Street has fully embraced the notion that we are in a recession and that once the GDP numbers are announced, it will be official.
Today, I Want to address three main topics:
- Is Biden to blame for everything?
- What economic environment are we in?
- When does silver turn around and what is a conservative price for the metal?
Keep in mind that on July 27th, the FED will raise rates by 75bps (most likely) and that this will take the FED Funds Rate to 2.25%, the same level that it reached in December 2018, when markets threw a tantrum and caused the FED to turn dovish.
Is it a fair, logical and accurate assessment to point at President Biden and claim that his decisions and his policies or LACK THEREOF, is the chief reason that we’re in the midst of an inflationary recession?
It really isn’t and I want to fully clarify what the role of a president is in all of this:
- Supply Chain Constraints: Shutting down the global logistics operation, which was a delicate dance of genius freight routes and human labor, altered the predictability with which consumerism went on smoothly for years.
Biden’s administration was certainly late to understand that the ports are overwhelmed, understaffed and unprepared to handle the impacts of mega-changes in freight of goods, so their lack of initiative with regulations, staffing solutions and ports incentives exacerbated an ongoing nightmare.
- Inflation, due to stimulus measures: Under Bush, Obama and Trump, the Federal Reserve kept interest rates super-low (at zero, for many years) and kept monetizing the national debt, by increasing their balance sheet with Treasuries and Mortgage-Backed Securities.
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Biden’s term isn’t the first to engage in reckless deficit spending, but his insistence on more stimulus checks and on record infrastructure bills created a “free-money” environment, when the right thing to do was to educate the public that this foo-foo dust is not magic and that while the government supplemented the incomes of individuals and businesses, during the panic of the health restrictions, it cannot and will not continue to do so.
Bottom line is that with or without Biden, these issues would have existed, but the slowness of response has deteriorated conditions, all the way to a full-blown recession and lowered Biden’s approval ratings so much that even if he wanted to make things better now, it would be hard for his plans to go through the Senate and through Congress.
Why are we on track for the worst year in the history of the stock market?
This is the answer to topic No.2 from above, which is what economic environment we are in?
At present, we went from a deflationary expansion to an inflationary recession.
Between March 2009 and November 2021, central banks were able to create credit and lend it out, while keeping rates zero-bound and more Americans found employment, without this generating excessive inflation.
In a deflationary expansion, credit is added, with minimal blowback, so growth is appreciated and valuations stretch, as lots of innovation occurs.
Today, we are in the exact opposite of that… an inflationary recession. This means central banks are aggressively raising rates, selling bonds and shrinking their balance sheets, growth valuations are collapsing, inflation is at multi-decade highs and minimal innovation is funded by venture capitalists, who hold cash instead.
This leaves us with the 3rd topic, which is: When does silver turn around and what is a conservative price for the metal?
Thursday’s entire publication will be devoted to it, now that the backdrop has been thoroughly discussed.
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