And away we go for another week of reckoning. It’s a mighty big one.
We’ll know by Saturday if the Federal Reserve money-printing machine is going to go into another gear.
The price of Bitcoin [BTC] suggests it will. The infamous crypto went over US$60,000 in the days just gone. That’s AU$77,000.
I wrote an issue in 2019 to buy bitcoin. It was AU$7,000 per coin. Them’s were the days!
But why is the Federal Reserve at the centre of discussion? Well, bond yields keep rising. That’s the market pricing in stronger growth.
That’s almost certainly happening. One of my colleagues covers the technology sector in the US.
Many tech companies in the US are exploding in cash flow and earnings.
Business is booming!
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But we also have Joe Biden’s massive fiscal stimulus going through. That’s US$1.9 trillion in financing that needs to be sourced.
And it will be. The major question is: Who is going to buy the bonds?
Clearly many in the market will no longer be happy to lend to the US government at the ridiculously low rates we saw last year.
Either borrowing costs go up or the Fed steps in to buy the bonds directly.
That would ‘monetise’ the deficit even more and give inflation fears more potency.
Watch bitcoin, gold, and land for the market’s judgement whatever happens.
Now we are locked into the absurd doom loop of the central banks. They buy bonds — with money created from nothing — to suppress interest rates.
That stokes inflation. So they buy more bonds to drive rates down again. Inflation will go up even more!
We already know that the Reserve Bank of Australia and the European Central Bank stepped up their ‘QE’ to fight back against the market. Does the Fed have any other choice?
I say that because a rise in US yields would almost certainly take the rest of the world higher. The 10-year yield is the global benchmark.
Odds on the Fed stepping in to push down yields and maintain its forecast of no rate hike until 2023.
It’s a known fact that central banks communicate and coordinate for their own ends.
You can forget about earning a decent yield in the fixed income market or bank deposits. And no one with a brain believes the official inflation figures.
After all, you only have to look at the rising trend of commodity prices to see that price rises are heating up.
And this is where input costs come from. Here’s an example: IHS Markit forecasts 83.4 million cars will be sold in 2021.
That’s about 11% higher than pre-pandemic sales in 2019 of 75 million.
And what is a car but a lot of steel, glass and — these days — semiconductors?
None of these are getting any cheaper. The demand for semiconductors is so huge right now there are shortages.
All this is why I pay not attention to those calling for a huge crash or drop in equity markets. We’ll get lots of volatility, no doubt.
But there is simply too much to be bullish about to be a long-term bear.
We are on the cusp of an era of great wealth creation and destruction.
Old industries that once seemed so dominant — like fossil fuels — are clearly waning. Equity investors take note. These are trading instruments now, not long-term holds.
But the flip side is entire new sectors are coming to reshape the financial markets. Bitcoin and crypto are proof of that. But there are others.
For example, Goldman Sachs tells us that it expects future mobility — think autonomous vehicles — to be a US$7 trillion market.
That’s gigantic. With this kind of opportunity presenting, do you really think now is the time to be hunkering in cash?
Not me. I’m strapping in for the ride all the way for the next five years. Sure, I’ll make mistakes. There’ll be scary dips along the way.
But a massive boom is brewing worldwide. I’ll keep saying the same thing. Buy stocks, gold, bitcoin, and land — anything that can’t be created on a printing press or is a claim on real resources.
Hell, even a JPEG on a blockchain just went for millions.
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
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