The era of price discovery, the business cycle, whatever you want to call markets deciding the real value of something, is over. The Fed killed it.
I told you last month that September has a bit of a thing for setting October up to deliver market panics and to expect heightened volatility.
On September 21, 2020, the major U.S. indices started the correction I told you would happen. After a 900-point drop in the DOW, and before the market had even closed, Fed Chairman Jerome Powell was on the tube explaining to everyone that the Fed stood by to do everything it could to stabilize markets.
That includes letting inflation run hot - and attempting to ignite it - which we discussed last month.
Stock markets are still close to record highs. The median home price is at a record high of $310,600. That's an increase of 11.4% year-on-year, which offsets any increase in purchasing power that potential buyers are getting from record-low interest rates.
There are two words that the Fed fears most: stagflation and deflation. With real inflation picking up just as most developed economies are slowing down, the risk of both is why the Fed is begging for core inflation to show up.
It'll work, just not the way the Fed hopes it will.
The federal budget deficit has now surpassed the $3 trillion mark. It is the largest in this country's history and not by a little.
The largest previous deficit was $1.4 trillion in 2009 when the Tea Party was throwing tantrums all around the country about the deficit during the financial crisis.
The U.S. government has now spent more than $6 trillion this year. Revenue accounts for half of that. The Treasury has borrowed the rest. Sound sustainable?
Despite the deficits, the U.S. dollar has started to trickle higher as I expected it to. The reason? Same one I've cited for five years now: We're the cleanest dirty shirt in the currency laundry basket.
You'll Never Be On The Inside!
So join Outsider Club today for FREE. You'll learn how to take control of your finances, manage your own investments, and beat "the system" on your own terms. Become a member today, and get our latest free report: "Prophets of Doom: How to Make Pessimism Pay".
We never spam! View our Privacy PolicyAfter getting your report, you'll begin receiving the Outsider Club e-Letter, delivered to your inbox daily.
The European Central Bank's balance sheet now tops 6.5 trillion Euros for the first time ever. The balance sheet now equals 63.6% of Eurozone GDP, which pales in comparison to Japan's 135.3%. The Fed comes in at 36.3%.
You don't have to like the dollar, but the numbers are clear.
In Europe, negative rates, talks of another lockdown, and investigations into major European banking institutions on top of what was already a COVID-19-related recession has led to European banks significantly lagging (by over 30%) the STOXX index.
With negative rates, a bond market with no bid, and declining economic growth, the Euro is in serious danger of needing to restructure itself.
A restructuring that I believe the market will force within the next two to three years.
Like the deficits in the U.S., you can feel however you want to feel about why the COVID-19 lockdowns happened and if that was the right approach but the bottom line is the effects will be felt for years and are exposing what was already an extremely fragile economy.
The problem is that every Euro spent today delivers less and less every time a new Euro is printed and there's simply not a lot of time or options for the region to right the ship. Tick tock.
To your wealth,
Gerardo Del RealEditor, Junior Mining Monthly and Junior Mining Trader.
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.