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Central Planners Clinging to Hope That Inflation Is “Transitory”
Shortages and Price Hikes Getting Harder to Dismiss
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
As trading closes out for October ahead of Halloween, the specter of inflation is haunting markets.
While some investors still cling to the hope that it will be transitory, a growing number are now worried that pricing pressures and even shortages will intensify heading into Christmas – and possibly get worse in 2022. Discussions of the term “hyperinflation” have even made the rounds on social media following a warning from Twitter CEO Jack Dorsey.
More on that in a bit. But first, let’s review this week’s price action in precious metals markets.
Gold over the past few trading days has been oscillating around the $1,800 level. Prices currently come in at $1,783 an ounce to register a weekly decline of 0.9%.
Turning to the white metals, silver prices are down 2.0% this week to trade at $23.95 an ounce. Platinum is off 3.0% as prices settle in at $1,024. And finally, the palladium market is putting in a weekly decline of 2.9% to trade at $1,996 an ounce.
As we’ve been repeating in recent weeks, metals markets have yet to fully reflect rising inflation risks. The bond market is also showing a major disconnect in relation to inflation. In fact, yields across all durations are among the lowest in history when measured in real terms.
The latest CPI reading shows consumer prices rising at an annual rate of 5.4%. Even assuming that number doesn’t understate inflation, which it probably does, a 5.4% rate of depreciation on the currency will be absolutely devastating to U.S. bondholders.
A 10-year Treasury currently yields less than 1.6% -- or negative 3.8% in CPI-adjusted terms. Of course, the Treasury market is heavily manipulated by the Federal Reserve, which buys a majority of all new issuance.
Still, millions of ordinary Americans have much of their wealth stuck in low-yielding financial assets such as bonds, money markets, pension funds, and annuities. They stand to get clobbered by inflation, especially if it continues to rise.
Jack Dorsey, the CEO of Twitter and Square, caused a stir recently when he tweeted that “Hyperinflation is going to change everything. It’s happening.”
To be clear, we aren’t in hyperinflation right now by any measures. Hyperinflation doesn’t just mean rising inflation or stubbornly high inflation. It refers to a parabolic rise in price levels that culminates in the currency becoming shunned and effectively worthless.
Notable recent examples include Zimbabwe and Venezuela. In hyperinflation, price rises are so rapid that a loaf of bread can get more expensive between the time a shopper picks it off the shelf and goes to pay for it at the register.
Hyperinflation has never occurred in the United States. That said, the U.S. dollar has lost about 97% of its purchasing power since the Federal Reserve was created in 1913. So, it’s on track to become worthless eventually.
It’s not clear whether Dorsey thinks a dollar collapse will happen suddenly or play out over a period of decades – or if he is being deliberately hyperbolic to get attention. The enigmatic tech billionaire is promoting Bitcoin as an alternative, though.
Some speculate he may have other motives as well. Through Twitter and his payment processing company, Dorsey has amplified certain political voices while banning others – including that of former President Donald Trump.
Twitter’s so-called “fact checkers” have also been busily scrubbing the site of voices that contradict official statements issued by bureaucrats at the Centers for Disease Control and World Health Organization.
Google and Facebook have been doing likewise – purging content deemed to be “misinformation” even though third-party organizations used for fact checking have themselves been caught spreading misinformation.
Facebook CEO Mark Zuckerberg has been accused of buying the 2020 election by funding massive get out the vote efforts in predominantly Democrat-leaning jurisdictions. His social media platforms are certainly not viewpoint neutral like a conventional telecommunications platform would be – even as it still enjoys liability protections as though it were simply a neutral forum.
If Silicon Valley gets billions of people around the world who are hooked on social media to also adopt digital currency, then Big Tech oligarchs would be in a position to determine who gets to engage in online commerce and who doesn’t.
Jack Dorsey wants a Bitcoin standard. Mark Zuckerberg wants to issue his own so-called “stablecoin” for use in his brave new digital universe.
Facebook has now rebranded as Meta – reflecting its ambitions to create a virtual reality “metaverse.” The metaverse promises to be even more immersive than its existing social media platform – which has fostered addiction, depression, and mental illness among young people especially.
Zuckerberg released a video presentation touting the metaverse and its potential to further isolate users from physical reality.
Mark Zuckerberg: As we move beyond what's possible today, beyond the constraints of screens, beyond the limits of distance and physics, we'll all need to work together from the beginning to bring the best possible version of this future to life, a future where with just a pair of glasses, you'll be able to step beyond the physical world. Isn't that the ultimate promise of technology, to be together with anyone, to be able to teleport anywhere and to create and experience anything? From now on, we're going to be metaverse first, not Facebook first. That means that over time you won't need to use Facebook to use our other services. And as our new brand starts showing up in our products, I hope that people come to know the Meta brand and the future that we stand for.
Some people may be eager to spend their lives in Zuck’s metaverse. Others are creeped out by it and find the idea of allowing technology to replace physical experiences disturbing.
Many are finding that logging off social media, or at least reducing time spent on it, reduces their stress levels and improves their overall well-being.
Reducing exposure to financial media can have a similar effect. The minute-by-minute upticks and downticks in markets are irrelevant to a sound, long-term investing strategy.
What’s relevant is being positioned for a major market trend that may materialize. And being prepared for any economic, political, or technology threats that may emerge.
The soundest way to hedge against risks inherent in financial and digital markets, in our view, is to hold precious metals in physical form.
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a weekend everybody.