Fed ‘put’ return inevitable by November

Its amazing how quickly buoyant enthusiasm turns to dread and doom when markets turn south.

We now know June inflation blew the lid off expectations at 9.1 percent. June also marked the end of two quarters of negative major index performance, which was correctly forecast by Ed and I back in November when the rumblings from the Fed first suggested the return of hawkish monetary policy.

Here’s the thing: the Fed has become the mother hen to the markets, fretting every time her little chicks falter in their growth. In other words, the Fed will restart QE, and will lower interest rates.

How do we know?

The Fed is acutely attuned to the wellbeing of the upper 1 percent, who they all consider themselves beholden to for their jobs. The upper 10 percent are the biggest victims of plummeting markets, and so while the Fed is arguably concerned for the welfare of all citizens, it really only cares about the top echelon.

So, if inflation can’t be tamed by raising interest rates (which they will probably try one last gasp of at the next meeting on June 27th), the tacit agreement will be to throw the economy under the bus in favour of the stock market by printing more QE and forcing rates back down.

Unfortunately for us peons, the likelihood of any kind of reversal in markets before this is extremely unlikely.

What’s a Poor Farmer to Do?
The reality is that while prices are plummeting, screaming buying opportunities are emerging. Gold, for example, has definitively demonstrated its historical correlation to government monetary excess by holding its ground, relatively speaking, while all other assets crash.

Even after today’s 9.1 percent inflation number, gold is only down just over 3%! Compare that to NDX at -28%, S&P at -18%, or even worse, Bitcoin down by a stunning 61%.

In the current environment, gold is outperforming absolutely everything. This is a fundamental milestone, in that it has firmly separated itself from any comparison to crypto as a viable reserve asset.

Gold has, to date, proven itself once again to be the monetary standard against which all currencies are measured, and crypto delusionists need to embrace this reality else suffer the consequences.

US Mid-terms will pressure the Fed to act…
We know now, after Donald Trump directly threatened Jerome Powell’s job back in 2021, that the Fed, despite being labelled as a private institution, has become politicized to the nth degree. Therefore it is reasonable to deduce that there will be pressure from the Democrats in the crowd to deliver the illusion of a recovery in markets before and during the midterm runup period.

So while markets succumb in the summer heat now, fear not! The Fed will have to expose its teat to service the mewling markets clamouring for its milk, and since it has created the role of mother, it must needs oblige.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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