Focus on What’s Real

McAlvany Recap • Apr 10 2023
Focus on What’s Real
MPM Posted on April 10, 2023

America continues to emphasize socialism and identity politics rather than the development of strong character and the competent shepherding of scarce resources. In short, what people want is more important than character or accomplishment. Such emphasis does not make for strong nations.

That truth is beginning to assert itself. America—the country that was once as good as gold because it transacted in gold; developed strong, honest, and industrious character in its people; made good, useful, and many things; transacted skillfully and honestly with other people, companies, or countries; and cared more about people’s welfare than their feelings—has now reversed all of those traits. Unsurprisingly, other countries are looking elsewhere for their military alliances, monetary unions, and cooperative ventures.

Key indicators, such as gold-buying by central banks to hold something other than dollars as their reserves, unsympathetic treatment of the US by OPEC+, violation of US trading strictures, and more, now characterize the world’s trade and relations where once the US called all the shots that mattered.

If the US’s influence is waning, what does that portend for the nation itself? Can the US continue to dominate and define the conditions for world trade? Can debt serve the purpose that savings once fulfilled? Can much-loved immature technologies replace hated but fully functional ones? Can the celebration of make-believe things succeed in a reality-based world?

The graveyard of empires is filled with those who answered these or similar questions affirmatively. Dreams may be pleasant, but then the morning comes. If America’s leaders continue to base major policies on fantasy, be sure to base your own situation on the demands of reality discussed below.

Key Takeaways:

  • Is the petrodollar running on fumes?
  • Monetary stimulus doesn’t tend to re-inflate pierced bubbles
  • Is the Fed losing its clout?
  • The “barbarous relic” is looking hale and hardy

The McAlvany Weekly Commentary: Continuing their emphasis on the telling importance of reality and the many ways real things are being brought to the fore today, David and Kevin turn their attention to the credit markets and the viability of the dollar trading bloc—both based on not-so-real money. With specific regard to the former, commercial real estate debt differs from personal real estate debt in that its terms aren’t typically locked in. It must be renegotiated periodically, which makes it particularly susceptible to the effects of rising interest rates. The results can be catastrophic, as the hosts discuss. With regard to the latter element of reality, the hosts note that Japan has begun buying oil from Russia at prices above the cap mandated by the US. OPEC+ has also established a new oil production cut without consulting the US. Rumors of the death of the dollar trading bloc are certainly premature, but the arrangement is clearly past its prime and showing signs of declining health.

Credit Bubble Bulletin: One of the greatest benefits of listening to or reading the work of experts who have very long track records is their ability to encapsulate and simplify complex, major concepts. Says Doug of recent events in the banking industry: “Today’s key question: Is the U.S. bank lending boom still intact, or has that Bubble been pierced? This touches on a fundamental Bubble dynamic: A Bubble maintaining an inflationary bias will demonstrate a powerful response to stimulus. Importantly, however, as this same bubble deflates, it will develop increasing resistance to stimulus measures.” He then gives historical evidence for the truth of this incisive observation from the tech boom of the late 1900s/early 2000s. Doug was already an experienced analyst at that point, and his ability to parse even intricate and complex market developments has only increased. Avail yourself today of his vast analytical excellence. It’s free and easy to access. Just click the link at the beginning of this summary.

Hard Asset Insights: Bond market v. Fed—it’s not a Supreme Court case, it’s an economic tussle. “Despite what Powell and the Fed have said about not cutting rates in 2023, the bond market is now pricing in multiple rate cuts from the Fed in the second half of the year.” Over the past few months, Morgan has made clear that the Fed’s credibility, reputation, and resulting effectiveness are at risk in the current situation. Early indications are significant, among which the above instance is but one. Clearly, the ease of life fostered by easy credit and low interest rates is paid for by more difficult life, harder to obtain credit, and higher interest rates down the road. It would seem that we are now down the road. Can the Fed get us back on Easy Street? Morgan details the many obstacles to doing so. And his analysis of recent bank lending developments is particularly ominous: “If you choke off credit, you choke off the economy.”

Golden Rule Radio: Miles welcomes Robert back to the program this week, and the hosts take a detailed look at recent gold action. In the face of a weakening dollar, the metal has been particularly strong, resting just $50 below all-time highs at show time. Despite such strong action, the hosts believe further bullish price activity could be on order, and they examine ways in which that might play out. While a pullback is almost inevitable at some point, “the momentum is obviously up with gold,” notes Robert. Miles, in turn, notes that investors are looking for liquidity, safety, security, and protection. These characteristics are currently optimized in gold. The hosts also look at bond and equity markets in light of the recent banking crisis.

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