EPISODES / WEEKLY COMMENTARY

Stimulus Fever: To Infinity and Beyond!

EPISODES / WEEKLY COMMENTARY
Weekly Commentary • Feb 09 2021
Stimulus Fever: To Infinity and Beyond!
David McAlvany Posted on February 9, 2021
Play
  • Other People’s Money, by the millions, billions, trillions…
  • Larry Summers doubletake: This is gonna trigger inflation
  • Income starvation forces good money into really bad decisions

 

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Stimulus Fever: To Infinity and Beyond!
February 9, 2021

Gold is not a gamble. It’s not a GameStop roll of the dice. Pure and simple, it is insurance. We’ve talked about it as stupidity insurance because we know who is managing the money back on the East Coast because this administration’s agenda comes at a high price. And you have change in the pipeline, spare change. Because maybe that’s all you’ve got at the end of this saga. — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. Now, I’m Kevin Orrick along with David McAlvany. 

David we’re recording at night tonight because you just got back from Aspen. You took the family, you don’t necessarily do all the fondue restaurants when you’re there, but when you go with families, and I think you went with another family, you tailgate at Aspen. Tell us a little bit about the powder turns and the tailgating.

David: Unbelievable. We had the best snow that Aspen’s had all year long.

Kevin: Right.

David: And we did these passes called the mountain collective passes, where you end up with two days at 20 different locations around the country.

Kevin: And it forces you to travel all over Colorado and Utah, right?

David: Yep. Colorado, Utah. We may make our way to Wyoming, we’ll see.

Kevin: Okay.

David: But Aspen was what we chose this weekend. And with COVID, most of the restaurants are closed anyways. So we brought food to tailgate, and we’ve got our fire ring and camp chairs, which was fantastic. But 20 inches of fresh powder the day before we get there. And most of the terrain we’re interested in skiing is closed for avalanche mitigation. So we get fresh tracks. Unbelievable.

Kevin: See, that’s the thing. You told me that you were on a slope with the boys that was over 40 degrees as far as the steepness. Now we unfortunately, not to darken the mood here, but we have lost a number of people here just over the last week to avalanches. And so you really have to know your limits when you’re skiing a steep slope. You all waited until they pulled the ropes back. What were you, the first 20 people on the top of Aspen Mountain?

David: That’s right. Yeah. They had been working on avalanche mitigation for a couple of days.

Kevin: Right.

David: And finally opened it up and we just happened to hit the top of the lift as they’re dropping the rope. And it’s a mad dash to see who can get in line and up to the top as fast as you can for the freshest of tracks.

Kevin: But you as a dad, it hits you when you were going down the slope. It’s like, “Wait a second, my boys are with me.”

David: Well, actually when we were going up the slope because they’ve never done an hour hike to get to where you’re going to ski. We did some backcountry skiing last year and it was a lot of work for a little reward. This was a lot of work for a reward they will never forget. Many runs you’ll forget in your life as a skier. This is one they will never forget. I won’t either.

Kevin: One of the questions you have to ask yourself though is, how much is too much? When you’re going back there and there’s avalanche danger, there’s an attitude. And as we shift to the markets, the Treasury, you just wonder if they’re not playing with avalanche danger right now. They continue to think that they can push it just a little bit more or actually trillions more.

David: You’re on the line of what you can handle at around 40 degrees. I think we skied 43 degrees.

Kevin: Okay.

David: And I could tell the boys were nervous. I was nervous for them. You feel it. And you have that today at the…

Kevin: Your turns are keeping you from falling off the mountain at that point.

David: And I could tell the boys were nervous. I was nervous for them. You feel it. And you have that today at the…

Kevin: Your turns are keeping you from falling off the mountain at that point.

David: Yeah. No, you’re very deliberate.

Kevin: Right, you’re right.

David: And so, yeah, you look at the sentiment from the Treasury today and it’s kind of, we can do more and we should do more. And there is some question as to how close we’re getting to 50 degrees, 55 degrees. Maybe it’s just a little too much. And although Janet Yellen’s no longer at the Fed, she has that full employment mandate seared into her conscience as some sort of a moral obligation. And so there she is this week agreeing with the Biden administration, 1.9 trillion should do the trick. And it will do the trick all right. But as we frequently discuss, there is a difference between intended results and unintended consequences.

Kevin: And one of the things you always learn in economics, especially since John Maynard Keynes, you’ve got a couple of types of stimulus. You’ve got monetary stimulus, which is very easy because all you have to do is print money. And then there’s fiscal stimulus, and that’s building bridges. My son and I were watching World War II in color. And when the war started back in World War II, America had four [aircraft] carriers, but they ramped things up. Talk about fiscal stimulus, they ramped it up to where they could build a carrier a month as America progressed. That’s fiscal stimulus.

David: But what I think we forget is that we’re running the kind of deficits today, in the present tense, that are bigger, that are more substantial as a percentage of our economy than we were in World War II.

Kevin: That’s amazing. That is amazing.

David: And so there’s a general awareness of the difference in stimulus delivery. You’ve got the fiscal versus monetary, and with fiscal you’ve got the direct economic effect coming from the “helicopter drop,” that is, from the Treasury cash into the consumer’s domain. There’s also a growing concern with the inflationary effects of that stimulus being more exaggerated for the consumer. Monetary policy bestowed more wealth into the hands of a few than any other factor in human history. I got to taste a little bit of that this weekend in Aspen where you see a bit of the gap between the rich and the poor created by the monetary technocrats.

Kevin: You’re talking about the chocolate buy.

David: Oh. Well, yeah. So at the end of our last ski day, I stopped in this meat market and I’m always interested in seeing what kind of cuts they’ve got, and whatever, I love to cook. So there we are, and I walk out, I’m getting ready to walk out and I grab a coconut water and a chocolate bar. And I’m like, “You know what? We’ll just have this while we’re playing cards tonight.” So I grabbed two chocolate bars because I wanted to compare them and have a little chocolate tasting, whatever. It’s kind of silly, but I like to do things like that. And I pull out a $20 bill and the guy says, “Well, those are nice chocolates.” And then he says, “The total’s $32.50.”

Kevin: So for a coconut water and two chocolate bars, it was 32 bucks.

David: [Laughter] Oh my gosh.

Kevin: That’s not inflation. Okay, so this is inflation created by…

David: I think monetary policy bestows a certain wealth and disconnect, disconnect. I’ve had Valrhona before, this is not $32 worth of chocolate and coconut water. Today, I think it’s ironic. I think it’s ironic that one of those presiding monetary technocrats, I’m thinking of Janet Yellen again, now gets to take the power of taxation and direct public spending to sort of redress the issues of vulnerability and economic inequality.

Kevin: Did you notice Mario Draghi is back as well? It’s almost like the gathering of the gang. It’s like the third Star Wars movie where they all pose for a picture. It’s like, “Wait a second. Mario’s back.”

David: That’s right.

Kevin: “Grandma Yellen’s back.”

David: He’s entering the political fray in Italy after his long tenure at the ECB. And if it’s not fixing economic inequality, maybe it’s a mea culpa for earlier career mistakes. And something has not changed, something has not changed. They’re wanting to do that with other people’s money. And I think you’re going to find, from this next Treasury Department episode if you will, that to help you with your sense of guilt, a wealth tax is coming. So I don’t know if it’s 3%, 5% and some would argue, “Well, why don’t you just raise corporate taxes, personal income taxes instead?” I think in an age where privacy has all gone away, you can ask and receive that which you want if you are in the Treasury Department. A wealth tax will require visibility of all assets. And this takes us back in time to an earlier era where it started with a window tax. And then all of a sudden, people started painting in their windows because they didn’t want the windows because they had to pay more taxes.

David: And so you had reversion to a hearth tax. It’s a little bit harder to take down the chimney, but that’s how the tax man assessed, and so if you can see it, then it’s going to be taxed. And I think that’s coming, privacy again, it’s one of those things that’s been in a long-term bear market.

Kevin: Speaking of privacy, Janet Yellen on the day that Biden was inaugurated, was already talking about cryptocurrencies needing to be cracked down on. And of course, Rogoff, he says cash, everything that is done with cash is criminal. So privacy is going out the window. But I’m going to go back to the carriers for a minute, the aircraft carriers in World War II. To be able to build a carrier every month, you have to have an awful lot of employment manpower, and full employment, that’s something that the Fed is also just laser-focused on right now.

David: Yeah, well, and that brings us back to the helicopter drop. On the one hand, there’s the positive impacts on employment and economic activity, so it’s argued, that is, coming from fiscal stimulus. On the other hand, there are the lingering costs associated with, again, these may be the unintended consequences, but rattling the currency and bond markets. So one has the obvious humanitarian appeal, employment, fair wages, et cetera. And the other seems dry and cold-hearted almost, the more technical and soulless… an issue devoid of… What are you trying to do? Avoid destabilizing markets, contain or control inflation. Again, it just doesn’t have the same feel as putting food on the table, taking care of your family, receiving a fair wage. All of these things evoke a deep sense of feeling. Inflation, why would anyone but an economist concern themselves with theories of price stability?

David: Why would anyone be afraid of something like inflation, which, frankly, the markets of have assumed was like a monster long destroyed, slain, nearly banished from modern memory?

Kevin: Okay. So you bring up memory. We live in a generation right now that’s continually clicking around to whatever information is tantalizing. And one of my hobbies is navigation. I like to do celestial navigation. I read a great book about how our memory cells are tied to our directional cells, and the more we use GPS, the more it actually affects our memory, our longer-term memory with everything else, not just navigation. So what we’re losing, Dave – I also gave you a book called Deep Work, it talks about the same thing. As long as you’re using just short-term memory and continually clicking around, you’re forgetting how to remember. What should we remember about inflation at this point?

David: I think some of the studies on that are pretty fascinating, and maybe that’s a full topic or a reflection for another day. But the value of boredom, where creativity is given birth and new ideas come from. And again, I think we can talk at length about the problems of modern memory and how the brain is being rewired through social media interactions through screen time, and we even have Harvard Medical School that set up a clinic for interactive media and internet disorders. This is a thing to study, right? But the point is, the point is that the investment community is largely positioned for inflation being dead and staying that way with no resurrection possible. And again, no memory that things do change.

Kevin: You can never print money without creating inflation in the long run.

David: And I think anyone with a memory for why currency matters, which is what we were talking about last week, the value of capital and the value of a real and stable currency. For anyone with a memory for why that matters and for why price stability was originally written in as a central bank mandate, one of the two, they’re considered to be behind the times.

Kevin: Modern monetary theory.

David: Well, that’s right.

Kevin: It’s modern.

David: Two versions exist today. You’ve got modern monetary theorists, and then you’ve got more modern currency theorists who would propose the death of fiat currency, would give rise to a digital alternative.

Kevin: Yeah. Just ask the central banks if they want to give the monopoly up.

David: Yeah. And I would actually say not a digital alternative, I would say a digital equivalent. But not to belabor that point, I think we kind of covered it last week. But central banks, you’re right, they are loathe to give up the franchise, and those who know politics well and have a historical sense for how politics are played know that those who play the game effectively are nasty.

Kevin: Well, and the game is really, who controls the ability to spend more than you make? Right? That’s really, if it could be you or me, Dave, I would rather it be me. If you can spend unlimited funds for the rest of your life and not pay a thing.

David: Well, that’s the freedom that we gained through the sixties and seventies. And we’re not talking about sexual freedom or freedom from cultural mores and values.

Kevin: We just got rid of that dirty gold guy.

David: That’s right.

Kevin: Yeah.

David: That’s right. So you’re right. Old habits die hard and spending more than you bring in, it’s one of those political poxes that has been more interesting frankly than COVID. A viral reality amongst politicians for as long as cheap credit and easy money have been a thing.

Kevin: Okay. But this is not a partisan thing. We’re not showing our partisanship right now because Bill Clinton’s Treasury Secretary, even he is shaking his head saying, “Wait a second, $1.9 trillion?”

David: Right, yeah. He’s not so sanguine about that package. I think one of the things he’s looking at is the costs as well as the benefits. He warned in a Financial Times

Kevin: He’s been through a couple of crises Dave. He’s actually seen the consequences of things.

David: Yep. And he was warning in a Financial Times article this last week that the Biden plan might, “Trigger inflationary pressures of a kind we have not seen in a generation with consequences for the value of the dollar and financial stability.” And of course Yellen is more focused on the surface appeal of humanitarian help, saying we already have way too many small businesses that are closing. I don’t think that’s lost on Larry. Larry Summers was around in the policy-influencing position during the global financial crisis. Economic consequence is not lost on him. He understands job losses, business closures.

Kevin: Okay. But I had to laugh when you said that Yellen has focused on having too many small businesses that are closing. It goes back to the old broken window fallacy. Okay. They’re throwing rocks through the windows that they later say they have the solution for. We can fix that.

David: I know. I’m always intrigued when government officials have solutions for the problems they themselves either created or merely exacerbated. And I’m always a little torqued when credibility is never called into question. I think this comes back to what we were saying earlier, whether it’s the interactive media and internet disorders, the clinic there at Harvard Medical School, there’s something happening. And it suggests that the general public just doesn’t pay enough attention to what’s going on around them. And the only time that they do really engage, and sit up, and listen up, is when the media is rapidly attacking like a senseless and insane dog. Then all of a sudden it’s, “Oh, it’s an issue.”

Kevin: So back to Bill Clinton’s Treasury Secretary, Larry Summers. Wasn’t Summers with Obama, as well? Again, we’re not talking… this is not a Republican who’s criticizing this.

David: No, no. It was Summers who was the lead for Obama’s National Economic Council and then previously was the Treasury Secretary under Clinton. And the protest that he puts out there, I think is a reasonable one. You put $1.9 trillion in the economy when inflationary indicators are already picking up, and you might have a big problem on your hands.

Kevin: Summers is the guy that you turned me on to Dave. I had been in the gold business for many years and not read the Summers-Barsky thesis, but you came in and you said, “Kevin, you may not like to read dry, long papers, but this one’s very, very important to read, has to do with gold and interest rates.” And it reminds me of also John Taylor’s rules where you have to have an inflation rate that is lower than the interest rate.

David: And it’s not too long. It’s probably 23 pages, so not a bad commitment. I’ve mentioned the Summers-Barsky thesis from 1988, it was titled “Gibson’s Paradox and the Gold Standard.” And for the nerds out there, I think it’s a must read. You can find it in the Journal of Political Economy. So you’ve got Summers and Barsky that argue that interest rates and gold share a unique relationship, and that real rates, that is, your interest rate adjusted for inflation, has an even more important connection. The short explanation is that people prefer gold when real rates are stuck at low or negative levels. And when circumstances are different, then they find no need to hold gold. So again, if interest rates are rewarding enough after inflation is factored in, then they’ll just move on. It’s kind of greener pastures. So that’s kind of the executive summary. Prices of gold adjust up and down through time in no small measure because of real rates. So, as a gold holder, you want to know something about inflation, in part because that factors into the future flows and commitments coming from investors.

Kevin: In other words, you’re going to jump into interest rates once they exceed inflation enough. You don’t have to sit in gold anymore.

David: Right. That’s the way most investors would think of it. So interest rates exceed the rate of inflation by a large measure, and investor dollars flow out of gold and other assets. If inflation on the other hand is neutralizing the benefit that you have as an investor from an interest rate, interest on your money, taking away too much of the benefit of that income, guess what? Investor dollars flow into gold. And of course the price adjusts up accordingly.

Kevin: So I want to go back to a guest that you had on the show, I don’t know, eight or nine years ago, John Taylor. John Taylor said that you have to have interest rates exceed inflation by a certain amount. And it was called the Taylor rule, and it’s known by economists everywhere. But we have negative rates, Dave. Since 2015. We experienced the first negative rate in 2015. Now we have trillions in the negative rate category.

David: Yeah. And I think inflation is here. You see it in the ag commodities, you see it in industrial metals, precious metals, energy. And we have yet to see, at least on the energy side, seasonal traders come into oil and gas before the driving season begins. You have last week’s ISM data which showed manufacturing prices paid for raw materials at their highest since 2011. And you’re talking about the context. We are in the weird world of interest rate suppression to the point that 15 to $17 trillion in debt have negative yields. And that is a policy choice, not a market-determined reality. You’ve got on display the full weight of the Federal Reserve, the European Central Bank, the Bank of Japan balance sheets which have been brought to bear on that outcome. Interest rates are determined at this point. It’s like a chef sitting down and setting out a menu, the prefixed menu, preset menu. It is what it is. What’s on offer is determined, and fortunate for central bankers, investors are income-starved enough that they’re going to take whatever they’re offered.

Kevin: So even in this negative rate environment, they’re basically taking what is offered. I’ve got to tell you a quick story. Tom, you know who you are. You called me today. I’ve got a client who I’ve worked with at least 25 years, Dave. I love the way he thinks, and he’s been waiting for inflation. We’ve had inflation, you just now said, “I think we do have inflation.” But he called me today and he said, “Kevin, I had my hot dog moment.” And he said he was sad.

David: He wasn’t skiing, I don’t think.

Kevin: Oh no, no. He didn’t experience inflation in Aspen with two chocolate bars and a coconut water. No, Tom, it’s a little bit more down to earth. This is a 16-pack of Ball Park Franks. Okay? That’s supposed to be cheap meat, that’s cheap meat. And he said, “I saw a 16 pack of Ball Park Franks. Not Nathan’s, not the fancy stuff.” He says they were 20 bucks a pack, 16 hot dogs, 20 bucks a pack. So we do have inflation, and it’s not just in chocolate bars in Aspen.

David: Now enters the possibility of higher rates at the hands of market participants.

Kevin: Because of inflation.

David: Yeah, demanding a positive return on capital invested. Positive, as in, above the rate of inflation. And think of that as kind of a consumer protest.

Kevin: Ball Park Franks, no, not 20 bucks a pack anymore.

David: Yeah. So it’s not liking what’s on the menu that is on offer, they just go elsewhere, right? So if inflation rises, the hurdle for investor expectations also rises, interest rates following inflation higher. And if there’s not enough cash flowing from the rate of interest with the investors receiving it happy about it, the fixed income markets stop behaving the way they typically do, as a safer investment than stocks, and they become similarly dangerous. So stocks with dividends take on more appeal in that sense because you’ve got duration risk, which factors in, and you’re getting with that investment more of an immediate return on capital. And so they become prioritized.

Kevin: And it also makes junk bonds attractive. Every time people need income, junk bonds, they seem to be like a magnet.

David: Right. Well, the Economic Times out of India ran a great article February 8th titled “Danger Lurks in Global Markets Transfixed by Rising Bond Yields.” Because the last couple of weeks we have seen a move higher in interest rates. Even as US investors are swarming to the bond markets, they just can’t get enough of them. You’ve got investment grade and high yield, inflows last week of another seven and a half billion dollars. That’s one week’s inflows into investment grade and high yield debt in the US. So that’s going on and alongside of it is the Bloomberg Barclays Global Aggregate Treasury Index. And it’s at a loss for the year.

Kevin: It reminds me, when you look at interest rates rising and falling, you can sit down and figure out what your house will cost. Let’s say you have an adjustable rate mortgage. You can figure out the difference in monthly payments with just a small increase or decrease in interest rates. It’s amazing how much it affects the overall bottom line.

David: The bond manager at Columbia Threadneedle, Gene Tannuzzo, he was pointing out that each 1% increase in interest rates, which tracks this $35 trillion in paper obligations in the Barclays Global Aggregate Treasury Index. A 1% increase in rates triggers a $3 trillion loss in that $35 trillion mound or mountain of debt obligations. And I think what Tannuzzo points out is a fascinating component of the bond market math, what he refers to as negative convexity, where a security price will fall at a greater speed as interest rates rise, as you begin to see its duration impacted. And so, great article. It also considers the impact on equities from an increase in duration risk. And one of the points made was that tech stocks are particularly vulnerable when you begin to see a rise in interest rates. I thought that was an interesting comment, as if the tech stocks didn’t have enough to worry about with Senator Klobuchar’s Antitrust bill getting ready to pack quite a punch.

David: But again, arguably from this notion of negative convexity and duration risk, high dividend paying stocks are less at risk.

Kevin: I spoke with a charming lady a couple of days ago. Did the triangle for her, you know, the gold on the base, the stocks and bonds on the left side, cash on the right. And talked about balance because she had called me and she had said, “Kevin I’m day trading tech stocks, and I’m really doing well.” You talk about income-starved, she is income-starved. Her assets are just enough right now that she can probably make it okay if she doesn’t lose anything. But if she loses anything, it will wipe her out. She’s retired. And when we did the triangle, I said, “You really ought to consider taking a third and putting it into gold.” That’s why she called, she was tempted by it. But the longer we talked, the more I realized she’s not ready. She’s going to have to suffer some losses, and I told her that. I said, “You’re not ready for gold yet because those tech stocks are paying off too highly.” But we could see an asset shift, couldn’t we? It could happen rapidly.

David: Very quickly. And I think, again, this is one of the common themes that we have in the current context between Klobuchar’s Antitrust bill and the Treasury Department’s distaste for cryptocurrencies. Politics and public policy can impact an asset class and its pricing overnight. And you’ve got some vulnerability there that I don’t think is completely priced in. So the extra bizarre world we’re in, the one that Larry Summers warns against, is a world of low rates and rising inflation where investors more or less end up staging a revolt in keeping with their self regard, the power of self protection, self interest, preservation.

Asset prices can shift violently, we’ve witnessed that in recent weeks. Something is up 300% in two days and down 70% the next day after. And that is actually fairly consistent if you look with the bond market as well. Go back to 2013 and the Taper Tantrum, you can have radical moves in a short period of time. Stocks, bonds, if you did have a rise in interest rates, all of a sudden your discounted cash flow models are devastating for equities, but to quote from the article, the Economic Times out of India, “The 10 year Treasury breakeven rate, which is a proxy for the expected annual rate of inflation over the next decade, has surged to 2.2%, the highest since 2018.”

Kevin, I think that’s actually a mistake. I think that takes us back to an eight-year high. But they go on to say, “For now, the increase in yields hasn’t stalled stocks with the S&P 500 setting record highs. The bull market is being underpinned by the loosening of pandemic lockdowns, upbeat corporate earnings, and ultra loose monetary policy. But all bets are off if yields surge from here.”

Kevin: And we’ve talked so much about this perception management. It really always boils down to perception. And when perception changes, our numismatist here at the office is fond of saying, “Wait till we see 10 seconds of real fear.” We haven’t had that in a long time. Perception’s been managed, but you had talked about the expected annual rate of inflation changing, and it’s rising. You don’t even have to have reality hit. You talked about inflation actually really hitting. You don’t even need it to. All you have to have is expectations change.

David: Yeah. People panic because they don’t know how to deal with fear. And 43 degrees is enough to stir fear in just about anyone. And certainly in my two boys, I could see it written on their faces. They weren’t sure they could do it, and they did it perfectly, it was beautiful. It was, again, one of those runs they’ll never forget, I’ll never forget. But 10 seconds of real fear, it’s powerful because people don’t know how to deal with it. They don’t know how to manage it. Everyone experiences fear, not everyone knows how to process it productively.

Kevin: It’s because it defines your future memory, your expectation.

David: You can see that we’re now at the intersection of policy and real life. And $1.9 trillion is likely the trigger for higher inflation and higher rates. And I think it’s going to be looked back in time as the undoing of the financial market stability.

Kevin: It’s a little like the avalanches you were talking about, instability suddenly hits.

David: Yeah. And once instability enters the equation, then you’ve got Jerome Powell, who has to come in and triage and ask himself what the circumstances are frankly necessitating. How much debt monetization will keep the markets from fear and panic? How do we literally paper over this? The Treasury for all its good intentions has an existing market backdrop that can turn quickly to turmoil. And you have Treasury rates on the 10-year. What have we seen? Just since the election we were, and we’ve traveled quickly from these levels, 79 basis points prior to the election in November to 119 basis points in recent days. How would the markets respond if we move from one and changed to two? Go back to the 2013 Taper Tantrum. In one year, 2012 to 2013, we had rates double from one and a half to three, and we’ve already watched rates travel 50% higher in three months just since the election. The equity markets won’t ignore that forever, and bond investors ignore that at their peril.

David: This is again one of those sort of historical references. I think this is one for the record books. As the monetary mandarins have tried to fix things, we have created one of the greatest instances of misplaced faith perhaps in all of human history. Certainly let’s go back to that word modern, in modern times.

Kevin: So let me throw this out as a variable though. The economy has pretty much been shut down now for a year. So there are those who would argue that we have pent up consumption, and as the vaccine starts to take effect, again, I’m just throwing this out for discussion. Do we have pent up consumption, and would you bet against the economy right now?

David: Absolutely there’s pent up consumption. So as the economy opens up here and globally, you’re going to see the economy do significantly better. We have trillions coming directly into the economy from the stimulus as well. And I think between those two things, pent-up consumption and new stimulus, you should not bet against the economy. But the dollar and interest rates are a different story. When the Treasury says they want to add 500 billion more to the IMF to fortify resources, again, as a sort of a global effort to restore global resources where they’re needed to deal with COVID issues, that decision comes at the end of February.

David: And again, we’re talking about a Treasury decision. This is Janet Yellen spending another $500 billion. It’s not money we have in the bank. This is money that we can create out of nothing in order to help someone somewhere. I’m not against the humanitarian heart behind that. But what I am concerned about is that there is a longer-term consequence. Again, coming back to those unintended consequences, consider that we, as we treat billions and trillions lightly, one of the things that get sacrificed is the dollar and the cost of all things as rates begin to reflect reality.

Kevin: I think you make a…

David: It’s just a different story ahead.

Kevin: You make a great point because we’re not talking about money that we actually have. We’re talking about money that we’re going to borrow. So we start with M. It all rhymes, millions, you can borrow millions. So why not just add a B, billions? And then why not just add a T, trillions. At some point, does it turn into a Q, Quadrillions? I don’t know, but none of it is money that we have.

David: But what the markets are beginning to recognize is the cost of the new administration’s multiple agendas. Let me frame this differently. I’m going to say this differently. When Bernie Sanders, a self-avowed socialist, is the chair of the Senate Budget Committee, which he now is, you’d be an idiot not to own gold. Gold is not a gamble. It’s not a GameStop roll of the dice. Pure and simple, it is insurance. We’ve talked about it as stupidity insurance because we know who is managing the money back on the East Coast. You either have insurance or you don’t, you either have it or you don’t. If you don’t, you better get it, because this administration’s agenda comes at a high price and will have a lasting cost. You couple the future impact of $1.9 trillion with the most recent explosion in money supply, the fastest growth in money supply on record, and you have change in the pipeline, spare change. Because maybe that’s all you’ve got at the end of this saga.

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick Along with David McAlvany. You can find us at mcalvany.com, M-C-A-L-V-A-N-Y.com, or you can call us at 800-525-9556.

This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.

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