What Does Your Leader Follow?

McAlvany Recap • Jul 31 2023
What Does Your Leader Follow?
MPM Posted on July 31, 2023

The Brave browser’s AI “Summarizer” defines the dog days of summer as “the hottest and most unbearable days of the season, spanning from July 3 to August 11. The phrase originated from the Roman Empire and refers to the dates from July 3 through August 11, which is 20 days prior and 20 days after the star Sirius rises and falls in conjunction with the sun.

“Sirius was known as the ‘Dog Star’ because it is the brightest star in the constellation Canis Major (Large Dog). The ancient Greeks regarded Sirius as the bringer of scorching heat, drought, sudden thunderstorms, lethargy, fever, mad dogs, and bad luck.”

Ouch. One might be excused for believing that that description hits a little too close to home this year. In fact, one might be excused for believing we’re in the dog days of Western Civilization—except that instead of mad dogs we’re bedeviled by mad politicians. (Is there a star Imperious, the largest in the constellation Pullum Major [Large Chicken]?)

While making fun of politicians is fun and safe, it’s not entirely fair. After all, as long as elections are honest, citizens in a democracy always get the leaders the majority of their voters want and deserve. Relatively few of the laws or policies responsible for our current predicament have been objected to or opposed by more than a small minority of citizens.

So if Pogo was right that “we have met the enemy and he is us,” what can be done? Well, a key thought in the previous paragraph is that there is a majority among citizens and a minority. That’s true in a number of ways, but certainly in regard to ideology. And just because our circumstances can be largely dictated or heavily influenced by the majority, that doesn’t mean we can’t steer a course that is different and better than the popular one.

If there is one thing you may notice about the McAlvany analysts, it is that they carefully and at length examine the facts before drawing their conclusions. And given that the majority on any topic is [almost] always wrong, as we noted last week, that means the analysts are almost always in the minority.

They have a word for that in the investing world—contrarian. It’s not a compliment, and it’s not always accurate, but it’s commonly used. We don’t use it very often because the majority is sometimes right—and we say so. Many who are, or are called, contrarians are kneejerk opposers of popular thought. Whatever the majority believes, they’re “agin it.”—automatically. But we’re so independent in our analysis that others will continue to slap that label on us.

The upshot for you is that the thoughts and actions we commend to you are deeply thought out and evaluated for their truth and efficacy, not for their popular acceptance or their avoidance of controversy. If you like the herd, you’ll find advisors—lots of them—elsewhere. If you want substance and food for productive (and often profitable) thought and action, you’re in the right place.

Key Takeaways:

  • News: the absence of drama the absence of importance
  • The right hand market gives what the left hand Fed takes away
  • The long and variable lags before rate increase effects arrive
  • Gold appears ready to climb the mountain

The McAlvany Weekly Commentary: David and Kevin bring us up to speed on the week’s developments with news from both tree- and forest-level. Given that the country and the world are in the midst of a slow-motion train wreck, it’s important not to let the leisurely pace of devolution lull us to sleep. Momentous events often begin slowly and proceed that way for a long time before flipping from slo-mo to fast forward. What happens then is largely a result of how we use the slow period to prepare. The hosts discuss a group of people who meet yearly to discuss current events and then act to make things better for themselves and their associates. The hosts also cover the latest news on investor sentiment, market dynamics, artificial intelligence, company weighting on various indexes, residential and commercial real estate, interest rates, economic indicators, “this time it’s different,” and much more.

Credit Bubble Bulletin: The Fed continues to raise interest rates, and the press continues to characterize that as tightening of the money supply. Only a few voices, including Doug’s, point out the fact that appearances can be deceiving. His extract from the Financial Times is instructive: “Rising stock prices and falling bond yields have made it so much easier for US companies to raise funds that much of the impact of the Federal Reserve’s interest rate rises has been neutralized… The degree to which the environment has improved in recent weeks is reflected in the National Financial Conditions Index, compiled by the Chicago Fed, touching its lowest point in 16 months… ‘The reality is that financial conditions have loosened — we have [effectively] unwound roughly 450 bps of rate hikes. Financial conditions are enough to take us back to March of last year,’ said Sonal Desai, chief investment officer for Franklin Templeton Fixed Income.”

Hard Asset Insights: Morgan begins by acknowledging the Fed’s unsurprising interest rate increase, “Powell cited elevated levels of inflation still above the Fed’s target as a rationale for what is now the highest U.S. central bank policy rate in 16 years. The vote to hike was unanimous. The 25-basis point hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range. That’s a shocking increase from the Covid 0% regime.” While also acknowledging the markets’ enthusiasm and hope for a soft landing, Morgan also notes that, “we are only starting to get into the historical timing lag where a Fed tightening cycle starts to have an effect. The lags are ‘long and variable,’ but they are intense and mechanical.” He examines the freight and commodity markets as he cautions against too freely joining the party going on in the equities markets.

Golden Rule Radio: Miles and Tory begin by noting the effects of the Fed’s interest rate increase on markets and then proceeding to the gold charts. Miles is mildly disappointed that gold did not retrace more than it did, thus providing less of a buying opportunity than he’d hoped for. The hosts call JPMorgan’s prediction of new all-time highs in gold over the next 12-18 months a very safe one. The market remains in a bullish state, so pullbacks do not likely indicate major changes in direction and to attain new highs in such a lengthy period of time is not a stretch. Tory provides a lengthy list of factors that impact the gold price, any one of which could do the job but together provide a very strong case for significantly higher gold. Miles contends that silver is currently doing what gold is likely to do—put in short-term higher highs in an overall bull market. For much more analysis of the metals—and other—markets, click on the link above.

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