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When the Problem Is Always the Same, the Solution Is Always the Same

MARKET NEWS / MCALVANY RECAP /
McAlvany Recap • Mar 13 2023
When the Problem Is Always the Same, the Solution Is Always the Same
MPM Posted on March 13, 2023

If you’re not neurotic, you’re not paying attention—or you know things most other people don’t know. Such knowledge is vital. Every day now, there are important things to see, crucial things to understand, and vital things to do.

As always, the analysis synopsized below is geared to just those things. For months, the McAlvany analysts have been describing the Fed’s quandary over monetary policy and its associated practical ramifications: Tighter policy breaks the economy through recession; looser policy breaks the economy through inflation.

Recent Fed vacillation has acquainted us with both outcomes. The banking system is starting to break. Inflation is picking up again. The solution to either problem, as we are reminded in this week’s communications, is as old as money. It is money. We ignore it at our peril.

If we sometimes sound like a broken record regarding gold, it is because history so often sounds like a broken record regarding substitutes for it. Every generation seems to come up with a new and innovative idea for money. And those innovations typically generate more “money” under the illusion that more money equals more wealth.

The problem is that “more money” almost always equals less substance per monetary unit. Less substance eventually equals less total wealth, more wealth transfer from have-nots to haves, and societal disruption—a euphemism for trouble, and often lots of it.

If you’d just as soon pass on that scenario, be sure to read or listen to what the analysts below have to say.

Key Takeaways:

  • Who insures that insurers can insure the insured?
  • Banks in focus as Silicon Valley Bank fails
  • As global tensions mount, gold sits in the catbird seat
  • History tells us clearly what happens when too much money pursues too few goods

The McAlvany Weekly Commentary: The truth may not lie, but Mark Twain warned us that statistics often do. David and Kevin take a look at the government’s tendency to alter statistics that reflect badly on its performance. Last week’s Commentary reference to the government’s recalibration of inflation was obviously in mind, if not mentioned specifically. A kind of statistic that’s harder to change is one that details cash payouts made for qualifying events. The hosts note that insurance payouts for early deaths in Q4 of last year were surprisingly high—so high that healthcare and health and life insurance will be impacted for years to come. And their focus on the field of insurance yields interesting observations as to who is buying life insurance companies and why.

Credit Bubble Bulletin: The collapse of Silicon Valley Bank (SVB) takes center stage in Doug’s analysis this week. He details the waves it is creating both within the banking community and among the Silicon Valley businesses it supported. Perhaps even more importantly, he compares SVB’s collapse with that of Lehman Brothers in 2008. While there are important differences, there are also eerie similarities. And the fact that the Federal Home Loan Bank advanced SVB $15 billion last year transitions the focus from SVB to the FHLB—which engaged in extremely high and sometimes record high lending last year. Doug says, “In my analysis of the Q3 Z.1, underscoring the rapid expansion of [government sponsored enterprise] assets, I asked ‘Why?’ Clearly, there has been a major push to sustain a historic lending boom.” Be sure to read CBB for his resulting analysis.

Hard Asset Insights: While also noting the dire situation created by SVB’s demise, Morgan spends the bulk of his weekly missive detailing the prospects for gold in the near future. Clearly, a Fed decision to loosen monetary policy again would be highly bullish for gold. Less clearly, and perhaps counterintuitively, tighter monetary policy eventually ends at the same destination. To see how, to know why, and to prepare yourself for totally different but equally fateful Fed policies, be sure to read this week’s HAI.

Golden Rule Radio: Tory rejoins Miles this week for a look at the metals, equities, the central bank, and more. Gold and silver had been heading down mildly at show time, so the hosts detail their expectations for the near-term future. They also take a look at equities, which have entered a trading range the hosts humorously note would have provoked panic in relatively recent memory. Not now, though, and while the Dow has been trading above a relatively flat floor, it’s the highs of the range that capture the hosts’ attention. Also in focus are the money supply and its effect on inflation and the ominous ramifications of tensions between the US and Russia/China.

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