MARKET NEWS / MCALVANY RECAP

When the Standard is the Problem

MARKET NEWS / MCALVANY RECAP
McAlvany Recap • Apr 08 2024
When the Standard is the Problem
MPM Posted on April 8, 2024

We mentioned a problem last week that develops when nations become overly centralized: “In an overly centralized system, people become not independently thinking and functioning beings, but cogs in the wheel. They are required to deal with matters both routine and exceptional by following procedures that disallow critical thinking and initiative. They increasingly form organizations that protect them from competition and defend them for following procedure, even when procedure produces mediocre results or can’t prevent catastrophe or tragedy.”

Few people stop to consider how harmful this development is. It changes the measure of success from producing the best product at the best price to following the rules properly—from a bottom-up, customer-driven standard of quality and efficiency to a top-down, overlord-driven standard of obedience.

A communist country is the quintessential centralized state. It pulls the ownership of everything into the center. The state owns all property, people, and means of production. Such states are known for their five-year plans. The plans seem logical, forward-looking, and productive, but they are the fast road to ruin. The Soviet Union proved the point, and China is now trying to put an exclamation point on it. A factory owner in such a state does not need to answer to customers, only to the plan.

Such evidences of centralization are everywhere in America now. Medical doctors must adhere only to a “standard of care” to satisfy an oversight entity that they have done what they’re supposed to do. Never mind whether the patient gets well. Judges must adhere to sentencing guidelines with minimum-to-maximum punishments for given offenses. If a greater or lesser sentence is warranted—too bad.

Educators must adhere to the standardized syllabus, regardless of whether their students do well on their tests. DEI (diversity, equity, and inclusion) and ESG (environmental, social, and governance) issues increasingly tell all companies whom they can hire and fire, and how they must function.

In short, it’s a black-hole world—everything is being sucked into the center. A consequence is that the kind of advice you’ll find in the publications below is becoming an endangered species. It’s focused on you, the client, customer, or reader/listener. It recognizes the value of and extols wise civil governance, but calls out unwise policy. And it’s centered on value, not memes or practices that decrease value.

No wonder, then, that gold forms the backbone of MPM’s product line and efforts. Gold has been one of the most valuable substances in the universe for thousands of years. If you’re going to focus on value, gold is a very, very good place to start. And if you’re focused instead on the apotheosis of elite humans and overweening human institutions—well, perhaps you’ll develop a fiat currency and an all-powerful institution to govern it, and you’ll outlaw private ownership of gold.

Sound farfetched? Well, we have it on good authority that it’s possible…

Key Takeaways:

  • Where gold really comes into its own
  • The central bank that launched a thousand crises
  • Re: inflation—we’re not in Kansas anymore
  • Metals on a tear—for now, at least

The McAlvany Weekly Commentary: Gold Rises, Dollar Rises, What That Means

David and Kevin update their comments on the currency race to the bottom by many of the nations of the world. To preserve or marginally improve the status quo, they sacrifice more and more of their tomorrows for just a few more todays. That’s an exchange rate no one calculates, but it is inflating along with the currency. One tomorrow buys only a small fraction of a today now—unless you’re funding your tomorrows with gold. The global East is doing that. The global West is not. Together with misguided monetary policy, this results in “cirrhosis of the fiscal liver” in David’s words. The hosts also look at the current federal funds rate in light of the Taylor Rule, which posits that the neutral rate (neither stimulative nor restrictive) is two percent above the rate of inflation. In that light, David concludes that, despite assertions to the contrary, the Fed is far behind the curve in raising interest rates. The hosts mention that, despite immense resentment of the dollar regime worldwide, the dollar does well in times of crisis. And the hosts also say that gold is not necessarily at its best as an inflation hedge. Its strongest role is in another context—that you won’t want to miss.

Credit Bubble Bulletin: Global Ring of Fire

Doug shines a light on the Fed as architect and overseer of a profoundly defective monetary system. The only thing that exceeds its ability to produce too much or too little money is the widespread inability to tell which of the two should happen or even is happening at any given time. He compares our situation today with the one that existed in the Roaring ’20s a century ago, and finds a great deal in common. But then he carefully takes apart Ben Bernanke’s and Milton Friedman’s contentions that Fed tightening was the cause of the Great Depression’s devastating onset and protracted duration. Then, as now, too much money was flowing. Then, as now, a bubble formed. Then, as will likely soon occur, the bubble popped and the consequences were severe. With rigorous and incisive data, logic, and analysis, Doug shows that our greatest monetary difficulties have been rooted in our central bank, the Federal Reserve System, for over 11 decades.

Hard Asset Insights: A New Set of Rules

Morgan notes and quotes a number of respected monetary experts who are currently viewing Fed policy with genuine puzzlement. Mohamed El-Erian goes so far as to conclude that, “It would not surprise me if future economic history books were to look back at the last week in central banking as marking a move away from strict inflation targeting by the world’s most influential central banks.” Morgan concurs, “In other words, welcome to a brave new era of central bank tolerance for inflation.” He then tots up the damage by citing industry after industry and commodity after commodity that are seeing hefty increases in price. But the rules are also changing for investments. Equities are well along in their bull market move and highly selective in their winners. Hard assets are just getting started, and are far more democratic in their beneficiaries. Choose your opportunity and risk categories wisely, and understand the times. Start by studying the details presented here in HAI.

Golden Rule Radio: Gold & Silver’s Impressive Quarter—Beyond the Record Numbers

Miles and Tory anchor the show this week, starting off with charts that are enough to make precious metals enthusiasts ecstatic. And while Miles notes that predictions are notoriously difficult and often wrong, he also shows that, in terms of gold’s price movements, “we’re now getting to the point where the old highs are starting to become the new lows.” Change happens, of course, and charts are only tools to help assess probabilities, but momentum, trend, and events are working together to drive metals prices higher. This now applies to silver, as well, and the hosts spend some time analyzing the white metal’s recent decisive move higher. They put that move in both immediate and longer-term perspective, and show that the move was definitely bullish. Miles notes two things he’d like to see before expecting more positive action from silver, and Tory notes two things that could negatively affect silver’s upward moves.

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