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August 2020

The Fed’s Ill-Designed Inflation Policies

On Thursday, August 27, Fed Chair Jay Powell spoke at the Fed’s annual Jackson Hole symposium. His talk was much anticipated, as it was expected that the old 2% inflation objective would be updated. In fact, the Fed had telegraphed the change; and the Fed has been following the newly announced policy for several months. The policy change allows the Fed to permit inflation to exceed the Fed’s announced 2% target without …Read More

The Economy: On a Sugar High With 28 Million Unemployed

  Last week, interest rates moved slightly lower, with the 10-year T-Note falling about 7 basis points from 0.71% to 0.64%, a retracement of 37% toward the 0.51% August 4 low.  Like its brethren, the 30-year T-Bond fell 10 basis points from 1.45% to 1.35%, a 38% retracement to the 1.19% low (also August 4).  Some of the up-move had to do with the “Inflation Scare” discussed in last week’s …Read More

The Inflation Scare

Interest rates backed up last week.  The 30-year T-Bond, which was 1.19% on August 4, closed at 1.44% on Friday (August 14).  The 10-year T-Note closed at 0.71%.  It was 0.52% on August 4.  The CPI showed up with a +0.6% M/M rise (7.4% annual rate) for July.  That pushed the Y/Y rate to +1.0% from +0.6% in June.  Clothing prices rose +1.1% M/M in July.  They had risen +1.7% …Read More

Money Explodes; Gold Glitters; The Recovery Slows

I often get asked why the price of gold is rising, and, as a follow on, will it continue.  The price of gold has always had a significant correlation (80%) with the Fed’s balance sheet (i.e., the “money supply”), especially during periods of significant balance sheet expansion (money printing).  The table shows the Y/Y change in the money supply of the western world’s major economies.  The U.S., clearly the largest …Read More

The Economy: Navigating Scylla & Charybdis

  In Greek mythology, Scylla and Charybdis were mythical sea monsters existing on the opposite sides of the Strait of Messina, between Sicily and the Italian mainland.  Scylla was a six headed sea monster; Charybdis a huge whirlpool.  Because they were so close together, any passing ship was threatened.  In Homer’s Odyssey, Odysseus passed close to Scylla, losing only a few sailors rather than risking losing his whole ship in …Read More