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How Supply Shocks Create Stagflation (and Why We’re Headed That Way)

By: Justice Clark Litle

Aug 07, 2020 | Educational

Inflation is a funny thing. It comes in different varieties and can show up in different places. As such there is no “one size fits all” version of inflation. The classification really matters. Take the difference between asset price inflation and wage inflation, for example. It is often the case that one exists without the other. Equity and real estate…

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Gold, Bonds, and Equities are All Saying the Same Thing

By: Justice Clark Litle

Aug 06, 2020 | Educational

There is a narrative that says the market has lost its mind, and that divergent market signals no longer make sense. The market is broadcasting multiple messages, and the messages are in deep conflict. Through this interpretation, three areas in particular — gold, bonds, and equities — are in direct conflict, and seem to be at odds with each other….

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Ugly Goldilocks is Turning into Mutant Goldilocks

By: Justice Clark Litle

Aug 05, 2020 | Educational

A number of years ago, long before Jerome “Jay” Powell became Chairman of the Federal Reserve, your editor proposed something called the Ugly Goldilocks scenario. You likely know the children’s story of “Goldilocks and the Three Bears.” Goldilocks didn’t want the porridge that was too hot, or the porridge that was too cold. Instead she ate the porridge that was…

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Big Tech is the Zero-Coupon U.S. Treasury Substitute

By: Justice Clark Litle

Aug 03, 2020 | Educational

As U.S. Treasury yields fall toward zero, and the Federal Reserve deliberately erodes the value of U.S. debt, investors will be forced to seek new safe havens. A broken and dysfunctional U.S. Treasury market, no longer appealing in terms of yield income or downside protection, will create a bond-sized hole in a great many investor portfolios. That hole will have…

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How the Gold Price Could Go Parabolic in a “Reverse Bank Run”

By: Justice Clark Litle

Jul 30, 2020 | Educational

If you think the recent moves in gold and silver are wild, buckle up. There is a realistic scenario where the gold price goes full-on parabolic, and it could happen at any time. If this scenario takes hold, we could see the gold price blast through the $2,500 level, or even the $3,000 level, within a timeframe of weeks or…

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On Gold’s Relationship to Quantitative Easing

By: Justice Clark Litle

Jul 28, 2020 | Educational

For a whole host of reasons, the gold price is hitting new all-time highs this week. This is happening in “nominal” terms, meaning not adjusted for inflation. To reach a new inflation-adjusted high, and break the 1980 ceiling once and for all, gold will have to challenge the $2,500 per ounce level. At the rate things are going, that could…

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The Market is Moving On From Intel

By: Justice Clark Litle

Jul 27, 2020 | Educational

With all of the top-down influences on markets these days — from central bank policy to COVID-19 realities to smartphone trading apps — it’s nice to remember that fundamentals still matter sometimes. Then, too, there isn’t really a monolithic “market,” per se. Different areas of the market are behaving quite differently and showing wide divergences in performance. The tech juggernauts…

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Valuation Multiples May Not Matter Anymore — but Only Up to a Point

By: Justice Clark Litle

Jul 23, 2020 | Educational

When someone says U.S. equities are historically expensive, what do they mean? It depends on the measurement being used. Different yardsticks will measure different things — and come back with different results. For example: It has been pointed out that, in 2020, there were 28 stocks in the S&P 500 trading above 10 times sales. That is a staggeringly high…

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DENIAL: Deflation Exists Now, Inflation Arrives Later

By: Justice Clark Litle

Jul 22, 2020 | Educational

In terms of a multi-year, big-picture forecast, there is a simple acronym to remember: DENIAL, as in, “DENIAL ain’t just a river in Egypt.” DENIAL stands for “Deflation Exists Now — Inflation Arrives Later.” Today the U.S. economy — and the global economy, too — are subjected to powerful and persistent forces of deflation. There is a combination of moderate…

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How to Quickly Calculate Real Yields (Which Are Currently Negative)

By: Justice Clark Litle

Jul 21, 2020 | Educational

In a June 1 TradeSmith Daily, we explained why, in a deflationary environment, the price of gold tends to go up. You can read that piece here. The short version is that, when things turn deflationary, the real yield on Treasuries turns negative. A negative real yield, meanwhile, is worse than a zero yield. If you are earning a negative…

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