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October 25 Week in Review

Summary:
It’s hard to discern a trend this week from the markets. Even though the S&P 500 hit a record high, a glance at that index chart reveals it has been going nowhere fast over the past three years. And it has been rising simply because of the pathological condition of the capital markets, thanks to central bank capital market manipulation. So, while central banks keep lowering rates, wealth is being reallocated to the rich while capital is misallocated and debt to GDP continues to rise. We are on a path to destruction even if for the time being the stock market continues to create a false sense of security. On balance, this past week was a “risk on” week with commodities up big and silver, half money/half commodity, up the biggest in percentage terms. With stocks up big, the T-Bond lost a bit

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October 25 Week in ReviewIt’s hard to discern a trend this week from the markets. Even though the S&P 500 hit a record high, a glance at that index chart reveals it has been going nowhere fast over the past three years. And it has been rising simply because of the pathological condition of the capital markets, thanks to central bank capital market manipulation. So, while central banks keep lowering rates, wealth is being reallocated to the rich while capital is misallocated and debt to GDP continues to rise. We are on a path to destruction even if for the time being the stock market continues to create a false sense of security. On balance, this past week was a “risk on” week with commodities up big and silver, half money/half commodity, up the biggest in percentage terms. With stocks up big, the T-Bond lost a bit which is in keeping with a risk on scenario. The only item in our Key Markets table that was inconsistent with the “risk on” theme was gold, which gained 0.68% on the week. But keep in mind that as rates continue to fall, gold, which carries an interest rate of 1.5% to 2.0%, looks ever more attractive. Clearly the Fed has chosen to print endless amounts of money to avoid the stock market and thus the economy from plunging over the next financial market cliff. Certainly, President Trump will do all he can to keep the party going through the next election.

What we have to keep in mind is that Nature ultimately rules over the best laid plans of mice and men. Michael Oliver helps us think outside the box when he offers the possibility that as endless amounts of money being printed to avoid the next financial catastrophe may very well trigger a commodities bull market, thus putting upward pressure on interest rates no matter what the Fed and other central bankers do. Indeed, that notion is totally in sync with Alasdair Macleod, who makes the point that when interest rates fall below the rate for gold, there is no longer a reason to own the world’s reserve currency if/when it falls below that 1.5% to 2.0%. But as Alasdair points out, every commodity has an “interest rate” (time preference rate) such that when the world’s reserve currency, which is used to measure commodities around the world, goes into negative rates, there is no logical reason why there won’t be a mass exodus from the dollar to commodities starting first with the most liquid monetary metals, like gold and silver.

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