The Wall Street Journal reported this morning that the Fed just added another $76.9 billion in “temporary” liquidity to the overnight intra-bank “repo” lending market. The Fed insists this is not quantitative easing, prompting some to call it “Stealth QE.” But whether this action technically constitutes QE or not doesn’t really matter.
What truly does matter is that the Fed’s balance sheet keeps expanding—rapidly.
Whatever they call it and however they do it, the Fed’s balance-sheet expansion does ease monetary conditions in the US. Intended or not, it’s a form of economic stimulus. Combine that with the Fed holding real rates in negative territory—and central banks around the world doing similar things—and we get a major, world-wide currency-debasement trend. That’s very bullish for gold and silver.
As I wrote in last Saturday’s free Speculator’s Digest:
All the quantitative easing, negative real and nominal interest rates, and more easy-money policies are the most powerful megatrend of our times. Geopolitical flash fires, the US election circus of 2020, and other headline-grabbing news can add or subtract from this underlying trend, but it remains the driving force. This is extremely bullish for precious metals and the better gold and silver stocks this year and beyond.
The message to gold bears is clear: “Don’t fight the Fed.”
But this much is pretty obvious. I’m not the only one saying so. Even previous perma-bear Goldman Sachs has come out as very bullish on precious metals.
There’s a second conclusion I think we can safely draw, and most of the financial talking heads are ignoring it. Whatever’s really going on in the repo market, it’s extraordinary…
The Fed’s temporary intervention has lasted four months now and shows no signs of tapering as promised—that can’t be good.
When a system so basic that it’s called “financial plumbing” breaks down, I think the people are owed more than a “don’t worry about it” from regulators.
And this isn’t just plumbing. It’s normal, daily—vital—intra-bank lending.
When a temporary intervention into something so important looks to become permanent, it’s reasonable to ask if those regulators really know what they’re doing.
Or worse; what if they do?
That would imply that they have no choice, lest something break that would be impossible to sweep under the rug.
I have a feeling that when future economic historians write about this decade, the effective nationalization of the repo market will be seen as one of those unmistakable warning signs that everyone should have seen, but few did.
Whether or not it works out that way, the repo problem underscores the importance of owning gold, not as a speculation, but as a precaution.
Fortunately, the “don’t fight the Fed” angle also adds potential investment upside to precious metals—and extraordinary speculative upside to quality gold and silver stocks.
When an asset can be both insurance and a great speculation, we call it asymmetrical risk. It’s the best of both worlds, and it’s available today.
That’s no reason to chase anything on a day like today when metals prices are up sharply. It is, however, good reason to back up the truck at times when the bears regain temporary advantage, as was the case last November.
But which stocks to put on our shopping lists? That’s what I cover in The Independent Speculator. You know what to do if you’d like to try it out.
But I will reiterate that I’m especially keen on great silver plays. They could be the best win-win choice for 2020.
Monday, January 6, 5:14pm, EST, 2020