In the Eye of the Inflation Storm

Happy Friday!

May you get pleasantly soused after work today.  You deserve it!

I, myself, will be drinking a skinful of wine this afternoon.

But before I do, let me share with you our new mailbag address.  It’s  I can’t encourage you enough to write.  It gets lonely on this side of the world, and I’d love to hear from you.  Ask whatever you like – I’ll do my best to answer fully.

And now, before the weekend festivities commence, let’s have a look at the week that was.

Some Choice Quotes From a Central Banker

I don’t know if it’s the God Complex or just a case of calming down the rhetoric, but these central bankers make me laugh.

Let’s hear from Christopher Waller, a member of the Federal Reserve Board of Governors, and by extension, the Federal Open Market Committee (FOMC).  The FOMC is the committee that sets interest rates instead of the market.

Quick and fast rules of thumb:

      • Central banks lower interest rates to make it easier to borrow.  They believe this stimulates the economy.
      • Central banks raise interest rates to make it harder to borrow.  They believe this reins in the economy from overheating.

Mr. Waller is a “dove.”  A dove is someone who wants to see an accommodative monetary policy.  Being dovish, he’s usually in favor of lower interest rates.  A hawk is someone who leans towards higher interest rates to put an early stop to the economy overheating.

In a speech two days ago, Waller said the following, courtesy of the WSJ:

      • “The May and June jobs report may reveal that April was an outlier, but we need to see that first before we start thinking about adjusting our policy stance.”
      • “We also need to see if the unusually high price pressures we saw in the April CPI [consumer-price index] report will persist in the months ahead.”
      • “The takeaway is that we need to see several more months of data before we get a clear picture of whether we have made substantial progress towards our dual-mandate goals.” The dual mandates are the  Fed’s objectives of full employment and sustained 2% inflation.
      • “The economy is ripping, it is going gangbusters.”
      • “For me, if I were to see 4% inflation month in, month out, month in, month out, I would get very concerned.”

Ok, if the economy is going gangbusters, why are rates still on the floor?  It’s gratifying that he’d be concerned if 4% inflation was the new norm, but why would he take the chance?

Of course, Mr. Waller may just say this stuff to calm down the markets.  But to me, it’s amazing that 12 people in a conference room in Washington, D.C. think they’re able to adjust the economy at will.

Did these economists never hear of Hayek’s Knowledge Problem?

In case you haven’t, that’s fine.  Here’s a brief passage from Hayek’s seminal article [bolds are mine]:

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

If you have some time this weekend, read the full article here.  If you don’t, read Jeff Tucker’s excellent piece on Hayek and the Knowledge Problem from way back in 2014.

Perhaps we should give Mr. Waller a break.  After only six months on the job, he looks like he needs one.

Mr Waller


A Breath Before the Leap

Yesterday, the markets calmed down somewhat.  The Dow and the S&P 500 were up about 1.2%, while the Nasdaq gained 0.75%.  At the time of writing, Gold was trading at $1,824, off about $13 from the previous highs.

And that’s great news for you.

If you haven’t established your gold position yet, there’s still time.  Once we get past the $1,850 mark, it’s a clear path to $2,010.

gold breaking out?

By the way, the above chart is called a Point and Figure chart.  It’s just one way to look at direction and price targets.  If you’re interested in learning more about them, write to me at

Stefano Bottiaoli, a financial analyst from Cremona, Italy, won the chart of the day for me.  The chart looks at copper versus precious metals.  And it definitely looks like a good time to get out of copper and into gold.

Stephano Says

copper v gold

And my final word on gold this week comes from Jesse Felder, editor of the Felder Report.  Below is a chart showing the gold price (blue) against the inverted 30-year yield minus the core CPI (red).  As real rates decrease (in the graph that’s shown as going up due to the inversion), gold tends to follow it.

If that pattern persists, gold looks like it’ll pop even harder than we thought.

Gold & Real Rates

You’re Not Going Crazy; The World is Changing Quickly

I may be cherrypicking here, but two headlines caught my eye in the past two weeks:


French soldiers warn of civil war in new letter

124 retired generals and admirals question Biden’s mental health


You can click on the links to read those pieces.  I don’t know about you, but when the military brass, retired or active, starts to question leadership, I get concerned.

The mainstream media is reporting this.  It’s not some made-up stuff in a chatroom.  It’s real, and it’s alarming.  

If this is happening in France and America, you can be assured it’s happening in other Western countries as well.

So stay vigilant.  Protect yourself.

Finally Friday

This made me chuckle.

Max is mad

This reminds me of the world’s central bankers.

collect $200

Have a wonderful weekend.  You’ve worked hard, and you deserve it.

See you Monday!

All the best,

— Sean

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