Scholes Sees Stagflation Coming, Suggests Safety To Be Found In Assets Like Gold and Silver

"But never a truth has been destroyed;
They may curse it, and call it crime;
Pervert and betray, or slander and slay
Its teachers for a time.
But the sunshine aye shall light the sky,
As round and round we run;
And the truth shall ever come uppermost,
And justice shall be done."

Charles Mackay

A banquet of consequence is coming, but I am afraid that justice is taking a more circuitous route, thanks in large part to the credibility trap. And the masters of the feast never seem to be around to pick up the check for their revels.

Myron Scholes, of the Black-Scholes Risk Pricing Model, said in an interview from the Milken Conference this morning that stagflation is the most likely outcome for the economy.

Stagflation! And what did Myron suggest that people invest in to protect themselves? Gold and silver, among other hard assets.  He thinks that stocks are due for a decline.

Stagflation is coming, so buy gold and silver to protect at least some of your wealth. Where have we heard that forecast before?

I think a forward thinking person, looking at the nature of the Fed's serial policy errors and the economic abuses that the monied interests have been inflicting on the real economy for quite some time, could have seen this outcome coming some years ago.

And some did.   But it is nice to see the models catching up.  The only surprise is that it has gone on as long as it has.  Never underestimate the venality of unscrupulous greed, and the power of thinking in herds.

And this comes a day after Ken Rogoff has suggested that the emerging markets invest their surpluses in the safety of gold! Which of course any but the most casual observer knows very well that they have been doing, and in size, for some time.

So there we have two major economic thinkers coming out for gold and silver as safe havens this week. One might be excused if they wonder if these are not statements being made ahead of some event to protect a sage's derrière.

There is one major hurdle, however, to executing that strategy to protect yourself by buying precious metals, as depicted in a single chart of a key market factor below.

Gold Daily and Silver Weekly Charts - Silver Deliveries Continue Flowing - Rogoff Says Buy Gold

The financial markets are trading gold and silver like currencies. You know, those items that central banks can just create out of nothing to meet any demand and never suffer any shortfall, at least in terms of quantity.   Quality is another matter altogether.

Ken Rogoff suggests that emerging markets should shift more of their reserves into gold.

"The problem with the status quo is that emerging markets as a group are competing for rich-country bonds, which is helping to drive down the interest rates they receive. With interest rates stuck near zero, rich-country bond prices cannot drop much more than they already have, while the supply of advanced-country debt is limited by tax capacity and risk tolerance.

Gold, despite being in nearly fixed supply, does not have this problem, because there is no limit on its price. Moreover, there is a case to be made that gold is an extremely low-risk asset with average real returns comparable to very short-term debt. And, because gold is a highly liquid asset – a key criterion for a reserve asset – central banks can afford to look past its short-term volatility to longer-run average returns."

'No limit on price.'  Pet rocks!

Note to Mr. Rogoff, the emerging markets of Asia have been buying gold bullion and in some fairly impressive amounts for several years. It is the West, caught in a credibility trap, that does not see what has been happening and the implications of it.

There is a reckoning coming, and a hard lesson in market and monetary economics.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Hanging On By Their Fingernails

"True compassion is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring."

Martin Luther King

The Federal Reserve of St. Louis just published an interesting study that asserts that wealthy people suffer disproportionately in stock market declines. The reason is that they own most of the stocks.

And an advisor for Pimco is suggesting that the Fed should be buying stocks.  Makes sense, right?  Socialism for the rich.

And now we see the foundation for the never ending financial asset bubbles being created by the Fed.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts - Reverse Algo Engines - No Limits

金融政策に限界があるとは考えておりません　
(I do not believe that there is a limit to monetary policy.)

Haruhiko Kuroda, Bank of Japan, 13 April 2016

It appears that Kuroda san is a thoroughly modern monetarist.

Gold and silver both popped early, with gold surmounting 1300 and silver banging hard at 18. Stocks were lower.

But then the trading opened in NY, and the algos got busy with a trading reversal that saw the precious metals going lower and stocks catching a bid.

This looked and smelled very much like a short term 'technical trade.'

Let's see what happens tomorrow and the next day.

There will be a Non-Farm Payrolls Report on Friday for the month of April.

Silver continues to see heavy delivery action, such as it is on the Comex. The stores of ready bullion have shrunk back down a bit. This looks like a good month for silver. Gold will have its day in May-June as the free bullion float continues to diminish relative to wagers placed and bullion demand.

Have a pleasant evening.