Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Who is Spreading the Virus? UK Coronavirus 2nd Wave Analysis - 30th Sep 20
Gold And Silver Follow Up & Future Predictions For 2020 & 2021 – Part II - 30th Sep 20
The Only Thing Systematic Is The Destruction Of America - 29th Sep 20
Fractional-Reserve Banking Is The Elephant In The Room - 29th Sep 20
Gold And Silver Follow Up & Future Predictions For 2020 & 2021 – Part I - 29th Sep 20
Stock Market Short-term Reversal - 29th Sep 20
How Trump co-opted the religious right and stacked the courts with conservatives - 29th Sep 20
Which RTX 3080 GPU to BUY and AVOID! Nvidia, Asus, MSI , Palit, Gigabyte, Zotac, MLCC vs POSCAPS - 29th Sep 20
Gold, Silver & HUI Stocks Big Pictures - 28th Sep 20
It’s Time to Dump Argentina’s Peso - 28th Sep 20
Gold Stocks Seasonal Plunge - 28th Sep 20
Why Did Precious Metals Get Clobbered Last Week? - 28th Sep 20
Is The Stock Market Dow Transportation Index Setting up a Topping Pattern? - 28th Sep 20
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Crashing Markets and the Threat of Deflation Will Lead to the Next Great Inflation

Stock-Markets / Stock Markets 2020 Mar 15, 2020 - 05:48 PM GMT

By: MoneyMetals

Stock-Markets

As the coronavirus spreads fear, sickness, and death, a specter haunts investors – the specter of deflation.

Despite central bankers’ attempts to push inflation rates higher, equity and commodity markets are collapsing. Inflation expectations as reflected in tanking U.S. Treasury yields, meanwhile, appear headed toward zero – and perhaps even below.

“I think that we have a real danger of deflation in the economy right now,” former Trump economic advisor Stephen Moore told Fox Business’ Maria Bartiromo last weekend.

Clearly, symptoms of deflation and leading indicators of economic contraction are now manifesting in dramatic ways:


  • Wall Street is being hit with the most severe selling wave since 2008.
  • Junk bonds are also selling off hard as investors fear a wave of corporate defaults to come.
  • Crude oil has suffered its worst plunge in decades.
  • Economic growth in Asian and European countries is turning negative.
  • The odds of a recession hitting the U.S. this year are now 50%, according to Moody's Analytics.

But before investors jump on the deflation bandwagon, they should carefully consider the monetary and political forces that could be deployed to reverse a whiff of deflation.

Stephen Moore – who was once floated by President Donald Trump as a nominee to the Federal Reserve Board – is now urging the Fed to reinflate the economy. “I think the Fed should be proactive. I want more dollar liquidity in the economy,” he told Bartiromo.

More rate cuts are coming – markets are currently pricing in a further 75 basis-point reduction in the Fed funds rate – and possibly some unconventional liquidity injections as well.

Meanwhile, President Trump is pitching a payroll tax cut and other fiscal stimulus measures intended to supply consumers with more cash to spend into the economy.

Once the threat of deflation becomes a top concern of central bankers and politicians, it is likely to have already run its course… or have little room left to run. Deflation scares tend to be sudden and severe but ultimately short-lived.

As an investment thesis, deflation lacks a long-term driver.

The reality is that deflation will never persist for very long while our inflationary fiat monetary system remains in place.

Obviously, there are no signs the Fed is going to close up shop anytime soon. Both Democrats and Republicans depend on it to fuel their spending and borrowing priorities. And both parties favor easy-money policies.

The old adage, “Don’t fight the Fed” is worth heeding.

The last deflation scare in 2008 led to Zero Interest Rate Policy, Quantitative Easing, and unprecedented Fed balance sheet expansion. A generational buying opportunity emerged in U.S. stocks. While most on Wall Street expected a bear market rally, few predicted a massive bull market that would last for over a decade.

Initially, all asset classes rose out of their 2008-2009 bottoms. Commodities and precious metals, which had delivered standout gains in the years leading up to the 2008 financial crises, resumed leadership into 2011.

As gold and silver topped out in 2011, the U.S. stock market became the prime beneficiary of monetary expansionism in succeeding years.

Today investors seem convinced that once the Wuhan virus crisis abates, the S&P 500 will bounce back and become the place to be for years more to come.

More likely, the current turmoil in markets – and the central bank response – will effect markets in ways that stock market bulls aren’t expecting.

One surprising development currently taking place is that instead of serving as a traditional safe haven, the U.S. dollar is actually dropping precipitously verses foreign currencies. Consequently, foreign developed and emerging markets are often falling less drastically in dollar terms during big down days than U.S. stocks are.

Meanwhile, the strongest currency in 2020 has been gold – up better than 10% for the year. One of gold’s most under-appreciated functions is that of a deflation hedge. When risk assets are being liquidated, an ensuing flight to quality includes gold and Treasuries.

U.S. government bonds have performed spectacularly in 2020. In fact, bonds have been in a super-cycle bull market for nearly 40 years!

In recent years, many bond skeptics have prematurely called a top. But with rates across the entire yield curve plunging below 1% this week, we are now getting close to the point where it will become mathematically impossible to milk bonds for the kind of returns they have delivered in the past.

There is asymmetric downside risk to bondholders given the possibility that inflation fears reemerge. The real losses on 30-year bonds bought with a yield 0.9% would be staggering if inflation merely averages the Fed’s target rate of 2% over that period.

With the bond bubble having little room left to expand and potentially nearing a prick that will burst it… and with a stock market bubble potentially having just burst, where will investors find the next great bull market?

Perhaps in asset classes that have been depressed for many years. No asset class has been more beaten up for longer than commodities. Narrowing down to the precious metals space, it’s hard to find any market more undervalued than silver.

The white metal is now historically cheap versus gold – selling recently at its largest discount to gold (1/98th the gold price) since 1991. This in part reflects how lopsided the deflation trade has become. Unlike gold, silver is more of a pure play on inflation.

When the powers that be finally succeed in staving off the deflation threat with inflationary injections of fiat currency into markets and pocketbooks, new investment trends will take hold. The coming inflation will lift hard assets in general – and could launch silver explosively higher in particular.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2020 Stefan Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules