As reported in zerohedge here, we are about to see a massive injection of liquidity over the next 3 months, with an expected rollout of the following:
- 6 weeks: $800B Treasury + $180B Fed = $980B
- After 10 weeks: Total of $1.1T Treasury and $300B Fed = $1.4T
- After 18 weeks: Totals could be $1.4T Treasury and $500B Fed = $1.9T
And there is more coming after that (with a constant creation of new money of $120B per month from the Fed). So everyone who is telling you the market is looking way too frothy and are going to cash might be a bit early. Now we have no problem with that. Timing the market exactly is a fool’s game, but when we are looking at $2T of stimulus over the next 4 months or so, the probability that the markets crater is a much lower probability than many people are assuming. Yes, lots of bad things can happen to derail the markets: Vaccines could prove ineffective to the mutations, a major war could break out, other natural disasters, etc. But we can’t accurately plan for those, so we don’t build them into our definitive expectations (maybe we should).
I suspect that we will see markets continue to go higher and climb a wall of worry among professional investors. I have no doubt that at some point we will crash. Maybe stagflation will take hold, hiring will not materialize, political instability will return, etc. Something will trigger a market melt down, but for the next few months, it’s likely to continue moving higher. Valuations be damned.
That includes gold and silver in my opinion. I have read a lot of good pieces on both sides of the argument that inflation is coming or that inflation is not coming anytime soon. Given that a lot of the stimulus is heading directly to consumers and that the yield curve is steepening, which incentivizes banks to loan out more money (think housing!), it’s likely that we will see much higher inflation that is expected by the Fed later this year. Even January’s reading annualized was at 3.6%.
Dan Barrett is an ex-Wall Street (9 years), turned entrepreneur in the bullion industry for over a decade. Part owner of a physical bullion dealer in the San Francisco Bay Area and an owner of a software company making point of sale systems for the bullion and coin industry. He is an avid reader of macroeconomic theory and favors Austrian economics. Always looking to learn something new or gain different perspectives.
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