The USA is spending one trillion dollars every 100 days. The USA does not have the trillions it is spending, it is borrowed. The new leaders in Europe are also awash in debt.
Richard Nixon took the U.S. off the gold standard on August 15, 1971. Until then the dollar was a silver certificate. One could redeem the buck for that much silver at the Federal Reserve. Las Vegas used silver dollars in its casinos. That hard money currency means Congress cannot spend any more than the gold and silver in Fort Knox. LBJ was the first President to offer a $100 billion budget. Without a tether to gold and silver, Congress can spend as much as it can borrow, and does. This is how we got to a three trillion dollar plus ‘budget.’
Gold has advanced from $300 in the 1990s to $2,407 today. It is going higher and jumped $42 Thursday. Silver continues to test its break out around $28-30. But again, higher prices lie ahead.
I have also been bullish on oil prices. Crude found support in the low 70s and now trades at $83.47. Picking targets is dangerous but $100 is not out of the question. Energy and service stocks have slowly sunk rather than rally, until Thursday. Transocean (RIG) rallied 3.8%. Patterson (PTEN) did the same. Both are dirt cheap. The downtrends have yet to reverse but the energy service ETF XES jumped 2.86%. In an oil rally the service stocks typically outpace energy shares. For example the energy ETF XLE only gained 1% Thursday. Gasoline futures are testing the breakout above $2.50. If prices continue a rally, Team Biden will have another obstacle to vault in November.
FED Chair Powell is hinting at a rate cut, he should not be but he is doing so. The TLT bond fund jumped 1% Thursday. Taking out 94 will be an indication of higher bond prices and lower interest rates.
The rally in stock indexes has been powered by the Magnificent Seven tech stocks. Every one of them has declined this month. That may be a buy point for a late summer rally. But consider Helen of Troy, HELE maker of glamour products like Revlon. Sales are down, inflation matters. HELE has been cut in half since February, dropping from $125 to $64. There is a large gap, no trades, from $90 to $65. This kind of weakness is a more reliable indicator of the economy than the blizzard of statistics from the FED.
The longer term view is bullish on metals and energy. Stocks remain pricey and stretched to new levels of optimism.
