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The Power of the Printing Press on Display Again

04-08-2020

The market was back on its horse, gaining almost 2% by midday, as yesterday's rollover was forgotten. I know the action seems pretty mind-boggling given the news, but one can't forget the staggering amount of money that has been printed in the short run. So, if the action doesn't make sense because it seems too giddy, that is likely the reason why.

Hold On a Second I've been encouraged that there seems to be more and more discussion about potential inflation, the return-free risk that the bond market offers, and more interest in gold from the generic mainstream. On the subject of the bond market in particular, I thought Ray Dalio's recent remarks were interesting, especially when he said, "I believe that increasingly there will be questions by bondholders who are receiving negative real and nominal interest rates while there is a lot of printing of money about whether the debt assets they are holding are good storeholds of wealth."

In other words, he's saying that bonds offer no return and only losses over time. Obviously, they can trade higher in the short run, but ultimately, they are going to be losers both nominally and in real terms.

The reason why this topic matters is because this is ultimately how the Fed will lose the bond market. When that happens, they may choose to do something like peg the yield curve to some rate they find suitable, but that will only exacerbate the problem. In any case the box that the central banks are in is slowly getting tighter, as more and more people realize that they're trapped, although the numbers of people who recognize that are still rather small, but they're finally growing.

Turning back to the action, in the afternoon the market gained more ground, led by the S&P, which added more than 3%.

Away from stocks, green paper was a little stronger and fixed income was higher at the short end and weaker at the long end. While that's just one day's development, I expect that we're going to see plenty of that dynamic over time. Turning to gold, the spread remained north of $30 between spot and the futures, and both were a little lower, while silver fell 0.5%.

Out of the Frying Pan and Into the Woods The miners were back and forth across unchanged a few times and finished mostly higher. My impression is that the metals complex, and the miners -- finally -- to some degree, are trading a fair bit better, as though there are lots of buyers waiting in the wings. To be sure, I've been fooled by the action in the miners countless times, and while they do feel better, they still don't get quite the respect that it seems like gold is beginning to receive.