PodCasts Archives - McAlvany Weekly Commentary

Bank of England shifts from QT to QE Sweden & Finland measured 2 explosions on Nord Stream Pipeline - Sabotage? Would China actually, purposefully devalue? GILTy? Bank of England’s Big Pivot October 5, 2022 “We’re in a new stage of instability. You can see it in the frantic behavior of the markets. When I see the markets this week up as much as they were down last week, I don’t see a recovery. I see a frantic and desperate desire for normalcy. The volatility in both directions is so erratic as to be dangerous. When it becomes this volatile, remember that there’s only so much volatility that these risk metrics can handle before they blow up.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  Well, you’re a traveling family. Dave, most often, I talk about your travels and what you’ve learned, but last night, we were talking about Declan, your 16-year-old son and some of the observations he made while he was with your wife at a think tank in Austria. Would you share the thought? David: Well, it’s fun to see them involved with this global think tank dealing with culture. My wife’s particular interest is in the arts and entertainment, and for my oldest son to see big picture conversations happen about public policy and the way that ideas filter through into communities, very, very healthy for him. Kevin: These are influencers. What was the percentage of PhDs in this group that your son— He’s 16 years old, but he got to hang with— David: I think 70, 75% were PhDs. So, that left our family contingent on the undereducated side, which is fine. Kevin: But we were sitting over a Talisker last night when you brought up what Declan said. David: Yeah, he said the macro thinkers tend to grab a beer or glass of wine and think expansively about the world, and the micro thinkers prefer a caffeinated beverage to focus the mind and bang out the details. Kevin: That’s a keen observation. That’s true. I’m not much of a detail person when we have Talisker day. David: No, it’s true, but we do have very expansive conversations. Kevin: Yeah, can you believe? Okay, so we went about two years where we couldn’t meet at the restaurant that we’ve met at for years and years and years. It’s called Ken & Sue’s. It’s now called 636 Main. We’re back there, face-to-face meeting, with Talisker. Covid had shut things down for a little while. David: Back in table 30. Kevin: Table 30. Can you believe we’re already into the fourth quarter of 2022? David: As much as investors would hope for an all clear from bear market dynamics, yeah, it’s hard to believe we’ve started the fourth quarter, but we had those bear market dynamics earlier in the year. What materialized through the very end of September was nothing short of ominous. The devil’s in the details they say, and there are more than a few details lurking in the realm of interest rates, interest rate derivatives, and portfolio leverage. Kevin: Well, if we’re going to get detail oriented, in other words, caffeine rather than alcohol, we’ve got inflation still raging. Look at Germany. David: That’ll focus your attention. Now, German CPI exceeded expectations in September coming in at over 10%, as did the broader European numbers, also north of 10%, double digit for both. Germany is now committed to 200 billion euros in government borrowing to defray the consumer costs of energy bills in the months ahead. Two hundred billion is a big number. That figure is far more significant from a fiscal standpoint if you’re comparing the 200 billion to the 2 to 3 billion in tax savings which had been proposed by the English Chancellor of the Exchequer last week. Again, it was a tax break for the rich, 40% tax rate instead of 45, and it would’ve saved them 2 to 3 billion in taxes.

Desperate Putin keeps talking about Nukes Safe Money? 10-year Treasury down 15% YoY Dollar, at 20 year high, is choking the world Pound Collapse: “I Just Can’t Wait to Be King” September 28, 2022 "This week is unbelievable. Uncertainty. What the folks at Foreign Affairs describe as the age of uncertainty, what we exist in now, this is an amazing week to 10 days. The rapid deterioration of financial conditions. There are a few times in our professional lives where we see the rapid deterioration of financial conditions happen so quickly." - David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. We were just talking to the person who does the editing and recording of the show, and he’s a pilot. I agree with him. He says, “Flying is hours of boredom interrupted by moments of sheer terror.” It reminds me of the Lenin quote, and I know your dad likes this quote, “There are decades where nothing happens and weeks where decades happen.” Look at this week. David: Yeah, in one week period, can you recall so many macro events unfolding all at once? There are financial dislocations everywhere and most disturbingly, the dislocations are moving to the core of the financial system. You’ve got government debt and your largest governments, the G7 currencies under immense pressure. Reuters defaulted to something very dramatic describing it as a macro tsunami. Kevin: Well, England lost their queen of 70 years. What is it? 70 years, seven months, seven days. I can’t remember exactly how that works, but I heard this morning that that’s almost a third of American history with one single queen. So you have the loss of the queen, and I know that that’s a big deal in Britain, but you also have the breakdown of the British pound. I mean, do you remember when the pound was two or three times the value of the dollar? At this point it’s just about the same? David: Yeah, In fact, it was at one time four to one, and then it made that cataclysmic crash to two to one. And now we’ve seen it move basically to one to one. British yields exploded higher, and that was followed by European yields across the periphery if you’re talking about Greek and Italian, and Portuguese, pound reached a record low surpassing the levels that forced the Plaza Accord in 1985. So dollar strength in 1985, of course, we had the Volcker rates, which attracted a lot of foreign capital into the US. And the dollar strengthened and strengthened, and strengthened, to the point where you had a collection of countries gather to figure out how to, in a coordinated fashion, devalue the dollar so that they could relieve the pressure on those other major world currencies. So balance sheet losses right now for the Bank of England are totaling to over $215 billion from the increase in interest rates. Billion with a B. And they’re, of course, just in the next week to 10 days scheduled to sell off assets, reduce the size of their balance sheet, and add more surplus, add more supply, to the bond market at exactly the wrong time, when there’s not much appetite for the British gilts—what they call the Treasurys. Kevin: And just like Dorothy was no longer in Kansas, we’re no longer in 1985. I mean the dollar, what is it, 20 year highs right now with the dollar’s reaching. Maybe it’s going to go even higher than that. But you look at what’s going on now, we’re not about to try to save the rest of the world by devaluing the dollar at this point. It sounds to me like Powell is fairly committed. David: Whenever you’re looking at markets and there’s big moves, they tend to gain steam and move towards sort of the parabolic at the tail end. So the most dramatic moves and the most ground is covered in the shortest period of time just as the market is getting ready to tank. Kevin: You think that’s going to happen with the dollar, another spike up?

German Producer Price Inflation up 45% World Bank warns of devastating recession if rates go too high 30 Year Treasury purchased in 2020 now down 40% Hoping For A Less Worse Tragedy September  21, 2022 “What is clear in my mind is that uncertainty is a factor not adequately priced into the market. Uncertainty is a factor not adequately priced into the market. And I’m talking about international relations uncertainty, inflation uncertainty, domestic and global recession uncertainty, November election uncertainty. The list goes on and on.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  Well, our guest last week, Dave, Andrew Smithers, he brings 85 years—in fact I think on the 21st he turns 85 years old—but he brings a grand narrative to the stage. When you talk to somebody who’s lived many decades of learning—I’m not talking about just living many decades, but actually many decades of living and learning and writing and testing—there really is a grand narrative. It’s almost like a long play, isn’t it? David: It is. Somebody last week said, “It’s not just experience, but it’s experience that you’ve reflected on that matters.” And there’s plenty of people with experience who have a hard time still pulling themselves out of a ditch. And if you can figure out how the world works, and then do something with that experience that you’ve reflected on, boy, that’s important.  Grand themes, he’s got a few. There’s so much in terms of the details, whether it was a conversation last week or the details that we look at every week. A story with a compelling arc is something that is easy to return to when I think of grand themes. How often have you heard it? At times, I think grand themes, like the theme of inflation— It can almost feel like a rehash of a repeat of a tired, heard-it-a-thousand-times tale, but inflation has an arc to it. It is a compelling chronological plot. It’s thickening now in real time, but at certain points can feel like there’s nothing left to be said that hasn’t already been said.  In theory, inflation is highly problematic. In actuality, it’s both problematic and painful to the individual person. I hope we don’t become desensitized to it, and forget that inflation matters because people do. So when we see inflation, when we see it’s counterpart or colleague devaluation, it may seem to be mathematical, but there’s an ethical component to it as well. And of course there’s a sociological and political component when we think of ramifications that are also attached. I see the epitome of high drama in the inflation arc, in the inflation story. It’s not a mere statistic, whether you’re talking headline or core. Kevin: Well, and there’s a different way to look at it. I think of it as this thief that just continues to come in and quietly steal and hollow out the meaning of savings, hollow out the meaning of the ability to pay for food. Or you just look at the last 100 years, a loaf of bread was six cents a loaf, Dave, a hundred years ago. Now it’s five or six bucks a loaf. It’s almost 100-fold larger. Why is that? Why do I have to make more and more money every year? You talked about grand themes. Shakespeare, he wrote about some pretty tragic characters like Macbeth. He’s talked about the meaninglessness of life. Well, inflation does that too, doesn’t it? David: Sure. And to stitch together the conversations we’ve had with Smithers, going back a few years, take the risk of inflation, which is a temporary small cut, to the catastrophic and inevitable decline of a market going from being overvalued to being undervalued. And this is something that can be back tested and, to a large degree, predicted. Not precisely when, but that it will happen. We have a return to reasonable value in the equities markets. And as far as Smithers is concerned,

Efficient Market Hypothesis is just wrong A crash worse than 2008? A new, better, testable, economic model Andrew Smithers: Look Out! Bad Models Equal Bad Outcomes September 14, 2022 “But I must say I welcome any qualified economist who has the guts to say, “Smithers’ views are worth debating. I’m not going to say that Smithers is right and the consensus is wrong, but we do need a debate.” That will be the first step. I think that people are very frightened of debate, and the fear that they have is one of the reasons why we need it so much. They are frightened because what they have been teaching and writing papers on will look to have been badly wrong. And to face that is a very great challenge.” — Andrew Smithers Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  I’m looking forward to our guest today. Dave, you’ve interviewed him before. In fact, the last time you interviewed him was in Scotland. There was a harp in the background—one of my favorite backgrounds to one of your talks—but it’s always good to look back and say, “What have I learned in my life?” But this is a man who’s got five or six decades of not only asking himself what he’s learned, but testing it by model, and disqualifying a lot of the models that people are following right now that have just proven themselves to be wrong. I’m talking about Andrew Smithers. David: He offers a model to complement or perhaps upset the neoclassical economic model which has been so popular in recent decades. And I find myself, after having gone through Valuing Wall Street, one of his earlier books, and now The Economics of The Stock Market, I find myself a man in debt. I’m in debt to Andrew Smithers at an intellectual level for his contribution, and feel the same way as I’ve read through [Giulio] Gallarotti and Harold James and Robert Higgs and Russell Napier and [Tomas] Sedlacek and Robert Jervis. Andrew Smithers is in that mix.  And from the standpoint of market dynamics and valuation and appreciating the long patterns that you see within the stock market, how do we explain them? How do we understand the behavior of the decision-makers within an economy? Whether it’s a household or corporation or a government. He puts many of these things into perspective. And so without further ado. *     *     * I may be hopelessly nostalgic. I miss Alan Abelson’s articles in Barron’s. I miss the round table discussion from the same paper, including Felix Zulauf and Fred Hickey and Bill Gross. And I miss Andrew Smithers’ routine articles in the Financial Times. But I love it whenever retirement is more of a suggestion than a reality. Because here you are, once again, Andrew, writing another book. You just published The Economics of the Stock Market, and I’ve really enjoyed it.  I would argue your challenge to the consensus views is more important now than ever before. [Two weeks ago] in our commentary, we discussed how [Thomas] Kuhn describes a paradigm as broken, but still stubbornly adhered to. And so you’re in this situation where anomalies accumulate until a fresh set of ideas is finally welcomed. And I hope your ideas are part of the refreshed and rewritten economic consensus.  Thank you for joining us again. I think the last time we spoke in person was at the Balmoral in Edinburgh. I apologize today, we don’t have harps, and there’ll be no slipping away later for a single malt with Russell Napier, but welcome. Andrew: Thank you very much, indeed. Very nice to be on the telephone with you. David: We experienced a disconnect during the global financial crisis between professional economic forecasting and the realities of a financial sector and financial markets meltdown. While many lessons were learned, there still seems to be a detachment between finance and economics. And in your latest book,

UK faces 18% inflation You can't fix inflation harm with deflation Choose your executioner, Greek or Italian From Russia With Love: Europe’s Energy Catastrophe September 7, 2022 “European stress is increasing as financial stress increases. You’re really talking about social anxieties and political stress that gets played out. TPI [transmission protection instrument] acting as a smoke screen for the ECB balance sheet reshuffling. After our medical and social experimentation with COVID, we’ve put ourselves in the worst possible position, not just in Europe, not just in the US, but globally.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  Gosh, Dave, from the German energy crisis to the difficulty of the French cooling their nuclear reactors because the rivers are getting hot, and you’ve got the Ukrainian situation with Russia. It almost sounds like a James Bond movie. But we sort of need the real James Bond back, don’t we? I mean, I’m thinking Sean Connery at this point. David: From Russia with Love. Yeah. No, there’s some similarities, maybe some differences too. 1963, Sean Connery, a lot has changed since then. All you have to do is watch the trailer for that movie and know that a lot has changed since then, versus 2022. We’re not at the present seeking a decoder or an encryption device that’ll access Soviet state secrets and unbalance the world order, quite the opposite from Spectre. It’s the Russians who are destabilizing. All we’re seeking is reliable energy that can’t be leveraged and weaponized to do that very thing, remake the world order after tearing apart the old one. We have Gazprom and Russian state announcement that there will be an indefinite suspension of supplies from Nord Stream 1. And maybe that’s a different version of From Russia with Love. I think the best thing to do with an abusive relationship is get out of it, and I think the Europeans have maybe some application of that principle right here and now. Kevin: Last week you were making comments about the German energy policy and how it was shortsighted. It was going green before they actually had a replacement for it. But France, we had talked about France keeping their nuclear reactors working. I just mentioned, they’re working a little hotter than they were before, and there’s concern, isn’t there? David: That’s right. Just to balance out those comments on policy shortsightedness, there’s issues everywhere. And the spike in temperatures across the continent this summer, the French are having difficulty cooling their nuclear plants because the river temperatures have risen past the required or preferred thresholds. No one in Europe is exempt from current energy pressures. Some are climate related up to and including rivers that move coal and rivers below levels that are allowing for shipping. We’ve got that up and down the line. You’ve got some of them on the other hand which are compliments of Vlad. And Russia’s indefinite closure of Nord Stream 1 till all sanctions are removed simply upped the geopolitical stakes as well as the domestic political challenges for governments across Europe. Not a surprise that Germany very quickly announced a 65 billion euro package to help defray energy costs to consumers and businesses following that announcement from Russia that Nord Stream 1 would be closed indefinitely. Kevin: Well, it seems like it’s the perfect storm. I mean, you’ve got the energy situation with costs just skyrocketing. I mean, oil, it’s the equivalent of thousand-dollar a barrel oil here, what’s going on in Europe. But my question would be, isn’t this like a fever? When you get a fever in your body, it affects everything. And you only have a certain margin before that fever ultimately kills you. Inflation is a little bit like a fever, isn’t it? David: Yeah. But interestingly, I mean,

Jay Powell punches the market in the face European energy costs could rise 10-fold this winter Gold up 20% in Yen for the year The Dollar Is Temporarily the Best Horse (In the Glue Factory) August 31, 2022 “Europe, and Germany in particular, is experiencing nothing short of the U.S experience in the 1970s. The OPEC oil embargo, radical inflation numbers, and very significant consequences from that. Imagine the 1970s inflation on steroids in a place like Germany, the inflation numbers from German PPI, that’s not going away anytime soon unless Putin decides he wants to get cozy and friendly with all of Europe.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  David, you’re still in Kuala, Lumpur, but you’re learning a new sport, aren’t you? David: Badminton. Who would have thought that badminton was so very popular? I’ve been other places in the world and if you turn on the television, you’re going to see cricket matches. Or if you’re in the U.S., certainly there’s American football. Anywhere in Europe, you’re guaranteed to see football of the other variety, soccer. Here it’s badminton and we have a new world champion this year, men’s doubles badminton, Malaysian, and they are excited. So that comes at the same time as independence day. Today is independence day, 65 years of independence from the British. So this is like the 4th of July. There’s a party outside my window. It’s almost midnight and the festivities have begun. Kevin: That’s one of the wonderful things about travel, Dave, because you didn’t expect to be watching badminton. You probably didn’t know about the independence day. So when you travel, I just got back from a trip to Maine, saw one of our Treasured clients, got a chance to talk at a conference that he put on, and I just thought about it. I had never been to Maine before. I love having fresh lobster and blueberries and maple syrup. David: Of course. Kevin: The people up there were great, but I thought about it while I was traveling and I thought, you can read a lot of books and that’s very helpful, but it’s good to be put into the travel circumstances where you don’t know what the next thing’s going to be. I’m sure it’s a great way of rewiring your brain.  Well, getting to the market right now, last week you said that Powell had a choice of either a light slap across the face or punching in the nose. It looks like he punched the markets in the nose. David: Yeah, decent jab. We talked about Dr. Kaufman’s or Mr. Kaufman’s comment that a hand slap would not change the risky behaviors of the speculative community, but a punch in the face sends a clearer, more definitive message. Jerome was impressively unambiguous with his eight minute right/left combos. Kevin: Well, it’s sort of nice to have straight talk, if indeed he’s willing to back it up. David: That’s right. Non-complicated communication was a hallmark of his eight-minute speech. He had 30 minutes scheduled, and finished in eight, which, again, was just very, very compelling. I mean, in a nutshell, he said inflation is too high. Rates must go higher, interest rates must go higher. We’re going to pursue that course regardless of the pain it inflicts, knowing that if inflation endures even longer, it will cause an even greater pain. That is the truth. If you want some of the “best of” quotes from the speech, Credit Bubble Bulletin does a great job of gathering those together and you can find some compelling ones in Hard Assets Insights as well. Kevin: If you recall, we interviewed a man who was with the Reagan administration in the economic side of things who was there when Volcker came, and he was tough. He punched the markets in the face, and the Reagan camp at the time didn’t like Volcker one little bit. Politics and central bankers should be separate.

Germany shocked by 37.2% producer price explosion John Taylor "We have inflation all over the place" Iran stockpiles 3800 kgs of enriched weapons grade uranium China Gobbles Up 80 Tons Of Gold August 23, 2022 "The discussion has been around these enduring issues of Chinese economic growth, Chinese economic numbers being the first point of pressure in the oil markets. And of course the oil markets and the energy markets are one of those things that are ratcheting up pressure within Europe. So the higher those prices have gone, the more desperate things have become, in Germany, in the Eurozone, and globally." - David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  Well, what a difference a week makes, Dave. You’re situated in a place that you didn’t expect, but for the 35 years that I’ve worked with your family, I remember your dad over and over and over saying, “Live with it. You got to go with it. Life is a moving target.” I can’t tell you how many times I’ve heard life is a moving target. And actually that’s been very helpful. David: That is one of those phrases I’ve heard and still hear countless times from my dad. Life is a moving target. And life definitely felt that way over the last week. The markets didn’t offer up anything extraordinary, at least in the US, but life did. And an email came from my dad last Tuesday, as I was finishing up preparation for the podcast. It was about my mom. It was a diagnosis of cancer. That was on Monday. Of course, they’re ahead, being in Asia, across the international dateline. Surgery was scheduled for Friday. One of the shortest pieces of writing I’ve ever received from my dad, and brevity for him is an indicator. And I could feel every word that was left unsaid, but certainly between the lines there was, life is a moving target. Kevin: Dave, we realistically understand here as a family and as those who’ve worked with the family as long as I have and some of the other guys have, we realize that Molly really is the anchor, the backbone. Don was known for his newsletter. You had talked about short note from Don is almost impossible because his newsletter sometimes used to run 40 pages long, but your mom’s really the person who started, down in the basement, this company back in 1972. We all love her dearly, and we were very sober to hear the news, and immediately started praying for and would ask the listeners to pray for her. But you didn’t know last week at the time that we recorded the Commentary that you’d be in Malaysia today. David: No, I didn’t really see that at the time. No, I didn’t have the imagination that I would be in Malaysia. I’m sitting in the shadow of the Petronas Towers in downtown Kuala Lumpur, and that’s today and for the next 10 days. Mom had a successful surgery on Friday, and is running around like nothing happened. So this afternoon we went for a walk after breakfast, and then seemed to linger over lunch till the afternoon was gone. The hours just slipped by as we sat and talked. So lots to talk about, always chipper, always positive, always curious, not a surprise that she’s planning the next family reunion and thinking about where nearly 40 of us can gather for meals and games and adventures and the creation of future memories. Kevin: You wrote a book on legacy. And it’s mainly about your family. Hopefully all of our listeners have read the book or will have a chance to read it. But we do find that this is a person who knows what to trust and how to actually be a matriarch of a family. David: Quality attributes that stand out. These are the things of which legacy is made because it’s what goes into the relationship. She’s indefatigable, she’s unrelenting. She’s determined, occasionally stubborn. There are a whole host of things that I see every day reflected in one of our kids mirroring their grandmo...

Market surge creates a Catch-22 for wannabe Bulls Wages rise, but not enough to keep up with inflation China shocks with interest rate cut, hoping to delay a larger disaster Everything Rally is Awesome—or Maybe Not August 17, 2022 “A true bear market has a lot further to run because nothing has been learned, and the lessons that needed to be learned are not remembered. The second major phase of decline is what you would expect between now and year-end. You could look for geopolitical predicates for that. You could look at a cooling global economy. You can look at the declining economic reality within China. What it suggests is that we’re going to be challenged by at least one, if not multiple, factors by year end.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  David, you and I have both flown small aircraft. If you recall, when you’re training, sometimes they put you under the hood where you can’t see outside of the window. You can only see your gauges. That’s an interesting experience because while you’re training, they put you into what they call an unusual attitude, unusual attitudes exercises. You can feel rising and falling in your body. You think you can fly by the seat of your pants, but if you actually look at the gauges, they’re oftentimes showing you opposite what you feel. I’m seeing in the markets right now, Dave, I’m seeing this surge. All of a sudden, inflation is less of a concern, that people who were getting their heads handed to them earlier are now going back and rebuying the various stocks that they got chopped up on. Do we look at the gauges? What are we looking at? What’s the narrative? What’s the truth versus what we feel? David: I think the idea of an unusual attitude— I might draw a different meaning from that than is appropriate from the flying lingo. Kevin: You’re thinking about your daughter, possibly, on the days where she might be a little bit more difficult than others, huh? David: Oh yeah. Or me on a Tuesday morning. Occasionally, there’s a little grit in my craw. But it is interesting. The stocks have rallied to a key resistance level and— Kevin: This is a test, isn’t it? We’re at a testing moment. David: Absolutely. The S&P 500 is both at a 50% retracement level, that is 50% of the first half selloff has been recovered, and it’s also coming up to the 200-day moving average. That convergence provides a test for the bulls. When you look at those retracement levels, a 50% retracement is very common. If you had an additional move higher, your next destination would be 61.8. How these numbers mathematically coincide with the emotional energy of the markets is very, very intriguing. These are Fibonacci numbers, and somehow there’s coincidence. Maybe it’s more than a coincidence, but a 50% retracement, very common. Additional move to 61.8% retracement, also not unusual. What you have is a testing of the up trend at those junctures. Will additional buyers enter the fray?  When autumn volumes pick up— There’s lower volumes in the summer times. As we get the kids back to school and fully engage with portfolio management, as autumn volumes pick up, will there be sufficient fear of missing out to draw individual investors back in? There’s a reasonable argument that short covering has run its course. In recent weeks, you’ve seen miraculous moves higher on very low summer volumes. That’s been the context. Now, you need. Now, you must have organic buyers to propel prices into a next leg higher. The enthusiasm is growing. Short covering being transformed into an extended rally, certainly that cannot be ruled out. But as a reminder, these kinds of rallies are frequent in the context of a broader market decline. Kevin: Oh yeah. Remember the 2000 sell off? How many rallies did we have during that complete devastation of the market?

Fed says it will stop telling the markets its next move Quick rally in stocks doesn't change long term bear trend Biden "given" really good jobs "surprise" The Need For Risk Control In A Schizophrenic Market August 10, 2022 “We had a year and a half, two years ago, the transitory references. Early on, as inflation was starting to heat up, it was going to be transitory. I think they were hoping that there’d be sufficient talk to keep inflation expectations modest, and to keep those expectations un-rooted, and I think they were hoping to avoid having to do anything. Don’t raise rates, but just talk it down. And now all of a sudden it’s here, and it wasn’t transitory, and it does require something of a more muscular action.” — David McAlvany Kevin Orrick: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. You’ve been on a road trip, Dave, since you’ve come back from France, and you’re looking at colleges for your eldest son. And we were talking about it, life seems to have these decisions in it that at the time you think, “Oh my gosh, I’m making a decision for the rest of my life,” sometimes we put so much weight on it because we think, “Well, this is a definite, and it’s going to set the course of action for the rest of my life.” But actually when I look back at my life, yes, picking colleges, that type of thing could be very important. But I look back and I look at how unpredictable my life has actually been. I could have never actually planned any of the great things that have happened to me. David McAlvany: Yeah, it is interesting how much stress there is around some of these decisions, and we’re getting to see that firsthand with our oldest. Class size and college size and emphasis, and people ask him what he’s going to study, and the reality is you got to have an answer, but it almost is irrelevant because, at least if he’s like his father, it’s going to change five times your freshman year anyways.  But we take comfort in having answers, even if we don’t really know and can see the future. What we have is some alleviation of pressure and stress with this pretend world of coming to terms with what our future holds. And so much of that gets factored into the markets as well. If you think about, we just need something from the Fed, give me something to seek my teeth into, that way I feel better. It may not tie into reality, but it makes us feel better in the moment. Kevin: Don’t you think the Federal Reserve for the last 10 or 12 years has offered a false sense of security, because they were able to print money and it didn’t create inflation really until just recently? I get a lot of my clients saying, “Well, gosh, is gold going to make up for inflation?” But we’re very centered here in America with how things are priced in dollars. If you look at gold, I mean, yeah, it’s off about 3% here in the United States this year, but look at what it’s doing in other currencies. David: Well, and as you’re suggesting, the markets have gone to extremes on the basis of this false confidence. The Fed has projected a certain narrative about what the future holds and what they’re willing to do to guarantee that future, and people just speculate. People increase the size of their bets. The leverage that corporations and individuals or speculators, hedge funds are willing to take on has multiplied considerably based on the world, the certain world that the Fed has projected. Is it certain? Not exactly, but that’s what has been conveyed. And so, yeah, I mean, gold’s off 3% year to date in US dollar terms. Yes, it’s rallying off the lows of 1675. Yet, despite this— Call it poor performance in US dollar terms, the commodity’s up 12% in British pounds, it’s up 13% in euros, it’s up over 20% in yen.  Gold is off, but we have certain things that we know from history in terms of the way gold behaves at particular jun...

Talk is cheap, follow-through is what matters. Former Dallas Fed Chief says Pelosi took advantage of inside information. Gold tests $1675 then bounces $100 higher. Whitehouse Declares “Not A Recession,” … Move Along Citizen August 2, 2022 “As we exist in a stagflationary environment and contemplate stepping a first foot into recession, Congress’s way of dealing with these anxieties and pressers is to consider an extra 400 billion in spending and a tax increase of $739 billion. It sounds like genius at work.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  Well, you know this is the day you’ve been waiting for, at least I have. I wanted to hear how the trip to France was, and what is it like to ride a bike up the Alpe d’Huez, a 10% grade? Sometimes I think it’s 10% plus. What was that like, Dave, this last weekend? David: Well, there were parts of it that were magnificent and beautiful, and there were parts of it that were absolutely brutal. And just one pedal stroke at a time was all I was responsible for. One of the reasons I like to do races like this is because so much of my life is focused in the present moment. It’s that healthy balance to find a future focus and have some aspirational goals that are way out on the horizon and require some daily disciplines. Because the daily grind of operating within the financial markets can have you so focused on this day and this moment in the here and now that I just think it’s a healthy balance to be very present, but also have some attention put on something that is months or even years ahead. This was so beautiful. Again, I can’t imagine a more beautiful course, the French Alps. I’d love to go back. I don’t know if I’ll to that race again. It was probably like childbirth. There’s enough pain associated with it. I think I’m probably fine for now, but we’ll see. Kevin: One of the things I love about you, Dave, is we’re learning, especially right now with our leadership, talk is cheap; follow-through is everything. While you were doing the race, my wife and I were replacing a propane tank. We have a 500-gallon propane tank because in the wintertime that’s how we heat the house, and of course the stove uses the propane, and the hot water heater. So propane’s critical. We had a company who would fill our tank that we thought was local, and over time, they just went away. They didn’t tell us.  So it’s just interesting the difference between follow-through— When you say you’re going to go do a race, you do it and you follow through. It’s not like going and buying an exercise bike and giving it to the thrift store a year later. What we finally had to do, my wife and I, we would make calls and say, “Hey, when are you going to fill the propane tank?” And they’d say, “Oh, well, we’ll be there on Tuesday.” And it’s like, “All right.” And they weren’t there on Tuesday. Then we’d call and say, “You told us you would be there on Tuesday.” “Oh no, no, we’ll be there on Thursday.” Well, this happened a few times. This winter, it actually became very tense because we realized there was no real follow-through.  I bring that up, Dave, because if you say you’re going to do something, you need to do it. And that applies not just to racing, not just to propane tanks, which we switched companies who actually does follow through, but that applies even to geopolitical events. You look at what’s going on with the Ukraine. A lot of talk is going on with the Ukraine. China’s watching closely right now. Bill Burns, the head of the CIA, said that’s going to be critical. Are we going to follow through, or what’s the world doing with Ukraine? And what does that look like in relation to Taiwan, which China has on their radar? David: I’m not sure why,

Can China survive when the debts cannot be paid? Interest rates spike worldwide while Japan fights against hope to keep rates down Dollar and gold rise as currencies fall Doug Noland: A Core Crisis (from the Periphery) July 27, 2022 “The world has never seen anything like what we’ve witnessed for the past 13 years. I mean, we talk about China; it’s the emerging markets; what’s happened here in the US; the debt growth in Japan has been just crazy. So from my standpoint, David, this has been the worst-case scenario. As an analyst of bubbles for three decades, I never thought it would get to this point, and I hope things are not as dire as I suspect they are.” — Doug Noland Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  Well, I always love this time, Dave, when Doug is in the studio—Doug Noland. Of course, for decades we’ve read his work, but I just pinch myself that he actually works with the team here at McAlvany. I love it when you two talk. David: Last week, we gathered with clients and interested parties and our Tactical Short offering to review the last quarter. I encourage all our Commentary listeners to take the time to read the transcript or give it a listen. The content is so critical. I wanted to have my friend and colleague Doug Noland on to candidly talk about the markets here in what is a vital week inside a vital quarter and a really intriguing year. There are some key transitions we need to unpack. Doug, is there anything that we absolutely can’t miss in our conversation today? Doug Noland: Well, David, thanks for having me on. It’s great to be back with you. I would just say a lot of my focus is on international developments that don’t get a lot of attention these days. We talk about these things throughout the week, David, so I’ll just follow your direction. David: Well, you followed the evolution of the credit markets for decades now. First, the nature of money shifted and fiat was born. Then credit became a near-money equivalent. Finally, all sorts of financial assets became “money-like.” So this evolution—maybe it’s a devolution—of money and credit has promoted a unique form of growth. Let’s talk about its flaws. Let’s talk about its sustainability. Doug: David, as you know, I’ve been following this now for— it’s been three decades. It was back in the early 1990s that I saw these fundamental shifts in finance where we started to gravitate away from traditional bank lending as the focus of credit growth to market-based credit. I watched the evolution of policymaking to bolster this market-based credit. I’ve always been concerned about this because the history of credit— Credit can be very unstable. It tends to be very unstable. Then if you make it market based, you don’t have hedge funds speculating in bank loans. They speculate in marketable securities. You don’t have leverage like that if bank loans are your credit. We changed this into all these market-based instruments that we leverage, we speculate. And the credit bubble kind of took on a life of its own through this evolution to more market-based credit. Then the Fed, of course, anytime this market-based credit turned unstable or a crisis, then they would act to perpetuate the growth of this credit. Unfortunately, I think we’re kind of at the end of the road for the great credit bubble. David: So the bubbles have been created, and then they somewhat resolve themselves only to be propped up through policymaking and central bank interventions so that we don’t end up with something the equivalent of Armageddon. So there’s an interventionism, and it seems like that causes a migration. So we had the technology bubble, and then it moves to the mortgage-backed securities and housing bubble, which, of course, gave us the global financial crisis.

Gold provides certainty in uncertain times China feels the pressure of loaning good money to bad bets Central Banks losing credibility fast Peak To Peak To Peak Inflation, The New “Transitory” July 19, 2022 “They are losing the last vestiges of credibility, and somehow think that projecting an image is sufficient to carry the day. If you say it, therefore it becomes reality. It brings me back to a significant reason to own gold in any period of time. That is stupidity insurance because here you have a recreation, a regeneration of Plato’s cave sequence, where you’ve got shadows cast against the wall and that is supposed to be reality.” — David McAlvany Kevin: Welcome to the McAlvany Weekly commentary. I’m Kevin Orrick along with David McAlvany.  I think all of us sometimes wonder if we’re going to just wake up from a very long dream, like we’ve been missing something. We have certain things in our life where it’s like, “This is too good to be true.” We’ve talked about this for 10, 12 years. How is it that America, the United States, could just print trillions and trillions of dollars? In all these years, we really didn’t experience inflation. We scratched our heads, but strangely enough, you had the Berlin Wall falling. You had the communist countries like China that were producing goods for much, much less. We should have been experiencing falling prices. We didn’t, but are we waking up from a dream where we were getting something we didn’t deserve, and now we’re finding out what it costs? David: Isn’t it funny how we internalize those things and normalize them? Kevin: Yeah. David: This must have something to do with us and our exceptionalism that we can do something that’s never been done in the history of the world, but that’s because we are who we are. Kevin: Yeah. We’re Americans. We’re here to help. David: Yeah, and so it is curious to see the monetary policy experimentation, the fiscal policy experimentation. Books have been written about this, deficits without tears. We run the deficits without tears. Of course, Jacques Rueff’s point was that ultimately there are significant prices to pay, emphasis on the word ultimately, because nothing is free in life. Although, that’s what we’ve internalized and normalized is this world of easy money and free access. Kevin: Now we’re facing double-digit inflation. But here’s the strange thing. Here in America, we’re feeling the inflation, eggs and butter and rent. Everything’s going up. But if you were from any other country in the world, the dollar’s going up, gold’s going up. We’re getting sort of an altered reality as we look at it right now. David: Yeah. Often, our colleague Doug Noland will look at trading dynamics that seem healthy, but are actually an expression of another dynamic once removed, somewhere else in the system, which is anything but healthy. Perhaps the dollar trading to multi-decade highs is an example. When an asset at the core of the financial universe trades well, like the U.S. dollar has in recent weeks, of course it can be on its own merits, or it can be on the demerits of an asset at the periphery, somewhere else. Frontier and emerging market stress has, in recent weeks and months, intensified. The dollar has moved into higher gear, moving into territory un-trod so far this millennium. As frontier and emerging markets have calmed down here in the last day or two, lo and behold, the dollar has come off the boil a bit as well, so maybe it’s not the merits of the dollar driving it higher. Kevin: Okay. The pound’s lost its prime minister. We’re already looking at the English, seeing a weakness. The yen, they’re trying to keep anything from happening with the yen, and it’s just— the currency is crumbling relative to the dollar.

Companies weaned on easy credit now facing bankruptcy Milton Friedman warned you can't fight inflation without loosing jobs China facing credit crises, high yield debt at 24.9% yield Formerly Free Money Now Getting Very Expensive July 12, 2022 “During the worst of the pandemic, if you go back to the spread between high yield and Treasurys, it reached a thousand basis points. If you go back even further to the global financial crisis, it was 2000 basis points. That is a tough environment to survive. So, of course, bankruptcies proliferate as the spread to Treasurys passes a series of key thresholds. We’re not there yet, but there are good reasons to believe that we will be before too long. When we get to the Chinese numbers, I think you’ll fall out of your chair.” — David McAlvany Kevin: Welcome to The McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  It’s funny, my family’s from Texas, the Panhandle of Texas, that’s where my dad grew up. I spent every summer there. I ended up going to school at North Texas for a while, but you know, I’ve never been to San Anton. I would love to go visit the Alamo and just, what is it called? The River Walk. You sent me pictures the other day. You and Miles were there in San Antonio. You went over to the Alamo. And just looking at that, I think back as to what a small place that building was, the Alamo, yet small places can change very, very large points in history. Can’t they? David: For sure. We sat with a gentleman who was there to guide and answer questions. And I asked him, why are you here, of all the places that you could be, of all the things that you could be doing? And he gave me a short history of his great, great grandfather. Maybe it was great, great, great grandfather, I don’t remember. But it was basically the history of the Tejanos, and these were Mexicans in the north part of Mexico, and they weren’t getting the benefits of being a part of the nation, but they were expected to pay taxes and everything else. And so they were like, nope, this isn’t working for us. So they were in support of this revolution, right, that happens at the Alamo. They’re fighting at the Alamo against the Mexican government. Kevin: So you, in a way, because you’ve talked often about how the financial leads to the economic, which leads to the political or the geopolitical, when it gets political, it starts to get bloody. That’s where the blood flows, right? It’s not the economic, but it can lead to that. David: That’s right. Now, the tragedy was that after the Alamo, they were Mexicans and the Americans didn’t trust them. And the Mexicans didn’t trust them either. So they were at the losing end. At least this is the story that I was told while at the Alamo. Kevin: Didn’t you get to the bar where— Okay. I don’t have a lot of first edition books, but I do have a first edition Rough Riders by Teddy Roosevelt written in the last couple of years of the 1800s. David: The Menger Hotel is where he rallied— shots going off through the roof. You don’t want the room right above the bar. That’s for sure. Not in those days. But, yeah, Roosevelt rallies the Rough Riders at the Menger Hotel. And so to sit and have a beer sitting there where he was decades before was fun.  One other really fun thing from the San Antonio trip was a Commentary listener approached me. We’re just at a breakfast spot meeting with a client of ours. And he says, “Are you are David McAlvany? I’ve been listening to the Commentary for years.” Anyways, it was really— It was a special moment for me. And I went around to say something to him later on, and he’d already left. Again, breakfast spots, people come and go pretty quick, but that was a highlight from San Antonio to run into a Commentary listener who’s been a part of this for years and years n...

Secular Bear Markets are substantially longer & deeper than cyclical bears Dollar up over 11% - Gold only down 3.3% YTD NFTs (Digital Rocks) lose 90% YTD   Markets Fall: The Difference Between Old vs. Bold Pilots July 5, 2022 “You have bear markets account for up to 40% of all timeframes in terms of market trading going back to 1877, and then the last six months of pain are just the introduction following a greater than 12-year expansion. Cash and gold. Haven’t we said that before, Kevin, where— You want optionality. There’s your justification for cash, but you have to have stupidity insurance.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany.  I can’t help but think back to the year 2000, the tech stock bubble. I’m thinking January, February, about the time of the Super Bowl. And the tech stock bubble, it was flying high. You had sock puppets that were representing companies that were worth more than all the airlines combined, and it was just pet food online. It was this vision, vision. I think of the commercial—this was in the year 2000 before the tech stock bubble blew up—I think of the commercial—this Super Bowl, Dave, with Matt Damon. It starts out and he says, “History is filled with almosts.” So he starts shaming people immediately for not buying what he’s talking about. “There are those, however, who embrace the moment and they committed.” Then he ends the commercial. He says, “Fortune favors the brave.” Of course, you remember the scenes. He’s walking past guys climbing mountains and Magellan and his boat, and trying to let you know that if you go to crypto.com, that’s the future. Now, here’s what I remember from that. The year 2000 changed within a very short period of time, and those who had those tech stocks that were just never going away, a lot of them did. What we’re seeing is the same type of thing right now in the crypto space, even in the speculative FAANG stock space. What are your thoughts? Is this going to be short lived, or is this going to be long and painful? David: This weekend over the 4th of July, we stopped in a place called Pagosa Springs. It’s known for its hot springs. Right along the edge of the river, there’s a place where you can go and soak for free. We call it the hippie dip because it’s kind of a locals-only. Kevin: It’s right in the river. These hot springs are in the river. David: If you want to pay 40 bucks, you can go to the spa—per person, or you can just go to the hippie dip and kind of hang out with the locals. And it gets colorful. I’ll say that. On the 4th of July, we’d never seen that many people down at the hippie dip. Kevin: Just the whole family? David: You say fortune favors the brave, the whole family’s there. We’ve got to pull the kids aside and say, “Sometimes bravery can be confused, and it’s just flat stupid.” There’s a kid probably 16 years old. Into the rapids, he decides that it’s a great idea to dive head first straight into the rapids. You can’t see what’s underneath the waters. You have no idea what’s going to happen next. You have belief that you’re going to make it through. It looks as if the way the water curls up and out, there is no major rocks. Kevin: At the moment you feel like fortune favors the brave. David: And that’s how he’s feeling, is fortune favors the brave. I’m downstream in the middle of the river actually waiting to drag him out because this does just not look good. Fortunately for him, nothing bad did happen. Mary Catherine and I are comparing notes, going, “Let’s make sure the kids understand, floating is fine. Diving headfirst is not a mark of intelligence. It’s a mark of someone who hasn’t had their prefrontal cortex fully developed yet, and in that sense,

Credit has long been a tool for politicians Former NY FED President Dudley predicts "Inevitable" recession H.R. 2543 - See Attached Document In Notes https://www.congress.gov/bill/117th-congress/house-bill/2543/text   The Fed’s New Social Justice Mandate June 28, 2022 “We already have the zombie companies that even today can’t pay their interest expense from current cash flow. We may then reflect on the rates, which for so long they propped up these zombie companies. They were not reality. They were an expression of a policy preference. Right? And that’s the danger of policy preferences guiding the market forces. These companies shouldn’t exist. If they can’t even pay interest on their debt, what are they doing? They won’t be around long.” — David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.  Gravity’s an interesting thing. Physicists are still trying to understand where it actually fits in the whole scheme of things. But if you have two bodies, let’s say two stars that are circling each other, that’s a pretty easy problem to work out. It’s called the two-body problem. You start with just the initial condition and you say, “Okay, what’s the mass of these stars? How can they circle each other? What will that look like in a thousand or a million years?” It’s actually a pretty easy problem to solve. You add a third star, or let’s just say, even here with the earth and the moon, let’s say you add a second moon. David: Harder to predict. Kevin: Hard to predict. It creates chaos. There is no closed system, closed mathematical problem that can solve the problem because it creates a chaos, Dave, where if you had to make a decision based on that third body down the road, you would have terrible information and really would not be able to make a decision. David: For at least the last decade, the third body seems to be central banks within the global economy. Kevin: No doubt. David: We could sort things out in terms of market pricing and the directional flow of capital, but then you introduce central banks and things get a little bit more complex. Kevin: Well, I wonder, we think best intentions, “Oh, the central bank’s here to just solve the problem.” But strangely, Dave, a lot of times, you add politics to that, and it’s just amazing to me that the politicians get rich once they get into office and start to add different constraints to this third body problem. I’m looking at the economy right now, Dave. We’re not quite in a recession yet, but I’m looking at two groups of people. Unfortunately, there’s a huge divide between the rich and the poor right now. The rich seem to be still chugging along, thinking the economy’s doing just fine—unless they’re employers and they’re trying to figure out exactly how they’re going to give raises this next year to match the inflation rate. So the rich are going one direction, but the poor, they’re feeling this inflation right now. So, are we slipping further into a recession, as well as the constraints that we have right now with inflation and the pain that’s being felt by people who just barely make it anyway? David: Yeah. The economy, at least if you look at last week’s release of the purchasing managers’ indices, the PMIs, show a slowdown in growth in the US. So we’re not in a recession now, but you’ve got these same PMI measurements around the world. The eurozone is in fact edging towards recession. The UK is unchanged, in sort of a low growth mode. Germany is definitely slowing as well. And perhaps not surprising, given the degree of currency decline this year, Japan had the strongest PMI numbers out of the G7, and that’s pretty characteristic of a major currency move lower, is there are some benefits to your exporting compan...