Runaway Train Towards Recession: Complements of The FED

Central Banks are gobbling up Gold: Demand up 82% in 2021

China demand for gold up 36.5%

Derivatives traded exceeds stocks traded

The McAlvany Weekly Commentary

with David McAlvany and Kevin Orrick

Runaway Train Towards Recession: Complements of The FED

February 1, 2022

“Any reprieve you have in the markets, any violent volatile moves to the upside from here are characteristic of bear market rallies and should be sold into, sold into, sold into. Now, what do you do next? Hey, listen, I fully support an idea of buttressing a cash position. But to offset your risk of mismanagement by central banks, you’ve got to have some sort of a barbell approach between liquidity in ounces and liquidity in fiat bills.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

Well we’re hearing it. We’re hearing that there’s going to be quantitative tightening. We’re hearing that we’re going to see interest rates rising. And I guess my question would be, when you have a leveraged market, a market that’s almost completely built on future money being moved into the present, which is what we call debt and margin, how’s that going to look?

David: Yeah. It’s a little bit like oxygen being taken out of a room. Goldman Sachs has five interest rate increases between now and the end of the year. BofA has seven. The standard measure would be four. And certainly, the markets are factoring in something on the measure of two to four. So, many years ago, my wife and I went spelunking. And so, we’re in a cave. We’re going deeper and deeper and deeper into the bowels of the earth.

Kevin: And this isn’t one of those public caves, like Cave of the Winds. This is you guys going into something without lights.

David: Yeah. So, you bring your own headlamp.

Kevin: Okay.

David: And bring your own water bottle and snacks and everything else. There’s one thing you generally don’t bring, which is your own oxygen. You have what you have, and that’s it. And the farther you go in, typically the oxygen gets pretty thin. And so, a valuable lesson learned as we get further down, Mary Catherine says, “I’m just not feeling quite right. Something’s off.” And I knew what it was. And we turned around and went back to the surface. So, lesson number one, don’t go spelunking with a pregnant wife. There’s small places—

Kevin: Pregnant.

David: There’s small places that you just can’t get through.

Kevin: Yeah.

David: And then number two, be sensitive to oxygen being taken out of the room. In this case, we’re talking about interest rates.

Kevin: Sure.

David: If it’s Goldman Sachs, if it’s BofA, if it’s just the bond market factoring in a certain number of rate increases for a leverage financial market, it is like taking oxygen out of the room. At some point, somebody’s going to feel funny. And then, that’s when strange things begin to happen, very strange things in terms of market action.

Kevin: Well, and I joke Dave as we talk about interest rates rising, confidence, if you were to look at the confidence of the people right now, economically, they’re not confident. In fact, it’s been a while since there’s been this kind of concern.

David: Yeah. In fact, the University of Michigan Consumer Sentiment number, I mentioned we were interested in watching it on a Friday when it came out, it’s finally come out. And the gentleman who runs that survey, Richard Curtin, says that overall confidence in government economic policies is at its lowest level since 2014. And the major geopolitical risks may add to the pandemic active confrontations with other countries, although their primary concern is rising inflation and falling real rates. Consumers may misinterpret the Fed’s policy moves to slow the economy as part of the problem, rather than as part of the solution.