The Dollar Is Temporarily The Best Horse (In The Glue Factory)

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.