Welcome to the Hotel California.

The Fed is here to stay in the markets – until they’re forced to leave. Right now they’re continuing to drink their own Kool-Aid, believing in their omnipotence over the markets. I can imagine the smug academics thinking they have the problem solved, and that they can exit when markets return to normal. Well if normal was to return it would rip their faces off. I’m guessing that eventually they’ll want out - they’ll want to extricate themselves out of this quagmire in which they’re sinking into deeper and deeper with each uptick of high yield crap and zombie company stocks. But they can’t and they won’t be able to, not without risking the entire façade of calm they’ve created.

The last few times they’ve tried to get out, it’s ended in quick reversals, remember the oil crash of 2015, the market selloff in late 2018? And we know that their balance sheet tapering eventually had to be reversed in the name of ‘repo liquidity’ in 2019.

No. Man. They. Will. Not. Leave. The. Market.

They’re stuck.

M2 Breaking Out

I only see this ending if, unlike QE, all the fiscal packages (oh there’s more coming, just like they had em coming in Japan again and again) indeed begin to push prices higher. Don’t believe me? Wait till the Great Society 2.0 kicks in, resurrected in the shape of MMT. Infrastructure spending? yep, that too. Deficit fueled infrastructure bills plus stimulus bills plus MMT plus labor gaining political momentum will be the fuel that ignites the engines of a Back to The Future Delorean. And it’s taking us back to the inflation and stagflation of the 1970s.

Jerome the Magnificent!

Inflation is probably the most underpriced scenario. And that’s understandable given the debt super cycle we’re in. But I think the response to the low growth and deflationary environment will continue to get larger and larger until the Fed gets the inflation. The forest is very dry and there is a shit ton of kindling everywhere - and the Fed is busy dousing it with more and more fuel by now monetizing debt and funding deficit driven fiscal spending. The USD, the greenback, the reserve currency of the world might just be the spark that ignites this inflationary fire from hell.

The answer to protecting investment portfolios is real assets - GOLD being the top of the list.

Time get your bellbottoms out, we’re going back to 1970s!