Your Gift from Sugar Daddy Jerome
Bond rates shot higher, the stock market is selling off, and gold is back below the $1,800/oz level.
All as a result of Federal Reserve Chairman Jerome Powell telling everyone what we already knew:
That inflation was more pervasive than previously acknowledged (code for we can’t lie about it anymore) and that the Fed was increasing its inflation forecast to 3.4% from 2.4%.
But worry not, it’s still transitory.
The Fed also announced it could raise rates as early as 2023 and maybe, just maybe, start scaling back its bond-buying program.
Rates headed higher, and commodities across the board — from gold to copper — were down significantly.
I expect the pullback to be temporary but the market reaction highlights just how dependent the market has become on Sugar Daddy Jerome.
Copper was already well off all-time highs after China announced plans to sell copper, aluminum and zinc to processors and manufacturers in an attempt to halt rising prices.
That will also be transitory and I suspect once the market digests that fiscal and monetary policy is still the most accommodative in history... we'll go back to everything being awesome and everything getting more expensive.
The entire market — from corporate bonds to U.S. treasuries — depends on the Fed.
And you can be sure Powell and the gang will be there to backstop any tantrum the markets may throw.
The Fed has no choice.
Corporate bonds now yield less than inflation expectations for the first time in history. As Nick Hodge says, that’s a long time.
Junk bonds and stocks are historically overvalued at the same time, also for the first time in history.
Meanwhile, investment in mining exploration is near a six decade low.
While gold prices headed to records... exploration budgets over the past decade have headed in the opposite direction.
That creates a scenario where quality deposits — especially in stable jurisdictions — will command a significant premium.
Ignore the noise and use this pullback to your advantage because nothing has changed fundamentally and eventually the math will win.
Let's get it!
Gerardo Del Real
Editor, Resource Stock Digest
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Resource Stock Digest, Junior Resource Monthly, Junior Resource Trader and Junior Resource Insider. For more about Gerardo, check out his editor page.
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