John Williams utters his most ruthless words of condemnation not only toward the Fed, but to everyone who is stupid enough to be chasing returns in the face of what is a hyperinflationary collapse.
Euphoric Inflation Insanity. Buying U.S. stocks because the Fed says it will proactively debase the U.S. dollar is like sitting on the beach in order to get a great view of an incoming tsunami. Any pleasure so derived should be short-lived, when the terror of underlying reality quickly takes hold.
If one were to view movement in the price of gold as a surrogate for anticipated inflation, for example, the issues begin to come into focus. Consider that last night's (October 14th) respective S&P 500, Dow Jones Industrial Average and NASDAQ Composite closing levels were up by 7.5%, 10.8%, 12.1% from a year ago, but the price of gold was up by 29.6% in the same period. Relative to gold, which tends to hold its purchasing power over time -- albeit sometimes in an anticipatory manner -- the S&P 500, Dow Jones Industrial Average and NASDAQ Composite have declined respectively by 22.1%, 18.8% and 17.5% year-to-year. This is against the prospective inflation environment being discounted by the gold market.
While stock prices do tend to rise in an inflationary environment -- where revenues and profits are inflated -- rising stock prices do not always stay ahead of inflation. On a constant-dollar or real, inflation-adjusted basis, stocks go through bull and bear markets, just as they do otherwise. If prices do not stay ahead of inflation, investors lose value in terms of the purchasing power of their assets. The equity markets may rally in the upcoming inflation, but the systemic implications and current gold behavior suggest that the circumstance will not give investors a positive real return, as discussed in the Hyperinflation Special Report.
Given the current systemic distortions and extreme irrationality in the equity markets, a severe and violent sell-off in stocks would not be a shock, and it could come with minimal, if any, warning. It also might be coincident with a U.S. dollar-selling panic.
There is particular risk of recent dollar selling -- which has been closing in on historic lows -- turning into an outright dollar-dumping panic, which not only would roil the domestic U.S. markets, but also would set the stage for a rapid acceleration of domestic consumer inflation. Irrespective of any near-term market volatility, gold and silver, as well as the stronger currencies, remain the best long-term liquid hedges against loss in purchasing power of the U.S. dollar.
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We sympathize with John's sentiment, but who cares about risk? The Fed will never let anything drop in price ever again. It is now far too late to prevent the biggest bubble in the history of the world, and its subsequent collapse.