Fire In The (Jackson) Hole…

Thursday 27th  and Friday 28th August will see Jackson Hole hosting Jerome Powell’s virtual symposium, and markets are waiting with baited breath to see what the Fed Head has to say.

This is the Federal Reserve’s annual economic policy summit, attended by the leading central banks and finance ministers, although this year will see live streaming of the event over the two days to respect social distancing.

The Fed has already released their primary topic…

‘Navigating the Decade Ahead: Implications for Monetary Policy’

Markets will be watching to see what happens… expect some volatility – particularly around any hints of inflationary policy moves.

The Fed (and other Central Banks) want/need inflation to pick up. The G7 nations have eye-watering debt to GDP ratios

(source: worldpopulationreview.com)

JAPAN 🇯🇵237%
ITALY 🇮🇹133%
USA 🇺🇸107%
FRANCE 🇫🇷99%
CANADA 🇨🇦88%
UK 🇬🇧85%
GERMANY 🇩🇪57%

Germany has relatively good levels because they have been aggressively paying down their debt from post 2008 crisis highs, whilst the UK position is at the better end of the scale following the government’s austerity programme.  Any recession will see governments having to add to their debt so the outlook will only see the above levels rising, with Germany and France possibly having further liabilities to their European partners.

Central banks have three ways to deal with these debts…..

  1. Pay it off through economic growth or fiscal restraint – highly unlikely in the current situation
  2. Default / restructure – not really an option for leading economies
  3. Try and devalue the debt through inflation / currency debasing – the only really viable option

The simplest way for Central Banks to achieve this is the printing of money…and lots of it. To put it simply…if you owe $100, then the $$$ loses say 50% of it’s value as the Fed have printed so many bills. You still owe $100 but each $$$ is now worth less, so the ‘real’ cost of your debt is now only $50.

This is a method that has been used in the past. Following the 2008 financial crisis, Central Banks printed some $12trln between 2008 and 2012. They have already printed around $6trln this year in response to Covid-19. If you include stimulus programmes, then this increases by a further $9-$10trln!

The central banks need inflation which will throw fuel on traditional inflation hedging assets like commodities and in particular precious metals. Gold has already exploded this year although taking a breather right now. Silver could also come in to play.

Precious metals for commodity traders and the miners of these for stock investors could be a great way to profit from inflationary moves.

With your Tradeview accounts you can trade gold/silver/mining shares/currencies

Graham Cottis

Business Development
gcottis@tvmarkets.com