Month: October 2024

In the early morning hours of Thursday the US sent B-2 stealth bombers to launch major bombing raids on Houthi targets in Yemen. Was this a preview bombing run ahead of the expected major Israeli attack on Iran?

The warplanes hit underground bunkers used by the Houthis, and is the first known instance the B-2 stealth jets were deployed in combat over Yemen since the war on Red Sea shipping began more than a year ago.

The Associated Press called it a warning to Iran and noted that while the extent of damage is as yet unclear, “the attack appeared to be the first use of the B-2 in combat in years and the first time the flying wing targeted sites in Yemen.”

Any potential Israeli strikes on Iran are also expected to target underground bunkers which conceal ballistic missiles, possibly with US-supplied munitions such as bunker busting ordinance. US Defense Secretary Lloyd Austin in commenting on the fresh action over Yemen hinted at this.

“This was a unique demonstration of the United States’ ability to target facilities that our adversaries seek to keep out of reach, no matter how deeply buried underground, hardened or fortified,” he said.

Austin specified that targets were successfully struck at “five hardened underground weapons storage locations in Houthi-controlled areas of Yemen.”

According to more on this new attack against a group seen as Iran’s proxy on the Arabian peninsula, and how it sets up for potential further military action against Iran:

The B-2 would be used in any American attack on hardened Iranian nuclear facilities like Natanz or Fordo given it is the only aircraft in service that can drop the GBU-57, known as the “Massive Ordnance Penetrator.”

But the Pentagon’s anti-Houthi actions might still be seen as coming a bit late. The Houthis have for over a year held Red Sea shipping essentially hostage with its unrelenting campaign which has seen over 80 merchant vessels targeted with drones and missiles.

US warships have also been directly targeted, in what’s been called the largest US Navy battle at sea going back to World War II. There’s long been speculation that US military ships have actually been struck, but that the Pentagon has concealed it.

The B-2s which struck Yemen reportedly flew all the way from Whiteman Air Force Base in Missouri.

While there have been prior rounds of US and Israeli air offensives against the Houthis, this hasn’t set back Houthi capabilities in any significant or known way, but only appears to have deepened their resolve to punish Israel and its allies related to the Gaza war.

Independent journalist Michael Tracey observes of Thursday’s Pentagon strikes, “For 10 months, the US has been bombing Yemen on behalf of Israel with zero Congressional authorization — Congress actively refuses to take action either way — and as usual, it’s simply not an issue in the presidential campaign.”

Israeli security sources have told ABC News and CNN that Prime Minister Benjamin Netanyahu has approved a set of targets for retaliation strikes on Iran, considered imminent, following the Oct.1 major Iranian ballistic missile attack on Israel.

Still, no timeline has been given—only that the attack is expected to be carried out before November 5th, election day in America. “American officials expect Israel will retaliate against this month’s Iranian attack before November 5, sources tell CNN — a timeline that would thrust the growing volatility in the Middle East squarely into public view within days of the US presidential election,” CNN has written. Russia and China are among the lone global voices urging against any new attack or escalation from Israel.

Beijing’s concerns were conveyed in a call between the Chinese and Israeli foreign ministers early this week. The Chinese side also condemned attacks on the United Nations Interim Force in Lebanon (UNIFIL), following reports that the IDF wounded two of the UN peace keepers. China repeated its stance of wanting to see an immediate, complete and permanent cease-fire in Gaza.

But amid reports that Israel’s expected attack on Iran could come at any moment, Russia has been the most forceful in its new warnings.

On Thursday Deputy Foreign Minister Sergey Ryabkov conveyed Russia’s position that Israel must not even think about hitting Iran’s nuclear energy sites or infrastructure.

He said that any “hypothetical” Israeli attack on Iran’s nuclear facilities would be “catastrophic” – as quoted in TASS.

“We have repeatedly warned and continue to warn, to caution [Israel] against even hypothetically considering the possibility of a strike on nuclear facilities and nuclear infrastructure [of Iran],” Ryabkov said. “This would be a catastrophic development and a complete negation of those postulates in the area of ​​ensuring nuclear safety that exist.”

Netanyahu has reportedly told the White House that Israel will commit to attacking only Iranian military sites; however, reports out of Israel continue to suggest that all options remain on the table.

Russia and Iran have of late deepened their relationship on the economic and military fronts. The West has even accused Tehran of transferring ballistic missiles to Russia for its war in Ukraine – something which Iranian and Russian officials have denied. 

But the US and EU have still used the accusation to slap new sanctions on top Iranian and defense sector officials. Additionally the sanctions “target companies and individuals accused of being involved in the transfer of the weapons to Russia, including the country’s flagship carrier Iran Air, as well as airlines Saha Airlines and Mahan Air.”

By Maartje Wijffelaars, senior Eurozone economist at Rabobank

Yesterday’s press conference by ASML’s CEO Fouquet did little to reassure investors. After a major drop in the company’s share price on Tuesday over disappointing orders, erasing some EUR 50bn of market value, shares fell another 5% on Wednesday – with some large swings during the day. ASML’s extended fall did drag down the Dutch AEX stock index on Wednesday, but didn’t have the broad scale ramifications for other chips stocks and tech heavy indices as was the case on Tuesday (US)/ Wednesday (Asia). Then, the aggregate loss of chips stocks in the US and Asia amounted to USD 420bn. Bloomberg’s Asia Pacific Semiconductors Index suffered a 0.5% loss overnight, but the composite index was broadly flat in the US yesterday (+0.2%). Nvidia was clearly one of the best performers and this actually fits with ASML’s story that it still sees strong demand for AI-related chips and hence the machines to manufacture them, whereas it is in other segments that the demand outlook is more lacklustre.

An example of the latter is the weaker outlook for chips in the automotive sector, for example, due to weaker than expected demand for EV’s. It’s news that has been coming out repeatedly in the EU recently. More broadly, it’s not only EV sales that are suffering, though. Stories about weakness in the German car sector, were accompanied yesterday by the Franco-Italian car maker Stellantis. The latter’s results showed that shipments had dropped by 20% y/y in Q3 upon falling orders from the US (-36%), EU (-17%)  and China (-30%).

Back to chips, the weak demand environment has also postponed plans of US’ intel to open two chip factories in Europe, Germany and Poland, by two years. This hurts the EU’s strive for more strategic goods production and has obviously also fed into weaker orders for ASML than previously expected – and contrasts TSMC’s revenue jump in Q3 as it rides the AI wave. According to Fouquet, customers are not yet calling off orders, but rather delaying them. This fits with our narrative that we’re currently in a cyclical downturn, but that the outlook should improve somewhat next year.

At the same time, it’s no secret that China’s economy is doing poorly and the recovery just doesn’t seem take off. Efforts so far by the PBOC and Politburo to support the economy by effectively lowering the costs and increasing the opportunities of lending credit are not likely to boost the economy sufficiently in our view. And measures announced in Thursday’s unusual press conference by China’s housing minister, on support measures for the property sector – to boost lending for stalled projects – is unlikely to change this narrative.

Day ahead

Today marks the start of a two-day Nato Defence Ministers summit and the European Council meeting. In a preview, new NATO Secretary General Mark Rutte stated, among others, that NATO allies should “move further and faster to meet the growing threats we face” and “this requires more forces, capabilities and investment to meet the ambitious targets set by our defence plans”. Apart from many other things, this implies many EU governments would have to up their games, even to meet the longstanding targets of 2% of GDP defence spending.

At the European Council meeting, heads of state will talk about Ukraine, the Middle East, competitiveness and immigration. With respect to the war in the Ukraine, EU leaders are expected to talk about the Russia sanction regime, possibly about what to do with rising Russian LNG imports  and supporting Ukraine. While the US yesterday announced a new USD 425mn aid package including air defence capabilities, munitions and vehicles, the EU will discuss financial support – we clearly don’t actually have ammunition to send.

G7 countries are expected to decide on the ‘terms’ of an USD 50bn loan to Ukraine by the end of October. The EU and the US together are supposed to cough up USD 35bn. The idea is that the loan will be repaid using the profits on freezed Russian assets in the EU and the US – the EU immobilised over EUR 200bn worth of assets. The freezing of assets is part of the sanction package that has to be reviewed and approved by all EU member states, every six months. The US apparently suspicious that one of the EU member states could lift its support to freezing the assets, wants the EU to lengthen the sanction renewal time frame from 6 to 36 months, before it agrees to take part in the USD 35bn part of the loan. All countries but Hungary approve, as Orbán claims he won’t take part in a deal with the Biden administration that the running candidate Donald Trump doesn’t want.

If others cannot persuade Hungary to get on board with the sanction framework review, the loan would still go ahead, but US involvement would likely be substantially smaller. This would mean that the EU, including Hungary, would have to shoulder a larger share of the USD 35bn loan – money for the loan would be raised on behalf of the EU and guaranteed by the EU budget.

With respect to migration, more and more countries are calling for stronger border controls and faster deportations, and are open to discuss paying foreign countries to take in migrants send ‘back’ by the EU – as right-wing forces are gaining influence. The Italian deal with Albania, according to which Italy sends migrants intercepted on the water to Albania, to be processed there under Italian jurisdiction, will likely also be touted.

At the other side of the Atlantic we’ll have US September retail sales and industrial production. Retail sales by the control group are expected to have increased by 0.3% compared to August and industrial production to have contracted by 0.2% m/m. The Fed’s Goolsbee will speak at 17:00.

Oil prices continue to tread water, with WTI holding trading a very narrow band between $70 and $71 – unaffected by API’s reported draws last night – as traders weigh uncertain demand outlook with potential supply disruptions.

Additionally, traders have “largely priced in the Middle East tensions,” and the base-case scenario for many of them is that there will be a limited attack on Iranian energy facilities, if any, from Israel, Naeem Aslam, chief investment officer at Zaye Capital Markets, told MarketWatch.

However, “the fact is that we are looking at a situation where two countries are attacking each other directly,” he added.

“[It] is a very serious situation because currently the U.S. is very much mediating the matter and tensions are incredibly high on both sides.”

“On the demand side, market participants are looking for clearer signals regarding China’s fiscal policy, as uncertainties about its economic recovery affect oil-demand expectations,” said Christopher Tahir, senior market strategist at Exness, in emailed comments.

“Both the Organization of the Petroleum Exporting Countries and the International Energy Agency have lowered their forecasts for global oil-demand growth in 2024, mainly due to expected changes in China’s consumption,” he noted.

For now, the recent hurricanes are playing havoc with any analysis of the real-time supply/demand regime based on API/DOE data.

API

• Crude -1.58mm (+1.9mm exp)

• Cushing +410k

• Gasoline -5.93mm (-2.0mm exp)

• Distillates -2.67mm (-2.2mm exp)

DOE

• Crude -2.19mm (+1.9mm exp)

• Cushing +108k

• Gasoline -2.20mm (-2.0mm exp)

• Distillates -3.53mm (-2.2mm exp) – biggest draw since March 2024

Crude stocks fell more than expected according to the official data and products saw significant drawdowns (while stockpiles at the Cushing hub inched off tank bottoms)…

Source: Bloomberg

US gasoline inventories dropped to the lowest in about two years!

That comes as weekly gasoline demand plummeted by the most this year. Demand surged ahead of Hurricane Milton’s arrival and it’s natural we see that normalizing now.

The Biden admin added 952k barrels to the SPR last week (reducing the total draw on crude stocks to just 1.24mm barrels)…

Source: Bloomberg

US crude production surged to a new record high of 13.5mm b/d last week…

Source: Bloomberg

WTI was trading around $71 ahead of the official data and remained in that range after…

Source: Bloomberg

From a price perspective, Zaye Capital Markets’ Aslam believes oil is very much back to “normal fundamentals,” with the Chinese demand equation influencing the market. “So in the absence of any serious geopolitical tension, the path of least resistance is skewed to the downside,” he said.

In a huge breaking development, Israeli officials believe that Hamas leader Yahya Sinwar is dead. His alleged death may have been the result of an Israeli army attack on a building in Rafah, in southern Gaza. He oversaw the terror attacks of October 7 of last year and has remained Israel’s target #1.

The Israel Defense Forces (IDF) which were operating in south Gaza were not specifically seeking to target him, but a body recovered at the scene suggests he may have been killed. Israeli sources and media are saying there is a “high likelihood” Sinwar has been killed.

“At this stage, the identity of the terrorists cannot be confirmed,” the Israeli army and air force said in a joint statement as speculation mounts, also as gruesome photographs of a badly mangled body circulate widely online.

The Washington Post writes that “A body, believed to be Sinwar’s, is being brought to Israel for DNA analysis, according to an Israeli official who spoke on the condition of anonymity because they were not authorized to speak publicly.” According to more details:

“We have his DNA from when he was in jail,” Israeli Ambassador to the United Nations Danny Danon said in an interview in September, at a previous moment when Israeli authorities believed they might have killed the Hamas leader. Danon said at the time that DNA analysis had been run on previous bodies, but that the testing had not been a match.

According to Israeli journalist Nadav Eyal, “A reserve IDF force operating near Rafah spotted three armed men in a building, which was then hit by a drone/tank shell.”

He describes that “A man resembling Sinwar and a Hamas regiment commander were found dead with a substantial amount of cash and weapons. This was part of the ongoing IDF operation, not a targeted assassination. No hostages are believed to have been present, but the ground is being inspected to confirm.”

The Israeli police says its forensics team has identified Sinwar’s body according to pictures of his teeth that were taken by soldiers on the ground and compared to photos of his teeth Israel has. DNA test is still ongoing https://t.co/XNx5DlJ6Lk

— Barak Ravid (@BarakRavid) October 17, 2024

While Israel’s military is urging caution and patience amid all the rumors, if confirmed it would be a huge win for Israel, and major setback for Hamas:

Army chief Lieutenant General Herzi Halevi vowed to “find him (Sinwar), attack him” and force Hamas to find another leader.

Sinwar — Hamas’s leader in Gaza since 2017 — has not been seen since the October 7 attack, the deadliest in Israel’s history.

It would certainly mark the biggest development of the conflict since the assassination of Hamas political leader Ismail Haniyeh in Tehran on July 31st of this year.

Israeli army publishes footage of what it says is the operation that “led to the assassination of Yahya Sinwar”…

الجيش الإسرائيلي ينشر صورا لما قال إنها للعملية التي “أدت لاغتيال يحيى السنوار” #غزة #قناة_العربية #فلسطين pic.twitter.com/XDlh3gjILp

— العربية عاجل (@AlArabiya_Brk) October 17, 2024

A prominent open source analysis X account, OSINTdefender, writes that “One of the Images claimed to show the Body of Yahya Sinwar, following an Israeli Strike earlier today on Southern Gaza. With Facial Features as well as his Watch appearing to be an Exact Match to the Leader of Hamas.”

Strong rumors of his death have been circulating in Arabic media as well.

UPDATE: Israel is “close” to confirming Yahya Sinwar DNA, but “NOT FINAL” a source tells @AlMonitor . 2 Sources told Kan Sinwar has been killed. No comment from Hamas yet https://t.co/B5cMpTXFEr

— Joyce Karam (@Joyce_Karam) October 17, 2024

Below is a quick review of his bio, via Al Jazeera:

• Yahya Sinwar was born in the Khan Younis refugee camp in southern Gaza in 1962.
• His family were refugees from Majdal Askalan, or what became Ashkelon, after the creation of Israel in 1948.
• Sinwar spent 22 years of his life in Israeli prisons, for allegedly planning the abduction and killing of two Israeli soldiers in 1988. He was freed in 2011 as part of a prisoner exchange deal.
• An Israeli government assessment of his years in detention described him as “ruthless” and “powerful”.
• He used his time in jail to become fluent in Hebrew.
• Sinwar succeeded Ismail Haniyeh as Hamas’s leader in Gaza in 2017. He became the group’s leader after Israel assassinated Haniyeh in July.
• After the October 7 attack in southern Israel, which he is accused of masterminding, the Israeli military described him as a “dead man walking”.

developing…

Authored by Nikolaus Hoffman via BitcoinMagazine.com,

If you were tuned into the Massachusetts Senate debate last night, you would have noticed a key exchange between pro-Bitcoin candidate John Deaton and his rival Elizabeth Warren, leader of Washington D.C.’s “anti-crypto army.”

When pressed by Deaton, Warren wouldn’t even defend herself.

After lying and attacking our industry for years, she said “I’m fine if people want to buy and sell crypto.”

Seriously…

John Deaton Claims He Will Be Key To Crypto Freedom

John Deaton just called out Sen. Warren in their election debate for her “anti-crypto army.”

Warren fired back, claiming Deaton is a puppet merely trying to line his own pocket.

Both can make a compelling case against the… pic.twitter.com/VuujNKeGCp

— Crypto Town Hall (@Crypto_TownHall) October 16, 2024

Crypto took up a large portion of the wide-ranging debate, with Warren claiming Deaton would be beholden to the crypto industry that has backed him in the race.

“If John Deaton has a chance to go to Washington, his crypto buddies are going to want a return on their investment. He’s going to be there to fight for crypto,” Warren said during the debate, suggesting he’d prioritize the industry’s interests over working-class Americans.

“I’ve upset more crypto billionaires than anyone did,” Deaton replied, claiming to have done Warren’s job by exposing regulatory capture in the crypto space during her time on the banking committee.

“But here’s the thing, her bill bans bitcoin self-custody in America, yet she’s allowing the banks to custody bitcoin — another example that Senator Warren’s policies do not help poor people, they do not help the working class.”

Warren again questioned his connections to the crypto industry, however.

“He’s saying he has really made crypto folks mad, so mad that they came here to Massachusetts and are funding 90% of his campaign to try to take back this Senate seat to take it away from me.”

Deaton responded by questioning why the Senator was so focused on crypto.

“I wish Senator Warren would attack inflation the way she attacks crypto. I wish she would attack securing the border the way she’s focused on crypto,” he said.

My big concern with this moment is that it says everything about the Democrats and the lip service they are paying to the Bitcoin industry.

It’s undeniable that Bitcoin has turned into a partisan issue in this country for the most part. Most Democrats have followed Warren in taking a strong stance against supporting Bitcoin (even if they won’t admit it). I suspect Presidential candidate Kamala Harris has done the same.

Case in point, even Harris this week issued a generic “we will support blockchain and digital assets,” while not specifying exactly what she would do to help it.

But oh wait, she actually did put forth a new policy proposal yesterday, and to no one’s surprise, it was a race based one that excludes most Americans.

It was a flop in the industry.

I have to ask at this point, how much more do pro-Democrat Bitcoiners need to see?

The Republicans have clearly embraced the industry. They’ve put forth legislation proposals in an attempt to foster more innovation in the space. They defend the industry from attacks coming from the Democrats. They attend Bitcoin conferences and events, listen to industry leaders, and buy and hold bitcoin personally.

They have not been shy in their public support for Bitcoin, and have also actively made it an official part of their party platform. That’s how serious they are.

The current leading presidential candidate, Donald Trump, has made many pledges to support and grow the industry, proposing specific policy on what he would enact if elected.

Earlier this summer, Trump raised $25 million from private individual donors at the Bitcoin 2024 Conference in Nashville (his second highest fundraiser across his three campaigns). American Bitcoin miners have met with Trump in Mar-A-Lago to discuss what they need him to do as president to support their businesses.

Where Republicans have leaned into Bitcoin, we have seen the opposite with Democrats. At almost every single congressional and Senate hearing I watch, Democrats vote against favorable Bitcoin regulation, and make verbal attacks on the industry.

At a congressional hearing only four months ago, Democratic Congresswoman Maxine Waters actually tried to make the case that we should implement a CBDC, and not ban it, because countries like China are embracing it. She called it the next “space race”.

It is crystal clear to anyone watching these congressional and senate hearings which side the Democrats have chosen when it comes to Bitcoin vs CBDC.

This is my big fear.

If elected president, I believe Harris would have little reason to support the industry, and every reason to continue attacking it, as she’s done as vice president over the last four years.

This election is a fierce battle for power of the United States of America. People and industries and choosing their sides, and if Kamala wins, she might not be so nice to the industries who heavily tried to get her opponent elected president.

If Bitcoiners want to see this industry not get attacked like it has these past four years, and see it thrive over the next four years, they need to make their voices heard at the ballot box this November – and, like it or not, they need to vote Republican.

Radical EU bureaucrats are weaponizing the Digital Services Act (DSA) to crack down on free speech that doesn’t align with government-approved narratives on social media, including Elon Musk’s ‘free speech’ platform X. The EU’s attack on free speech online has possibly entered a new chapter, with Musk’s entire business empire potentially in the crosshairs of fines.

Bloomberg reported that EU bureaucrats are mulling over how to calculate fines against X for failing to combat what the bloc deems ‘illegal content or disinformation’ on the social media platform (this spat between EU-Musk has been ongoing for about a year). In other words, EU officials are livid with Musk because X does not censor and/or shadow-ban folks based on political views. So, these bureaucrats must potentially resort to lawfare against their political enemies.

The report cites people familiar with the matter who said EU bureaucrats are mulling over whether to expand the potential fine of up to 6% of X’s yearly global revenue to Musk’s other companies, including SpaceX, Neuralink, xAI, and the Boring Company. 

Under the EU’s Digital Services Act, the bloc can slap online platforms with fines of as much as 6% of their yearly global revenue for failing to tackle illegal content and disinformation or follow transparency rules. Regulators are considering whether sales from SpaceX, Neuralink, xAI and the Boring Company, in addition to revenue generated from the social network, should be included to determine potential fines against X, people familiar with the matter said, asking not to be identified because the information isn’t public. -BBG

More from Bloomberg:

The European Commission has been investigating X for several potential breaches of the Digital Services Act, newly introduced rules meant to ensure platforms police illegal content. The EU is leading a global crackdown on harmful online content and disinformation that’s sparked increasingly vocal responses from Musk, who has said such measures restrict free speech.

… 

The commission hasn’t yet decided whether to penalize X, and the size of any potential fine is still under discussion, the people said. Penalties may be avoided if X finds ways to satisfy the watchdog’s concerns.

Musk has previously stated on X that he wants a “very public battle in court” with the EU over its censorship tactics…

We look forward to a very public battle in court, so that the people of Europe can know the truth https://t.co/nKBGEPxeEa

— Elon Musk (@elonmusk) July 12, 2024

Bloomberg continued:

The review of X began under Thierry Breton, the EU’s former tech czar who often feuded with Musk online and had been granted special powers to enforce the DSA without the need for the commission’s rubber stamp. After Breton resigned in September, he bequeathed his fining powers to competition and digital boss Margrethe Vestager. Decisions on the penalties and how they are calculated would ultimately lie with Vestager.

In August, commissioner Breton sent a letter to Musk threatening X with punishment if they didn’t crack down on “content that promotes hatred, disorder, incitement to violence, or certain instances of disinformation.”

To be honest, I really wanted to respond with this Tropic Thunder meme, but I would NEVER do something so rude & irresponsible! https://t.co/jL0GDW5QUx pic.twitter.com/XhUxCSGFNP

— Elon Musk (@elonmusk) August 12, 2024

By mid-Sept., Breton resigned after going rogue on Musk. 

The letter says he was fired. https://t.co/ReIxjnAd0p

— Hans Mahncke (@HansMahncke) September 16, 2024

What’s very clear is that EU bureaucrats and radical Democrats in the US, including the Obama-Biden-Harris team, have pushed censorship campaigns under the guise of ‘public safety’ to silence and destroy political enemies. Dictators and demagogues usually use these tactics.

In the US, Musk has been hit with an obscene amount of lawfare by federal agencies under the Biden-Harris administration, such as the FAA slowing down SpaceX rocket launches or the FCC rejecting Starlink space internet in the US’ rural internet program. This lawfare shows just how desperate Democrats have become – and that’s because – if Trump wins, X becomes the primary source of news and narratives, which would entirely displace legacy MSM.

US Manufacturing contracted 0.4% MoM in September (dramatically worse than the 0.1% decline expected). This dragged Manufacturing output down 0.5% YoY…

Source: Bloomberg

This helped drag US Industrial Production down 0.3% MoM and -0.6% YoY (the weakest since April) as August’s print was revised down…

Source: Bloomberg

A strike by aircraft machinists held down industrial production by an estimated 0.3%, while the effects of hurricanes Helene and Francine subtracted a similar amount, the Fed said.

Production of aerospace equipment tumbled 8.3% during the month.

And this is all happening as Capacity Utilization tumbles to 77.5%

Source: Bloomberg

Mining and energy extraction slid 0.6%, while output at utilities increased for the first time in three months.

Does that looking a ‘no landing’ economy? Or is it all ‘transitory’ too?

Authored by Adam Sharp via DailyReckoning.com,

Have you ever been caught in a set of gnarly waves at the ocean? The kind where you get smashed by a breaker, come up for air and there’s another big one waiting for you at the surface?

This is a solid metaphor for inflationary periods. They don’t happen like a single big tsunami.

They are typically processes that play out in stages over a decade or more. Policymakers try various fixes, and most fail or only provide temporary relief.

Let’s take a look at the three waves of America’s 1970s inflation…

Source: Crescat Capital

I believe we are currently floating in the trough after the first wave of inflation, catching our breath.

Things seem to be trending in the right direction, despite prices remaining permanently higher.

But the fundamental problems haven’t been addressed, and more breakers loom on the horizon.

Commonplace Problems, Fewer Options

Like most inflationary periods, the ‘70s woes trace back to bad monetary policy and too much government spending.

In 1971, President Nixon ended the dollar’s convertibility into gold after France, Germany and others began to swap their rapidly inflating dollars for bullion.

This set the stage for a decade of stagflation (high unemployment, sluggish growth, and sustained inflation).

Throughout the 1970s, the Fed hiked interest rates to match CPI, yet inflation persisted.

Source: Econlib

Higher interest rates, price controls, but nothing really worked until the dollar found equilibrium after being severed from gold.

(Eventually, the petrodollar system would help restore demand for dollars, but we’ll save that for a separate article.)

We can learn much by studying the 1970s stagflation. I believe we will also see multiple waves of devaluation and disruption, interrupted by brief respites.

But we also need to acknowledge key differences.

In the 1970s, America’s debt load was not nearly as bad as it is today.

Throughout the 1970s, U.S. federal debt/GDP never got above 35% or so. Today it’s over 120%. At such levels, our country can’t even handle 3% interest rates for much longer.

Interest costs on U.S. debt are soaring and should approach 6% of GDP by the end of this year. At the current pace, we risk a severe debt spiral within the next few years.

This means that if and when inflation returns, hiking interest rates to compensate may not be an option. So this period will almost certainly look different from the ‘70s because the Fed has fewer options to choose from.

Unfortunately, more waves of inflation seem certain. Our financial situation practically guarantees it.

The Federal Reserve, and Americans, may have to simply grin and bear these next waves of debasement. The value of fiat savings will dwindle as yields can’t come close to matching CPI.

Gold: Crucial in the 70s and Today

Precious metals investors thrived in the 1970s. Purchasing power for gold and silver owners was preserved and even grew.

Jim Rogers and George Soros built the foundations of their fortunes by investing in precious metal assets through their Quantum fund.

Here’s a chart showing the performance of gold vs. inflation. Note how gold follows CPI closely during the 70s…

Source: Suisse Gold

The primary difference I see today is the magnitude of the problem we face. It’s far more severe, and the Fed has fewer options.

If anything, gold may be even more important today than it was in the 70s.

There’s only so much Jay Powell can do. Eventually the Fed will have to get “creative.” And when central banks get creative, that’s when money printing tends to get out of control.

Physical bullion is the most obvious way to protect your assets. And makes an excellent addition to any portfolio.