Euro Pacific Capital

The Federal Reserve’s recent meeting signaled a notable shift in its monetary policy approach.

Here’s our outlook on what to expect and how investors might navigate this new phase.

The latest Employment Situation Report released on October 4, 2024, showed nonfarm payrolls increasing by 254,000 in September, with the unemployment rate holding steady at 4.1%.

On September 18, 2024, the Federal Reserve cut interest rates by 0.5%, bringing the federal funds rate down to a range of 4.75% to 5%. This move, aimed at managing inflationary pressures while addressing the gradual rise in unemployment, underscores the Fed’s balancing act between fostering economic growth and taming inflation.

As we approach the end of 2024, the latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics (BLS) has provided us with critical insights into the health of the U.S. economy, particularly concerning inflation.

The current economic landscape is fraught with uncertainty, and the potential for higher inflation continues to pose a real threat to market stability.

Recent developments in the labor market triggered the Sahm Rule, an economic indicator known for predicting the onset of recessions. Developed by economist Claudia Sahm, it signals a recession when the 3-month average of the unemployment rate rises by at least 0.5 percentage points above its low from the previous 12 months.

On July 31, the U.S. Treasury released its most recent Quarterly Refunding Announcement which revealed its financing strategy, presenting both positive and restrictive elements for global liquidity.

As we approach the end of the fiscal year, investors should be focusing on the Treasury General Account as one factor of many that may impact global liquidity, and in turn, market performance in the coming two quarters.

The latest Consumer Price Index (CPI) release has brought some much-needed respite, indicating a slowdown in inflation. Yet, underlying economic conditions suggest that this reprieve may be temporary, with potential for inflationary pressures to reassert themselves in the coming months.

Interest rates are at 20-yr highs, yet unemployment is at 50-yr lows, core-PCE is near 30-yr highs, and Wall Street (and Fed) economic forecasts continue improving. What explains the disconnect between these unexpected outcomes and those expected by mainstream economic textbooks?

An audacious communications campaign from Democrats in Washington is currently underway that is attempting to convince the public that there is no recession, inflation has been vanquished, even if inflation is still alive, targeted new Federal legislation will kill it.

Our weekly commentaries provide Euro Pacific Capital's latest thinking on developments in the global marketplace.

There was a little March Madness on Wall Street.

2021 is now in the rear-view mirror and I believe that future financial historians may regard it as the year of peak speculation.

The inflation that we were emphatically told would be transitory and unmoored continues to persist and entrench. As the troubles gather momentum Washington is doing...

In the 50 years since Richard Nixon officially severed the dollar’s link to gold, many have claimed that the greenback’s strength rests primarily on America’s unchallenged power and prestige around the world.

The “transitory” inflation swamping the country has stubbornly persisted into July.

What exactly is “transitory?”

It’s dawning on many investors that our post-Covid financial problems may not be as easily solved as Washington claims.

Recently, a piece of collage art entitled “Everydays: The First 5000 Days,” by an artist known as Beeple, sold at a Christie’s auction for $69 million.

The rationale behind the meteoric rise of Gamestop, a chain of videogame rental stores, and AMC, one of the nation’s largest cinema operators, is too unlikely to be believed. In just one month both stocks had risen by more than 600%.

While most people generally understand that the stock market and the economy do not move in lock step, there is still an underlying belief that a strong market reflects a strong economy. But according to that logic, our current economy must be historically strong.

For years I have been warning that during the age of permanent stimulus (which began in earnest with the Federal Reserve’s reaction to the dotcom crash of 2000), each successive economic contraction would have to be met with ever larger, increasingly ineffective, doses of monetary and fiscal stimulus to keep the economy from spiraling into depression.

While the country and the stock markets reel from the impact of the Coronavirus, many economists and politicians are calling for the government to fight the pandemic as if we had to fight the Second World War all over again.

With the markets shell shocked by of the worst weeks on record, analysts are split on whether investors are simply overreacting to the coronavirus epidemic or if we are confronting an actual existential threat to the global economy.

In the decades that I have been listening to politicians clumsily trying to explain the economy there has never been a period, with the possible exception of the early Reagan years, in which major party leaders were able to present a solid grasp of economic principles.

Like particles in a super collider, opposing forces of American culture smashed together this past weekend on a historic football field in Connecticut. And like a physics experiment, the resulting impact shed light on the state of the country and provides us all with a ready framed discussion for the Thanksgiving weekend.

Early last week, the Chairman announced a new, as yet unnamed, Fed program through which the bank will now buy regular amounts of short-term U.S. government debt. Seeking to counter the rumblings that a new form of quantitative easing would be seen as an admission that the economy may be in trouble...

A dollar in secular decline may be the final piece in the puzzle that shows the insanity of our current fiscal and monetary policy. The U.S. bubble economy rests on the foundation of the dollar's status as the reserve currency. If that status is lost, the entire house of cards may just come crashing down.

After claiming to be the greatest at just about everything, Donald Trump has finally found an area where he can stake a credible claim. By negotiating a disastrous budget deal with Democrats, the President could become the greatest creator of government debt in the history of the country.

While the willingness to abandon long held beliefs for political gain has always been a common trait among public figures, the spectacle has recently taken on shocking levels of casual audacity.

While many savvy economists should have seen this coming, as late as October of last year, almost no one in the financial world thought that the Fed would so easily abandon its long-held bias without a gale force recession blowing them off course. But, in reality, all it took was a light breeze to force a 180-degree turnaround.

General George Custer met his doom charging into a battle he thought he could win, against an opponent he did not understand. Based on his views about the fast-emerging trade war with China, it looks to me that Donald Trump, is charging into an economic version of the Little Bighorn.

Very clear warning signs are now flashing that the U.S. economy could be heading for trouble and that the longest expansion in recent memory may soon end. But as usual, financial media and mainstream investors are once again flushed with optimism as the stock market plows higher.

The Fed's tightening campaign, which was supposed to restore a semblance of monetary normalcy, after a decade of extraordinary stimulus, is officially over. The curtain came down far earlier than just about anyone in the mainstream had predicted.

Over the years, I have always thought that the left’s obsession with global warming was really just an excuse to push through a fully socialist economic agenda. After all, the radical changes that would be required for businesses and consumers to rapidly reduce our carbon footprint could only come about through government mandates and force.

While some may have been confused by Fed Chairman Powell's circular statements in yesterday's press conference, the takeaway should be abundantly clear: the period of Fed tightening, is over. The Fed will now hold steady on interest rates, and when they move again, they are more likely to lower rates than to raise them.

They say that there are no atheists in fox holes. Recently it has also become clear there are no monetary hawks in bear markets. For much of...

Currently, some market watchers have begun to openly question whether the bull market in stocks has finally come to an end. They certainly have cause to worry. Valuations are frothy after a record run-up in the last few years.

Last week Donald Trump, in his own estimation, succeeded in replacing what he claimed to be the "worst trade deal in history" with what he claims was "the best trade deal in history." If true, this would not only make good on one of his central campaign promises, but it would be a genuinely significant development.

This week, as investors and economists fixate on record highs set by major stock market indices, they have ignored much more significant developments that emerged from the Federal Reserve's annual meeting in Jackson Hole, Wyoming. Fed Chairman Jerome Powell delivered a speech that somehow was almost universally interpreted as a reiteration of his commitment to continue to raise rates throughout the next few years. "Steady as she goes" was the takeaway from just about any news outlet. But the Chairman's actual message was essentially the opposite of what the media reported.

On Wall Street, it's best not to think too hard or to look too closely into the mouths of gift horses. Since making predictions based on actual economic understanding is rare, analysts typically look to provide explanations after the fact. Within the financial services industry, currency traders are perhaps the greatest practitioners of this craft. While they often get the fundamentals completely wrong, it never seems to stop them from offering bizarre theories to explain currency movements.

This week, market watchers around the world are justifiably fixated with the high-stakes, high-drama political developments unfolding in Italy. While a political crisis in the world's 9th largest economy (International Monetary Fund figures, 4/17/18) would normally not be enough to cause an international meltdown, given how thin the global economic ice has become as a result of ever-increasing debt loads, even small disruptions can create systemic problems.

Earlier this year when President Trump began beating the drums loudly, causing fear of a trade war (and assuring us that such a conflict could be easily won), I cautioned that he had no idea the trouble he was courting . Based on his spectacular misunderstanding of the power dynamic built in to international trade, he was also in danger of bringing a knife to a gunfight.

With his announcement last week of broad tariffs on imported steel and aluminum, President Trump launched what could be the first salvo of an all-out global trade war. Seemingly itching for a fight, he gleefully tweeted that "Trade wars are good, and easy to win."

While investors are justifiably focused on what may be the opening crescendo of a long overdue sell-off in stocks, there is not, as of yet, as feverish a discussion of the parallel sell-offs in bonds and the U.S. dollar, which have been underway for at least a year and a half in bonds and 14 months for the dollar.

After supposedly chomping on the bit for years to pass meaningful tax reform, Republicans are now set to blow an historic opportunity. Whatever version of the Bill that emerges from the House and Senate Conference Committee...

In light of the 30-year anniversary of the Black Monday Crash in 1987 (when the Dow lost more than 20% in "one day", we should be reminded that investor anxiety usually increases when markets get to extremes.

In a move that was little noticed outside of the financial world, China announced the creation of an oil futures contract (open to international traders) that will be denominated in Yuan and convertible into gold. This move provides the first official linkage of oil to gold, and more importantly a linkage between the Chinese currency and gold.

The potential failure to raise the debt ceiling has never been the problem. It's the debt that's the problem, and the ceiling is a tool to solve the problem that vote-seeking politicians are afraid to actually use.

The media has taken President Trump to task for all manner of false or exaggerated claims, but surprisingly little has been said about Trump’s most glaring forays into abject hypocrisy.

On August 21st many Americans witnessed the moon cast a historic but short-lived shadow across the United States. One day later, President Trump reversed his previously stated position on the 16 year old Afghan War, thereby eclipsing the possibility that the United States would finally come to its senses and rethink a failed strategy that is likely to fail for years, perhaps decades, to come.

Typically, U.S. Presidents are wary of claiming stock market performance as a referendum on their success. Most have seemed to understand that taking credit also means accepting blame, and no one would want to make the tortured argument that the positive moves reflect well on their presidency but that the negative moves do not.

Any news that emerged from last week's G-20 Summit in Hamburg, Germany was bound to be overshadowed by the high theater of the first-ever meeting between U.S. President Trump and Russian President Vladimir Putin. As a result, the biggest actual development from the Summit garnered very little attention in the American media. In fact, it did not involve America at all.

Those who claim that the Senate Republican proposal to replace Obamacare will kick millions of people out from health insurance coverage are dead wrong. 

All of a sudden the Fed got a little tougher. Perhaps the success of the hit movie Wonder Woman has inspired Fed Chairwoman Janet Yellen to discard her prior timidity to show us how much monetary muscle she can flex when the time comes for action.

Last week's General Election in the United Kingdom was a disaster for the new conservative government of Prime Minster Theresa May. Having called the unnecessary "snap" elections in order to strengthen her political hand, the result actually reduced the number of seats held by the conservatives and delivered large gains to the opposition Labour party, which had seemed in disarray just a few months ago.

Given the media's obsession with some of the President Trump's communication challenges, it was utterly predictable that the President's declaration that his trip to Europe and the Middle East should be considered a "home run" was met almost universally with ridicule. In truth, the President actually did accomplish a series of victories overseas, or at least laid important groundwork that should help advance American interests in ways that prior Administrations have failed to do.

Donald Trump has made good on one of his most audacious campaign promises by submitting what he describes as the biggest tax cut in U.S. History. For once, at least, this does not appear to be Trumpian braggadocio. It really may be the mother of all tax cuts.

Last week the American political establishment was shaken to its foundation when the Republican Party leadership withdrew the American Health Care Act (AHCA) just before the vote was to be taken on the floor of the House of Representatives.

With his widely followed, and positively reviewed, address to Congress last week, President Trump showed how easy it could be to unite Washington around a big-budget centrist agenda on health care, immigration, taxes, infrastructure and the military.

At the Washington joint press conference with Prime Minister May held on January 27th, President Trump told the watching world, "Brexit is going to be a wonderful thing." The meeting did much to clear the way for Britain to stand alone and enter trade with the United States without the European Union (EU).

On December 7, 2016, Italy's Prime Minister Matteo Renzi resigned following defeat in a national referendum, that he had supported, that would have changed the country's parliamentary system.

There is much we don't know about how the Trump presidency will play out. Will the Wall get built? Who will pay for it? Will it have at least some fencing? Will repeal and replace happen at exactly the same time? Will Trump throw a ceremonial switch? Will there be a Trump National Golf Course in Sochi? It's anyone's guess.

The optimism that has followed the election of Donald Trump has pushed the Dow Jones Industrial Average to the threshold of 20,000, a level that will be both a nominal record and a symbolic milestone.

Over the past year, central banks, commercial bankers and prominent economists have expressed the view that digital money and transfers should replace large denomination cash and cash transactions.

The election of Ronald Reagan in 1980 provides the best recent precedent for the unexpected triumph of Donald Trump...

Brexit and the Donald Trump presidential victory should rightly be viewed as the most significant international developments of the last decade.

Stunned political analysts are missing the most plausible argument explaining Donald Trump's unexpected victory. The misreading of the American electorate stems from the political class' acceptance of mistaken (and increasingly insane) economic dogma that has arisen over the past generation. 

For much of the second half of the 20^th Century, and even into the new millennium, “Globalization” was the dominant theme used to describe the drift of the world economy.

Currently economists and market watchers roughly fall into two camps: Those who believe that the Federal Reserve must begin raising interest rates now so that it will have enough rate cutting firepower to fight the next...