"Wartime Finance" is coming: Why it is the perfect positive storm for gold & gold miners (FFTT)

MACRO-THEMATIC TRENDS - Report 18 May 2020 by Luke Gromen

Hello-

Hope you’re well. Attached above is a special Monday edition of FFTT. This report is 8-pages long and is a 12-14 minute read, and will take the place of Thursday’s report.
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>> “Wartime Finance” is coming: Why it is the perfect positive storm for gold & gold miners <<

Key points:

* One of the biggest misperceptions in markets today is that most market participants appear to believe the Fed and Treasury are operating as they operated from 1971-2018.

* It seems clear to us the Fed and Treasury are now operating under what the Treasury Borrowing Advisory Committee (TBAC) recently called “Wartime Finance”.

* “Wartime Finance” in plain English = The US government is likely going to spend ungodly amounts of money to fight the COVID & China trade “wars”, & the Fed and US banking system are likely going to monetize whatever is needed, taking their holdings of USTs to surprisingly-high levels.

* “Wartime Finance” was last seen from 1942-51, when the US was running massive deficits to finance WW2 & no other foreign Central Banks were buying enough USTs.

* “Wartime Deficits” would normally drive UST yields higher (like the 1970s), but unlike the 1970s, US government debt is so high that the US cannot afford for rates to rise at all.

* “Wartime Finance” means “Wartime Deficits” will not be allowed to drive yields higher like the ‘70s, so unlike the ‘70s, the only release valves for US deficits will be the Fed’s balance sheet & the US banking system’s holdings of USTs.

* This is likely the perfect positive storm for gold & gold miners, & we are likely still in the very early innings.

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