Labor Down. So Stocks & Bonds Up?

But who will Buy U.S. Treasury Debt at these interest rates?

With stocks and bonds both up, this was an okay week in the minds of investors who drink the establishment’s Cool-Aid pre­pared by Wall Street elites who cheer when Trump voters lose their jobs. Why? Well in addition to loving misery for Trump voters, they love to see them suffering because bad news usually means massive monetary accom­modation and rising stock prices. And based on the past 40 years of experience they think misery on Main Street will also mean declining Treasury rates. And declining Treasury rates mean profits in bonds and stocks.

Believing that, Wall Street had a big day last Friday thanks to April payroll numbers registering their biggest miss since 2021. The BLS reported that in April the U.S. added just 175,000 jobs, a nearly 50% drop from the upward revised 315,000 the prior month. And that was on top of more weak labor news on Wednesday of reports of tumbling job openings, workers no longer quitting their jobs like they were, and new hires unexpectedly cratering.

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Conventional wisdom from Wall Street salesmen and Keynesian indoctrinated economists is that we can anticipate a weaker economy to result in deflation followed by lots of money printing. Deflation might happen temporarily if there was even a little sobriety and concern in Washington about how the U.S. is going to finance its surging deficit. But both political parties have realized over the past number of decades that policies of fiscal rectitude costs them votes. Democrats and most Republicans do not have the guts or moral fiber to sacrifice their political careers for the good of the country. Robert Kennedy Jr. gives lip service to fiscal rectitude but even in the unlikely event he were to win the Presidency, does anyone honestly think legislators would follow his moral direction unless there is a massive move swing from the voting electorate?

This week Simon White wrote an article published in Zero Hedge that noted the high reliance of treasury funding with T-Bills rather than longer-term Treasuries as outlined in the chart above. As Simon pointed out, that will very soon lead to liquidity shortages, so Simon thinks we will indeed soon start to see some more monetary stimulus again coming from the Fed. That will be good for gold, but bad for both stocks and bonds.

Wall Street thinks the Fed controls interest rates and that they will be gifted by the Fed with monetary fuel to even further elevate stock prices. But simple mathematics reveal that is likely a pipe dream. The Fed and Biden Administration have learned how to avoid a catastrophic banking or economic crisis by simply printing endless amounts of money with no concern of the outcome. But that doesn’t change budget arithmetic. More government deficits in the absence of foreign buyers of U.S. Treasuries means much more money will have to be printed, sending interest rates and interest expense for the U.S. Government still higher in a vicious circle that will eventually end the dollar.

U.S. Treasuries used to join gold as “safe havens” during financial downturns but that isn’t likely now due to rising levels of inflation and a shortage of savings to buy an additional trillion dollars of Treasuries every 100 days. That means the Fed will have to print more dollars faster and faster leading to a decline in the dollars value resulting in a rise in the price of gold as measured in dollars.

Gold and silver mining shares are near their lowest valuations ever relative to the price of those metals. I can’t think of a more gold-friendly environment notwithstanding this week being the second in a row for a decline in the price of the yellow metal.

We know of a number of junior gold and silver mining companies that are developing world class gold and silver deposits in safe jurisdictions. You might consider signing up for at least one month of “J Taylor’s Gold, Energy & Tech Stocks” to learn about these emerging value plays that the market is still largely ignoring. In any event, keep your eyes on gold and silver which are both in the first inning of a major bull market.

Best wishes,

Jay Taylor

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