The world is entering a new chapter in terms of investment.
It is now clear that the pandemic opened the door to an amount of money printing/ stimulus that was previously unthinkable. It is also clear that once policymakers (governments and central banks) crossed that threshold, that they will never return to what was previously “normal.”
The U.S., Europe, and Japan continue to engage in fiscal spending far exceeding their pre-pandemic levels. We are in a “new normal” as far as government spending is concerned. And this spending is leading to aggressive currency devaluation and higher rates of inflation.
Governments are not the only ones engaged in reckless spending.
Central banks continue to ease monetary conditions despite the clear evidence that inflation never fully returned to pre-pandemic levels. The Fed is already engaged in a $40-billion per month open-ended Quantitative Easing (QE) program: a program through which the Fed prints new money and uses it to buy U.S. debt. The Fed calls this Reserve Management Purchases (RMPs), but printing money and using it to buy debt is QE, no matter what new title you dream up for it.
The Fed is also cutting interest rates (six times) since the end of 2023. And it’s not alone. The European Central Bank (ECB) has cut rates eight times since June 2024. The Bank of England (BoE) has cut rates seven times since August 2024. And the Swiss National Bank (SNB) has cut rates six times March 2024 bringing rates down to 0%.
Put simply, policymakers, both at the government level and at central banks have entered a new chapter defined by fiscal dominance (when a government spends aggressively) and monetary easing (when a central bank cuts rates and prints money to manipulate the debt markets).
This is a tectonic shift and it’s one that has major implications for investors going forward. When the deepest pockets in the world full committ to money printing/ stimulus, the financial system takes notice.
Gold has gone parabolic against every major currency (the $USD, the Euro, the Yen and the Franc).
Commodities have broken out of a 12 year downtrend.
Put simply, hard assets are igniting. The financial system is “screaming” that we are in a new chapter: one in which money printing and fiscal dominance unleash a “once in a lifetime” opportunity in inflation hedges.