Shedlock: Central Banks Don’t Have Things Under Control

Your Real Vision Daily Briefing for August 4, 2020

Senior editor Ash Bennington is joined by Mike “Mish” Shedlock of TheStreet.com to discuss gold and the looming fiscal cliff.

  • The real message behind the gold rally is about a lack of confidence in central banks.
  • Inflation is significantly understated at the moment and the current stock market bubble is a measure of that.
  • The bubble will pop, and Millennials and retirees will be burned in the fallout.

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As gold is up over $2,000 and has gone eight weeks without a loss, Mike “Mish” Shedlock of TheStreet.com thinks the precious metal is telling us a bigger story, which he discussed with Real Vision’s Ash Bennington during today’s Daily Briefing.

The worst time for gold, according to Shedlock, is during disinflation when people feel confidence that central banks have everything under control. Now that central banks are openly meddling in fiscal policy, it has become obvious that they don’t have things under control, which explains the gold rally.  

“Free money is debasement of the dollar,” Shedlock said. “The big story here is that central banks don’t have things under control. That is the real message behind gold.”

While we can’t blame the Fed for COVID, we can blame them for blowing three bubbles in 20 years, Shedlock said, referring to 2000, 2007, and today. He said that inflation is not in the CPI; rather it is rampant in the prices of homes, stocks, bonds, tuition, rent, and healthcare.

“The current stock market bubble is a measure of inflation,” he said. “These bubbles always pop and the Fed has blown another one. Inflation is way understated at the moment.”

With asset markets not reflecting the gravity of current economic conditions, Shedlock said we’re seeing the biggest disconnect in history and he never thought this bubble would get this big again.

“What the Fed has managed to do is get everyone to speculate in stocks and that works until it doesn’t,” he said. “It will end badly; we just don’t know when.”

Who will get burned? Shedlock said he expects to see the wave of Millennial traders and retirees who are chasing the rally higher bear the brunt of the damage, while hedge fund managers will feel no pain. He said it is unwise to invest in a speculative bubble so he is sitting it out in cash, treasuries, gold, and miners.