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February 23, 2019 | Weekend Roundup — The Fed Flips, Brexit Wrecks-It, Gold and More!

Sean Brodrick

Sean is the natural resource analyst for Weiss Group. You can read his thoughts on gold, oil, cannabis, uranium and other natural resources at EdelsonInstitute.com

The mainstream media is fixated on the on-again/off-again U.S.-China trade deal; so much so that some important stories are slipping through the cracks.

Here, I’ve rounded up important, need-to-know briefings and charts on everything from a flipped-out Fed to a looming Brexit crisis to gold, oil and debt.

Consider this your “must read” for the weekend. You’ll be better prepared as an investor for next week.

Let’s get started.

Fed’s New Normal Flips the Table
on Everything We’re Used to

Has the Fed fully embraced a world of stubbornly weak inflation, perennially slower growth and permanently lower interest rates? Fed watchers think so, saying America’s central bank has made a “fundamental shift.”

This is the kind of thing cycle-followers hate. That’s because, at least in the shorter term, it can throw all sorts of big, tried-and-true economic and business cycles out of whack.

The consensus among Fed governors now is that interest rates will likely NEVER return to pre-crisis levels.

Image credit: Reuters

Also, relationships once taken for granted are thrown out the window. Such as the “known” link between rising inflation and falling unemployment. That no longer works.

The Fed used to be obsessed with inflation. It has now given up worrying about inflation. Period.

Fed Chair Jerome Powell’s core message now is the Fed is “always prepared to shift the stance of policy and to shift it significantly” if conditions weaken.

Does he mean economic conditions, or also market conditions? Judging from recent Fed actions, the Fed is watching the market as nervously as any armchair trader.

Naturally, if the Fed is committed to permanently low interest rates, this has big implications for the U.S. dollar (generally bearish) and gold (bullish).

One thing to keep in mind:

The Fed controls the short-term interest rate. The market controls the long-term interest rates. Long-term rates rise or fall depending on foreign confidence in the U.S. government. That is, whether foreigners buy our debt.

Good luck, Uncle Sam!

Brexit Casts a Shadow over Britain

You know Britain has asked for a divorce from the European Union, aka “Brexit.” The British public’s desire to control immigration was the biggest driving force for Brexit. Instead, like most divorces, it’s veered off into side-squabbles over disputes big and small — from how cigarette packaging will look to whether there will be an actual wall along the Irish border.

Will the United Kingdom remain closely aligned with Europe? Will it have to make myriad new treaties? Will it exit with NO treaties in place, and potential food shortages looming over the British people?

No one knows. There is a real threat that Brexit could turn into a “Wrecks-It.” And that uncertainty is pushing one company after another to either scale down operations in Britain or head for the exits altogether.

Nearly one in three — 29% — U.K.-based businesses could be forced to shift operations abroad due to Brexit.

After all, it’s hard to make a business plan if you don’t know whether your products will have access to the common market, or if your executives and technical staff might be kicked out for having the wrong passport.

It’s so bad, members of Parliament are leaving both the Labour and Conservative parties.

The British government seems to be dissolving into utter chaos over the deal, or lack of a deal. Stay tuned on this!

Barrick Gold Bids to Buy Newmont

The world’s second-largest gold miner wants to buy the world’s No. 1 gold miner. This probably puts a cloud over Newmont’s proposed acquisition of Goldcorp (NYSE: GG).

You’ll remember that Barrick Gold recently gobbled up African-based producer RandGold Resources. I guess they’re thinking: “Even bigger is even better.”

One thing I can tell you: As gold mining giants consolidate, this will inevitably lead to lower global gold production.

U.S. Crude Oil Exports Hit a New Record

This chart from The Daily Shot is worth a thousand words …

But, if you need some words, U.S. gross crude oil exports hit a record high of 3.6 million barrels a day.

Ballooning Global Debt
is a Threat to Us All

Here’s a chart.

Here’s a source with more debt charts.

And here’s a Bloomberg story about how the total leveraged loans and high-yield bonds outstanding in Europe and the U.S. has doubled to about $2.65 trillion since the financial crisis.

As I have said before, debt doesn’t matter … until it suddenly matters very much.

That’s it for this week. Good luck to us all next week.

All the best,

Sean

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February 23rd, 2019

Posted In: The Edelson Institute

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