JPMorgan is calling for the “debasement” trade
The largest bank on Wall Street has officially slapped a glossy label on what’s been evident to many of us for years. Governments are debasing their currencies, and smart money has been slipping quietly towards the exit door. Now, JPMorgan is telling clients to position for the “debasement” trade, and here is their exact wording:
“The trade reflects a combination of factors from elevated geopolitical and policy uncertainty to uncertainty about the longer-term inflation backdrop to concerns about debt debasement due to persistently high government deficits across major economies to concerns about Fed independence to waning confidence in fiat currencies in certain emerging markets in particular and to a broader diversification away from the US dollar.”
Translation? They have no idea what the FED will do next, and neither does the U.S. government. Inflation is not going back to 2% levels; governments will continue to print money to pay their bills. The Fed is cornered and will do whatever it takes to keep the government solvent. For now, that means lowering interest rates. And if things get worse? Then more quantitative easing—aka printing money—is probably on the way.
Americans are finally waking up to the fact that their currency is losing purchasing power. Even the dollar, the world’s reserve currency, is losing its safe-haven status, and JPMorgan is recommending a move into assets like gold and Bitcoin.
If even JPMorgan is tolling the bell, that means the “debasement” trade is mainstream. For years, we have been warning about the risks inherent in the dollar. We have also stressed the importance of owning lots of gold, and now it appears even the bigwigs have to agree. The U.S. is now approaching $40 trillion in debt, running annual deficits of close to $2 trillion and paying about $1 trillion in interest a year. That’s almost $3 billion every single day just to service past borrowing.
The U.S. spends more on interest each year than on defense or Medicare. And it’s borrowing money just to pay interest on money that it has already borrowed. That’s an out-of-control debt spiral where there simply isn’t a good solution. Even reevaluating our country’s gold holdings to reflect the much higher value of gold today can only do so much, as Stephen Leeb wrote extensively about in his recent article: “Geopolitics and Gold- Could It Reach $30,000 An Ounce?” Among its limited options, printing more money, debasing the currency, and accepting inflation are the only feasible tricks our government has up its sleeve.
Are the recent moves in gold and Bitcoin the first signs of a return to sound money?
Meanwhile, the rest of the world has been de-dollarizing in recent years. They see the writing on the wall. It hasn’t helped that Washington has excessively weaponized the dollar against unfriendly countries. However, as the Russia situation has shown, unfortunately even the most draconian sanctions ever seen haven’t worked.
Central banks are stockpiling gold at historic levels, now holding more gold than U.S. Treasuries. The longstanding dominance of the US dollar is gradually but clearly weakening. The “debasement” trade is Wall Street’s covert way of recognizing that the system itself—built on unlimited debt and money printing—is fundamentally fragile.
For as long as I’ve known Stephen Leeb, he’s always said: “When money loses its mooring, debt and debasement will follow.” He has long argued that gold should play a key role in monetary discipline and serve as the anchor for U.S. fiscal policy, and he has repeatedly discussed the precariousness of the dollar. I encourage you to explore past articles to find out more.
Is JPMorgan’s “debasement” trade the canary in the coal mine?
The powers that be have long avoided acknowledging the elephant in the room and they often minimized the importance of holding gold and gold-related investments. But now, even JPMorgan is essentially admitting that the things Stephen Leeb has been cautioning against are, unfortunately, coming to fruition. For years, he’s warned that the system could reach a point where debt, deficits, and monetary excess start eroding confidence in the dollar.
Smoke And Mirrors
The popularity of gold is now reflected in its price, as retail investors jump on the bandwagon, while some major foreign central banks have been buying gold at record levels for several years. Precious metals are up… Bitcoin is up… As are stocks—though it’s been largely a top-heavy rally where the handful of mega-cap tech stocks have taken the lion’s share of the gains… Investor sentiment is up. On the surface, financial markets may seem booming, but it’s an illusion of wealth, because a significant portion of the gains are merely in nominal terms.
When you look at the market data in terms of gold, you start to see the cracks. That’s when the illusion begins to fade, as stocks and home prices are flat to negative. When you look at things priced in gold, for example, the U.S. dollar’s purchasing power has fallen by more than 20% since 2022 —and that’s a modest estimate.
Since 2020, cumulative inflation has increased by 25%. Alongside persistent inflationary pressures, over the past five years the S&P 500 is up about 105%. Home prices, as measured by the S&P Case-Shiller Home Price Index, are up 52%. And despite the S&P 500 doubling in nominal terms over the last 5 years, it’s down by 88% in Bitcoin terms and down by roughly 13% in gold terms since 2020.
Are we seeing the first stage of a global monetary fracture?
On the surface, markets are signaling confidence in the economic outlook, applauding an agenda of lower taxes, less regulation, cheaper energy costs, and trade policies that favor domestic manufacturing. But what the market is really signaling is the potential for future prosperity.
Meanwhile, on the flip side, there’s no fiscal accountability. The Fed’s fly-by-night modus operandi is cringe-worthy, especially in an institution that considers data-drivenness a virtue. But herein lies the problem: the data they rely on has proven to be erratic. If the Fed had acted upon more accurate, revised data, it might have done something completely different at the time. At the most recent Fed meeting, Jerome Powell was asked what he would have done in hindsight regarding more accurate job numbers data. His answer?
“We don’t look in the rearview mirror.”
That’s an irresponsible answer from someone entrusted with such important responsibilities for the U.S. economy. There appears to be a misconception that adjusting interest rates alone is the ultimate panacea to fix the country’s economic problems.
Stay tuned for our next update…
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