JPMorgan is calling for the “debasement” trade
The largest bank on Wall Street has officially given a glossy label to what has 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? The Fed doesn’t know what it will do next week, let alone next month—so much for forward thinking. The stark reality is that inflation is not going back to 2% levels, and the government will continue to print more fiat currency to pay its bills. The Fed has painted itself into a corner and will do whatever it takes to keep the government solvent. For now, that means the Fed has no choice but to lower 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.
When JPMorgan tolls the bell, it means the “debasement” trade has already gone mainstream. For years, we have been warning about the risks inherent in the dollar. We have also emphasized the importance of owning a lot of gold, and now it appears that even the bigwigs have to agree. The U.S. is now approaching $40 trillion in debt, running annual deficits of nearly $2 trillion and paying approximately $1 trillion in interest each year. That’s almost $3 billion every single day just to service past borrowing.
A massive portion of the U.S. budget goes towards interest payments on its debt, eclipsing allocated spending for defense and Medicare. Alarmingly, the U.S is borrowing additional money just to pay interest on the money it has already borrowed. That’s an out-of-control debt spiral with no easy 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 the U.S. 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. Nevertheless, the situation in Russia has demonstrated that even the most draconian sanctions ever imposed have regrettably backfired.
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 essentially admitting 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, currency debasement, and societal decline will follow.” He’s long argued that gold should play a key role in monetary discipline and serve as the anchor for U.S. fiscal policy. Furthermore, he has repeatedly discussed the precariousness of the dollar. I encourage you to explore more of his past articles, as they offer valuable insights and captivating perspectives on the ever-evolving dynamics of the financial markets.
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 often minimized the importance of holding gold and gold-related investments. However, now even JPMorgan is essentially admitting that the concerns Stephen Leeb has been cautioning against are, unfortunately, coming to fruition. For years, he has warned that the system could reach a point where debt, deficits, and monetary excess begin to erode 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. Gold and silver are up… Bitcoin is up… stocks are up. Albeit, it’s been largely a top-heavy rally, with the handful of mega-cap tech stocks taking the lion’s share of the gains. Overall, investor sentiment is up. On the surface, financial markets may appear to be booming, but it’s an “illusion of wealth” because a significant portion of the gains are merely in nominal terms.
Likewise, when you examine the market data in terms of gold, you begin to see the cracks. That’s when the illusion starts to fade, as stocks and home prices are flat to negative in real terms. Furthermore, when viewed in terms of gold, for example, the U.S. dollar’s purchasing power has declined by more than 20% since 2022—and that’s a modest estimate.
Since 2020, cumulative inflation has increased by 25%. Alongside persistent inflationary pressures, the S&P 500 has risen about 105% over the past five years. Home prices, as measured by the S&P Case-Shiller Home Price Index, are up by 52%. And despite the S&P 500 doubling in nominal terms over the last 5 years, it’s actually 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.
On the other hand, there’s no fiscal accountability. The Fed’s fly-by-night modus operandi is cringe-worthy, especially within 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 on more accurate, revised data, it might have taken a completely different course of action at the time. At the most recent Fed meeting, a reporter asked Jerome Powell 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 unsettling answer from someone entrusted with such essential 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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