Turn Off the Lights
The financial markets are getting closer to reaching a tightening squeeze, which ALWAYS ends with a crushing blow. I want to explain why the dollar’s strength is the precursor to the ending of the FED’s fight with persistent inflation and how this liquidity suction is making investors EXTREMELY BEARISH and just ready to short the markets again, even after the dramatic declines already realized.
As you can see, the dollar’s year-over-year percentage gain in 2022 is rivaling its best-ever year, which explains why commodities are starting to peak and crater and why silver, being the most inversely-correlated asset class to the dollar, is down hard while gold is still in the fight.
The next FED Meeting, scheduled for the 26th-27th of July, will take the FED Funds Rate over 2.00%, what the world considers the neutral level. This means that for the first time in many years, the FED is exiting the deflationary regime and entering a real inflationary one.
Keep in mind that for 13 years, the world had priced everything based on ZERO interest rate policies and supportive central banks. It is now doing the exact opposite.
The end result is that the available supply of cash in the world, especially in the form of dollars, is contracting.
Loans are getting paid off, fewer mortgages are being originated, and the government is issuing less bonds.
We are contracting in the midst of an inflationary era, which is a surefire recipe for stagflation and a recession, which we’re already in.
In the incredible movie “127 Hours,” based on the true story of Aron Ralston, the climber who had somehow fallen into a crack between the rocks and got his right hand caught, had to cut off his own hand in order to save himself.
No one was coming to save him, since he didn’t tell anyone where he is and his nutritional supplies (food and water) had run dry; he would either die or lose his arm and, fighting through excruciating pain, he made a conscious choice to severe off the arm.
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Aron lived to tell the story and gained his life back.
It is no fun understanding that no matter what you do, big losses are your likely immediate outcomes.
There are businesses that were priced one way when the world was running on negative interest rates but are ascribed an altogether different price in this environment, and they may NEVER get back to the prices people paid for them a year ago.
The dollar squeeze is crushing multinational companies and American exporters and creating imbalances. Silver will be the asset class that might suffer from a major blow, but keep in mind that unlike overvalued stocks, silver is extremely cheap.
Therefore, when faced with the fork in the road of how to cash-up optimally, cutting losses on stocks that might never recover is a far better alternative than selling silver at this point.
Once the dollar squeeze ends, silver will be able to rally, but inflation isn’t slowing down so stocks will be under the gun for the foreseeable future.
Cutting one’s arm to save their life is a brave move, and we need to be gutsy in 2022.
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