There comes a moment in Samuel Beckett’s play, Waiting for Godot, in which a character known as Pozzo announces “I am blind!”
Estragon, one of the two main characters, ponders this for moment, and then casually suggests, “Perhaps he can see into the future.”
Of course, Pozzo cannot see into the future. He’s just a foolish aristocrat playing at being important. His blindness simply symbolizes his inability to see the suffering he has wrought upon others.
If Waiting for Godot were written today and set in Washington, D.C., around an economic rather than religious theme, I’m thinking Pozzo would be Jerome Powell, chairman of the Federal Reserve. Estragon would, of course, be the personification of Wall Street, cogitating on the Fed’s pronouncements and then deciding all is good because the Federal Reserve isn’t blind—it can just see into the future.
And, so, here we are, hanging out at nearly 33,000 on the Dow Jones…
A little less than a year ago, on April Fool’s Day (so very appropriate) we were just under 21,000. Insane: a 55% gain in a single year. Makes zero sense; none whatsoever.
There is no one who can convince me that stocks are now worth nearly 33 times the combined value of the earnings of the 30 companies inside the Dow Jones Industrial Average. The lunacy is even richer over on the S&P 500, where companies trade at nearly 40 times their combined earnings.
For a little historical flavor, mid-teens is normal.
Mid-20s is suspect.
Mid-30s and approaching 40…well, there’s crazy, there’s stupid, and then there’s the far, far edges of crazy-stupid where you give a three-year-old a box of matches and a gallon of gasoline and call it an art project.
We’ve gone past that.
And it’s going to get worse.
Just recently, Chairman Powell brought in a tanker of gasoline and gave the toddler a lit cigarette. He announced that, even if inflation heats up, the Fed will sit on the sidelines through at least 2023.
The emphasis I want to point out there is the word “through.” That implies no rates hikes to counter inflationary pressures until 2024, at the earliest.
Oh, he also said the Fed would continue its bond-buying program to help stimulate the economy.
Question: If the U.S. economy is so gosh-darn fantabulous these days, why does the Fed have to keep stimulating it?
And if you’re going to stimulate it, wouldn’t you be right there, close by, with the antidote (higher interest rates) just in case you overstimulate and you need to rein it in before the system crashes?
It’s a bit like going to doctor and announcing you feel spectacular…while gobbling up OxyContin like they’re PEZ candies.
And, so, the wise doctor says, “Well, then, Biff—we’re going to really make you feel special because I’m prescribing you some Xanax, Valium, and Klonopin for breakfast, lunch, and dinner. And what would you think about a nice Ritalin/Adderall cocktail before and after every meal, just to tweak your senses a smidge? Maybe a touch or two of Propofol to help you sleep soundly. Sound good?”
That’s the American economy and Wall Street today.
The Fed has been mainlining financial drugs into the system for so long now (going back into the 1990s, at least) that the system cannot survive without its fix. Only problem is, as with real drug abuse, the system grows so accustomed to the standard dose that the standard dose really is like so much PEZ candy. It does nothing. And, so, the system craves more and bigger.
At some point, however, there is no more. There is no bigger. The overall system can only take so much before sub-systems start to fail. Too much Adderall and your heartbeat rises to the point of cardiac arrest. Too much OxyContin and there’s permanent brain damage.
An economic system is functionally no different than a biological system. There are interdependencies that bear the brunt of all the stimulants. At some point, something causes a sub-system to fail…and then it’s a cascade of failures that destroys the overall system.
We are at a unique moment in U.S. financial history:
- Stocks are at levels only seen one time previously. It led to a crash. It will again. Guaranteed.
- Inflation is at a point where it will soon break out and rise at a pace America hasn’t seen in more than 40 years. That will be disastrous for the stock market. Might very well be the catalyst for the crash.
- U.S. sovereign debt is 130% of the overall economy, and it’s growing larger as the White House and Capitol Hill spend willy-nilly through tax cuts and stimulus and all the pork-barrel politics. That is going to destroy what little value remains in a dollar bill.
I regularly check in with USdebtclock.org, just to see where the U.S. stands financially. The folks running that site routinely add interesting, new measures of America’s financial ineptitude and the comeuppance coming toward us.
Two of the newest measures are the dollar-to-gold and the dollar-to-silver ratios. They value gold and silver relative to the year-over-year increase in America’s money supply. Basically, how much would gold and silver be worth if they have to step in again and back every dollar to give a crashing U.S. currency legitimacy?
Right now, silver would be worth more than $5,100 per ounce. Gold would approach $36,600.
I’m not saying those metals will see those prices. But silver currently trades at $25; gold’s about $1,750.
I am saying, however, that this is precisely why I own physical silver in vaults in Asia and Europe, and why I own physical gold in various places. The metals will go higher. They are the only anti-fiat currencies that historically have saved financial systems amid a crisis.
My holdings are not investments.
They are insurance.
Because I cannot see how America’s financial overdose doesn’t break the system at some point—probably this decade.
The U.S. isn’t going to be Pozzo claiming blindness.
It’s going to be a systemwide failure.