May 20, 2025
- Yesterday, just hours after I said Moody’s tiny downgrade of the outrageous US government debt was not nearly enough, industry heavyweights weighed in with their take on this horrifying matter.
Hedge fund manager Ray Dalio is clearly concerned. It’s clear that Moody’s should have downgraded US debt 15 years ago, and a convincing argument can be made that the debt deserves no more than a CCC- rating today.
- Income tax hikes (and tariffs, to a much lesser degree) do increase the government’s ability to pay its debts, but they also weigh on the ability of businesses to generate taxable income…
- Income that the government wants but often does not need for anything other than pork barrel spending and murderous regime change wars.
Jamie Dimon has additional concerns. He’s forecasting a total collapse in American corporate earnings… and this comes after an entire quarter of negative GDP growth for the nation.
- Ironically, while industry heavy weights view the US debt and growth situation as dire, amateur stock market investors view it as fantastic!
Basis the key Shiller/CAPE ratio, the US stock market is now the third most overvalued in the entire history of the nation.
The last 40year inflation cycle ended in 1980, and the current one started at the 2020 Corona crisis lows.
- Stagflation coupled with rising rates is rocket fuel for gold stocks, and the entire world appears to be on the cusp of it now.
Stochastics is the most oversold since the start of the year and the price action is bullish.
- The bottom line: Gold does look like it’s going higher, but at this point the miners don’t need higher gold to massively outperform the underlying metal or to soar against fiat. The miners are already cash cows. So, what is needed to launch the gold stock rockets?
- The answer is that actual stagflation is needed. Disturbing PCE, CPI, and PPI reports are needed at the same time as Jamie’s earnings collapse occurs. That’s what puts the miners on Pluto and it’s only a matter of time, perhaps mere months of time, before that stagflation begins to occur.
- At that point, the Fed will pivot from telling ridiculous “We might do less rate hikes than expected” stories, to actual hikes, basis a massive earnings collapse and shocking reports of fast-rising inflation.
- The US stock market could face de facto annihilation as this theme intensifies.
- US President Donald Trump wants lower rates but the opposite of what he wants is almost certainly what lies ahead. He could blow his top when the stagflation-themed rate hikes begin, but not if he’s wise enough to own a big portfolio of gold stocks!
Not all gold stock investors like the juniors, but the CDNX is arguably the ultimate stagflation indicator, and it’s suggesting that all hands report to the deck… for buy-side gold stocks duty.
For another key look at the CDNX. A ten-year base is in play. It takes the form of a massive inverse head and shoulders pattern. Also, note the recent rise in volume. It’s subtle but positive. The CDNX low occurred at the same time (year 2020) as the rate cycle low. Clearly, the technical picture is just as bullish as the stagflation-oriented fundamentals.
- The US government has dialed down its tariff tax tantrums, but the message is clear that it wants US companies and workers to make as many products in America as possible… which will drive up prices.
- Coupled with the higher cost of money (rising rates), governments, businesses, and citizens will all be dealing with painfully higher costs and prices.
- It’s a vicious cycle and investors with no significant gold stock exposure are poised to experience decades of pain, while gold bugs celebrate.
I urged aggressive players to join me on the buy at the recent lows, and many wisely did.
- Note the great position of the key 14,7,7 series Stochastics oscillator at the bottom of the chart. Like gold itself, it’s the most oversold since the start of this year.
- Gold stock investors have nothing to fear. The cyclical, technical, and fundamental ducks are lined up perfectly. All investors need to do now is wait for stock market earnings to collapse and inflation to rise.
- Money managers will then race to get in on the mining stocks action and citizens wearing red and blue government worship hats will wish theirs were gold!
