Gold via JGB's
Macro Perspectives
We ended the week with stocks on the highs, and (still) trading into the downward trend line that represents the bear market of last year.
We had a positive catalyst for stocks on Thursday, with the weak inflation report.
On Friday, we had another positive catalyst, as the big banks kicked off the fourth-quarter earnings season with strong results.
Three of the four big banks beat earnings estimates. Importantly, each also set aside more reserves for potential loan losses - to the tune of $2.25 billion (between the four). That is added to what is already a war chest of capital that remains in the coffers from the worst of the pandemic period.
If we include the new Q4 allowances for potential loan losses, all four of the country's largest banks would have beaten earnings estimates AND outperformed earnings from the same period a year ago.
So, as we discussed last week, Wall Street has been wrong on Q4 economic growth, and based on the bank reports on Friday, it's a safe bet that they have undershot on earnings growth in Q4.
Let's take a look at gold...
Gold has been on a tear, up nearly 6% on the year, already. It closed on the highs Friday, and at the highest level since April of last year - it's only $150 from the record highs.
Is gold finally signaling that the unsustainable global sovereign debt bubble is going to be pricked this year? Maybe.
It may come from Japan. Japan has been fighting the deflationary vortex for the better part of the past thirty years. They've printed yen, and inflated debt, with no inflationary consequences - until now.
In fact, the post-covid global inflationary environment may prove to have been the perfect storm for stoking inflation in Japan. Inflation is running at a four decade high, and the Bank of Japan looks like it may lose control of the Japanese government bond market (JGBs).
The Bank of Japan has been intervening, daily, trying to contain the yield on 10-year JGBs to 50 basis points (part of their "yield curve control" program). The question is: If they back off of this band altogether, how low will the value of JGBs fall, and how fast?
I suspect that's why gold is heading for record highs.
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