Follow up by Bill Cara

Peter Schiff had this to say:

“Japan is the largest holder of US Treasuries. With the Yen failing and oil prices surging, JGBs (Japanese Govt Bonds) will come under intense selling pressure. This will put more downward pressure on already too-high Japanese inflation. Japan will dump its Treasuries (to pay down their debt and defend the Yen).”

Peter may be right. He often is. But I doubt the full picture is understood.

My take is that it’s wrong to think too far out. Every move by BOJ or BoE or ECB can be and will be countered by the Fed — until the Fed has nothing more to give and the financial system collapses like 2008.

As the Yen continues to weaken (except for some interim BOJ moves like in recent days), the USD will get too strong for US exports to stay strong, and so the Fed will pause in Sept and again in early Dec. That will weaken the Dollar but also lift Gold, Oil, and other commodity prices and bring back inflation. The final act by the Fed to solve the inflation issue will be to hike rates in late Dec and/or early 2024, but that will be the hike that crashes the system.

A Fed hike in Sept, if it happens, would shake the equity market but not be the final blow. That would happen with the next hike, likely in late Dec and again in January. I see dark skies ahead for 2024 — like 2008 and 2000-2002, only worse.

Central banks outside the G-7 Fed orbit continue to buy Gold physical. There is only so much the Fed’s commercial banks do with short futures to hold it back. Smart money realizes the Fed is running out of gas.