Is silver telling us something about future inflation?
May 15, 2020
–July Silver is up another 45 cents this morning to 16.05, having been 14.94 two Fridays ago. Precious metals and bitcoin appear to be responding to unprecedented stimulus, and stocks also perked up yesterday with bank shares having potentially formed bottoms. Yields again fell yesterday, in light trade. Tens dropped 2.8 bps to 62. The two year ended at 15.1 bps, the five year was double that at 30.2, the ten year was double that at 62, and the thirty year was just over double that at 129.9.
–On Wednesday, Illinois was able to sell $800 million in general obligation bonds at a high yield of 5.85%. Tax free. According to the Reuters article I saw, Illinois is pretty much trading like junk. Really? Here is yet another dichotomy laid bare by COVID: the fragile underpinnings of Illinois’ budget, weakened by years of corruption, are now crumbling. The fountain of stimulus from the Fed and the federal gov’t cannot save all zombies, and states, (like Dave Portnoy), do not have unlimited cash. Which is why there can be no V. (Illinois is said to contribute 4.3% to US GDP).
–If Illinois had a currency, it would be trading like XAUEUR (gold in euro) which is pressing new highs this morning at 1603 (meaning that gold priced in the IL ccy would be parabolic). Before the debacle of Q4 2018, as the Fed was unwittingly pressing ahead with its tightening campaign, XAUEUR was 1000. From there it has only risen. EURUSD is now gravitating around 108. It had made a low of around 103.50, a level which I think we’ll re-visit sometime this summer.
–US Retail Sales today for April, expected -12%. Industrial Production also expected -12%. I suppose the U of M inflation survey numbers could be interesting. The one year forward expectation was 2.1% last, and the five-year was 2.5%. Although recent inflation data are soft and the ten year breakeven as indicated by inflation-indexed bonds is only 107 bps, I am thinking the U of M expectations will remain quite firm… leaning more toward the signals being sent by silver and less toward the signal sent by the US ten year.
