This week, Peter covers the highlights of a volatile trading week, paying special attention to Nvidia, Wall Street's favorite AI stock, and Newmont Corporation, a heavyweight in the gold mining industry. Shares of both companies saw dramatic price action this week.with NVDA gains $260 billion in market cap and driving the market higher after a great earnings report. Newmont, on the other hand, saw its shares fall 7% after a disappointing last quarter.
Peter explains how monetary policy influences mining profitability:
โPart of the big problem for Newmont and all the other mining stocks is that it is now much more expensive to mine gold... Now, why? Inflation. Inflation is greatly affecting the profits of these companies because the price of gold has not increased as much as the cost of mining it. And that's why I keep saying that gold mining stocks are the ironic victims of inflation.โ
The recent rise of Nvidia and the technology sector is reminiscent of the market of the late 1990s, just before the dotcom bubble burst:
โWhat is really significant about the current situation is that in the stock market we have the period 1999-2000 again, but it is more like 2008 in terms of the disaster that awaits us around the corner. โWe didnโt have a financial crisis in 2001. That didnโt happen until 2008.โ
This does not mean that AI technology is doomed to failure. Rather, innovative companies like Nvidia are currently being dragged down by an overheated economy that will eventually give way to inflationary pressures:
"There is no doubt that artificial intelligence will be useful... Once again, the markets are way ahead of the reality of where this is all going and, at the same time, they are overlooking the tremendous economic and financial problems that They hide in plain sight."
Peter also discusses the FOMC minutes released this week, which showed that Federal Reserve officials are still hesitant to cut interest rates. Gold responded well to this news, as it did last week. after higher-than-expected CPI figures were published:
โThe gold market shrugged it off, which really shows the underlying strength of the market. There was a brief sell-off in stocks, but I think investors quickly realized that... we're going to have these cuts... What the markets are focused on is that the rallies are over... We have the wind at our backs. our favor back. The question isโฆ how strong is that wind?โ
Recent moves in the price of oil, mortgage rates, and Treasury yields suggest these investors are overly optimistic:
โThese market indicators show that inflation is coming back, that we have hit bottom and we are just going up. And the markets don't expect this to be possible... If they get it wrong, the stock market is going to crash.โ
Markets Expect Rates to Go Down This Spring, But They Need to Go Up:
โIf the Fed doesn't raise rates, it could be even worse, maybe not for the market, but for the dollar, bonds and even more bullish for gold... If the Fed doesn't raise rates, then Inflation is simply going to get out of control. And in fact, even if the Fed doesn't cut rates, if it leaves them where they are, real rates are going down because inflation is going to rise!โ
Proponents of rate hikes are wrong when they claim that recent rate hikes constitute โtight monetary policyโ:
โThis is not a restrictive monetary policy. Again, less loose does not qualify as tight... What is being restricted? Is the government being restricted? Is there any cut in public spending? Is the government borrowing less because the Federal Reserve has increased the cost of borrowing money? No! The government is taking on more debt! In fact, they are borrowing more to pay higher interest rates.โ
Peter concludes by arguing A heavy fine imposed on Donald Trump in a fraud case in New York. In this case and others, a politicized legal system portends an increasingly risky and unattractive business environment, both in New York and the rest of the country:
โOne of the reasons why a lot of international money has been invested in the United States over the years is confidence in our legal system, in the rule of law, in private property: that you can own property, assets and businesses here, and that you can own properties, assets and businesses here. We are protected by the rule of law. โIt just canโt be taken away arbitrarily, but what we now show the world is that that is not the case!โ
While Wall Street celebrates a record week, Peter's thoughts are less optimistic. It's unlikely that a handful of tech stocks can perpetually sustain an economy burdened by years of inflation and oppressive government debt. The United States is addicted to cheap credit, and this addiction will cripple the economy if left unchecked.
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