Short-Term Unsustainable 

Doug Nolan

Outstanding Treasury Securities began 2008 at $6.051 TN, or 41% of GDP. 

Treasuries ended 2019 at $19.019 TN, or 87% of GDP. 

And then, in only three quarters, Treasuries surged another $3.882 TN to $22.900 TN, or 108% of GDP. 

We must wait a few weeks for the Fed’s Q4’s Z.1 report, but the federal government posted a fiscal deficit of $573 billion during this period, likely pushing outstanding Treasuries to near $23.5 TN, or about 110% of GDP. 

Since the end of 2007, Treasuries have inflated around $17.5 TN – approaching a three-fold increase.

For years now, I’ve listened as Washington politicians and central bankers admit to the obvious – that the trajectory of our federal debt is unsustainable – while invariably arguing it was not the time to be concerned or address it. 

With Treasuries blowing right through the 100% of GDP milepost – and likely poised to reach 125% within the next year or two – there’s no time like the present to recognize our nation is in serious fiscal trouble.

Senator John Thune (from Yellen’s confirmation hearing): 

“I’m going to try and roll a lot of thoughts and questions into sort of one big package here. 

But the one thing that concerns me that nobody seems to be talking about anymore is the massive amount of debt that we continue to rack up as a nation. 

And, in fact, the President elect has proposed a couple trillion dollar fiscal plan on top of that which we’ve already done - which would add somewhere on the order of about $5.3 trillion to deficits and that’s according to the committee for responsible budget of which you have been a board member.

That’s 25% of GDP, and it would move the additional debt above 100% debt to GDP - which is a category that we haven’t been in literally since the 1940s. 

And, so, what I’m concerned about is we seem to have no concern now about borrowing money in the short-term, and the argument is that interest rates are low. It’s like free money. 

It’s not. It has to be paid back.

And at some point, the risk/return ratio, that people who are lending us money are going to say, is not sufficient for the risk, and they’re going to demand a higher interest rate. 

That will happen at some point. Interest rates will start to normalize, and we have to refinance at a higher interest rate. And pretty soon the interest on the debt exceeds what we spend on even national security for our country.

Republicans traditionally have believed that we ought to reduce spending, we need to reform entitlement programs, that we need to have policies in place that create greater growth in the economy. All of which make the debt look smaller by comparison. Democrats have argued we need more revenue, more taxes…

But I just want to know what you think. Because I know in the past you’ve expressed concerns about the debt and the deficit. 

The two previous administrations have not been very interested in entitlement reform. We have not only the debt that we’re adding in the short-term because of the pandemic, but we have structural problems that are long-term that are going to continue to drive that debt higher in the future.

What your thoughts are with respect to reforming entitlements? 

With respect to the amount of the debt situation that we find ourselves in right now? And when is it enough? When is it too much? 

When do we hit that point where the thing starts to collapse? 

That’s what really concerns me. 

And nobody is talking about it really in either party anymore. It was something that used to occupy a lot of our discussions in the past, but nobody seems to care much about it.

And, for me, that is a huge warning sign on the horizon. The fact that we have an ever-growing deficit, an ever-growing debt and no apparent interest in taking the steps that are necessary to address it.”

Janet Yellen: 

“Senator, I agree with you that it’s essential that we put the federal budget on a path that’s sustainable. 

And that we’re responsible and make sure that what we do with respect to deficits and debt leave future generations better off. 

But the most important thing, in my view, that we can do today to put us on a path of fiscal sustainability is to defeat the pandemic, to provide relief to American people. 

And then to make long-term investments that will help the economy grow and benefit future generations.

To avoid doing what we need to do now to address the pandemic and the economic damage that it’s causing would likely leave us in a worse place fiscally and with respect to our debt situation than taking the steps that are necessary and doing that through deficit finance. 

We really have to worry about scarring due to this pandemic, of workers and the loss of small businesses that can really harm the long-run potential productivity of our economy and leave us with long run problems that would make it difficult to get back on the growth path that we were on.

And it’s really critically important to provide this relief now. And I believe it would be a false economy to stint. 

But over the longer term, I would agree with you that the long-term fiscal trajectory is a cause for concern. 

It’s something we will eventually need to attend to, but it’s also important for America to invest and invest in our infrastructure, invest in our workers, invest in R&D. 

The things that make our economy grow faster and make it more competitive and it’s important to remember that we’re in a very low interest rate environment. And that’s something that existed before the pandemic hit: interest rates were low even before the financial crisis of 2008. 

This has been a trend in developed economies, you can see it across the developed world, and it represents structural shifts that are likely to be with us a long time.

So, although the debt to GDP ratio has increased, it’s important to note that the interest burden of the debt - interest as a share of GDP - is no higher now than it was before the financial crisis in 2008 in spite of the fact that our debt has escalated. 

And, of course, interest rates can increase. Eventually we have to make sure that primary deficits in the budget are sufficiently small - that were on a sustainable path. But right now, our challenge is to get America back to work and to defeat the pandemic.”

The new administration’s view that Washington needs to be “on war footing” to win the battle over a once-in-a-century pandemic is understandable. 

The unemployment rate is currently 6.7%, businesses are failing, and there is even serious food insecurity in the U.S. For some perspective, the unemployment rate averaged 6.5% during the 20-year period 1980 to 1999. 

This has been a terrible human tragedy, though there is light at the end of the tunnel. 

Millions of individuals and businesses are suffering mightily for no fault of their own. 

It’s terribly unfair, it sickens us, and as a nation we want to do what we can to rectify this injustice. Meanwhile, we are on trajectories that ensure a future crisis will see an even greater percentage of our population suffering mightily for no fault of their own. 

Dismissive talk of an unsustainable long-term debt trajectory disregards myriad frightening short-term trajectories – Fed assets, federal debt, system Credit, “money” supply, stock prices, option trading volume, etc.

The pandemic is not close to my greatest worry. 

These days I have greater fear for the runaway Credit Bubble. 

I worry about the mania that has enveloped the stock market. I fear consequences of a historic debt crisis in already contentious social and geopolitical backdrops.

February 2, 2012 – Politico (Josh Boak): 

“Federal Reserve Chairman Ben Bernanke told a congressional panel Thursday that shrinking the deficit ‘should be a top priority,’ saying that spending projections over the next decade are ‘clearly unsustainable.’ 

Stressing that the budgetary threat did not emerge from the past three years alone of $1 trillion-plus budget deficits — with a fourth expected for 2012 — meant to ease the recession and aid the recovery, Bernanke warned the debt could explode over the next 20 to 30 years to levels that could paralyze the economy. 

The government faces an aging population, fast-rising health care costs, and a failure to close the gap between taxes and spending.”

Between Bernanke’s 2012 “clearly unsustainable” comment and the end of his chairmanship in early 2014, the Fed expanded its balance sheet by over $1TN. 

The Yellen Fed added another $1 TN in 2014 – to $4.47 TN – fateful monetization in a non-crisis environment. Importantly, the Fed and global central bankers fundamentally altered market function. 

Treasury yields, for example, became divorced from expanding federal deficits. 

The Federal Reserve essentially granted Congress a blank checkbook, and the world will never be the same.

A critical issue gets zero attention these days: The pandemic struck as our nation – much of the world – was at a dangerous late-stage in a historic Bubble. 

We could not have been more poorly positioned. 

Washington will add in the neighborhood of $6 TN of debt over a couple years – part pandemic but much in response to Bubble Economy structural fragility. The Fed will expand its balance sheet upwards of $5 TN in a two-year period - part pandemic but more to sustain an increasingly erratic financial bubble. 

Egregious Monetary Inflation ensures Financial Bubble and Bubble Economy fragilities grow only more acute.

We’re in the throes of the greatest monetary inflation in U.S. history. 

Things have come home to roost – we just haven’t realized it yet. 

Fed liquidity is masking deep structural impairment, while Trillions necessary to stabilize a fragile Bubble Economy only push the runaway financial Bubble to more precarious extremes. 

Traditionally, it was Federal Reserve doctrine to “lean against the wind” to at least ensure monetary policy was not exacerbating excess. 

The Fed some years back proclaimed it would not use rate policy to contain asset inflation and bubbles, choosing instead so-called macro-prudential measures. 

So how is our central bank reacting these days to such conspicuous excess: Well, it’s radio silence as they continue to pump $120bn of new liquidity monthly.

For too many years the Fed was content to disregard asset inflation and bubble dynamics. 

The fixation on tepid consumer price inflation has lacked credibility. 

The reemergence of “global savings glut” nonsense has been pathetic “analysis,” especially as unparalleled speculative leverage ballooned around the globe. 

The Fed was determined to sit back and keep financial conditions ultra-loose year after year, as if this would not promote historic debt growth, speculative excess and structural impairment.

Comments from Yellen and others suggest that low rates conveniently push potential issues far out into the future. 

Yet the problem is here and now; it’s acute – and the coronavirus is not the most pressing problem. 

The stock market mania is raging out of control. Debt growth is spiraling out of control. 

The Fed and global central banks are trapped in desperate inflationism. 

The Fed is poised to expand its balance sheet – add liquidity – to the tune of $1.5 TN this year with no regard for rampant asset price inflation and Bubbles. 

The trajectory of too many key metrics has gone parabolic, ensuring tremendous systemic damage is inflicted in a short period of time. And now the new administration has control of the blank checkbook and is determined to us it.

A day trader's mentality has taken over our nation. There’s no long-term thinking or planning; everything is short-term focused. 

Ultra-loose financial conditions are supporting economic recovery. 

And while there are superficial short-term benefits, the costs to longer-term system stability are momentous. 

Washington is gambling with our nation’s future.

We’re witnessing today the consequence of the Fed and Washington’s disregard for asset inflation and Bubbles. 

At this point, aggressive stimulus is self-defeating. Zero rates stoke speculative excess in equities and corporate Credit. 

QE feeds liquidity into market Bubbles. 

Massive fiscal deficits inflate corporate earnings (and traders’ on-line accounts), while becoming instrumental to the bullish narrative and mania. 

I wish the Biden administration nothing but success. 

I hope Yellen is right, because the next four years are critical for our nation. 

Our government today confronts major crises – the pandemic, unemployment, inequality, divisiveness and social instability, global competitiveness, climate change, mounting geopolitical risk and more. 

They have an aggressive agenda, and I would expect nothing less. 

And I don’t fault the administration for believing they will operate free of fiscal constraints. 

I just can’t get over my fear that Washington is exacerbating the greatest risk to our nation’s future. 

M2 “money” supply has inflated a shocking $4.0 TN in 46 weeks – or 32% annualized. 

We’re witnessing the greatest monetary inflation the country has ever suffered – with nary a protest. 

The Credit Bubble is inflating the fastest ever. 

Arguably, stock market speculation is the most precarious since 1929. 

We’re witnessing the greatest redistribution of wealth in our nation’s history.

And when this Bubble eventually bursts, we’ll confront the terrible reality that the greatest expansion of non-productive debt ever fueled history’s greatest destruction of wealth. 

Yellen: “The smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs.”

I hate being this pessimistic. 

But in no way do the long-term benefits of massive deficit spending today outweigh the cost. 

Current market and economic structures ensure resources are poorly utilized. 

The securities markets are today a powerful mechanism for resource misallocation and wealth-destruction. 

And I see Trillions of deficit spending generating limited sustainable economic benefit. 

Meanwhile, “acting big” will further fuel “Terminal Phase” excess, with terrible long-term consequences.


“Well before COVID-19 infected a single American, we were living in a K-shaped economy, one where wealth built upon wealth while working families fell farther and farther behind.”

This “K-shape” is fundamental to Bubble Economy structure and a key manifestation of inflationism and resulting Monetary Disorder. 

As we’ve witnessed now for going on 10 months, throwing massive stimulus at the current structure exacerbates both Bubble excess and inequality.”


“The world has changed. In a very low interest-rate environment like we’re in, what we’re seeing is that even though the amount of debt relative to the economy has gone up, the interest burden hasn’t.”

History will not be kind. 

A $3 TN plus annual deficit in the past would have been recognized as foolhardy if not negligent. 

It’s playing with fire. 

Washington has pushed things much too far – the most extreme debt growth and the most extreme Federal Reserve debt monetization. 

We’re witnessing an unprecedented late-cycle runaway expansion of risky non-productive debt – too much of it held by leveraged speculators. 

Market backlash is inevitable and overdue. 

I just don’t see market forces remaining inoperative indefinitely - supply and demand will matter again. 

The quantity and quality of system credit will prove momentously important.


“‘The most important thing we can do is to defeat the pandemic, to provide relief to American people and to make long-term investments that make the economy grow and benefit future generations,’ said Yellen… Failure to address the crisis now ‘would likely leave us in a worse place fiscally,’ she said.”

The most important thing for our nation is to see a return to some semblance of fiscal and monetary sanity. 

I’m all for sound long-term investment, something our nation desperately needs. 

I’m not sure what we have to show for the $17 TN of Treasury debt accumulated since the last crisis. 

And it’s inexcusable that we came into the pandemic in such a fragile position – fiscally and in terms of the financial Bubble. 

My biggest fear is materializing. 

When this historic Bubble bursts, a major crisis will unfold with our nation’s finances in complete shambles. 

The Fed’s “money printing” operation has gone parabolic as it desperately attempts to sustain an unsustainable Bubble. 

Treasury debt growth has gone parabolic as Washington tries to sustain an unsustainable economic structure. 

The system is on a trajectory that ensures a crisis of confidence – and I don’t see this as some long-term concern. 

This is an issue of short-term unsustainability. 

Washington has employed massive fiscal and monetary stimulus despite ultra-loose financial conditions and booming markets. 

The big crisis commences – the unsustainable is no longer sustained - when financial conditions tighten and the financial Bubble bursts. 

The time for “acting big” is in a post-Bubble backdrop and definitely not while the Bubble is inflating madly.

A blueprint for America’s economic recovery

Here’s how the next US president — hopefully Joe Biden — could fix things

Rana Foroohar 

   © Matt Kenyon

If America is lucky, within a few days, we will have elected Joe Biden as president. 

If Donald Trump goes, I suspect the majority of the country will breathe a sign of relief, literally. 

Whether or not one agrees with the president’s policies, his divisiveness and vitriol are among the reasons that researchers have found correlations between Mr Trump’s spell in power and things like rising anxiety levels, cardiovascular problems and even preterm pregnancies (especially among Latinas) in the US.

There couldn’t be a better time for the “caring economy” that Mr Biden has advocated. Politics under the current administration are literally killing us.

I say this as a Democrat, but also as someone who believes that this administration did one thing right — it exposed the fact that neoliberalism, characterised by the laissez-faire model of economic development, is dead.

For the past four decades, under both Republican and Democratic administrations, America has bought wholesale into the idea that as long as capital, goods and labour could travel unimpeded across the globe, everyone would benefit. 

This philosophy has failed, putting liberal democracy itself in jeopardy.

Neoliberal policies, including financial deregulation and trade deals that looked good on paper but didn’t take into account the human cost, decreased inequality at a global level. But they also created huge pockets of economic and social pain in many countries. 

That pain resulted in the politics that we have today. Capital travelled freely, all right — the world’s financial assets are now more than three times larger than the real economy. Goods were relatively mobile. 

But most people, and jobs, were not. The problem for policymakers is that people vote.

We can no longer deny the fact that the fortunes of multinational companies and those of workers do not rise in tandem. 

Markets are not perfectly efficient. Politics and people matter. 

The world is a messy place and it is becoming more complicated, as the US, Europe and China become separately orienting poles for different countries, each with separate political economies.

China isn’t going to become more like America, particularly in the wake of the 2008 financial crisis and Mr Trump’s disastrous handling of Covid-19, which is as good an advertisement for autocracy as the Communist party itself could come up with.

Indeed, economic figures never really indicated that it would. According to Gavekal Research, the state sector has been roughly stable as a percentage of the economy in China (between 25 and 28 per cent) for the past two decades. 

Rhetoric about privatisation and liberalisation rises and falls, but the Chinese have a system that will remain firmly controlled by the party, and be run in the interests of their country, which is now a producing and consuming nation to rival the US. 

The “one world, two systems” problem will be with us for a long time to come.

What should the next US president do to respond to all these changes and challenges? 

Certainly not engage in an ill-advised and poorly designed trade war coupled with corporate tax cuts. As economist Paul Krugman lays out, the result has actually been an increase in trade deficits. 

Not only could corporations continue to play the capital shell game and move money around the world rather than investing it in the US, but policymakers failed to think through how tariffs themselves might work in the current economic paradigm. 

No company is going to suddenly build a bunch of factories in the US if they don’t believe in the fundamental growth prospects and stability of the nation. And they don’t need to, because most new businesses in the digital age don’t require that kind of investment.

What the US needs is not a blame game with China. It is serious work at home. If elected, Mr Biden should be frank with the American people and say what we already know in our gut to be true. 

Education has not kept pace with technology, a key reason productivity and growth has lagged behind. 

The US healthcare system is costly and inefficient. Roads, bridges and broadband systems need upgrading. Mr Biden’s multitrillion-dollar plan to invest in all of this is smart, because it would increase the value of human capital — the key resource of the 21st century economy. 

Companies should be able to depreciate investment in people as well as machines, as they do now.

Republicans will hypocritically try to scupper this by claiming that debt matters. For decades now, they’ve cut taxes but not budgets. They have tolerated high deficits when the GOP controls the White House. 

Ultimately, debt does matter. But the only thing that will reduce US debt levels is a combination of private austerity (already happening at the consumer level) and gross domestic product growth.

Why America's next housing crisis threatens Trump's re-election

A trickle-down, neoliberal asset bubble fuelled by easy monetary policy will not create that. We need a productive bubble, encouraged by federal underwriting of basic research in high growth technologies such as clean energy, quantum computing and artificial intelligence. 

We also need strong antitrust enforcement to make sure the Big Tech groups don’t monopolise these key sectors. That would seed subsequent investment by the private sector.

This is basically the Biden plan, and it’s a no-brainer. The question for the US, and ultimately the world, is whether Democrats will have a chance to implement it.

 A Fragile Recovery in 2021

Although 2020 ended with a flurry of announcements reporting promising results in COVID-19 vaccine trials, there is little reason to expect a robust economic recovery anytime soon. Defeating the virus remains a monumental task, and the wounds inflicted by the pandemic will not heal easily.

Nouriel Roubini

NEW YORK – By the end of 2020, financial markets – mostly in the United States – had reached new highs, owing to hopes that an imminent COVID-19 vaccine would create the conditions for a rapid V-shaped recovery. 

And with major central banks across the advanced economies maintaining ultra-low policy rates and unconventional monetary and credit policies, stocks and bonds have been given a further boost.

But these trends have widened the gap between Wall Street and Main Street, reflecting a K-shaped recovery in the real economy. Those with stable white-collar incomes who can work from home and draw from existing financial reserves are doing well; those who are unemployed or partly employed in precarious low-wage jobs are faring poorly. 

The pandemic is thus sowing the seeds for more social unrest in 2021.

In the years leading up to the COVID-19 crisis, 84 of stock-market wealth in the US was held by 10% of shareholders (and 51% by the top 1%), whereas the bottom 50% held barely any stock at all. 

The top 50 billionaires in the US were wealthier than the bottom 50% of the population (a cohort of about 165 million people). COVID-19 has accelerated this concentration of wealth, because what’s bad for Main Street is good for Wall Street. 

By shedding good salaried jobs and then re-hiring workers on a freelance, part-time, or hourly basis, businesses can boost their profits and stock price; these trends will accelerate over time with the wider application of artificial intelligence and machine learning (AI/ML) and other labor-replacing, capital-intensive, skill-biased technologies.

As for emerging markets and developing countries, COVID-19 has triggered not merely a recession, but what the World Bank calls a “pandemic depression,” leaving more than 100 million people back on the verge of extreme poverty (less than $2 dollars per day).

After going into free fall in the first half of 2020, the world economy started to undergo a V-shaped recovery in the third quarter, but only because many economies were reopened too soon. 

By the fourth quarter, much of Europe and the United Kingdom were heading into a W-shaped double-dip recession following the resumption of draconian lockdowns. 

And even in the US, where there is less political appetite for new pandemic restrictions, 7.4% growth in the third quarter is likely to be followed by growth of 0.5% at best in the last quarter of 2020 and in the first quarter of 2021 – a mediocre U-shaped recovery.

Renewed risk aversion among American households has translated into reduced spending – and thus less hiring, production, and capital expenditures. 

And high debts in the corporate sector and across many households imply more deleveraging, which will reduce spending, and more defaults, which will produce a credit crunch as a surge in non-performing loans swamps banks’ balance sheets.

Globally, private and public debt has risen from 320% of GDP in 2019 to a staggering 365% of GDP at the end of 2020. So far, easy-money policies have prevented a wave of defaults by firms, households, financial institutions, sovereigns, and entire countries, but these measures eventually will lead to higher inflation as a result of demographic aging and negative supply shocks stemming from the Sino-American decoupling.

Whether major economies experience a W- or a U-shaped recovery, there will be lasting scars. The reduction in capital expenditures will reduce potential output for good, and workers who experience long bouts of joblessness or underemployment will be less employable in the future. 

These conditions will then feed into a political backlash by the new “precariat,” potentially undermining trade, migration, globalization, and liberal democracy even further.

COVID-19 vaccines will not ameliorate these forms of misery, even if they can be quickly and equitably administered to the world’s 7.7 billion people. But we shouldn’t bet on that, given the logistical demands (including cold storage) and the rise of “vaccine nationalism” and disinformation-fueled vaccine fears among the public. 

Moreover, the announcements that leading vaccines are over 90% effective have been based on preliminary, incomplete data. According to scientists I have consulted, we will be lucky if the first generation of COVID-19 vaccines is even 50% effective, as is the case with the annual flu shots. Indeed, serious scientists are expressing skepticism about the claims of 90% effectiveness.

Worse, there is also a risk that in late 2021, COVID-19 cases will spike again as “vaccinated” people (who may still be contagious and not truly immune) start engaging in risky behaviors like crowded indoor gatherings without masks. 

In any case, if Pfizer’s vaccine is supposed to be the key to our salvation, why did its CEO dump millions of dollars of stock on the same day that his company announced its breakthrough test results?

Finally, there is the great political event of 2020: Joe Biden’s election to the US presidency. 

Unfortunately, this will not make much of a difference for the economy, because obstruction by congressional Republicans will prevent the US from implementing the kind of large-scale stimulus that the situation demands. 

Nor will Biden be able to spend heavily on green infrastructure, raise taxes on corporations and the wealthy, or join new trade agreements like the successor to the Trans-Pacific Partnership. 

Even with the US set to rejoin the Paris climate agreement and repair its alliances, the new administration will be limited in what it can accomplish.

The new cold war between the US and China will continue to escalate, potentially leading to a military clash over Taiwan or control of the South China Sea. 

Regardless of who is in power in Beijing or Washington, DC, the “Thucydides Trap” has been laid, setting the stage for a confrontation between the established but weakening hegemon and the new rising power. 

As the race to control the industries of the future intensifies, there will be even more decoupling of data, information, and financial flows, currencies, payment platforms, and trade in goods and services that rely on 5G, AI/ML, big data, the Internet of Things, computer chips, operating systems, and other frontier technologies.

Over time, the world will be firmly divided between two competing systems – one controlled by the US, Europe, and a few democratic emerging markets; the other controlled by China, which by then will dominate its strategic allies (Russia, Iran, and North Korea) and a wide range of dependent emerging markets and developing economies.

Between the balkanization of the global economy, the persistent threat of populist authoritarianism amid deepening inequality, the threat of AI-led technological unemployment, rising geopolitical conflicts, and increasingly frequent and severe man-made disasters driven by global climate change and zoonotic pandemics (that are caused in part by the destruction of animal ecosystems), the coming decade will be a period of fragility, instability, and possibly prolonged chaos. 

The year 2020 was just the start.

Nouriel Roubini, Professor of Economics at New York University's Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is, and he is the host of

Gold Stocks' Upleg Intact

Adam Hamilton


- Gold stocks’ young upleg remains intact despite January’s sharp selloff. While that did redraw and moderate GDX’s uptrend, this leading sector benchmark is still carving higher lows and higher highs.

- Unless that changes, there’s no reason to doubt this upleg. That means any pullbacks are opportunities to aggressively add positions in fundamentally-superior gold stocks at relatively-low prices.

- Uptrends are often in flux, with their best-fit support and resistance lines gradually shifting to encompass evolving day-to-day price action. Shallower upslopes are more sustainable, ultimately attracting more capital.

The gold miners’ stocks have had a wild ride this month, surging then plunging. 

After hitting new upleg highs, the leading gold-stock benchmark collapsed in a sharp drawdown. 

That gutted bullish sentiment, bringing back worried bearishness. 

But despite that big swing, the uptrend of gold stocks’ young upleg remains intact. 

This sector is still marching higher on balance with gold, a bullish omen for further gains.

Price action in the financial markets is never linear for long. 

Asset prices perpetually flow and ebb, often chaotically from day to day. 

That reminds me of Mark Twain’s famous quote, “If you don’t like the weather... just wait a few minutes.” 

Volatility is a constant companion in the markets, forever toying with traders’ emotions. 

But over longer-term time horizons, this incessant daily noise tends to form tradable trends.

Keeping those in perspective is essential to achieving trading success. 

Viewing price action in broader trend terms rather than fixating on big daily swings greatly moderates greed and fear. 

Letting short-term volatility stoke those dangerous emotions leads to buying high and selling low, fueling losses. 

Borrowing from Ephesians’ wisdom, traders can’t be “tossed to and fro, and carried about with every wind” of price action.

January’s big gold-stock volatility must be considered as a whole to be properly processed and gamed. 

The leading and dominant gold-stock benchmark and trading vehicle is the VanEck Vectors Gold Miners ETF (GDX). 

This week its $16.3b in net assets commanded a staggering 64% of all the capital deployed in all the American gold-stock ETFs! 

GDX’s wild price action this month highlights this sector’s serious swings.

GDX blasted 6.9% higher on 2021’s opening trading day of January 4th, hitting major new upleg highs which really excited traders. 

But later that week on the 8th, GDX plunged 4.8%. Another week after that on the 15th, it dropped another 3.1%. 

Then in the middle of this week, it surged 3.4% higher. 

This has to seem schizophrenic to traders fixating on day-to-day price action, violently capricious and excessively risky.

But when these sharp swings are considered together, they continue to carve an uptrend in gold stocks’ latest young bull-market upleg. 

That is readily apparent in this GDX chart encompassing the past couple years or so. 

Pay particular attention to the past couple months’ price action, where big volatility has been giving myopic traders fits. 

Gold stocks are actually marching higher on balance, which is certainly bullish.

Gold stocks’ powerful bull market in recent years is a case study in contrasting price action. 

Massive uplegs rocket higher, rapidly multiplying traders’ capital. 

Gold stocks’ last one peaked in early August at enormous 134.1% GDX gains in just 4.8 months! 

But after shooting parabolic, this sector was extremely overbought riddled with excessive greed and euphoria. 

So a healthy rebalancing correction was necessary.

That indeed unfolded over the next 3.6 months into late November, where GDX fell 24.9%. 

Both this latest upleg and correction proved very volatile within their trend channels rendered here. 

Gold stocks’ high inherent volatility made for big and sharp countertrend moves in each. 

This sector advances in line with its prevailing trends, then retreats. 

This two-steps-forward-one-step-back meandering is ubiquitous.

It also applies to bull-market uplegs due to the scaling fractal nature of the markets. 

Like the broader bulls containing them, individual uplegs flow and ebb. 

Gold-stock prices forever rise and fall, seemingly chaotically as apparent in this GDX chart. 

But considered together these daily swings gradually coalesce into uptrends, series of higher lows and higher highs. 

These are the backbones of wealth-multiplying uplegs.

Our current one stealthily started marching higher in late November. 

Gold-stock sentiment was bearish then, drenched in fear after a multi-month correction. 

But gold miners’ stocks are ultimately leveraged plays on gold, which overwhelmingly drives their earnings. 

And gold’s own parallel correction that forced gold stocks’ was maturing, growing to bull-market precedent. 

That green-lighted a new gold-stock upleg.

The best opportunities to buy gold stocks at relatively-low prices within ongoing bulls come when corrections are bottoming. 

So that very day when GDX closed at $33.42, we started layering in new long-gold-stock trades to ride their next major upleg. 

Before that we had abstained from deploying any capital in gold stocks since June. 

This sector was starting to get overbought then, so we let our existing trades ride.

They had been largely added between March to May around and after the bottoming of gold stocks’ last correction. 

They were ultimately stopped out in July and August at huge absolute realized gains. 

Across 17 gold-stock trades in our weekly newsletter, those averaged +81.3%. 

Another 9 in our monthly ended up averaging +83.6%. 

And those annualized to stellar averages of +303.9% and +334.9% respectively!

It pays big to buy relatively-low after gold-stock corrections mature, then later sell relatively-high when the subsequent uplegs mature. 

Understanding when these key opportunities occur, and having the mental toughness to suppress greed and fear to actually buy and sell gold stocks in opposition to the herd, totally depend on maintaining perspective. 

That means processing gold-stock daily volatility in broader trend terms.

In late November no one knew exactly when or where gold stocks’ last correction would bottom. 

But we could know that critical turn was increasingly likely based on both bull-to-date precedent and prevailing sentiment. 

Buying low and selling high is a probabilities game, requiring trading decisions to be made in real-time before upleg-correction trend reversals are decisively known. 

That certainty only comes with hindsight.

Even if those parallel gold and gold-stock corrections hadn’t been quite over yet in December, the odds of new uplegs starting to power higher were very favorable. 

So we’ve kept layering in new gold-stock and silver-stock trades ever since then, trying to buy in relatively-low for a new-upleg campaign. 

Those trades would’ve straddled the ultimate correction bottoming had it come a little later, which is the optimal strategy.

But instead the gold stocks started powering higher on balance in an increasingly-solid new upleg, which is readily evident in their GDX benchmark. 

Gold-stock prices are still relatively-low early in young uplegs before most traders recognize them. 

That usually happens months later, leading to big capital inflows accelerating gold stocks’ upside as traders chase those gains. 

We want to be fully deployed well before that.

By December 7th GDX had surged 9.2% to $36.50, which was nice but inconclusive. 

Sharp rallies are common within gold-stock corrections, like GDX’s blistering 13.4% seven-trading-day surge straddling the early-November US elections. 

But that election-spike downtrend breakout soon proved false, because the gold and gold-stock corrections hadn’t matured yet. 

In mid-December, GDX retreated 6.1% to $34.29.

If that held, it would prove a higher low well above November 24th’s $33.42. 

And it did! 

GDX blasted up 8.7% over the next three trading days to $37.29 on December 17th. 

That was a higher high over the previous $36.50. 

An uptrend is just a series of higher lows and higher highs, and uptrends make up bull uplegs. 

So the new-gold-upleg-underway thesis was looking better as GDX’s uptrend kept solidifying.

But upleg advances always happen in that flowing-and-ebbing fashion, taking two steps forward before retreating one step back. So GDX dropped another 5.4% to $35.28 on December 22nd. 

That made for its third higher low since late November, an encouraging sign. 

The gold stocks ground sideways into year-end, but a definite gold-stock uptrend had formed. 

But it still had a vexing major technical problem.

By that point GDX still hadn’t broken out above either its recent correction’s downtrend resistance line or its 50-day moving average. 

50dmas are often strong resistance zones within ongoing corrections. 

So despite gold stocks’ higher lows and higher highs by then, technically GDX also remained trapped within its correction downtrend. 

Thus considerable risk remained that gold stocks’ correction lows had yet to be seen.

But this sector’s technical picture radically improved on January 4th, 2021’s opening trading day. 

GDX blasted 6.9% higher to $38.51 that day, which was its third major higher high since early November. 

But much more importantly, that was a major upside breakout! 

GDX simultaneously shattered both those correction-downtrend and 50dma resistance zones. 

Then GDX held those new highs for four days in a row.

That was the strongest technical evidence yet that gold stocks’ last correction indeed bottomed in late November, so a new gold-stock upleg was underway. 

With its uptrend becoming more apparent, gold-stock enthusiasm was mounting. 

But that was soon gutted on the 8th, when GDX plummeted 4.8% back to $36.52 in a serious down day! 

While gold stocks’ uptrend hadn’t been broken, that really spooked traders.

That happened to be on Jobs Friday, the day the official US monthly jobs report is released. 

That can really move gold, and the gold stocks mirror and amplify their metal’s fortunes. 

Gold plunged a massive 3.5% that day, so GDX’s 4.8% sympathetic loss was fairly minor. 

Normally this leading gold-stock ETF tends to leverage material gold moves by 2x to 3x, so that 1.4x was actually restrained. 

Why did all that happen?

A week ago I wrote an entire essay analyzing gold’s Jobs-Friday plunge, which is really important for all gold-stock speculators and investors to understand. 

Basically speculators’ bullish positioning in highly-leveraged gold futures was excessive. 

So after the psychologically-heavy $1,900 level failed overnight before that jobs data, cascading selling erupted as a long-festering gold-futures-selling overhang was unwound.

The resulting gold-stock carnage was merely collateral damage. 

But big GDX up days and down days really spark surging emotions, greed and fear respectively. 

Traders caught up in day-to-day price action see big swings and tend to extrapolate those moves as likely to persist indefinitely. 

So they succumb to greed to buy relatively-high after big daily rallies, and are overcome with fear to sell relatively-low after big drops.

And the latter is exactly what happened in the week following gold stocks’ Jobs-Friday plunge. 

Over the next week into January 15th, GDX bled another 5.5% to $34.51. 

That extended its total selloff since 2021’s opening trading day to 10.4% in nine trading days. 

Technically that lower low broke the gold-stock uptrend’s lower support line, which had been steep exceeding the rising slope of GDX’s 200-day moving average.

But again focusing on the broader gold-stock trends instead of just January’s sharp drawdown puts things in superior perspective. 

Gold stocks’ young upleg wasn’t in jeopardy, so there was no justification to being scared into selling relatively-low. 

While $34.51 was under the previous GDX low of $35.28, it was still well above the last correction’s late-November bottoming at $33.42. 

GDX’s uptrend was just redrawing.

Uptrends are formed by parallel lower-support and upper-resistance zones, which are drawn as best-fit lines. 

These aren’t static, but gradually shift to accommodate the great majority of the chaotic day-to-day GDX price action. 

So especially earlier in uplegs when they remain young, uptrend slopes are redrawn as new data comes in. 

Those uptrends tend to moderate after their initial sharp surges, getting shallower.

This process of continually adjusting to the data reminds me of video footage showing how computers in autonomous cars process the real-time incoming camera data. 

They are constantly redrawing boundary lines showing where road edges and painted lanes are. 

These ever-shifting roadway paths the cars are following are analogous to trends. 

Best-fit upleg uptrends are fine-tuned and adjusted based on price action.

Although shallower than it was a week earlier, gold stocks’ young upleg remains very much alive and well. 

Now its uptrend is paralleling GDX’s 200dma rather than overtaking it, which is much more sustainable. 

If an upleg surges too far too fast it generates too much greed. 

That pulls forward too much future buying, sucking in all interested traders’ capital too quickly. 

When that buying firepower is exhausted, uplegs fail.

So January’s sharp gold-stock selloff was essentially a drawdown within an ongoing uptrend. 

Although it forced a redrawing of GDX’s uptrend channel, these adjustments are typical in young uplegs. 

The gold stocks are still carving higher lows and higher highs on balance, which means their young upleg remains intact. 

These recent lows offer great opportunities for traders to aggressively add gold stocks relatively-low.

At best as of January 4th, GDX’s young upleg has only climbed 15.2% over 1.3 months. 

That is nothing in this sector, where this bull’s previous four uplegs averaged massive 99.2% gains in GDX terms! 

There is no reason gold stocks can’t double again this time around, as their fundamentals are incredibly bullish at these high prevailing gold prices. 

So it’s prudent to keep layering in new trades with gold stocks still cheap.

With gold’s own outlook really bullish on epic central-bank money printing, dangerous bubble valuations in the stock markets, and radical underinvestment with sub-1% overall American portfolio allocations, gold stocks still have huge upside potential. 

As their gains mount, other traders will catch on and start chasing this sector. 

That will really accelerate this upleg, closing the early-upleg window to buy in relatively low.

The ideal time to get deployed is before most other traders figure out a major new gold-stock upleg is underway. 

So we’ve continued to gradually layer in new trades in fundamentally-superior gold stocks and silver stocks since late November. 

The current count is up to 14 new trades in our weekly newsletter and 6 in our monthly. 

Their formats have recently been updated too, increasing their focus on individual-stock analysis.

The bottom line is gold stocks’ young upleg remains intact despite January’s sharp selloff. 

While that did redraw and moderate GDX’s uptrend, this leading sector benchmark is still carving higher lows and higher highs on balance. 

Unless that changes, there’s no reason to doubt this upleg. 

That means any pullbacks are opportunities to aggressively add positions in fundamentally-superior gold stocks at relatively-low prices.

Uptrends are often in flux, with their best-fit support and resistance lines gradually shifting to encompass evolving day-to-day price action. 

Shallower upslopes are more sustainable, giving uplegs more time to ramp up and attract in capital. 

Gold-stock traders need to process gold-stock price action in the context of trends, not let big daily swings overly influence their outlooks. 

Maintaining perspective is essential to success. 

First, the Good News on Biden’s Stimulus

The implications for investors of unified government and a boost in stimulus will be mixed but initially good for stock prices

By Justin Lahart

Another coronavirus-relief package is probably in the offing after President-elect Joe Biden’s inauguration. / PHOTO: KEVIN LAMARQUE/REUTERS

After last week’s special Senate elections in Georgia, Democrats are about to attain unified—though narrow—control of Washington. 

With that, the economy will likely be at the receiving end of significantly more federal support than most on Wall Street had expected.

It is a shift that could change the contours of the U.S. economy in the year ahead, accelerating the rebound that will likely come as more Americans are vaccinated against Covid-19 and allowing the Federal Reserve to begin lifting its foot off the accelerator sooner. 

It also could bring about higher taxes, more regulation and stepped-up deficit worries, but those concerns might not be front and center for some time.

One of Congress’s first orders of business following President-elect Joe Biden’s inauguration on Jan. 20 will likely be putting forward another relief package in response to the Covid-19 crisis. 

Before Georgia’s special elections, when many thought at least one Republican candidate would prevail, leaving the Senate under GOP control, economists and political analysts didn’t expect much in the way of additional aid. That has changed.

Now, another round of relief is widely expected, with the money likely going toward some combination of another round of household checks, an extension of enhanced unemployment benefits that are set to expire mid-March, small-business support and, perhaps, more state and local aid. 

Later there would be a push for spending aimed at infrastructure projects and clean-energy programs.

The scope for spending could be more limited than in the blue-wave scenarios Wall Streeters contemplated ahead of November’s election that foresaw Democrats gaining, rather than losing, seats in the House and capturing a bigger lead in the Senate. 

Moderate Democratic representatives and senators will hold more sway, and they will balk if they believe the price tag has become too high. 

Sen. Joe Manchin of West Virginia, a centrist Democrat, already has indicated he would like additional household relief efforts to be targeted at people in need, as opposed to another round of payments that go to most Americans.

Mr. Biden also might want to limit the bills’ scope in hopes of getting some Republicans in Congress on board. 

And in the wake of last week’s mobbing of the Capitol by pro-Trump rioters, some Republicans could be receptive to a bill that allows them to reach across the aisle.

Even if the resulting coronavirus-relief package doesn’t live up to the dreams of progressive Democrats, it still could have a big impact on the economy’s growth trajectory. 

For example, Jefferies economists estimate that $1 trillion in additional spending would add two percentage points to economic growth over the next two years. 

They forecast that this would be enough for gross domestic product to close the output gap (the difference between where it is now and its potential, or where it should be) sometime next year—one to 1½ years earlier than would otherwise be the case. 

That would drive unemployment down more quickly and inflation back toward the Fed’s 2% target sooner. 

The Fed would likely remain accommodative, but the firm’s economists think the yield on the 10-year Treasury could hit 2%, versus the current 1.13%, by the end of 2021.

Higher taxes also could be in the offing, but maybe not this year. Moving to raise them now, when the country is still gripped by the pandemic, is a nonstarter. 

And with Democrats’ hold on Congress tenuous, worries about voter backlash in 2022 limit how far they will go. 

Cornerstone Macro policy strategist Andy Laperriere suggests any such move might include an increase in the corporate rate from the current 21% to 25%, leaving it below the 35% it was at before the 2017 tax cuts. 

He also envisions measures that target companies that pay low effective rates—big tech, in other words.

This opens the possibility that at some point the U.S. will enter an environment in which worries about higher rates and taxes start seriously rattling financial markets. 

Before that happens, though, there could be an easing of Covid-19 concerns and a government-supported bounce in growth that makes investors even more ebullient.

In Central Asia, a Timely Opportunity for Russia

With many of its other buffers secured, Moscow will turn its attention to the east. 

By: Ekaterina Zolotova

In our 2021 annual forecast, we noted that this year, like many years before it, Russia would try to add to its strategic depth by reconstructing its near abroad, particularly Central Asia. 

Having secured its southern borders by deploying peacekeepers to Nagorno-Karabakh and making sure that the current government in Belarus will stay close to the Kremlin, Russia sees the need to create a buffer in the east, where former Soviet states have, since the fall of the Soviet Union, claimed statehood, nationality and neutrality.

Central Asia has an important strategic position. The historic Silk Road connecting East and West passes through the territory of modern Central Asian states, and the roads leading from Europe and the Middle East to the Asia-Pacific region intersect there. 

Since the early 1990s, the region has served as a barrier to less densely populated and less protected Russian lands from external threats, including China's rapid development and the spread of terrorism from Afghanistan. 

The economic potential of Central Asia, with its natural resources, significant gold and foreign exchange reserves, a growing population and potentially healthy consumer base, is important too. 

This could prove handy for Russia as it looks for new markets that can buy non-oil exports.

A Forgotten Buffer

Imperial Russia’s “claims” to Central Asia date back to the 19th century, when it fortified the region against the expansion of the British Empire, but it didn’t really bring it to heel until the Soviet era. 

Moscow deepened its ties to the fledgling republics through massive financial commitments, by constructing factories and by introducing Russian as the official language. Russia also supplied everything the republics’ economies needed.

After the Soviet Union collapsed, Russia embraced Central Asia as a buffer to protect its now-vulnerable borders, but it wasn’t Moscow’s top priority. The main threat to Russia came from the West, so it focused more on countries such as Belarus and Ukraine. 

And unlike the newly independent countries of Eastern Europe, Central Asian states were so closely tied to Russia that they couldn’t really separate from their former overlord even if they had wanted to.

Eventually, though, as global economies became more advanced and integrated, Central Asian states tried to adopt a more-multifaceted foreign policy to strike a balance between Russia and the rest of the world. They needed economic support that they believed Russia alone could not provide.

At the time, the Kremlin didn’t interfere too much; it understood that these states were too weak and immature to chart their own course. Indeed, years under Russian and Soviet governance left a lasting impact on these countries' political systems and economies, which maintained strong centralized governments well after the fall of the union, so they were unattractive to Western businesses. 

Central Asian states thus continued to orient themselves toward Russia, which continued to guarantee security to new countries. The Kremlin was confident that it had the means to manipulate them even more when the time came.

Even so, Central Asian states have had a taste of freedom, and their governments have begun to move away from Russia accordingly. Soviet identity is disappearing, and more politicians are coming to power independently of Russian influence. They are becoming more open to trade and investment and have joined more international organizations. 

More countries, including China, the U.S. and Turkey, are thus more willing to engage Central Asia, keeping a natural check on Russian influence. (It’s worth noting, however, that Russia still has the advantage here, since, for example, Russian loans are always on more favorable terms. 

There’s also less risk to do business with Russia, which usually doesn’t draw the kinds of negative reactions, say, Chinese companies do.)

Even so, each country has its reasons for cooperating or opposing Russia. Kazakhstan – the largest country in Central Asia and, considering the size of its shared border, likely the most important country to Russia – has changed dramatically. 

In the 1950s and 1960s, for example, Kazakhs were a minority, accounting for just 30 percent of the population. They now account for nearly 70 percent. Kazakhs are increasingly nationalist and increasingly skeptical of Russian behavior in its borders.

In Uzbekistan, the country’s president is implementing new reforms to make Uzbekistan more attractive for foreign investments. It is categorically neutral, much to the chagrin of Russia, and has proved difficult for Moscow to absorb into its Eurasian Economic Union. 

Russia is trying to prove that entry into the EAEU will give Uzbek producers equal access to other EAEU markets (primarily Russia and Kazakhstan), equal conditions for migrant laborers, and access to Russian investment resources and technologies. 

In this context, Uzbekistan, which needs additional markets, is having a hard time acting decisively.

Tajikistan and Turkmenistan are mired in their own problems, and need too many resources that Russia cannot provide. Tajikistan lacks a foundation for economic restoration and is buckling more and more under the weight of its debt. 

It has asked investor countries to postpone its debt payments (and interest on them) until mid-2021; doing so would allow it to divert funds to the social sector, including health care, to combat COVID-19. Turkmenistan’s economy is in worse shape than usual, with a fair amount of food shortages to boot.

Acting Quickly

Indeed, the coronavirus pandemic has directly or indirectly affected all the republics of Central Asia. Social restrictions have hurt the economy, especially because of reduced remittances of migrant workers. This has presented an opportunity to Russia, which will try to win Central Asia over by economic rather than military means. 

The new approach reflects Russia’s long-term need to diversify its economy and aligns with Central Asia’s desire to modernize and grow its economies too. Moscow sees these interests as complementary and so has already begun to actively offer cooperation. 

For example, Moscow announced that it is ready to expand cooperation with Uzbekistan in power generation, to create joint oil and gas projects worth more than $75 million, and to coordinate production of a COVID-19 vaccine with Kazakhstan .

Helping Russia in this regard is the competition between China and the U.S. Central Asian economies that rely on both will have a hard time choosing between the two, lest they be subject to reprisals from either. That leaves Russia to pick up the pieces.

This all works so long as Central Asia is more or less stable. And the stability of the region will depend at least in part on Afghanistan. And Russia is the first country that will be happy to provide military support if the countries ask for help, as it can increase Moscow’s position in the region. Rumors persist that some in the Taliban intend to start hostilities in Tajikistan. 

In December, Russian Foreign Minister Sergei Lavrov said that Moscow was concerned about the continuing degradation of the situation in Afghanistan. Islamic State militants are concentrating in the north of the country for expansion into Central Asia. 

Central Asia, already rife with ethno-religious tension and economic problems, could be fertile ground for continued violence.

Russia wants to be the major power in Central Asia. It’s well positioned to be just that, but it needs regional states not to rush from one strong ally – such as China and the U.S. – to another. It also needs to keep them from being too nationalist or economically competitive.

These countries are now more vulnerable than ever, but as they gradually recover, they will soon begin to define their interests more clearly – interests that may or may not align with Russia’s. 

Russia understands it must act quickly if it wants to balance the growing influence of the West and China, maintain its military presence and strengthen its economic influence.