Hey There Income Hunter,

I can’t wait to see the tools Federal Reserve Chairman Jerome Powell has at his disposal that will allow him to stop inflation AND maintain full employment.

I never saw so many softball questions as those lobbed up to him following yesterday’s FOMC meeting.

How about asking, “Can you please explain the tools that can stop an out of control inflation without sending the economy into a deep recession.”

Or, on the other side of the coin, can you please explain how you anticipate avoiding a credit crisis once rate hikes and quantitative tightening go through an already fragile financial system. 

Notice the chart below that shows how financial conditions have already tightened even before the Fed’s first rate hike.  

In 2018, once the Feds own measure of financial conditions went to -100, they paused their rate hikes … but now they are starting at this level.

Today, I’ll reveal where the cracks in the system are and what trades to consider. 

High Yield Corporate Bond Spread

I believe 2022 will be the year of the corporate bond crisis.

The Fed bailed out corporate bonds in 2020 when COVID hit, but all they really did was create zombie companies …

The Fed made it very easy for corporations to borrow money at super-low rates and survive by not having to roll debt over at higher rates … 

However, with such high inflation it will be impossible to keep rates down unless the Fed goes back to QE and buys all bonds that investors have for sale.

The Fed was forced to hold rates down in the 1940s when we were in a similar situation of high debt and needed negative “real rates,” meaning nominal interest rates held below inflation to reduce the debt.

The Fed held US Treasury rates down for 11 years while they monetized the debt. The central bank held rates below inflation and devalued the dollar, which also devalued the debt. 

Once debt was reduced to 60% or lower compared to GDP, the Fed was able to start stimulating the economy and pass spending packages to create jobs.

This is what the Fed will have to do today. When they admit it, gold and commodities will soar because it is an inflationary move..

This path that the Fed must travel down will support a massive move away from stocks and into gold. Gold has just recently broken out to the upside and has a long way to go.

I believe this will be the trade of 2022. 

Bring It Home

Just keep it in the back of your head that the Fed’s hidden agenda is to inflate its way out of the debt burden it created. 

Don’t pay too much attention to the media or Powell. We have been down this road before and we have an incredible future to look forward to once we get through this transition period.

In the meantime, there is a ton of money to be made along the way. This week presents a great opportunity to set up a paired trade long silver and gold and short equities indexes.

This is the year of reallocation of financial assets (stocks & bonds) into real assets (commodities and precious metals).

Stay tuned and as always …

Live and Trade With Passion My Friend,

Griff