In this week’s Off the Cuff with Mish & Chris podcast, Chris and Mish tackle:
The global commodity sell-off
What’s driving the action here, and what impact would a slowdown in China and other key markets have on the US economy and the major asset classes?
Should investors be expecting more stimulus to follow soon?
How close to the wire is the situation there at this point?
How should the metal fare up from here? Where should ‘safe money’ park?
The recent smack-down in commodities may have roots in a growing weakness in the Chinese economy. If the situation worsens there, it will hit the US hard — particularly in regards to the purchase of our Treasury debt. Commodity and energy markets will likely suffer notably, as well. Mish sees the real fear here as the risk of global trade wars erupting (as were seen in the 1930s).
With all the bad economic news out there, Chris was surprised when the Fed’s decided to effectively ‘punt’ by announcing Operation Twist #2. In the near term, he sees an increased risk of deflationary headwinds picking up, which may be harder to turn around with additional stimulus versus the Fed’s previous efforts. The danger here is this could morph into a full-blown deflationary rout that the Fed is unable to control (with Europe serving as the match with the highest probability of lighting this powder keg).
Meanwhile, Europe is serving as a petri dish for the future: Taxpayers are rebelling at further bailouts as…