MacroVoices #231 Jim Bianco: Coronavirus, MMT, U.S. Dollar, All Leads to Gold

Episode Summary

Executive Summary: Jim Bianco argued the market rally is driven less by economic recovery than by massive Fed and fiscal stimulus, while COVID’s U.S. “second wave” may actually be staggered first waves by region. He expects continued market strength, a weaker dollar, higher gold, and eventual inflation and higher yields, with digital reserve currencies likely emerging from Silicon Valley rather than existing fiat systems.

Main Topics: Stocks vs. the real economy (Priority: 5/5): Bianco and the hosts argue equities are rising because of central bank accommodation and fiscal support, not because the economy has fully recovered. The stock market may keep trending higher even while fundamentals remain weak. COVID-19 trajectory and lockdowns (Priority: 5/5): Bianco says the virus appears indoors-driven and that U.S. case trends may be peaking, with deaths lagging but improved from spring. He agrees lockdowns reduce spread but may do more economic harm than good if prolonged. Inflation, money printing, and MMT (Priority: 5/5): A major theme is whether unprecedented stimulus leads to inflation, malinvestment, and eventual repudiation of current policy. Bianco sees the Fed and government moving toward permanent market intervention, which could evolve into an MMT-style regime. Rates and the bond market (Priority: 4/5): Bianco believes the secular bond bull market likely ended in March 2020, sees limited further downside in yields, and expects the next major move in rates to be higher if inflation takes hold. U.S. dollar weakness and reserve currency risk (Priority: 4/5): The dollar’s decline is framed as a reversal of panic-era safe-haven demand, not yet a structural reserve-currency collapse. Bianco thinks the next reserve currency could be a non-state digital currency, likely from Silicon Valley. Gold and silver breakout (Priority: 5/5): Both hosts are strongly bullish on gold and silver, but warn that the pace of the rally looks extended and vulnerable to a sharp correction. Gold is seen as a hedge against systemic risk and fiat debasement. Oil, inventories, and energy pricing (Priority: 3/5): Oil is viewed as range-bound for now, but with upside risk later in the year if U.S. production declines as expected. The Beirut explosion briefly spooked oil markets, but the larger driver is supply contraction, not geopolitics.

Key Arguments: Market prices are being driven by Fed balance-sheet expansion and fiscal stimulus, not by a clean V-shaped economic recovery. COVID trends suggest a geographically staggered first wave rather than a single national second wave, and peak U.S. case counts may already be behind us. Lockdowns can suppress the virus, but the economic damage may exceed the health benefits unless they are narrowly targeted. The economy stalled in mid-June even as equities recovered, showing that markets and fundamentals have diverged. The Fed is increasingly acting as a permanent backstop for markets, which could create malinvestment and future inflation. The biggest long-term risk is not deflation but inflation, which would eventually force higher yields and possibly higher taxes. The dollar’s weakness is a reversal of safe-haven flows, not yet proof of a new reserve currency regime. Gold is rising because investors want to get money out of the financial system amid fears of inflation, deflation, or financial instability. Silver’s recent breakout resembles earlier explosive phases that were followed by large corrections, so near-term volatility is likely. The next global reserve currency, if one emerges, is more likely to be a digital currency created by a major tech platform than another fiat currency. Oil may not need a deep correction before higher prices if U.S. supply starts to roll over in Q4. A huge rise in public and federal borrowing may be sustainable only if inflation stays absent; otherwise, policy credibility breaks down.

Data Points: Macro Voices episode: 231 - Episode number of the podcast Recording date: August 6, 2020 - Date the episode was recorded SP 500 distance from all-time high: Less than 100 points - Eric’s opening market commentary Dollar index support break: From 96 handle to around 93 handle - Discussion of recent USD weakness Crude oil breakout level: Around $42 - Key resistance referenced in the oil discussion U.S. crude oil production: About 11.0 million barrels/day - Weekly U.S. production data cited in the oil segment Crude oil inventory change: Draw of 7.4 million barrels - Weekly inventory report Cushing crude inventory: Build of 532,000 barrels - Weekly inventory report Gasoline inventories: Build of 419,000 barrels - Weekly inventory report Distillate inventories: Build of 1.6 million barrels - Weekly inventory report Gold move from prior close: Up 15% from the $1,800 close - Gold commentary after the breakout Gold price level: Over $2,000/oz - Current gold price during the episode Gold prior all-time high: $1,923/oz intraday - Reference high discussed in the gold segment 10-year Treasury yield: About 55 basis points - Interest-rate discussion 10-year Treasury intraday low: 31 basis points - March 9 low cited by Bianco 30-year Treasury intraday low: 69 basis points - March 9 low cited by Bianco 30-year Treasury yield: 1.21% - Current long-bond yield discussed by Bianco U.S. COVID deaths: About 1,200 per day - Bianco’s health update Daily global COVID case count: Around 250,000 per day - Bianco’s assessment of worldwide peaking U.S. federal unemployment benefit add-on: $600/week - Pandemic fiscal support comparison 2009 unemployment benefit add-on: $25/week - Bianco’s comparison of stimulus scale Fed QE2 size: $600 billion - Historical comparison to 2020 bond buying Fed bond purchases since March: $3 trillion - Magnitude of 2020 intervention cited by Bianco Treasury General Account balance: $1.8 trillion - Government cash balance at end of July Typical Treasury General Account balance: $200–300 billion - Normal operating level before the crisis Annual federal tax receipts: About $1.4–1.6 trillion - Compared with the swollen Treasury General Account U.S. GDP annualized decline: -32.9% - Second-quarter GDP contraction referenced by Bianco

Pivotal Quotes: "I think it is more of the latter that the market is somewhat, you know, I don't know if I'd call it broken, but it was around late May to middle of June, I started talking about all of the money printing that the central bank was doing." — Jim Bianco: Explaining why he is constructive on stocks despite weak fundamentals "I think there is a big fallacy there. ... The markets have been recovering because of central bank intervention, and again, I want to also put the federal government in there too with all of the stimulus that they have been plowing into the markets as well." — Jim Bianco: Arguing that market recovery does not equal economic recovery "If we get inflation and everybody in the market gets of one mind, here comes inflation, the Fed's policy is creating it... they can overwhelm the central bank then." — Jim Bianco: Describing the conditions that could force higher rates and policy reversal

Implications: Listeners should expect continued support for risk assets as long as policy remains ultra-loose, but should also prepare for eventual inflation, higher yields, and volatility in gold/silver, currencies, and energy if the stimulus regime persists.