The Treasury made an announcement this week.
It will at least double the size of its long-end Treasury buybacks.
But please, do not call it QE.
The official term is “Increased Sizes of Nominal Long-End Liquidity Support Buybacks.”
Much better.
We wrote about QE at the Top earlier this year. Apparently, it needed a Part 2.
The Fed already has its own program called “Reserve Management Purchases.”
QE. Reserve Management Purchases. Liquidity Support Buybacks.
Different plumbing and different acronyms. Same instinct.
When the system needs help, we create another buyer for government debt.
The Set-Up
This is QE at the top.
The economy is supposedly strong: stocks are near record highs, and unemployment remains relatively low.
But apparently the Treasury market needs “liquidity support.”
QE1, QE2, QE3 and Operation Twist arrived after crises or market stress, with inflation supposedly under control.
Today we already have an inflation problem.
And we are turning up the intervention.
The 30-year Treasury yield crossed 5.3% this week, its highest level since 2007.
So, Treasury doubled its long-end buybacks.
The bond market complains, and the government responds.
Inflate or Die
Last month we wrote about Inflate or Die.
Japan is ahead of the curve, with government debt near 250% of GDP and policymakers facing an increasingly uncomfortable choice.
Protect the currency or protect the system.
The United States has its own version of the trap: massive debt, massive deficits, higher interest expense, and a bond market making life difficult.
When forced to choose, policymakers tend to protect the system…and their comp, jobs, and assets.
The currency does not get a vote.
The Market Voted
Markets seemed to understand the message.
Bonds up.
Stocks up.
Precious metals up.
Dollar down.
In Gold We Trust
Which brings us back to gold.
Our Resilient Benchmark begins with a 20% allocation to gold, informed by Christopher Cole’s 100-year portfolio work.
That is our baseline, and most portfolios carry nowhere near 20%. Many carry none.
We understand why. In the West, gold has spent decades being treated like a strange rock owned by doomsday preppers and grandparents.
We had some fun with that idea in The Equity Machine vs. a Rock.
But the case for owning monetary insurance keeps getting easier to understand: government debt keeps growing, deficits keep running, and currencies keep getting diluted.
And whenever the system gets into trouble, policymakers reach for the same tool.
They just keep changing the name.
Gold does not care what you call it.
When the Tools Stop Working
There is another risk.
What happens when these interventions stop working as intended?
At that point, portfolio risk can become life risk.
That is why we built the Resilience Compass.
We cannot know exactly how this movie ends. But we can try to stay one step ahead.