‘Pedal to the Metals’: Gold, silver and copper continue to flourish

Key Concepts

• Quantitative Easing (QE) / Non-QE: Monetary policy involving a central bank purchasing assets to increase the money supply, even if not officially labeled as “QE.”
• Fiscal Dominance: A situation where government debt levels are so high that monetary policy becomes subservient to financing government spending.
• Yield Curve Control (YCC): A monetary policy where a central bank targets specific interest rates along the yield curve and commits to buying or selling bonds to maintain those targets.
• Leverage: The use of debt to amplify potential returns (and losses).
• Delobalization: The process of reducing international trade and investment, reversing decades of globalization.
• Debt Roll: The process of refinancing existing debt as it matures by issuing new debt.
• Hard Assets: Tangible assets like precious metals, real estate, and commodities, often seen as a hedge against inflation and economic uncertainty.

Macroeconomic Outlook & The Coming Credit Crunch

Stephanie Pomboy, founder of Macro Maven, anticipates continued significant market moves, driven by a shift in monetary policy and underlying economic vulnerabilities. While acknowledging the speed of recent changes, she believes the “rationale” for investing in hard assets over paper assets is only beginning to materialize. This rationale centers on her forecast of resumed Quantitative Easing (QE), albeit under different names (“non-QE” or “QE light”), and a growing reliance on the Federal Reserve’s balance sheet as the primary tool for monetary stimulus.

Pomboy argues that since 2022, adjustments to the Fed Funds rate have had the opposite of their intended effect – rate hikes led to falling yields, while rate cuts resulted in rising yields. This demonstrates the ineffectiveness of traditional monetary policy in the current environment. She states, “The balance sheet is where the action is, and balance sheet expansion is just outright essentially monetary debasement.” This debasement, she believes, will be particularly beneficial for precious metals.

The Looming Debt Crisis & Fiscal Dominance

A central concern highlighted is the escalating debt burden across all sectors of the economy – public, consumer, and corporate. Pomboy emphasizes that the focus on the annual deficit ($2 trillion) is misleading. In 2026, the US Treasury faces rolling over a staggering $10.3 trillion in debt, competing with the corporate sector’s $1.2 trillion in debt roll, alongside private debt, state, and local government obligations.

This intense competition for capital, she contends, will likely increase yields rather than lower them. The hoped-for relief from lower interest rates for consumers, particularly in the housing market, will only materialize if the Fed implements Yield Curve Control (YCC) – artificially suppressing long-term interest rates through large-scale purchases of long-dated bonds, similar to Japan’s decades-long strategy. However, she cautions that a “risk-off” environment could derail such efforts, leading to a severe credit crunch. Pomboy frames this as a situation of fiscal dominance, where the need to finance government debt dictates monetary policy, rendering the Fed powerless to address other economic concerns.

The Two-Tiered Consumer & Delobalization

Pomboy challenges the prevailing narrative of a “strong consumer,” arguing that it’s a misleading generalization. She identifies a stark divide between a high-end consumer who continues to spend freely and a low-end consumer facing significant financial strain. Evidence supporting this includes:

• Soaring Consumer Delinquencies: Specifically, credit card and auto loan delinquencies are rising.
• Deteriorating Labor Quality: Job growth is concentrated in part-time positions, with an increasing number of individuals holding multiple jobs to make ends meet.
• High Debt Burdens: Many consumers are carrying substantial debt with high interest rates (around 25%).
• Resumption of Student Loan Payments: Wage garnishments for student loan borrowers, starting in January, will further strain household finances, impacting a broader segment of the consumer base than initially anticipated.

She acknowledges that the Infrastructure Bill will provide some stimulus to Main Street, but warns that a market downturn could quickly erode the spending power of the high-end consumer, which currently underpins the entire consumer spending calculus.

Pomboy also points to delobalization as a key factor reversing the 40-year bond rally. The shift away from globalization is creating new economic pressures and contributing to the current environment of uncertainty.

The Fed’s Future & Actionable Advice

The discussion touches on the uncertainty surrounding the next Fed chair and the potential for a more aggressive monetary policy response in 2026. Pomboy believes the credit markets will be the focal point of the crisis, potentially forcing the Fed’s hand.

Her primary recommendation is to remain “long” on hard assets, positioning investors to benefit from the anticipated monetary debasement and economic instability.

Notable Quote

“The balance sheet is where the action is, and balance sheet expansion is just outright essentially monetary debasement.” – Stephanie Pomboy

Synthesis

Stephanie Pomboy presents a pessimistic, yet detailed, outlook for the US economy. She argues that the current economic environment is characterized by unsustainable debt levels, ineffective monetary policy, and a widening gap between the affluent and struggling consumer. Her analysis suggests that the Fed is losing control of interest rates and will likely be forced into more aggressive, potentially unconventional, measures to avert a credit crisis. The core takeaway is a strong recommendation to prioritize investments in hard assets as a hedge against the anticipated economic turmoil.