The Stock Market, Gold, and Silver: Beware Liquidation, Warns Veteran Macro Trader Greg Weldon

Key Concepts

• Service Sector Inflation ("The Creeper"): A persistent rise in inflation across service subsectors, now affecting a significant majority of indices.
• All-Asset Price Deflation: A potential market scenario where liquidity concerns cause simultaneous sell-offs across stocks, commodities, and crypto.
• Labor Market Implosion: The theory that the labor market is weakening internally, evidenced by low participation rates and declining real wages.
• Monetary Conundrum: The Fed’s dilemma of choosing between raising rates to fight inflation (risking economic collapse) or maintaining current rates (risking loss of credibility).
• Liquidity Preference: A shift in investor behavior where capital is moved into cash and highly liquid assets due to market uncertainty.

---

1. Economic Data and Inflation Analysis

Greg Weldon highlights that current inflation is driven by more than just energy or geopolitical conflicts.

• Food Inflation: Driven by water scarcity in California and the potential for a record-breaking El Niño event, which is already impacting agricultural output in India, China, and Thailand.
• Service Sector CPI: Weldon identifies "The Creeper"—a trend where service inflation is rising steadily.
  • Data: 67% of 84 service subsector indices are now above 3% inflation.
  • Data: 49% are above 4%, and 36% are above 5%.
• Real Wage Decline: Average weekly earnings are failing to keep pace with inflation, leading to negative real wage growth, which restricts consumer discretionary spending.

2. Labor Market and Economic Health

Weldon argues that the labor market is "imploding from within," despite common perceptions of strength.

• Participation Rate: Currently at its lowest level since January 1977.
• Job Creation vs. Dropouts: Over the last 52 weeks, 521,000 non-farm payroll jobs were created, while 1.9 million people dropped out of the workforce.
• AI Impact: Weldon dismisses the Fed’s view that AI will not negatively impact labor, noting that tech companies and banks are already initiating layoffs specifically linked to AI integration.

3. Market Dynamics and Asset Classes

• Stock Market: The disconnect between on-balance volume and transaction volume in high-flyers like Nvidia and Meta suggests a lack of distribution, signaling a potential for a sharp correction.
• Gold: Currently bearish in the short term due to a "liquidity-first" environment. However, Weldon views this as a Fibonacci-based ABC correction. He predicts that if the Fed is forced to pivot due to economic failure, gold will reach new generational highs.
• Currency Markets: The US Dollar is rallying, which acts as a "double-edged machete" for stocks. Weldon notes that the Thai Baht and Czech Koruna are key "tells" for broader dollar strength.
• Central Bank Reserves: A significant shift is occurring where global central banks are holding more gold than US Treasury bonds as a percentage of reserves, a move accelerated by the weaponization of banking systems (e.g., Russia sanctions).

4. Energy and Geopolitics

• Crude Oil: The US supply-demand balance remains tight. While the US is energy-independent in natural gas, it remains a net importer of petroleum (importing 2–3 million barrels daily).
• Iran/Geopolitics: Weldon expresses skepticism regarding a deal with Iran, suggesting it is in the interest of Iran, China, and Russia to prolong instability. He monitors swap markets as a primary indicator of falling demand.

5. Methodologies and Frameworks

• The "Liquidity" Framework: When markets face systemic stress, the correlation between asset classes increases as investors prioritize cash. This is evidenced by the recent simultaneous sell-off in stocks, gold, and crypto.
• The "Conundrum" Test: Weldon posits that the Fed is being tested: if they raise rates to combat inflation, they risk breaking the back of the consumer and the labor market. If they do not, they risk losing credibility.

Notable Quotes

• "This is an inflation that's bigger than oil, bigger than the war." — Greg Weldon, regarding the structural nature of current inflation.
• "The labor market is imploding from within. People don't see it yet... it has to sprout." — Weldon on the hidden weakness in employment data.
• "Higher dollar, lower stocks. And if the situation here causes the Fed to raise rates, that'll drive the dollar higher and probably break the back of the stock market for good."

Synthesis and Conclusion

The overarching theme of the discussion is a transition toward an all-asset price deflation event driven by a liquidity crisis. The consumer is being squeezed by high service inflation and declining real wages, while the labor market is significantly weaker than official statistics suggest. Weldon concludes that the Fed is trapped in a "monetary conundrum" where any policy move—specifically rate hikes—could trigger a severe economic contraction. Investors are advised to watch the US Dollar and currency "tells" (like the Thai Baht) to gauge the timing of this potential market shift.