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Kevin Muir: Don’t Fight The Fiscal Stimulus

Kevin discusses the numerous bubbles and why they seem to inflate very quickly. This appears to be due to the entire world speeding up communication as these bubbles seem to form almost overnight. If you want to trade these, you need to do so quickly, and he outlines what is behind these market forces.

Kevin discusses how governments are moving towards direct fiscal stimulus and why this is likely to create growth. This growth will fuel the commodity sector, and eventually, inflation will occur as governments become direct competitors to the private sector.

He agrees that it will be challenging for the government to withdraw direct stimulus once they start. It will work well, but inflation will start quicker than most expect. This is why you need to own real assets as we are likely to enter a prolonged inflationary period.

MMT is a framework for understanding how the economic system works, and the world seems to have dropped the Keynesian school of economic thought in favor of this theory. Fiscal stimulus, lower rates, and tax cuts are what MMT recommends until inflation commences. Covid has marked a structural change in how the government and the public see monetary theory.

His new phrase is “don’t fight the fiscal” instead “of don’t fight the Fed.” Kevin is less concerned about the economy under a Biden administration since all governments and central banks seem to be operating under this new paradigm.

He believes that the EV market will be difficult to chase, and instead, investors should look at buying underlying commodities that remain cheap. We will need a surprisingly large amount of copper and other metals to hit government targets for electric vehicles.

He says, “You have to think about not what should be done but what will be done.” There is very little chance that the Fed will cut their stimulus. Instead, they are more likely to overshoot on stimulus intentionally. We are going to continue to have a series of full-on bubbles.

Time Stamp References:
0:00 – Intro
0:53 – Dot.Com Bubble
2:56 – Rolling Bubbles
7:35 – Bitcoin & Tesla
9:14 – Why Commodities?
14:25 – Stimulus & Inflation
25:50 – Trump & MMT Theory
30:50 – A Biden Presidency
33:22 – EV’s & Copper Demand
38:23 – Stimulus & Crypto

Talking Points From This Episode

  • A bubble based economy
  • Government direct fiscal stimulus
  • MMT and a long inflationary period
  • Undervalued commodities and electric vehicles

Guest Links:

Kevin Muir started as an institutional equity derivative trader for a big Canadian bank in the 1990s. In 2000, Kevin decided that bank-life wasn’t for him, so he traded his own account for the next two decades. Along the way, he started writing the MacroTourist newsletter – which he describes as an “almost daily” letter about the markets that still manages to have fun. The MacroTourist newsletter attempts to bring a unique take on a variety of different financial topics. Kevin’s tag line is “All I Bring to the Party is 25 Years of Mistakes.”

Kevin Muir is a CFA and a graduate of the University of Toronto economics program.

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