As the world transitions from deflation to inflation, investors need to engage in serious sector rotation or they risk being left behind.

Income growth in China/India, US government tax cuts, central bank rate hikes, and quantitative tightening are the main fundamental forces of this transition.

The paint is barely dry on Trump’s first tranche of tax cuts, and he’s already talking about round two!

Trump is a businessman and a realist, and that means he knows the US government has no hope of paying off its debt. None. Nada.  Zilch. Tax cuts are bad news for the government, and good news for corporations and citizens, with the caveat that the cuts are inflationary. That’s win-win for gold!

While Janet Yellen did hike rates, she did so at a snail’s pace.  Rates are still very low and quantitative tightening has barely started. 

That means corporate buybacks continue at a breakneck pace.

Some of the corporate piggy bank money created by the tax cuts has definitely gone to workers and business expansion, but most appears to have been used for stock buyback programs.

That’s kept financial ratios like earnings per share at reasonable levels while stock prices have advanced. It can be persuasively argued that most of the US bull market in stocks since March 2009 has been created by these buybacks.

More alarmingly, corporations are not just using operational cash for the buybacks, but borrowing money to leverage the action! Technically, it makes financial sense to borrow at 2% if you can buy stock that pays a 3% dividend. With this scheme, the use of leverage can create substantial profits (and equally substantial bonuses for directors who issue themselves reward with no risk).

The “endgame” of these buybacks is good for gold. Here’s why: If Jay Powell is aggressive enough with rate hikes and QT to halt the buybacks, the US stock market might crash.