Author Archives: Opinion

A $30 billion computer is about to start selling stocks

ZeroHedge/Tyler Durden/11-14-2018

“A $30 billion computer, run by UBS’ wealth management which oversees $2.4 trillion in capital and entrusted by some of the world’s richest, is poised to underweight stocks as real money and systematic investors pare risk amid flagging bull-market momentum. According to Andreas Koester, head of global asset allocation at UBS Wealth, the quantitative-investing platform is close to trimming its equity holdings to 20% from a neutral 50%, a shift that would lead to an avalanche of selling as hundreds of billions in stocks are forced to find a new home.”

USAGOLD note:  Thought-provoking.  What happens when computers start telling each other to sell – at hair-trigger speed? Someone pulls the plug?  Durden says “there will be no human intermediation to stop the algo-precipitated liquidation.”

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Paul Tudor Jones says we’re in a global debt bubble and headed for some ‘scary moments’

CNBC/Fred Imbert/11-15-2018

“Billionaire investor Paul Tudor Jones said Thursday that the world has loaded on too much debt which could bring trouble across asset classes. ‘From a 50,000-feet viewpoint, we’re probably in a global debt bubble,’ Jones said at the Greenwich Economic Forum in Connecticut. “Global debt to GDP is at an all-time high.’ ‘This is going to be a very challenging time for policymakers moving forward,’ he said.”

USAGOLD note:  Sounds like Jones is calling this the beginning of the end. . .that word “global” before the words “debt bubble” is a bit scary particularly coming from Paul Tudor Jones who has a reputation for consistently making the big calls.  This might be the biggest one yet. . . . .

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Greenspan sees signs of stagflation, threats to U.S. economy

Bloomberg/Video Interview with David Rubenstein/11-14-2018

“Former Federal Reserve Chairman Alan Greenspan tells David Rubenstein that rising deficits and debt are already showing signs of eroding U.S. growth and that he sees indications of stagflation — a stagnant economy saddled with rising inflation.”

USAGOLD note:  The Maestro weighs-in on the current state of economic affairs in the United States. . . . .Gold proved to be an excellent hedge against the last stagflationary episode in the 1970s early 1980s.

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Surge in U.S. corporate debt a key vulnerability: JPMorgan

Forbes/Pedro Nicolaci da Costa/11-14-2018

“U.S. corporate debt levels have again surpassed their pre-crisis peaks of $6 trillion, raising widespread concern that, as the Federal Reserve raises interest rates, some firms could run into financial trouble.”

USAGOLD note:  According to this Forbes article, JPM is not worried that corporate exposure will end up in the same trash bin with the housing paper a decade ago.  Others are not so sanguine. . . . . . .”Zombification” with reference to over-leveraged, over-indebted big corporations is a frequently-used word in the Wall Street lexicon these days.

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Gold is cheap. Inflation is coming. You do the math.

Barron’s/Andrew Bary

“Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the U.S. and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio.”

USAGOLD note:  A lengthy, well-written excursion into the benefits of owning gold. Recommended reading from Barron’s. . . . .


Repost from late September but worth the reprise. . . . . .

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Sardines, Old Maid and Musical Chairs

“There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, ‘You don’t understand. These are not eating sardines, they are trading sardines.’ . . .

There is great allure to treating stocks as pieces of paper that you trade. Viewing stocks this way requires neither rigorous analysis nor knowledge of the underlying businesses. Moreover, trading in and of itself can be exciting and, as long as the market is rising, lucrative. But essentially it is speculating, not investing. You may find a buyer at a higher price—a greater fool—or you may not, in which case you yourself are the greater fool.” – Excerpt from “Margin of Safety” by Seth Klarman

USAGOLD note:  This Seth Klarman anecdote reminds us of the quote from Maynard Keynes on the Old Maid and Musical Chairs:

“For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.” – John Maynard Keynes


Repost from March, 2018

Full Article:  Value Walk/The Acquirer’s Multiple/3-2-2018

 

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Gold speculators advanced their bullish bets higher this week

Investing.com/Zachary Storella/11-11-2018

“Large precious metals speculators increased their bullish net positions in the gold futures markets this week . . .The speculative gold position has improved for three out of the past four weeks. The current standing is now in its fourth straight week of being in bullish territory after spending the previous nine weeks in a bearish position.”

USAGOLD note:  For the actual numbers see the COT tables further down the page or visit the link posted above.

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Investors start to fret about ballooning US public debt

Financial Times/Gillian Tett/11-8-2018

“Last month, as the US midterm elections approached, Deutsche Bank analysts released a calculation that should have made American voters wince. It shows that the US government currently pays $1.43bn each day (yes, day) to service its public debt — 10 times more than any other G7 country (Italy is a distant second in this grim league).”

USAGOLD note:  FT’s Gillian Tett points out that interest on the national debt will “triple in size to nearly $1 trillion by 2028.” The impact of that convergence (rising rates and ballooning public debt), however, will hit the economy and financial markets long before 2028. Two days ago, we published a Chart of the Day on the long-term relationship between the price of gold and growth in the national debt.  That relationship is not accidental . . . .

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‘In the end, trees don’t grow to the sky, and few things go to zero’

“In the end, trees don’t grow to the sky, and few things go to zero. Rather, most phenomena turn out to be cyclical.”  ― Howard Marks, Oaktree Capital

Marks’ observation resides at the philosophical core of the enlightened gold owner.  Why?  Because he or she understands the cyclical certainty (or is it uncertainty?) of markets and the economy, indeed the cyclical certainty in the grand scheme of things of which the investment markets are only a small part.

“A true cycle,” says historian Arthur Schlesinger, “is self-generating. It cannot be determined, short of catastrophe, by external events. Wars, depressions, inflations may heighten or complicate moods, but the cycle itself rolls on, self-contained, self-sufficient and autonomous. . .The roots of cyclical self sufficiency lies deep in the natural life of humanity. There is a cyclical pattern in organic nature — in the tides, in the seasons, in night and day, in the systole and diastole of the human heart.”

At no point along the historical continuum are we ever at an end, nor are we ever at a beginning, and all along the way the twists and turns of the cycle will be sudden and unpredictable. That, in a nutshell, is why people own gold.

In the end, the enlightened gold owner might buy into the latest investment fad and run with the crowd, if he or she so chooses.  It is fundamentally better though to engage the madness of crowds with one’s safety net solidly in place.

I will leave you with a final observation from the famed investor, Bernard Baruch, one of the original Wall Street contrarians who made a fortune betting against the crowd.  In the late 1920s, he became a gold owner because he was “commencing to have doubts about the currency.”

“Have you ever seen in some wood,” he asks, “on a sunny quiet day, a cloud of flying midges — thousands of them — hovering, apparently motionless, in a sunbeam? …Yes? …Well, did you ever see the whole flight — each mite apparently preserving its distance from all others — suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall — did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.”

–– Michael J. Kosares


REPOST from 12/20/2016 [Updated 11-8-2018]


Image by derivative work: Pbroks13 (talk)Archimedian_spiral.PNG: User Mets501 on en.wikipedia (Archimedian_spiral.PNG) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

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Economic brake lights

Mauldin Economics/John Mauldin/11-2-2018

“That deficit was for fiscal 2018, which ended on September 30. The CBO’s latest projection is we will add close to $1 trillion of debt in 2019 and over $1 trillion in 2020. If the Democrats take the House next week, even narrowly, is there any real hope of cutting that deficit without tax increases? Which both the Senate and Trump will not accept? The off-budget deficits have averaged around $360 billion for the last five years, generally increasing over time. But if we take just that average and add them to the projected deficits, the US government deficit will be (drumroll, please) approximately $1.4 trillion per year for the next five years, which will mean $29 trillion total debt by 2024.”

USAGOLD note:  Mauldin’s down-to-earth observation about the deficit under a Democratic House of Representatives is worth blending into the post-election analysis. . . . .More than one analyst over the past two days has raised a concern about the possibility of another government shutdown in December when a vote on the debt ceiling will take place.

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What will the next financial crisis look like?

Epoch Times/Daniel LaCalle/11-4-2018

“The question is not whether there will be a crisis, but when? In the past 50 years, we have seen more than eight global crises and many more local ones, so the likelihood of another one is quite high. Not just because of the years passed since the 2007 crisis, but because the factors that typically lead to a global crisis are all lining up.”

USAGOLD note:  The author goes on to talk about “zombification of global economies. . . .” – a very interesting approach to the problem of cyclical crises and their causes.

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Fund managers election reaction – City of London

Financial News/Staff/11-7-2018

“The US midterm elections delivered their expected result overnight on Tuesday, as Democrats wrestled back control of the House of Representatives in a shift that is likely to frustrate President Donald Trump’s policy agenda for the next two years. But the so-called blue wave failed to materialise in full, with Trump’s Republican party keeping control of the US Senate. Markets appeared to have largely priced in the results, with US stock futures up and Asia stocks also rising in Wednesday trading.”

USAGOLD note:  Various fund managers from the City of London offer their views on the election effect. . . . .An interesting range of opinion from across the pond.

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Clive Maund: Double bottom in silver an ‘excellent buy point’

Clive P. Maund/Silver Market Update/11-4-2018

“Silver continues to be a singularly neglected and unloved investment, and has been for years now, but as we will proceed to see, this is not a situation that is likely to continue for much longer.”

USAGOLD note:  The silver/gold ratio is right at 84 to 1 adding to silver’s current appeal.  Maund, as you might have gathered from the snippet, is bullish on silver and his full analysis at the link is worth the visit. We have had a significant pick-up in interest in silver the past few weeks – especially for the various one-ounce bullion coins.

 

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Ray Dalio: Put 5-10% in Gold

GuruFocus/Bram de Haas/11-6-2018

“Dalio doesn’t seem to like very many assets. He does not like equities. He does not like bonds. He does not like the U.S. dollar. He does not like the euro. He suggests putting 5-10% of a portfolio in gold and weighting towards the higher range later in the cycle. He does not know where we are exactly, but we are pretty late in the cycle.”

USAGOLD note:  Dalio is among a group of top-notch money managers who deem gold an important part of the contemporary investment plan.


Image by Grameen America (https://vimeo.com/247028348) [CC BY 3.0 (https://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons [Edited]

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The 10-year gold bull market starts now

Daily Reckoning/Zach Scheidt/10-31-2018

“Well as counter-intuitive as it may sound, people have to hate the market that’s about to take off. Because the more non-believers there are today, the more potential buyers there are who can eventually jump back into the market. We need buyers on the sidelines because for a bull market to be sustained for years at a time, you have to have buyers steadily coming back in. That’s exactly what we have in the gold market right now.”

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The Italian people must understand that their country is at war

Gold coin and bar demand up 10% in Europe, led by Germany


GEFIRA/11-6-2018

“The conflict between the European Union and Italy is a full-blown financial war. Euro countries cannot print their own money and for that reason they cannot have an endless deficit. Countries within the eurozone have to live within their means or else, without the intervention of the ECB, they will go bankrupt. Nobody knows the consequences of an Italian default and debt restructuring, but it can lead to the end of the euro.”

USAGOLD note:  Hyperbole or reality check?  We offer the link as an overview of where the disagreement between Italy and the European Union might be headed. The World Gold Council reports a 10% increase in Europe’s gold coin and bar demand over the third quarter last year with investors in Germany leading the way.  If resolution remains elusive, it could result in even more demand for gold in Europe than the already strong numbers. We are reminded of Doug Noland’s (Credit Bulletin) recent observation that the debt and currency problems of “the periphery” have reached “the periphery of the core.”

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Shiller: Housing market ready to burst, reminiscent of 2006 bubble

NewsMaxFinance/11-5-2018

“’If the markets go down, it could bring on another recession. The housing market has been an important element of economic activity. If people start to get pessimistic about housing and pull back and don’t want to buy, there will be a drop in construction jobs and that could be a seed for another recession,’ said Shiller.”

USAGOLD note:  Shiller  does not limit his caution to the housing sector alone.  He has also warned time and again over the past several months that the stock market is overvalued to an extreme.


Image by Anaxibia [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], from Wikimedia Commons [Edited]

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Ballanger on last week’s gold COT report

Gold Eagle/Michael Ballanger/11-5-2018

“Once again, and in honour of an ancient financial tradition, gold and silver fulfilled their respective roles as ‘precious’ metals, accordingly defined as ‘objects of great value; not to be wasted or treated carelessly.’ As we head into the final eight weeks of 2018, there are a great many managers of other people’s money who are paying attention—and it couldn’t happen at a more opportune time. Tonight’s COT report shows that the Commercials were covering shorts into weakness while the Large Spec algobots continued to pile and add shorts/dump longs also into weakness. As long as the Large Speculators continue to carry such a paltry number of longs (13,194 futures only; 5,976 futures and options), the gold price should continue to trend higher through year-end. It is imperative to remember that major declines in gold have occurred when the aggregate long positions held by Large Speculators exceed 300,000; we are nowhere near that figure today and won’t until $1,400 is tested by year-end.”

USAGOLD note:  Ballanger also offers his take on the stock market at the link above. . . . .

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Support for the gold price could soon change to a rush for gold

Lombardi Letter/Alessandro Bruno/11-2-2018

“But there’s fashion and there’s style; they’re not the same thing. Fashion is temporary and changes. Style is permanent and adapts. Investing in stocks, outside of a clear strategy based on a buy-and-hold approach, is often a fashion. Gold may be traditional now, but it’s never out of style. And it may soon become fashionable again. Indeed, the change, or the shift, has already begun.”

USAGOLD note:  The allusion to fashion reminds us of the old maxim that an ounce of gold from time immemorial would always buy a quality man’s suit.  “The price of a fine suit of men’s clothes,” wrote the U.S. Geological Survey last year, “can be used to show anyone who is not familiar with the price history of gold just how very cheap gold is today. With an ounce of gold, a man could buy a fine suit of clothes in the time of Shakespeare, in that of Beethoven and Jefferson, and in the depression of the 1930s.”  At present, a quality men’s off-the-rack suit at Brooks Brothers without the shoes and tie ranges in price from $1700 to $2500.

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Gold threatens more bull pressure toward 1243 zone

TalkMarkets/Mohammad Isah/11-4-2018

“Its weekly RSI is bullish and pointing higher suggesting further strength. All in all, Gold looks to recover further higher.”

USAGOLD note:  Now that an uptrend is established, we note an increasing number of tech analysts going positive on gold.  We hope that’s a good sign. . . . . .

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Bulls, bears and sloths

A sloth’s guide to market survival

Financial Times/Tim Hartford/2-10-2018

“Perhaps we slow investors should adopt a mascot. I suggest the sloth. Hanging upside-down, moving at a few metres a minute, is much like trading infrequently: it saves the costs of doing things more quickly. Sloths take almost two months fully to digest each meal — which is handy, given that they eat mildly toxic leaves that would poison them if absorbed too quickly. Investors are reminded, all too often, that the financial world is lush with toxic get-rich-quick products. A slower approach to finance makes market movements a great deal more digestible.”

USAGOLD note:  I have to admit that a sloth-like approach to portfolio design fits my worldview.  I have never been much of a trader and I do find that if I buy an investment for the long-term and essentially forget about it, I do much better than the opposite. That’s why I am content with physical gold ownership.  My attitude is to buy it, stick it in the safety deposit box and forget about it. The investors I know who take a similar attitude seem to be the happiest, and ultimately, the most successful gold owners.  I guess if you believe in it – believe in what it can do for you – you do not need to check on it constantly, fret about it and seek constant validation that you did the right thing by diversifying your holdings.  When it comes to investment there are bulls and bears and then, as Tim Hartford points, there are the sloths.  Count me among the sloths. . . . .


REPOST from 2/12/2018

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How and when will the next financial crisis happen? – 26 experts weigh in

Focus Economics/David J. Merkel/10-30-2018

“‘Marko Kolanovic, has highlighted a potential precipitous decline in stocks that could cause what has been termed ‘the Great Liquidity Crisis.’ He identified the shift away from actively managed investing toward passive investing strategies such as exchange-traded funds, index funds and quantitative-based trading strategies, as well as computerized trading as the potential culprit, which could not only be the catalyst for the next crisis but could also exacerbate the fallout.”

USAGOLD note:  Kolanovic is J.P. Morgan’s Global Head of Macro Quantitative and Derivatives Research, so he understands better than most where the fountainhead for the next crisis might lie. But if that isn’t enough for you, this lengthy article passes along the views of 25 other economic experts.  Quite a contrast from a time not that long ago when no one saw it coming. . . . .

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‘Godfather’ of chart analysis says ‘damage done to the stock market’ is much, much worse’ than anyone is talking about

MarketWatch/Mark DeCambre/10-3-2018

“Prominent market technician Ralph Acampora says the stock market is in bad shape and it’s worse than many on Wall Street investors appreciate. . . ‘From a technical perspective, the damage that has been done technically to the stock market is much, much worse than people are talking about,’ he told MarketWatch in a phone interview on Tuesday.”

USAGOLD note:  Acampora is often referred to as the “godfather” of technical analysis.  His views

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The pretense of knowledge

If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.

There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, ‘dizzy with success’, to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”


Frederich von Hayek, 1974 (Speech in acceptance of the Nobel Prize for economics)

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Volcker rebukes Bernanke and Yellen

The IRA Bank Book/Christopher Whalen/10-28-2018

“Former Chairman Alan Greenspan, the most politically astute Fed chief in half a century, puts such worries in perspective: ‘I don’t know a single President, and I worked for a lot of them, who don’t want lower interest rates. Now, obviously that’s not possible. You keep lowering them down to zero, where do you go from there?'”

USAGOLD note:  We posted some of Volcker’s recent comments last week made in conjunction with the release of his new book, Keeping At It:  The Quest for Sound Money and Good Government.” This review delves into some of the details.  What is most interesting is Whalen’s summary of the views of past Fed chairmen.   A good read for those searching for a little perspective that transcends today’s overheated political rhetoric, and for those interested in a summary of the philosophical differences and experiences among recent Fed chiefs.

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Gold speculators pushed their bullish net positions higher this past week

Gold Eagle/Zachary Storella/10-28-2018

“Speculative positions rose for a second week after a huge increase (+55,842 contracts) last week and have now gained by +67,563 contracts over that two-week span. The current gold spec standing is now in a bullish position for a second week after having been in bearish territory for the previous nine weeks.”

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Investors ignore ‘most underrated risk’, could spark imminent blowup

Business Insider/Will Martin/10-25-2018

“[Societe Generale’s Albert] Edwards, who is well known on Wall Street for his doom-laden predictions for the markets, argues that China’s ability to navigate the 2008 crisis fairly unscathed had blinded investors and made them ignore signs that a crash might be imminent.”

USAGOLD note:  Echoes the “Why China’s economic troubles run deep” post from Wednesday [Please scroll].  If Edwards is correct, gold demand will intensify in a country that already generates the strongest demand for physical gold in the world.

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Short and Sweet

––––––––––––––––––––––––––––––––––––––––––––––––

The stock market faces ‘unlimited downside risk’

“There is unlimited downside risk in the market right now and I don’t think it’s being respected. It’s not until afterwards that they ask, ‘what happened? The Fed, the Trump, the ebola, or whatever excuse du jour is being regurgitated on the various media outlets. The only one to blame is ourselves.” – J.C. Parets, All Star Charts, as reported by MarketWatch

USAGOLD note:  Especially if one fails to properly diversify. “We have met the enemy,” as Walt Kelly of Pogo fame once put it, “and he is us.”

Full article: The stock market faces ‘unlimited downside risk,’ warns veteran trader / MarketWatch / 10-24-2018

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What’s wrong with the 2 per cent inflation target

Bloomberg/Paul Volcker/10-23-2018

“The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk-taking, in effect standing by while bubbles and excesses threaten financial markets. Ironically, the ‘easy money,’  striving for a ‘little inflation’ as a means of forestalling deflation, could, in the end, be what brings it about.”

USAGOLD note:  We just yesterday posted a sensible observation from Mr. Volcker. (Please scroll.)  Little did we know we would be back to present another the next day.  We skirted the outcome described above in 2007-2008 – but barely. According to Volcker, the artificial 2% inflation rate target exposes the markets to new dangers . . . . . . Now add rising interest rates to the mix.

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Eight reasons a financial crisis is coming

Mish Talk/Mike Mish Shedlock/10-24-2018

“It’s been about 10 years since the last financial crisis. FocusEconomics wants to know if another one is due. The short answer is yes. In the last 10 years not a single fundamental economic flaw has been fixed in the US, Europe, Japan, or China. The Fed was behind the curve for years contributing to the bubble. Massive rounds of QE in the US, EU, and Japan created extreme equity and junk bond bubbles. Trump’s tariffs are ill-founded as is Congressional spending wasted on war.”

USAGOLD note:  Shedlock goes on to list the eight potential catalysts with a review of each.

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