This stock market strategist says the coming recession could be the biggest ever. ‘I recommend prayer.’
MarketWatch/Jonathan Burton/10-3-2022
“[Keith McCullough’s] investment-research firm’s economic models turned bearish on stocks and bonds at the beginning of 2022. Prices have since tumbled, but McCullough is still bearish. He’s now steering investors to defensive positions primarily in cash, the U.S. dollar, gold and income-producing equities.
USAGOLD note: Another name added to the lengthening list of market analysts recommending gold, but the first we’ve seen to recommend prayer.
Gold buying once again on the agenda for central banks
International Banker/Nicholas Larsen/9-28-2022
“In contrast to currency reserves, however, gold’s durability, scarcity and finite supply are just some features that provide central banks with surety and trust during times of uncertainty and market turmoil. As such, it provides them with crucially stable assets in their reserves. Gold also tends to have an inverse relationship with another global reserve asset—the US dollar—which means that central banks can load up on gold to protect the value of their reserves when the dollar loses value.”
USAGOLD note: One cannot help but recall, under these circumstances, Britain’s decision in the late 1990s to auction off a significant portion of its gold reserves in order, it said, to diversify into various currencies. What would it give today to have that asset still on the books – one it sold for under $300 per ounce? As it turns out, the BoE sale was among the last major liquidations before the group went from net sellers of the metal to net buyers in 2011. Since then, the official sector has added over 5000 metric tonnes to global reserves
Scientists discover new structure in gold
that only exists at extreme states
“Scientists have just discovered something new about gold. When extreme crushing pressure is applied quickly, over mere nanoseconds, the element’s atomic structure changes, becoming more similar to metals harder than gold.” – Michelle Starr, ScienceAlert
Dr. Moneywise says: History teaches that under the crushing pressure of a financial meltdown gold hardens the portfolio, makes it more resilient!
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Paper vs physical gold and silver and why the precious metals sector should rally
Investment Research Dynamics/9-26-2022
“Something stopped the selling of paper gold and silver back then – some trigger event – and the paper shorts scrambled to start covering, driving the market higher and setting off a 2 1/2 year bull move in the precious metals sector. Whatever that catalyst was – and it was connected to the de facto credit market/banking system collapse – will be triggered again. It’s a matter of timing.”
USAGOLD note: Kranzler makes reference to the “bifurcated” structure of the gold market – paper gold vs. physical gold. As a result of the low pricing generated in the paper market, he says, there has been a large flow of cheap gold and silver to buyers in the Eastern hemisphere. Now, he cautions, “the set-up in the markets is startlingly similar to that of late September and early October 2008.” He predicts a similar trigger event to occur possibly before Christmas.
Gold price and major market events of 2008
Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration, London Bullion Marketing Association
Annotations by USAGOLD
Decades-high inflation has triggered a ‘reverse currency war’ as a soaring dollar leaves central banks scrambling to catch up
MarketsInsider/George Glover/9-27-2022
“Now, that strong dollar has sparked a scramble as global central banks look to strengthen their currencies and fight inflation through rate increases of their own. Last week, as the Fed hiked rates for a fifth time this year, a handful of other central banks — including those in the UK, Norway, Switzerland, and Indonesia — raised their benchmarks.”
USAGOLD note: One wonders how effective this sort of policy action is going to be. Raising rates in concert with the United States is kind of like the tide that lifts all boats. Relatively speaking, nothing happens. Japan took a slightly different route. It kept rates ultra-low and directly intervened in currency markets to prop up the yen. That maneuiver provided initial support (mostly psychological), but now the yen is trading at pretty much the same level it was before the BoJ’s action. Speculation is that Britain will take a similar course of action. Currency speculators are likely to be unimpressed with either course of action.
US dollar-Japanese yen
(One month, inverted scale)
Chart courtesy of TradingEconomics.com
Global bonds are in first bear market in 76 years based on two centuries of data, says Deutsche Bank
MarketWatch/Vivien Lou Chen/9–26-2022
“Global bonds are now in their first bear market in 76 years, after having dropped 20% from their peaks, according to Deutsche Bank research dating back to 1786. The last time global bonds fared so poorly was in 1946, the year that the first session of the United Nations was held in London after the end of World War II.”
USAGOLD note: Talk about uncharted territory …… As we mentioned previously, we do not believe that the real reaction to all of this has even begun.
Short and Sweet
“The first stop of $10,000 is actually not that far away.”
One of the more intriguing analyses of the gold market to emerge in recent months comes from Myrmikan Research’s John Oliver. He inquires into gold’s rangebound behavior under these extraordinary circumstances and concludes, “what propels gold into the multi-thousands of dollars per ounce—is sharply rising rates that destroy the value of the Fed’s assets and make further federal deficit spending impossible. Without a political reason to buy the dollar, it will seek out its economic value.” It’s all in the math, and more specifically, he says that when looking at gold, investors “are going to have to get used to logarithmic scales.” In early 2022, Myrmikan projected a gold price of $5000 per ounce at some point down the road to give one-third backing to the Fed’s balance sheet. Now, says Oliver, it would take a gold price in excess of $11,000 to achieve the same backing. Consulting projections on gold’s logarithmic chart, he says, “the first stop of $10,000 is actually not that far away.”
Gold and 10-year Treasury yield minus CPI
(Log scale)
Chart courtesy of Myrmikan Research
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Larry Summers blasts UK tax cuts as ‘utterly irresponsible’ and warns of possible contagion
“In a series of tweets Tuesday morning, Harvard professor Summers said that although he was ‘very pessimistic’ about the potential fallout from the “utterly irresponsible” policy announcements, he did not expect markets to capitulate so quickly. ‘A strong tendency for long rates to go up as the currency goes down is a hallmark of situations where credibility has been lost,’ Summers said.”
USAGOLD note: Summers worries that London’s status as a global financial center will be threatened. Since the pound is used as a currency reserve, he says, its debasement will have global consequences.
Gold gives up some of its recent gains as pivot sentiment swings back into the red
Australia’s ABC Bullion makes an interesting distinction about gold worth passing along
(USAGOLD –10/5/2022) – Gold gave up some of its recent gains this morning as the sentiment needle on a Fed pivot swung back into the red zone. It is down $16 at $1712.50. Silver is down 61¢ at $20.53. Counting yesterday’s run of speeches from Fed officials, no less than eleven central bank officials will have delivered their take on the inflation fight before the week is out. The markets, it seems, have decided to hunker down and let the storm pass. Australia’s ABC Bullion makes an interesting distinction about gold we thought worth passing along this morning.
“Because gold is not an investment like shares in a company,” it says, “and has no credit risk, there is no chance it can default or go bankrupt. As a result, while it’s volatile, and can suffer drawdowns, those drawdowns inevitably resolve themselves over time. As an investor, you therefore have some comfort that any drawdown in the gold price is simply part of the market cycle (gold is not immune to bull and bear markets), rather than a potential message that the drawdown will be permanent. Investments in individual companies offer no such comfort. While a drawdown in the price of a particular stock may just be part of the market cycle and an overall stock market sell off, it could also be a warning sign that the company in question is facing serious problems and could be headed toward bankruptcy.”
‘Rich Dad Poor Dad’ author Robert Kiyosaki says the ‘everything crash’ is underway – and trumpets it as a rare chance to make a fortune
MarketsInsider/Theron Mohamed/10-3-2022
“He predicted [gold, silver and crypto] would tumble along with the broader market, but advised investors to take advantage of cheaper prices and purchase more of them — as he expects them to surge once the Federal Reserve ends its campaign of interest-rate hikes.”
USAGOLD note: Kiyosaki has been very aggressive about gold and silver ownership during this break which began early in 2022 based on a firm belief in assets detached from the financial system.
Notable Quotable
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“If we observe the empires of the world that have existed over the millennia, we see a consistent history of collapse without renewal. Whether we’re looking at the Roman Empire, the Ottoman Empire, the Spanish Empire, or any other that’s existed at one time, history is remarkably consistent: The decline and fall of any empire never reverses itself; nor does the empire return, once it’s fallen.”
Jeff Thomas
International Man
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Morgan Stanley’s Wilson says Fed pivot won’t end profit pain
Bloomberg/Abhishek Vishnoi and Ksenia Galouchko/10-3-2022
“A Fed pivot, or the anticipation of one, can still lead to sharp rallies. Just keep in mind that the light at the end of the tunnel you might see if that happens is actually the freight train of the oncoming earnings recession that the Fed cannot stop.” – Michael Wilson, Morgan Stanley strategist
USAGOLD note: When even good news is bad news, you know you’re in a bear market. This is what stagflation does to businesses – small and large.
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‘Macro’ forecasters are everywhere these days, but they tend to be wrong about investing most of the time
MarketWatch/Mark Hulbert/10-1-2022
“A recent Howard Marks essay provides one of the best bill of particulars I’ve ever read for why we should be skeptical of macro predictions, and I urge you to read it in its entirety. Marks is the founder of Oaktree Capital Management; his periodic commentaries, known as memos, are widely read on Wall Street. Warren Buffett, for example, once said that ‘when I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.'”
USAGOLD note 1: We featured Howard Marks’ thinking on macro forecasting in the August edition of News & Views under the headline: Dare to be different – Choose assets that ‘others haven’t flocked to and caused to be fully valued’. Marks has garnered considerable attention for his views particularly in light of the Fed’s seeming inability to get things right when it comes to forecasting problems like inflation or unemployment. That shortcoming, as Marks points out, extends to predicting how various investments are likely to perform over extended periods of time particularly when they are based on assumptions that might be off-base in the first place.
USAGOLD note 2: In our view, that is about as strong an argument for diversification as one could make. Says Marks, “If you seek superior investment results, you have to invest in things that others haven’t flocked to and caused to be fully valued. In other words, you have to do something different.” If you were asked to list assets yet to be fully valued, what would top your list?
The September 2022 edition of Marks’ newsletter: The Illusion of Knowledge
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Bank of England capitulates, restarts quantitative easing
ZeroHedge/TYler Durden/9-28-2022
“Just a few days ago we wrote that ‘Something Is About To Break’ and prompt a capitulation from one or more central banks, which oddly was met with mockery in the comment gallery. Also, a few weeks ago, we said that we are nearing a moment in time when central banks will do QE and rate hikes at the same time.”
USAGOLD note: The position in which central banks find themselves without the sugar-coating……
Morgan Stanley says dollar surges tend to end in crisis
Bloomberg/Thyagaraju Adinarayan/9-26-2022
“What’s amazing is that this dollar strength is happening even as other major central banks are also tightening monetary policy at a historically hawkish pace,” Morgan Stanley’s Wilson wrote. “If there was ever a time to be on the lookout for something to break, this would be it.”
USAGOLD note: Wilson cites the 2008 GFC, the 2012 sovereign debt crisis and the 2000 tech bubble as examples of when a too strong dollar has initiated a major stock market crisis. He obviously sees a similar situation developing now.
Crispin Odey and other hedge fund managers profit from sterling tumble
Financial Times/Laurence Fletcher/9-27-2022
“Odey’s bets — based on the belief that the market had badly underestimated how long inflation could stay high — are now paying off handsomely. His flagship European hedge fund is now up about 145 percent this year.”
USAGOLD note: One investor’s folly is another’s fortune… Odey is taking advantage of the mainstream’s belief that central banks can simultaneously contain inflation and save the bond market. “It [sterling and gilts] is all part of the same story of higher inflation,” he says. ”The market has been a long way from where inflation was.”
Short & Sweet
Ubiquity, complexity, and sandpiles
Contemplating the impact of that last grain of sand
For a long while, John Mauldin (Mauldin Economics) has been one of the more thoughtful big picture analysts – someone whose work we read regularly. In a recent reflection posted at the GoldSeek website, he begins with a section on a Brookhaven National Laboratories study of sandpiles. Researchers attempted to ascertain at which point, and to what degree, the last grain of sand falling on the pile causes disequilibrium and the collapse of the pile. It found that the impact of the last grain of sand varied. It “might trigger only a few tumblings or it might instead set off a cataclysmic chain reaction involving millions.”
“We cannot accurately predict when the avalanche will happen,” Mauldin concludes. “You can miss out on all sorts of opportunities because you see lots of fingers of instability and ignore the base of stability. And then you can lose it all at once because you ignored the fingers of instability. You need your portfolios to both participate and protect. Don’t blindly buy index funds and assume they will recover as they did in the past. This next avalanche is going to change the nature of recoveries as other market forces and new technologies change what makes an investment succeed. I cannot stress that enough. Don’t get caught in a buy-and-hold, traditional 60/40 portfolio. Don’t walk away from it. Run away.”
So why would the story of the last grain of sand hitting the pile before it begins to dissemble be important? “The peculiar and exceptionally unstable organization of the critical state,” says Mark Buchanan, who wrote a book on catastrophes of all kinds (and referenced by Mauldin), “does indeed seem to be ubiquitous in our world. Researchers in the past few years have found its mathematical fingerprints in the workings of all the upheavals I’ve mentioned so far [earthquakes, eco-disasters, market crashes], as well as in the spreading of epidemics, the flaring of traffic jams, the patterns by which instructions trickle down from managers to workers in the office, and in many other things.” There comes a breaking point a which time the result is uncontrollable.
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The ‘real cure’ for inflation has gone ignored, Steve Forbes says
“In focusing on raising interest rates to cool inflation, central banks and governments have overlooked the importance of maintaining stable currencies, said Steve Forbes, chair of Forbes Media.”
USAGOLD note: Forbes looks to gold as a solution for the problem of unstable currencies suggesting that the dollar be tied to gold so that it has a fixed value. “Gold,” he says, “holds its intrinsic value better than anything else on earth … gold is not perfect as a stable value but it is better than anything we have found in over 4,000 years.”