Monthly Archives: October 2019
USAGOLD note: It is likely a matter of days until the national debt surpasses $23 trillion. We were at $22 trillion on February 11, 2019 – just nine months ago. We have added nearly $170 billion in October alone – the first month of the new fiscal year. I can remember a time when people were concerned about this issue, but as someone said recently, ‘the deficit hawks have fled Washington.’
“If the U.S. economy is headed for a contraction, Nomura expects three responses: lowering interest rates to nearly zero, offering forward guidance to keep interest rates lower for longer, and initiating large-scale asset purchases. All three policies were used by the Fed during the so-called Great Recession of 2008 and its aftermath.”
USAGOLD note: Nomura believes the U.S. will shy away from negative rates because of the impact it would have on the dollar’s reserve asset status.
“One of the most important warnings offered by firefighters is simple: get out early. In the face of wildfires, some homeowners get the idea of staying in their homes and riding it out. As one firefighter warned “The point is to go.” But if you don’t, it’s better to stay than to panic and run in the midst of a firestorm of smoke and embers. It’s not the fire that gets you. It’s the heat. Even before the flames reach the house, it can be fatal to stand outside trying to protect what you have (h/t John Galvin). Similarly, our “Exit Rule for Bubbles” is straightforward: You only get out if you panic before everyone else does. You have to decide whether to look like an idiot before the crash, or look like an idiot after it.”
USAGOLD note: A not-so-subtle warning from John Hussman who says a 50% loss in the current stock market indices would be “optimistic”. . . . . .
Repost from 7-17-2019
“The initial stage of any bull market is driven by a loss of bearish momentum combining with accumulation into the safe hands of insiders and knowledgeable investors. The insiders today are not the conspiracy theorists, they are always there. The insiders in precious metal markets are the professional operators who detect a change in the market; those who are usually short and needing to cover, the central bankers who privately detect a change in long-term monetary trends, and those who have experienced and understood previous cycles of credit.”
USAGOLD note: More profound observations from Alasdair Macleod . . . He sees silver and platinum as undervalued. A must-read. . . .
Repost from 10-27-2019
“The trouble is that modern central bankers have failed to heed the lessons of the Mississippi bubble. As one of Law’s biographers, Antoin Murphy, writes: ‘What central bankers are doing now is exactly what Law recommended … From this perspective, it may be argued that, notwithstanding the failure of the Mississippi System, Law’s banking successors have been Ben Bernanke, Janet Yellen and Mario Draghi.’”
USAGOLD note: A little over a week ago, we compared Modern Monetary Theory to John Law’s failed fiat money experiment in France 300 years ago saying MMT was neither modern nor a theory. In this Reuters’ opinion piece, Edward Chancellor says we do not have to wait for MMT as John Law’s second coming. Chancellor warns “conjuring up limitless quantities of money” is one thing but returning to “normalcy” is quite another – an assessment borne out by the Fed’s current struggle with unwinding the great monetary experiment launched to counter the 2008 financial crisis.
Repost from 2-18-2019
“What the central bank passes off as ‘funding issues’ could more accurately be described as liquidity injections to keep interest rates low . . .”
USAGOLD note: The ‘temporary’ repo injections are beginning to look like a ‘permanent’ feature. That new presence in money markets will hang like a dark cloud over this week’s meeting and surely elicit a question or two both from FOMC members and the press.
Repost from 10-27-2019
“As we have forecasted, due to growing recession risks, central banks are about to conduct a big ‘monetary U-turn.’ Expect more QE, lower rates and MMT-style policies like ‘QE for the people.’ The erosion of trust in many areas plays into gold’s hands. An end to these crises of trust is not in sight. The steady buying of gold and the repatriation of central bank gold indicates rising mutual distrust among central banks.”
USAGOLD note: A selection of important charts sprinkled with thought-provoking quotes from some of the best financial minds in the business. Important weekend reading at the link above. . . . . . .
Repost from 10-25-2019
USAGOLD note: Gold got an extra lift when this news broke moments ago. . . .
“The U.S. may begin issuing 50-year ultra-long government bonds for the first time, the Treasury Department said Wednesday.”
USAGOLD note: Is it practical to purchase a bond that could outlast the buyer by a wide margin? Will there be any takers? On the other hand, it never ceases to amaze me what Wall Street is capable of selling once it puts its mind to it.
(USAGOLD – 10/30/2019) – In this morning’s DMR (please scroll below), we mentioned that “if there is going to be any real drama resulting from this meeting, it will likely come during the post-meeting press conference.” The gold’s market reaction to the FOMC statement itself was to sell-off. Then at that press conference Fed chairman Powell made the following comment:
“I think we would need to see a really significant move up in inflation that’s persistent before we even consider raising rates to address inflation concerns.”
That gave gold the green light. It immediately reversed the downtrend and began tracking higher – bouncing off the $1484 mark to near $1495 in a matter of minutes. Here is what that rather dramatic turn of events looked like on the chart:
“. . .[O]pportunity cost has been the most important factor driving the gold price up in 2019. As shown above, interest rates have been lowered and the stock of negative-yielding bonds has grown rapidly, lowering the opportunity cost for holding gold. Falling rates and negative returns have made government debt less attractive and have increased the possibility of higher inflation and currencies depreciation in the future.”
USAGOLD note: A bottom-line assessment emphasizing a driver not often mentioned these days in gold market analysis, i.e., opportunity cost – from the Head of Market Intelligence at the World Gold Council. We mentioned Hewitt’s article in this morning’s DMR and reference it again this afternoon for those who might have missed it.
“What a difference a year has made for gold.”
USAGOLD note: The author goes on to say that “gold is back in fashion” and lists the key reasons why. Further evidence of the trend is two favorable articles on gold in less than a week posted at Financial Times’ FT Adviser page.
Repost from 10-25-109
“Rome fell because the dictators ruined the Roman economy and the institutions that had made it prosperous. Rome was falling apart before the barbarian invasions. How did the Caesars do that? They were profligate spenders. As emperors with absolute power usually do, they thought big: infrastructure (roads, temples, palaces), a huge bureaucracy, and, as the key to maintaining their power they had a very large, loyal, and well paid army. As a consequence, massive government spending far outstripped revenue. They had what today we call a deficit problem.”
USAGOLD note: By the time the barbarians showed up at the gate, as Harding points out, Rome was a goner – destroyed by inflation of the currency and an undermining of the values that created the Empire. Believe it or not, gold was a hedge in the latter days of the empire because the circulating currency made of silver, the denarius, was constantly devalued by Rome’s emperors. Those who saved gold, saved their fortunes.
Repost from 7-4-2019
“As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.”
USAGOLD note: At the end of this very interesting editorial, McWilliams asks a compelling question: “What if a policy designed to protect the balance sheets of the wealthy has unleashed forces that may lead to the mass appropriation of those assets in the years ahead?” Long before a 70% tax rate is promulgated, though, we could face the prospect of asset appropriation in forms more subtle than asset appropriation – deflation, runaway inflation or any one of the maladies that fall in between. . . . .
Repost from 3-3-2019
“Gold is a hybrid as it is part commodity and part currency. In its role as a reserve asset, gold continues to retain its position as the world’s oldest means of exchange. The yellow metal has been around a lot longer than any of the world’s currencies in circulation today. Gold has been a currency for thousands of years. There are no mentions of the dollar, euro, yen, pound, or any of the other currencies in the Bible, but gold and silver are prominently featured.”
USAGOLD note: The role of central banks in the contemporary gold market in a week when Germany announces the first addition to its gold reserves since 1998 – roughly 3 tonnes. At this juncture, we do not know if this is the start of a new buying program or a one-off adjustment of some kind, but the move by Bundesbank did raise a few eye-brows in the gold business.
Repost from 10-25-2019
” . . . 63% believe the Fed will pause in its rate cuts for the remainder of the year. On average, the respondents, who include fund managers, economists and strategists, think the next cut will come in February. Still, 40% believe the Fed is done cutting at least through 2020.”
USAGOLD note: As we all know by now, the prevailing view on Fed policy today – even among those at the central bank itself – might not be Fed policy a few months from now. Who would have known last July that come October the Fed would be pumping liquidity into the repo market with a fire hose?
He warned the Fed might lose control over a $2 trillion interest-rate market — Now he says it might happen again
“Mark Cabana was warning of the emerging strains in short-term U.S. money markets as early as last year, well before daily funding markets seized up last month and forced the Federal Reserve to dust off tools it hadn’t used since the 2008 financial crisis.”
USAGOLD note: Prior to moving to the Bank of America/Merrill Lynch, Cabana worked in the markets group at the New York Fed.
“He added that the US would suffer a ‘financial armageddon’ if its central bank – the Federal Reserve – lacked the necessary firepower to combat another episode similar to the sub-prime mortgage sell-off.”
USAGOLD note: Mervyn King served as governor of the Bank of England during the financial crisis in 2007-2008. His views are highly respected in both the UK and the United States. King issued his warning during the annual IMF meeting in Washington D.C. last week.
Repost from 10-25-2019
Federal Reserve Bank of New York
“In accordance with the most recent Federal Open Market Committee (FOMC) directive, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct a series of overnight and term repurchase agreement operations (repos) at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation.”
USAGOLD note: The previous limit was $75 billion. There is something going on here that not a lot of people understand – including Wall Streeters. Why are these numbers soaring? The Fed remains notably silent.
Repost from 10-25-2019
The naughty boy who blurts out unpleasant truths
“In the first place, the ‘classic’ writers, without neglecting other cases, reasoned primarily in terms of an unfettered international gold standard. There were several reasons for this but one of them merits our attention in particular. An unfettered international gold standard will keep (normally) foreign-exchange rates within specie points and impose an ‘automatic’ link between national price levels and interest rates. The modern mind dislikes this automatism, as much for political as for economic reasons: it dislikes the fetters this automatism clasps on government management of the economic process – dislikes gold, the naughty boy who blurts out unpleasant truths. But most of the economists of the period under survey liked it for precisely the same reasons. Though they compromised in practice as in theory and though they admitted central-bank management, the automatism – a phrase beloved by Lord Overstone [Samuel Jones Loyd, 1st Baron Overstone] – was for them, who are neither nationalists nor etatistes, a moral as well as an economic ideal.” –– Joseph Schumpeter, History of Economic Analysis (1954) Published posthumously
Dr. MoneyWise says. . . .And to Dr. Schumpeter’s well-considered discourse on the practical merits of the gold standard, I will add a simple thought of my own: Absent the gold standard, the prudent investor who stores gold benefits in concert with the blurting of those unpleasant truths.