Monthly Archives: February 2021
Wrecking ball
Credit Bubble Bulletin/Doug Noland
Repost from 2-19-2021
“It’s frightening debt growth – with too little to show for. And no end in sight. Parabolic expansion of debt of increasingly poor quality. “Terminal Phase Excess” on an unprecedented global scale. Intensifying Monetary Disorder. Manic market Bubble Dynamics – and an ever-widening chasm between inflating asset prices (perceived wealth) and deflating global prospects. Record stock prices versus a near catastrophic collapse of Texas’s power grid. American society is taking too many blows. The Intensifying Drumbeat of a Wrecking Ball. If ramifications of a bursting Bubble are not worrying, you’re not paying attention.”
USAGOLD note: One should avoid at all costs getting between that wrecking ball and its destination …… Noland ends last week’s missive with an unmistakable heads-up.
Powell is Fed boss any U.S. president would keep
ReutersBreakingViews/Richard Beales
Repost from 11-5-2020
“Jay Powell’s job is probably safe whoever wins the U.S. presidential election. The chair of the Federal Reserve is going to stick with ultra-easy monetary policy in the coming years. That will make it easy for either Donald Trump or Joe Biden to nominate him for a second term.”
USAGOLD note: Politicians like easy money and, at the moment, Jay Powell represents not just easy money, but free and easy money. That said, Powell, in our view, is a consensus Fed chairman reflecting the views of the institution. If it changes, he is likely to change.
Basel III could be gold’s best friend
Repost from 2-23-2021
“On the 28th June 2021 Basel III will change the spectrum of how Gold is valued. This event has been described by some precious metals analysts as the most significant in their careers. So what is it exactly, and how will it change the world for Gold and precious metals investors?”
USAGOLD note: Lane says things are about to change dramatically in the gold market. A must-read at the link on a subject we have touched upon only lightly here at our daily newsletter page. This article will bring you up to speed on what might turn out to be a very important matter. After a number of “very, very serious questions,” Lane asks a final question and provides some answers: “Last chance to load up on these price levels? It could well be. Excited? You should be.”
Powell signals Fed to keep buying bonds even as outlook improves
Bloomberg/Rich Miller
Repost from 2-23-2021
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” [Fed chairman Powell] told the Senate Banking Committee Tuesday.
USAGOLD note 1: Judiciously, Powell left the Fed’s options open and did not light a fuse on bond buying. To taper, or even hint at it, is to send interest rates on a tear and stock market investors heading for the exits. Meanwhile, the bond portfolio continues to pile up at the Fed and we haven’t even gotten around to the $1.9 trillion stimulus package. That legislation, by the way, this morning went out of Committee and is expected to be voted on and passed by the House later this week, according to press reports. Here is what the Fed’s swelling balance sheet looks like on a chart – heading towards $8 trillion.
USAGOLD note 2 (2-26-2021): With bond yields moving aggressively higher – the 10-year yield is now over 1.5% – the markets are judging the Fed chairman by his deeds not his words. At the moment, it does not appear that the printing presses are keeping up with an onslaught of bond selling that is pushing yields aggressively higher. The markets are reacting accordingly.
Federal Reserve Bank Balance Sheet
(2011-present)
Chart courtesy of TradingEconomics.com • • • Click to enlarge
Short and Sweet
‘Everyone knows they need a safe haven’
“Last March and April,” writes the Systemic Risk Council’s Paul Tucker in a piece published recently at Financial Times, “the fabric of our financial system was stretched almost beyond endurance. Only intervention from the north Atlantic central banks seems to have averted some kind of disaster triggered by markets grasping the pandemic was serious.” The most important lesson from that brush with disaster is that the financial authorities did not even bother to disclose to the public (and the investment community) just how dangerous the situation had become until months after the fact. It was labeled, you might recall, a “liquidity problem” that the Fed was addressing – no need to worry. Such circumstances argue strongly for having a hedge in place at all times just in case the wheels actually do come off.
MoneyWeek’s Merryn Somerset Webb posted a reminder of gold’s baseline portfolio role during times of market uncertainty in a separate Financial Times’ opinion piece in early January. “Think of the reasons to hold gold,” she wrote. “If inflation is coming (and it probably is) you want to hold a real asset that can hedge against it — one that can’t be inflated away by relentless money creation and currency debasement.…[E]veryone knows they need a safe haven, but everyone also knows the traditional ones (government bonds) no longer offer that safe haven. That turns us to gold, the one asset that has a 3,000-year record of protecting purchasing power. No wonder the gold price is up around 40 percent since 2018. I hold a lot of gold for all these reasons.”
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The value of gold in a portfolio
Seeking Alpha/Manning & Napier
Repost from 2-19-2021
“For thousands of years, people have used gold to trade goods and services, store wealth, and protect against the pernicious effects of inflation. While gold may not be as essential to the plumbing of our financial system as it was decades ago, it remains a popular investment.…We are always monitoring gold for its investment potential, keeping an eye on its supply and demand balance, as well as other variables such as money supply, inflation, and real interest rates. We believe that current financial conditions favor a position in gold.”
USAGOLD note: If you are new to the idea of gold and looking for a good overview on why it makes sense in the portfolio, this Seeking Alpha piece would be a good starting point.
Gold continues to track lower; markets react nervously to bond market sell-off
(USAGOLD – 2/26/2021) – Gold continued to track lower as Treasury yields stabilized somewhat and the dollar gained ground. It is down $10 at $1762.50. Silver is down 63¢ at $26.87. In general, the markets are shrugging off Fed assurances of keeping its ultra-loose monetary policy on track and reacting nervously instead to the deteriorating bond market situation. (Details here.) “I own gold,” explains highly regarded investment strategist David Rosenberg in an interview at The Market NZZ website, ‘not to make a killing but as a ballast in the portfolio, a source of diversification and insurance policy against the gargantuan levels of outstanding liabilities. It’s a hedge against inflation, if we ever get it, and it’s also a hedge against deflation given these destabilizing financial imbalances we have.… So gold is an insurance policy against things going wrong, especially in a time when most asset markets are priced for perfection. You hope your house doesn’t burn down, but you still have home insurance.”
Chart of the Day
Sources: St. Louis Federal Reserve; Lewis, Daniel J.; Mertens, Karel; Stock, James H.
Chart note: The Weekly Economic Index, which tracks 10 varied economic indicators and represents “an index of real economic activity using timely and relevant high-frequency data,” according to its authors, took a sharp turn to the downside beginning in mid-February after a strong correction to the upside beginning in April 2020. (More)
Notable Quotable
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“For we have reached a critical point. In a sense, it is true that the mists are lifting. We can, at least, see clearly the gulf to which our present path is leading. Few of us doubt that we must, without much more delay, find an effective means to raise world prices; or we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what outcome we cannot predict.”
John Maynard Keynes
The Means to Prosperity (1933)
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EMA says gold and silver about to explode
Seeking Alpha/Equity Management Academy
Repost from 2-19-2021
“Gold and silver are reaching the point where they are about to explode. We are running out of silver supplies, especially for industrial uses. In March, we were low on supplies and the physical market included about an $80 premium for gold and silver over the paper price. In the past, the futures market led the way in price. The physical market is headquartered in London, while the paper market is in New York (COMEX). The Commitment of Traders shows that there are still massive short paper positions in precious metals, in excess of $38 billion, which has kept the price down. The current environment is similar to the 1970s, when we saw interest rates hit 14% and gold rallied from $130 up to $800 or $900 in 1981.”
USAGOLD note: EMA remains very positive on future pricing. The technical buy triggers it is looking for have already been tested – $1780 for gold and $27.08 for silver.
Just charts of demographics…hot topics for your next cocktail party
Economica/CHamilton
Repost from 2-22-2021
“This, alongside the Federal Reserve purchasing Treasury bonds (to artificially lower the cost of federal government borrowing and boost the supply of dollars chasing the remaining assets) and mortgage-backed securities (to artificially lower mortgage rates) has resulted in an asset explosion. This explosion has rewarded asset holders with vast riches and punished young adults, the poor, those on fixed incomes. These folks in the latter group get none of the asset wealth effect but instead get the fast rising costs of living due to the asset appreciation. When the Federal Reserve continually suggests they aren’t responsible for the exploding US inequality…it is a bald faced lie.”
USAGOLD note: With respect to the cocktail party referenced in the headline, please amend to “hot topics for your next zoom party” (smile), but some interesting insights no matter where you decide to share them.
Jim Rogers shares his thoughts on the global lockdowns, debt and chaos ahead
Market Sanity/Interview of Jim Rogers
Repost from 10-29-2021
The coming economic meltdown
USAGOLD note: In this wide-ranging video interview, Rogers covers topics of interest to investors – from stocks, to real estate, to gold and cryptocurrencies (among others). In addition, he offers his opinion on economic issues – particularly debt, the value of money, the great reset, MMT, and inflation. On two occasions, he holds up gold a couple of coins and says “Hang onto your gold. . . .” Highly recommended.
Gold: The winning investment of the 21st century
Repost from 10-24-2020
“As I have explained above, fiat currencies are devalued. It does not necessarily mean we will face hyperinflation. After all, we did not face that problem during the Great Recession after the Fed eased its monetary policy. However, the very expectation of high inflation and a deep economic crisis might make investors quite skeptical of the fiat currencies. What’s more, many investors will also probably be reluctant to buy stocks and corporate bonds. After all, economic hardships put significant pressure on many companies’ earnings. So, where should people invest? The most obvious answer is precious metals.”
USAGOLD note: We concur. In fact, we took pretty much the same tack in this analysis first published in March of this year: Gold’s Century – While stocks dominated headlines, gold quietly performed
Short and Sweet
Of 17th-century tulips, 21st-century stocks
and ageless gold
During the Dutch Tulipmania, the price of one special, rare type of tulip bulb called Semper Augustus sold for 1000 guilders in 1623, 1200 guilders in 1624, 2000 guilders in 1625, and 5500 guilders in 1637. Shortly thereafter, the bottom fell out of the market and prices plummeted to 1/200 of their peak price – a mere 27 guilders. In the artwork above an individual, portrayed in fool’s garment, is shown trading a hefty pouch of gold for a handful of tulip bulbs. It is no mystery who got the better part of that bargain. History teaches us that no era is immune to financial mania including our own. As a matter of fact, a good many believe that we are fully immersed in a stock market mania (wherein many include bitcoin) right now.
Since the earliest days of the USAGOLD website (the mid-1990s), we have enshrined a quote from Thomas Bailey Aldrich at our home page: “The possession of gold has ruined fewer men than the lack of it.” Aldrich’s axiom has held true down through the ages. It applied in ancient Greece and Rome, in 11th century China, in the time of the Medicis, the Dutch Tulipmania, the South Seas Bubble and French fiat money mania, during the long string of panics in the late nineteenth and early 20th centuries (Aldrich’s time), the spate of post World War I and II hyperinflations (Austria, Germany, Greece, Hungary, et al) and it still applies today.
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Gold takes a tumble as bond yields go agressively higher in overnight trading
(USAGOLD – 2/25/20210 – Gold took a tumble in overnight trading falling once again below the $1800 mark as financial markets, in general, appear to be shrugging off Fed chairman Powell’s assurances of ultra-easy money and concentrating instead on aggressively rising bond yields. Stock indices are level to down and the dollar index went below the 90 mark this morning. Gold is down $25 at $1781. Silver is down 25¢ at $27.78. Credit Suisse is one investor undeterred by the current weakness in the gold market. Per a recently released report posted at FXStreet, the bank forecasts a $2200 price target for 2021 but cautions that “gold will be susceptible to [Fed chair] Powell’s outlook on the economy and interest rates,” It says “the real rate environment and Fed stance remain supportive of gold prices, but the key to watch will be if yields continue to rise and of course, if the US Fed does, in fact, change its dovish stance – we think this is unlikely based on recent commentary highlighting higher employment as the priority vs. preventing inflation.”
Chart of the Day
Sources: St. Louis Federal Reserve, Board of Governors, ICE Benchmark Administration
Click to enlarge
Chart note: “If there is one catalyst that is a driving factor for higher gold prices,” writes Jason Tillberg at Seeking Alpha,” it’s negative real rates. Nobody likes the very thought of seeing their savings accounts or fixed income bonds paying a rate that is less than the rate of inflation.” This chart shows the strong long-term relationship between declining real rates and a rising gold price.
Policy risks rise
Blain’s Morning Porridge/Bill Blain/2-24-2021
“Really smart investors are increasingly hedging their wealth created from financial assets (stocks and shares) by putting much of their allocations into Alternatives: outright real assets or cash flow driven assets, assets that are likely to retain value while still paying attractive returns. (The cost is lower liquidity). The idea is that if crisis ever comes, then owning the wheelbarrow might be better than owning the mountains of worthless cash it’s carrying (to cite the classic example of inflationary danger from Weimar Germany…)”
USAGOLD note: If the aforementioned crisis truly does arrive, a wheelbarrow full of gold and silver would be an even better option ……
Notable Quotable
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“We need to put this [global economic inequality] alongside the financial crash, which brought home to people that a very few individuals working in the financial sector can accrue huge rewards and that the rest of us underwrite that success and pick up the bill when their greed leads us astray. So taken together we are living in a world of widening, not diminishing, financial inequality, in which many people can see not just their standard of living, but their ability to earn a living at all, disappearing. It is no wonder then that they are searching for a new deal, which Trump and Brexit might have appeared to represent.”
Stephen Hawking
Cambridge UniversityDecember, 2016
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Do not rule out a market panic next month
Financial Times/John Dizard/2-18-2021
USAGOLD note: Dizard warns beware the Ides of March – that “some sort of panic in the US Treasury and mortgage-backed securities market” might develop. The high level of government borrowing in progress, and about to be augmented by the $1.9 trillion stimulus program, could be enough to send rates and money printing careening higher. “If my guess is right,” says Dizard, we have the makings of another event like we saw a year ago.” That “liquidity” problem we might recall was later labelled a crisis that nearly collapsed the financial system. (Please see this rendition of events from The Guardian.)
Analysis: Debt-laden world, rising bond yields – a toxic taper tantrum combo
Reuters/Dhara Ranasinghe and Karin Strohecker
Repost from 2-22-2021
“In May 2013, bond investors threw a tantrum after hints the U.S. Federal Reserve might slow the money-printing presses. A similar selloff now, with another $70 trillion added to global debt, could prove to be far more vicious.”
USAGOLD note: The first law of holes applies here, i.e., “when you’re in one stop digging” – but the Fed is in no position to do otherwise. If it does, the reaction likely will be “vicious,” as the authors of this piece worry.
Gold is ready to shine, time to accumulate
Edelweiss/Sahil Kapoor and Ankita Pathak/December 2020
Repost from 1-8-2020
“Gold has entered a multi-year bull run. Over the next few years our initial targets are placed at $2600 to $2800 per ounce. In H1 2021 we expect volatility, a US Dollar bounce back and an ideal opportunity to add to gold positions.”
USAGOLD note: This report out of India consists mostly of charts sprinkled with a few short comments. It serves as a quick overview for those looking for fundamental incentive to add to their holdings or make their first purchase. They see a buying opportunity in the first half of the year.
Interactive Brokers chair says financial system came ‘dangerously close’ to failure during GameStop mania
Repost from 2-18-2021
“[T]he brokers default on the clearinghouses, so you end up with a complete mess that is practically impossible to sort out, so that’s what almost happened.” – Thomas Peterffy, Interactive Brokers
USAGOLD note: I guess they didn’t see it coming. Why is it that these near brushes with disaster become a major source of worry and debate after the fact? Where are the regulators who are supposed to keep a lid on this sort of thing? These kinds of problems are the children of excess liquidity and rampant moral hazard. By now, we should be getting used to it, and more aware than ever, that systemic risk needs to be hedged.
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