Monthly Archives: March 2023
Notable Quotable
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“George Bernard Shaw famously observed that he knew three types of economists. Those who were brilliantly right. Those who were brilliantly wrong. And those who taught. Judging by her tenure at the Federal Reserve’s helm and her advocacy now as Treasury Secretary of a super-sized budget stimulus package, it would seem that Janet Yellen falls into Mr. Shaw’s brilliantly wrong category. For this, the country is likely to pay dearly.”
Desmond Lachman, economist
1945
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SVB failure raises a question: who gets to create dollars?
Financial Times/Brendan Greeley/3-16-2023
“After a run this week the FDIC guaranteed the deposits of Signature Bank and SVB — not just the $250,000 per-person limit for which the banks had paid premiums, but all deposits. With a single decision, the definition of a dollar again expanded.”
USAGOLD note: Seems like it is all too easy to create dollars, but that, in the end, is the nature of the fiat money system.
Greatest hedge fund manager of all time says to gift your kids gold to get them started investing
Yahoo!Finance/Henry Slater/3-14-2023
“Looking for the perfect way to get your kids or grandkids on the path of smart investing? Ray Dalio, the legendary hedge fund manager, has shared that he gives his kids and grandkids gold coins as gifts to start them on their investment journey. Dalio founded Bridgewater Associates, the largest hedge fund in the world by a mile.”
USAGOLD note: A good many of our clients have been doing this for years…… Dalio gives gold coins to his grandchildren every birthday and holiday.
‘Net worth of median household is basically nothing,’ says Carl Icahn. ‘We have some major problems in our economy.’
MarketWatch/Mark DeCambre/3-14-2023
“The co-founder of Icahn Enterprises says that his investment portfolio is set up for more pain in the U.S. economy, which he notes is being buffeted by rapidly rising interest rates and escalating concerns about its overall health, as the Federal Reserve attempts to prevent inflationary pressures from becoming entrenched.”
USAGOLD note: According to Bank Rate, 56% of Americans could not cover an unexpected $1000 bill.
Powell’s legacy risks being tarnished more by SVB collapse
Bloomberg/Rich Miller/3-15-2023
“The collapse of Silicon Valley Bank threatens to further besmirch the reputation of Federal Reserve Chair Jerome Powell, on top of the blemish he’s suffered for being slow to recognize the risk of rampant inflation.”
USAGOLD note: A number of gold market analysts have cited trust in the central banks as a key factor in the periodic gold rushes reflected on the long term gold chart. We would add that it is not just SVB that’s to blame. The breakdown by most accounts is system wide with more failures already in the pipeline. As such it is not only a failure of supervision, as this article contends, but a failure in overall monetary policy.
Daily Gold Market Report
Gold loses ground after encountering resistance at $2000
Fund, institutional interest signals sustained rally in yellow metal, says FT
(USAGOLD –3/27/2023) – Gold lost ground this morning in what looks to be a technical sell-off after encountering resistance at the $2000 level. It is down $23 at $1957. Silver is down 19¢ at $23.12. Financial Times reports this morning that traders in futures contracts, options, and exchange-traded funds are signaling a sustained gold rally in the weeks ahead that will potentially break all-time highs, and stay there.
“Suki Cooper, precious metals analyst at Standard Chartered, said in the days immediately following the collapse of SVB and Signature there was a massive increase in ‘tactical’ positioning as traders looked for assets considered safe havens in times of crisis,” says FT. Such capital mobilizations on the part of funds and institutions, we will add, have served as a catalyst in the past for higher prices. Similarly, CNBC posted an article calling for all-time highs in the gold price soon. One analyst, CMC Markets Tina Teng, predicted a price of $2500 to $2600 on further declines in the US dollar and bond yields.
Chart courtesy of GoldChartsRUs.com
Notable Quotable
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“A lot of people come to me asking how they can get rich quick…It’s the most disturbing question I get. Why? It’s the wrong question. It tells me that they don’t have the foundation of financial intelligence required to use their money well if they do – somehow – become wealthy. This is because most people don’t understand that, when it comes to being rich, it’s not about how much money you make. It’s about how much money you keep.”
Robert Kiyosaki
Daily Reckoning
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Fed’s battle plan for inflation shredded by financial turmoil
Bloomberg/Catarina Saraiva and Craiig Torres/3-13-2023
“Federal Reserve Chair Jerome Powell’s strategy to speed up the central bank’s inflation-fighting efforts is unraveling in the wake of Silicon Valley Bank’s collapse.”
USAGOLD note: Nothing alters Fed tightening policies faster than a financial crisis…… And it did so as if it knew it was coming – rolling out a major rescue plan within 48 hours of SVB’s collapse. Economist Nouriel Roubini warned yesterday of “endless inflation.”
The policy compromises needed to resolve the SVB implosion
Financial Times/ Mohamed El-Erian/3-12-2023
“In a narrow sense, it demonstrates that even seemingly small banks can pose systemic risks. In a broader sense, it illustrates the inherent trilemma of the ongoing monetary policy regime change. Namely, the challenge for the Federal Reserve to simultaneously deliver on both its 2 percent inflation target and the employment part of its dual mandate while ensuring financial system stability.”
USAGOLD note: El Erian is among the first to weigh in on the Fed’s options now that something has actually broken. All the concerns registered here and elsewhere about the Fed’s policy conundrum are coming to a head. Nothing has changed. If the Fed goes neutral on rates, or heaven forbid, raises them, more SVBs are likely to surface. The return of quantitative easing is a distinct possibility. If it doesn’t tighten monetary policy (as originally planned), inflation will likely settle in for the long run.
Goldman Sachs no longer expects the Fed to hike rates in March, cites stress on banking system
Reuters/Scott Murdoch and Carolina Mandl/3-13-2023
“U.S. regulators may have stemmed a banking crisis by guaranteeing deposits of collapsed Silicon Valley Bank (SVB), but some experts warn that the move has encouraged bad investor behaviour.”
USAGOLD note: There was already considerable moral hazard built into banking philosophy. Sunday’s rescue package – especially the Fed’s taking in the banks’ underwater bond positions at par instead of market – will solidify it for a long time to come.
Moody’s cuts outlook on U.S. banking system to negative, citing ‘rapidly deteriorating operating environment’
“In a harsh blow to an already-reeling sector, Moody’s Investors Service on Monday cut its view on the entire banking system to negative from stable.”
USAGOLD note: The same problem that brought down SVB – an underwater bond portfolio – is present in a large swathe of the banking industry making this bank crisis much different than anything that preceded it. Moody’s is right to sound the general alarm.
Government bonds held at banks may be ‘toxic asset’ of next financial crisis, fund manager says
MarketWatch/Vivien Lou Chen/3-15-2023
“Contagion fears triggered by the speedy collapse of two regional banks in less than a week is raising the risk of a crisis in confidence in U.S. banks, one in which government bonds would be the ‘toxic asset’ at the center of it all.”
USAGOLD note: Who would have believed that US Treasury securities would ever be viewed as toxic? Yet here we are……
Why Ray Dalio says SVB collapse is a ‘canary in the coal mine’
MarketWatch/William Watts/3-15-2023
“Dalio argued that SVB’s failure was a ‘very classic event’ in what he termed the ‘very classic bubble-bursting part of the short-term debt cycle.’ That phase occurs when tight money aimed at curtailing credit growth and inflation leads to a ‘self-reinforcing’ contraction in debt and credit. That means a ‘contagion process’ that sees dominoes fall until central banks relent and create ‘easy money,’ which then sets the stage for the next big debt problem.”
USAGOLD note: A view similar to that of Blackrock’s Larry Fink featured below – two of Wall Street’s top money managers forecasting the same future. Dalio is a long-time advocate of gold ownership.
Larry Fink raises spectre of ‘slow rolling crisis’ after SVB failure
Financial Times/Brooke Masters/3-15-2023
“BlackRock chief executive fears ‘more seizures and shutdowns’ of banks possible after ‘decades of easy money.’”
USAGOLD note: Fink says rapidly raising rates was the first domino to drop, SVB the second. More could follow. FT points out that Fink’s annual client letter is required reading among corporate executives.
Goldman Sachs no longer expects the Fed to hike rates in March, cites stress on banking system
“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22.” – Jan Hatzius, Goldman Sachs economist
USAGOLD note: Amazing how quickly sentiment can change…… Will the doves perch at the Fed?
Daily Gold Market Report
Next DGMR Monday 3/27/2023.
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Gold trades cautiously lower ahead of crucial Fed policy meeting
Fed balance sheet surges almost $300 billion in week one of bailout program
(USAGOLD –3/21/2023) – Gold is trading cautiously lower ahead of crucial FOMC deliberations amidst what many investors see as the early stages of a full-blown banking crisis. It is down $11 at $1970. Silver is down 8¢ at $22.55. Fed chairman Powell is likely to face stiff questioning at his Wednesday press conference on the inflationary implications of a rescue plan JP Morgan predicts will add $2 trillion to the Fed’s balance sheet.
“Federal Reserve Total Assets surged $297 billion last week to $8.639 TN, in one week reversing four months – and over half – of recent QT (quantitative tightening). A $10 TN balance sheet by year end would not be surprising,” says Credit Bubble Bulletin’s Doug Noland in his regular Saturday update. “I appreciate that officials last weekend believed they needed to ensure all SVB and Signature depositors to stem a potential systemic bank run. Just as the Bernanke Fed had justification for opening the floodgate for unprecedented money printing… Where does it all end? For one thing, the Fed’s balance sheet will be getting much larger. I’ll assume global central bank balance sheets will also inflate.”
Federal Reserve total assets (balance sheet)
(millions of dollars as of 3/17/2023)
Source: United States Federal Reserve • • • Click to enlarge
US capitalism is ‘breaking down before our eyes’, says Ken Griffin
Financial Times/Harriet Agnew, Laurence Fletcher and Patrick Jenkins/3-14-2023
“Griffin told the Financial Times that the US government should not have intervened to protect all SVB depositors following the collapse of the Santa Clara-based bank on Friday.”
USAGOLD note: For well-known reasons, creative destruction and the fear of losses are essential to the market process. Banks are in the unique position of capitalizing on their profits and socializing their losses. Bad things happen when Humpty has nothing to worry about.
SVB collapse forces rethink on interest rates
Financial Times/Katie Martin and George Steer/3-13-2023
“Government bond prices soared on Monday, with two-year US Treasury yields recording their biggest one-day drop since 1987, as fund managers ramped up bets that the US Federal Reserve would leave interest rates unchanged at its next scheduled monetary policy meeting this month to steady the global financial system. As recently as last week, markets were braced for another half-percentage point rise.”
USAGOLD note: Sunday’s rescue package created a 180 degree reversal in rate prospects, inflation expectations, and market outlook. The suddeness of the change reinforces our long-standing advice to diversify with gold and silver for asset preservation purposes and stay diversified.