Monthly Archives: March 2023
European regulators criticise US ‘incompetence’ over Silicon Valley Bank collapse
Financial Times/Laura Noonan/3-17-2023
“Europe’s financial regulators are furious at the handling of the Silicon Valley Bank collapse, privately accusing US authorities of tearing up a rule book for failed banks that they had helped to write.”
USAGOLD note: One eurozone official called the US bailout of uninsured deposits “total and utter incompetence.”
Another chaotic week for banks marks the end of an era for the global economy
Bloomberg/John Authers and Isabella Lee/3-17-2023
“In the end, it may be convenient to pin the blame of the recent financial turmoil on several banks, when in reality what the fallout of these institutions revealed are the large cracks hammered in large part by the Fed itself. As central banks globally launched their aggressive rate-hiking campaigns, markets on both sides of the Atlantic have simply become the collateral damage. And if traders think policymakers will pause, they may be mistaken.”
USAGOLD note: The problem is systemic, hence costly, widespread, and probably enduring…… Authers and Lee explore the Fed’s options and what they might mean for markets in considerable detail. If the Fed decides to continue raising rates while unleashing massive liquidity to rescue the banking system, one cannot help but conclude that the inflation it fights with one set of policies, it creates with another – a hawk and a dove at the same time.
Things are only getting harder for the Fed
Financial Times/Kenneth Rogoff/3-18-2023
“It is far easier to hold off political pressures in an era where global interest rate and price pressures are pushing downwards. Not anymore. Those days are over and things are going to get harder for the Fed. The trade-offs it faces next week might only be the start.”
USAGOLD note: Rogoff explains that a great deal has changed since the financial crisis of 2008 – different times, different set of circumstances. The Fed’s inflationary chickens have come home to roost.
The Fed may provide as much as $2 trillion in liquidity relief for banks after the SVB collapse, JPMorgan says
MarketsInsider/Filip DeMott/3-17-2023
“‘The usage of the Fed’s (Bank Term Funding Program) BTFP is likely to be big,’ JPMorgan analysts said.”
USAGOLD note: We blinked a couple of times when we saw that number……Unless the Fed accounts for the new liquidity injection differently, the $2 trillion amounts to a 25% addition to its balance sheet (from $8 trillion to $10 trillion.) I don’t think most investors know the scope of this bailout.
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System
Daily Gold Market Report
Gold inches higher as it attempts to recover from technical selling
Former FDIC head says all banks vulnerable to mark-to-market losses – small and large
(USAGOLD – 3/28/2023) – Gold inched higher this morning as it attempts to recover from technical selling that began at the $2000 resistance level. It is up $3 at $1962. Silver is up 1¢ at $23.17. Before the sell-off, gold had made impressive gains primarily on safe-haven buying spurred by concern about unsettling probems in the banking sector. The press touted those problems as residing mainly in the regional and community banks, but former FDIC head Sheila Bair believes the problem goes much deeper than that.
“We need to be mindful of all unmarked securities at banks — small, medium, and large,” she recently told MarketWatch. In short, the same circumstance that brought down Silicon Valley Bank – an underwater, illiquid bond portfolio – could also affect the larger banks. The subsequent collapse of Credit Suisse, which ultimately failed for the same reasons, adds considerably to her argument. A recent Columbia University study pegged the unrealized, mark-to-market losses in the banking system at $2.2 trillion, rather than the FDIC’s $620 billion figure advanced early in the crisis. Since the new rescue plan began, the Fed has added almost $392 billion to its balance sheet, which now stands at $8.73 trillion.
Federal Reserve balance sheet and gold
(Log scale, 2008-present)
Chart courtesy of TradingView.com • • • Click to enlarge
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.
Notable Quotable
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“There is nothing we can take for granted in this inflationary crazy economic environment, no rules of thumb that can really guide us. My father was a thrifty man, a truly great man, but also a believer in long-term value and truth. Yes, he loved gold and silver coins too, and very much so. He accumulated them throughout his life. As I look at that today, it is extremely obvious that this was one of his best financial decisions. He was never a day trader or a rah-rah techno champion. He clung to that which he could really trust, really own, really control. That seems like a good way to think even now.” – Jeffrey Tucker, Daily Reckoning
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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……