Monthly Archives: March 2023

MarketsInsider/Filip DeMott/3-10-2023

“In essence, the Fed is causing this bank run.” – Larry MacDonald, The Bear Traps Report

USAGOLD note: The opinion shall rain from the heavens…… MacDonald sees the Fed dealing with a crisis “across the entire ecosystem” of its own making.

Markets Iinsider/Jennifer Sor/3-12-2023

“The collapse of Silicon Valley Bank is the natural result of the “everything bubble” that’s engulfed markets in the last decade finally bursting. And now that a new rate environment is upon us, the market should expect more of these chaotic episodes.”

USAGOLD note: The problem with the “everything bubble” bursting is there is no is nowhere to turn, unless, of course, one understands the logic of safe haven portfolio insurance. This article does a good job of the depth of the problem confronting  investors featuring insights from Deutschebank.

MarketWatch/William Watts/3-10-2023

“Analysts played down the threat to the U.S. banking system after the collapse of a regional lender Friday, but the failure of Silicon Valley Bank served to underline longstanding worries that the Federal Reserve’s aggressive series of interest rate hikes will eventually cause something in the world’s financial plumbing to break.”

USAGOLD note 1: We recall Jeffrey Gundlach’s warning about a year ago that the Fed will raise rates “until something breaks.” Well, it seems something has broken and the problem is systemic. The only question is what the will Fed do now.

USAGOLD note 2: In Friday’s Daily Gold Market Report, we posted an observation from Capitalight Research’s Chantelle Schieven made during a Kitco News interview before SVB’s collapse. “The faster you raise interest rates, the faster something is going to give, that something is going to break. Gold doesn’t need a crisis to move higher, but it definitely loves a crisis.” The metal gained $38 in Friday’s trading to close at $1870, as safe haven buyers returned to the market.

Financial Times/Brooke Masters/3-11-2023

“Silicon Valley Bank’s failure on Friday was an extreme consequence of broad trends squeezing profits and clouding the outlook for the banking sector.”

USAGOLD note: A new and different kind of contagion……Instead of one bank creating a domino effect, we have a set of circumstances that could bring down any number of banks. The problem is ongoing, widespread, and difficult, if not impossible, to manage – a rate-driven sword of Damocles hanging over the banking system. Bloomberg reports that the FDIC warned last week that it is “a $620 billion risk lurking in the US financial system.”

Project Syndicate/Jim O-Neill/3-9-2023

“In January, I expressed optimism that a recession across the Western world (and beyond) was becoming less likely, and high-frequency indicators since then have indeed supported a benign outlook. This is especially true in the United States and China, now that it has reopened, but it also applies to continental Europe, the United Kingdom (to a more modest degree), and many developing and emerging economies.”

USAGOLD note: While some are convinced we are headed for a recession, O’Neil, former chairman of Goldman Sachs Asset Management, sees a mixed bag of indicators and an economy that could go either way.

MarketsInsider/Theron Mohamed/3-9-2023

“People who invested in the S&P 500 two years ago have made virtually no gains, he noted. They might increasingly view a risk-free return of over 5% from government bonds as appealing, he argued.”

USAGOLD note: MacDonald is the editor of “The Bear Trap Report.” He says there are “massive cracks” below the surface of the economy.

Economic Times/Mohamed A El-Erian/3-8-2023

“It really shouldn’t be this way, and it doesn’t need to be. Yet once again remarks by Federal Reserve Chair Jerome Powell fueled considerable volatility in markets that could risk both economic well-being and financial stability. It’s a phenomenon that not only highlights repeated policy slippages but also the lack of important structural and strategic underpinnings at the Fed.”

USAGOLD note: El-Erian has become a lead critic of the Powell Federal Reserve. In his view, the Fed chairman is playing with fire. In this essay he details where the Fed is going wrong.

Wisdom Tree/Nitesh Shah/February 2023

“Despite some of the near-term setbacks for gold,” it says, “we should remember that the bond yield curve is the most inverted since the early 1980s. Gold has historically performed well during bear market flattening inversions. Historically, yield curve inversions are followed by recession (albeit with long lags). Markets are fearing that central banks could easily overdo the tightening in their inflation fight. Gold is often highly sought after in periods of economic and financial uncertainty as the metal presents strong defensive hedge qualities.”

Bloomberg/Greg Ritchie/3-8-2023

“For the first time since the global financial crisis, investors are betting long-term inflation in the euro area will match that of the US, underscoring the dramatic shift in the outlook for Europe recently.”

USAGOLD note: Gold demand in Europe has grown steadily over the past several years, particularly in Germany. A rising inflation rate would likely boost the already strong demand for physical metal.

Chart courtesy of the World Gold Council • • • Click to enlarge

Financial Times/Karen Ward/3-7-2023

“The US had a bumper jobs and retail spending report for January. Investors are now wondering whether the recession they had come to accept as inevitable is likely after all.”

USAGOLD note: Central banks play a far more significant role in financial markets than their originators ever intended. To a large extent, the distortions introduced as a result have created an investment world essentially turned upside down and divorced from economic reality. Nobody, including the central banks, has a clue where we are headed.

Bloomberg/Michael Mackenzie and Liz McCormick/3-7-2023

“As a result, the closely-watched spread between 2- and 10-year yields this week showed a discount larger than a percentage point for the first time since 1981, when then-Fed Chair Paul Volcker was engineering hikes that broke the back of double-digit inflation at the cost of a lengthy recession. A similar dynamic is unfolding now, according to Ken Griffin, the chief executive officer and founder of hedge fund giant Citadel.”

USAGOLD note:  We should keep in mind that there is a lag between the time the yield curve inverts and the onset of a recession. We made the chart below interactive for those who would like to take a closer look at the lag times.

Financial Times/Myles McCormick, Derek Brower and Justin Jacobs/3-8-2023

“The Opec cartel is back in control of the world oil market as the shale revolution peters out, according to a number of industry executives who warned of higher prices for crude in the year ahead.”

USAGOLD note: Since oil is a component in the pricing of just about everything, OPEC control of the oil market will make it even more difficult for central banks to contain the inflation rate.

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Image attribution:
Caspian Delta, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons

RIA Advice/Michael Liebowitz/3-8-2023

“The big question facing the Fed is whether they should increase the Fed Funds rate by 25bps or 50bps on March 22, 2023. If Jerome Powell cared for our advice, we would tell him to take the opposite approach of President Theodore Roosevelt. Speak loudly because your stick isn’t that big anymore.”

USAGOLD note: Patience with the Fed is beginning to wear thin as is its market clout……