Monthly Archives: April 2023

Oaktree/Howard Marks/4-17-2023

“My sense is that the significance of the failure of SVB (and Signature Bank) is less that it portends additional bank failures and more that it may amplify preexisting wariness among investors and lenders, leading to further credit tightening and additional pain across a range of industries and sectors.”

USAGOLD note: The latest client memo from Howard Marks recounts a growing concern among top-notch analysts that the bank liquidity crisis will morph into a full-blown credit crunch. He is particularly worried about commercial real estate loans. “Notable defaults on office building mortgages and other CRE loans,” he says, “are highly likely to occur. Some already have.”

MarketWatch/Jeffry Bartash/4-20-2023

“A bevy of mostly mid- to small-sized banks have borrowed heavily from the Fed through an emergency program set up after the failure of Silicon Valley Bank in March. The Fed set up the program to prevent further bank runs and stabilize the U.S. financial system.”

USAGOLD note: It’s not over until it’s over ……Many banks are sitting on large underwater positions in Treasuries. Bartash says the banks “may not be close to being in the clear.”

Financial Times/Staff/4-22-2023

“US banks are becoming increasingly worried about falling commercial property valuations and the risk they pose to lenders’ balance sheets, senior executives said this week. Office valuations in particular have been pummelled by rising interest rates and many employees’ preference for working from home since the coronavirus pandemic.”

USAGOLD note: These warnings keep popping up about trouble brewing in commercial real estate. As the old saying goes, where there’s smoke there’s fire. Half of the investors polled in a recent Bank of America survey identify commercial real estate “as the most likely source of a systemic credit event.”

NewsmaxFinance/Nigel Green/4-20-2023

“It’s a perfect storm that will lead to the dollar being one of the biggest losers of 2023. There is a transition underway from a bull to a bear cycle for the dollar and this will shift the global investment environment in a profound way.”

USAGOLD note: Green is the founder and CEO of London-based de Vere Group.He says a dollar retreat could jolt portfolios, “especialy if they aren’t properly diversified.”

Bloomberg/John Authers.4-18-2023

“I think you see where I am going with this. The US dollar is Amazon, and the Chinese yuan is Walmart. Yes, China would like to dethrone the dollar, but it isn’t that simple.” – Brad McMillan, Chief Investment Officer for Commonwealth Financial Network

USAGOLD note: While we agree with Authers that the dollar will not lose its status as the dominant currency in international trade anytime soon, it is clearly losing ground as a reserve currency. (Please see this morning’s Daily Gold Market Report further down the page.) Alan Simpson, former Wyoming senator, once referred to the dollar as “the healthiest horse in the glue factory.” All said, gold does not need de-dollarization to continue moving higher. Likewise, the dollar can still decline against other currencies despite its exorbitant privilege (as it has in the past). The more critical factor for savers and investors is the ongoing erosion of the greenback’s purchasing power since 1971 and the attendant increase in the price of gold, as shown in the chart below.

Gold and the purchasing power of the US dollar
(1971 to present)

Chart courtesy of TradingView.com • • • Click to enlarge

Bloomberg/Bill Dudley/4-19-2023

“Quantitative easing also played a role. When the Fed purchased trillions of dollars in Treasury and mortgage-backed securities to push down longer-term interest rates, it flooded the banking system with deposits, which banks often invested in the same longer-term securities at extremely low yields. This all but ensured that when the Fed later tightened, causing yields to rise and prices to fall, it would generate large mark-to-market losses at the banks.”

USAGOLD note: An usually strong indictment of the Fed’s easy money policies from the former head of the Federal Reserve Bank of New York – the traditional linchpin of Fed policy implementation. Can the Fed ever step off the QE treadmill? That is a question every investor must address in his or her long-term investment planning. To ignore it, is to ignore the central economic issue of the times.

MarketWatch/Nathan Vardi/4-19-2023

“By the end of 2022, Beal Bank’s assets had more than quadrupled to $32.6 billion, up from $7.5 billion at the end of 2021. The asset rise made Beal Bank the nation’s 61st biggest bank. Beal has essentially made a massive bet on inflation, buying $21.2 billion of Treasury bonds, Beal Bank’s filings with the Federal Deposit Insurance Corporation show. Just about all of those bonds are TIPS, says a person familiar with the trade who was not authorized to speak publicly.”

USAGOLD note: The point that sticks in the mind is that Beal’s bet on inflation is for the long term……”It suggests Beal believes inflation is here to stay for at least several years.”

CNBC/Steve Leisman/4-18-2023

“A record 69% of the public holds negative views about the economy both now and in the future, the highest percentage in the survey’s 17-year history.”

USAGOLD note: Helps to explain the consistently strong demand for gold and silver among American investors.

Financial Times/Jenniger Luges, Mary McDougll and Kate Duguid/4-18-2023

“After an 18-month bull run that took it to a 20-year high against a basket of currencies in September last year, the greenback has been in retreat as analysts have scaled back their expectations of US interest rate rises. Last week the dollar hit its lowest level in a year against the euro, as well as against the broader currency basket.”

USAGOLD note: A very dovish BoJ rate policy has kept the dollar from declining even further, faster over the short run……But that damper might wear off over the next few weeks. Professional traders have doubled their short positions in the greenback, reports FT.

ZeroHedge/Mark Cudmore/4-17-2023

“US yields have risen more than 20bps all the way out the curve. The costs are still rising almost parabolically, so expect headline excitement when the $1t figure is likely reached later this year.”

USAGOLD note: Though the interest paid on the national debt is a problem widely ignored by mainstream economists, we can be assured that both the Fed and the Treasury Department are acutely aware of it. The problem can be worsened in two ways. First, the federal government continues to pile up the debt. Second, interest rates could continue to rise. To add a little perspective, federal government tax receipts as of the end of 2022 stood at $3.2 trillion. Thus, interest payments were 26% of taxes collected. Mark Cudmore is a Bloomberg macro strategist.

Sources: St. Louis Federal Reserve [FRED], OMB

Bloomberg/Max Abelson/4-15-2023

“That’s because the history of banking is, at least in part, a kind of horror story that keeps repeating itself.”

USGAOLD note: Nettlesome human nature always seems to get in the way……In more ways than one. As human beings, we are tasked with operating within systems designed, built, and managed by human beings. But worry not, artificial intelligence is moving quickly in the direction of rremedying the human condition.