Author Archives: News
US banks prepare for losses in rush for commercial property exit
Financial Times/Stephen Gandel, Joshua Chaffin and Eric Platt and Joshua Oliver/6-5-2023
“Some US banks are preparing to sell off property loans at a discount even when borrowers are up to date on repayments, a sign of their determination to reduce exposure to the teetering commercial real estate market.”
USAGOLD note: Something wicked this way comes…… And the banks see the signs.
The end of King Dollar? The forces at play in de-dollarisation
Yahoo!Finance-Reuters/Naomi Rovnick and Libby George/5-25-2023
“Rivalry with China, fallout from Russia’s war in Ukraine and wrangling once again in Washington over the U.S. debt ceiling have put the dollar’s status as the world’s dominant currency under fresh scrutiny.”
USAGOLD note: Though the dollar is likely to remain the currency of choice in international transactions, its status as a reserve holding is in decline. Gold could be among the long-term beneficiaries if the trend continues. In fact, central bank gold demand set a record in 2022 and continues at a record pace in 2023. Reuters says “mushrooming alternatives could create a multipolar world.”
Fed chair spoke with UBS CEO amid banking crisis
“Powell’s calendar shows the abruptness with which the banking sector problems — which have since triggered three U.S. bank failures in addition to the UBS-Credit Suisse deal — erupted nearly three months ago.”
USAGOLD note: Investors worry about a black swan event, but what we have had thus far is a cluster of gray swans – abrupt but predictable mini-crises instigated primarily by highly publicized but poorly understood central bank policies. Nevertheless, collectively they have taken their toll and uncovered vulnerabilities that may yet instigate the next black swan. Mark Spitznagel, who with Nicholas Taleb (originator of the term “black swans.”) conducts business as Universa Investments, says that decades of easy money is leading to a “mega-tinderbox time bomb” in the financial system. “He just doesn’t know when the bomb will go off, ” according to a Wall Street Journal article published last weekend.
IMF says U.S. should tighten fiscal policy to help cut persistent inflation
“The International Monetary Fund said on Friday U.S. interest rates will likely need to remain higher for longer to tame inflation, and Washington needs to tighten fiscal policy to bring down its federal debt.”
USAGOLD note: Isn’t this the kind of advice IMF usually offers to countries like Argentina and Turkey? Needless to say, even if the politicians agree on a debt ceiling the spending will continue at a high level.
In Gold We Trust 2023
Incrementum/Ronald-Peter Stoferle and Mark J. Valek/May, 2023
“The full year 2022 was clearly positive for gold in all currencies, with the one exception of the US dollar. Gold in US dollars suffered from the marked appreciation of the dollar. On average, the price gain in other currencies was 7.2%. In the (former) safe-haven currency, the Japanese yen, the gold price rose by 13.7%. In euro terms, it was up 6%, for the 5th annual gain in a row, which ruthlessly reveals the glaring weakness of the European single currency. In the current year, 2023, gold is clearly in the plus in all listed currencies, on average by 8.7%.”
USAGOLD note: The quote above covers only one small aspect of the comprehensive (416 page) In Gold We Trust report. In its conclusion, the authors quote lyrics from the Electric Light Orchestra song “Showdown”: Bad dreamer, what’s your name? Looks like were ridin’ on the same train. Looks as though there’ll be more pain. There’s gonna be a showdown.” And that is what they title this year’s report. The firm ends with a prediction of multiple crises and multiple showdowns, i.e., challenges that will take the price to $2300 to $2400 over the next twelve months with an ultimate target of $4800 at some point during the next decade.
A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?
“Treasury bills are debt issued by the U.S. government that mature in four to 52 weeks. New bill issuance could reach about $1.4 trillion through the end of 2023, with roughly $1 trillion flooding the market before the end of August, according to an estimate from BofA Global strategists. They expect the deluge through August to be about five times the supply of an average three-month stretch in years before the pandemic.”
USAGOLD note: If it’s not one thing, it’s another. This situation could seriously impact rates if sufficient demand doesn’t materialize. Then again, there is always the printing press if things get out of hand.
2000 rupee note withdrawal spurs purchase of gold and silver
“The demand for bullion saw a sudden jump on Saturday, which dealers in various parts of the country said was expected to continue till people offloaded a bulk of their ₹2,000 banknotes for gold and silver, even as a rush to exchange the high-value currency notes is expected at banks from Monday.”
USAGOLD note: In a separate article, Bloomberg mentioned that the 2000 rupee note withdrawal was “reminiscent of a shock demonetization exercise in 2016.”
Image attribution: Reserve Bank of India, GODL-India <https://data.gov.in/sites/default/files/Gazette_Notification_OGDL.pdf>, via Wikimedia Commons
The US Treasury may have to break the law to keep the world’s richest nation from default
Yahoo!Finance/Nate DeiCamillo/ 5-23-2023
“If the Treasury paid some debts and not others, Yellen would run the risk of neglecting her duties, said [Bipartisan Policy Center’s Shai] Akabas. This could make both Yellen and her department targets for lawsuits from affected parties. Already, a union of government employees has filed a suit against Yellen and Biden, arguing that they have a legal obligation to ignore the debt ceiling.”
USAGOLD note: A bizarre twist to the already bizarre debt ceiling soap opera ……
Fed rate path hinges on trade off between stable banks or prices
“Federal Reserve policymakers are increasingly grappling with a critical question: How much should they weigh the adverse impact of their interest-rate hikes on banks against the goal of containing the fastest price increases in decades?”
USAGOLD note: Stark choice…… And, in our view, it’s not just the banks that the Fed needs to be worried about.
Why are central bank forecasts so wrong?
Financial Times/Chris Giles/5-18-2023
“The Bank of England is holding a ‘Festival of Mistakes’ this week, celebrating lessons learnt from financial disasters of the distant past. Some would argue that they, and their counterparts at other central banks, should focus on more recent errors.”
USAGOLD note: If their forecasts are wrong, can policy be far behind? James Grant recently called the Fed problem #1 in American finance, and Elon Musk slammed the Fed for being slow to raise rates and thinks it will now be too slow to lower them.
Charting the rise of America’s debt ceiling
USAGOLD note: For those curious about the history of the debt ceiling ………
The Visual Capitalist/Dorothy Neufeld and Nick Routley/5-17-2023
‘Raising the debt ceiling is nothing new. Since 1960, it’s been raised 78 times. In the 2023 version of the debate, Republican House Majority Leader Kevin McCarthy is asking for cuts in government spending. However, President Joe Biden argues that the debt ceiling should be increased without any strings attached. Adding to this, the sharp uptick in interest rates have been a clear reminder that rising debt levels can be precarious. Consider that historically, interest payments on the U.S. debt have been equal to about half the cost of defense. More recently, however, the cost of servicing the debt has risen, and is now almost on par with the defense budget as a whole.”
Investors most pessimistic so far this year, BofA survey shows
“The mood among global fund managers soured further in May, with investors flocking to cash amid concerns that a recession and credit crunch are looming, according to Bank of America Corp.’s latest survey.”
USAGOLD note: Given the run of today’s posts, the pessimism is justified. The demand for gold worldwide is a further indication of the concern reflected in the BofA survey.
Big firms are filing for bankruptcy left and right — and it’s just the beginning
“Vice – saddled with liabilities of up to $1 billion – has filed for bankruptcy. It’s far from alone. Six other large companies threw in the towel within a recent 48-hour span, the most active such period for bankruptcies since 2008, according to Bloomberg data looking at companies with at least $50 million in liabilities.”
USAGOLD note: These are the sorts of things that happen when a real recession takes hold……
Powell’s legacy tested by inflation, bank crisis, new Fed dynamics
“Federal Reserve Chair Jerome Powell, who navigated a combative White House and a pandemic in his first years as head of the U.S. central bank, is facing a critical chapter in his leadership with a battle against inflation still unresolved, worries about recession widespread, and developing criticism of the Fed’s oversight of the financial industry.”
USAGOLD note: The Fed has only itself to blame, though Powell inherited much of the problem from Bernanke and Yellen.
What are older office towers worth? San Francisco provides an example.
Wolf Street/Wolf Richter/5-9-2023
“Now we have the first sale in the new-era of working-from-home and office-downsizing in San Francisco, which has surpassed Houston and Dallas as the worst major office market in the US. There are a number of office towers on the market. One of them, the headquarters of Union Bank at 350 California Street in the Financial District, has found a buyer.”
USAGOLD note: Richter says that Union Bank building was first listed for $250 million in 2020. It pulled the listing in 2022 and then relisted at $120 billion in early 2023. It recently sold for between $60-$67 million – 75% below the original offer price. The sale, says Richter, “is sending cold shivers down the spines of Commercial Mortgage-Backed Securities.”
‘Genuinely worried’ Asian investors flock to safe haven gold amid US dollar woes
South China Morning Post/Biman Mukherji/5-15-2023
“Long considered an alternative currency and safe-haven asset, gold has soared in popularity over the past month as investors in Asia’s trading hubs of Hong Kong and Singapore have flocked to the yellow metal, which has an inverse relationship with the trouble-beset US dollar.”
USAGOLD note: One retailer in Hong Kong reports 40% increase for April over March and 110% year to date. Most of the buying has to do with investor concern about the eroding value of their savings.
Platinum demand predicted to surge this year, leaving a near 1-million-ounce deficit
CNBC/Hannah Ward Glenton/5-16-2023
“A previously anticipated platinum shortage will be worse than expected this year thanks to increased demand, particularly from the industrial sector, according to the World Platinum Investment Council.”
USAGOLD note: CNBC reviews platinum’s prospects for the rest of the year……
The Deutsche Bundesbank and gold: A bond that never breaks?
The Alchemist/Wolfgang Wrzesniok-Rossbach/5-11-2023
“Over the next few years, the gold reserves literally exploded. By 1959, when the European Payments Union was replaced by the European Monetary Agreement, Germany had already received 1,584 tons of gold from its European partner countries. As a result of further inﬂows from the Bretton Woods system, among others, the Bundesbank’s total holdings reached 2,344 tons by the end of 1959, and the inﬂows continued steadily.”
USAGOLD note: Germany owns the second-largest stockpile of gold in the world at 3,355 tonnes. “T]he knowledge of the existence of this treasure,” says Wrzesniok-Rossbach, “clearly allows many Germans to sleep better in light of the many ﬁnancial and economic policy imponderables in the
Investors go for the gold as prices surge, poll finds
“Americans favor gold as the strongest long-term investment at the largest proportion in over a decade, a new survey found, as equities lose favor while the precious metal hovers at a near record high.”
USAGOLD note: A Gallup poll finds that 26% of Americans view gold as the best investment over the long run – a two-fold increase over last year. Only 18% cited stocks and mutual funds in the best investment category while 34% favored real estate.
Fewer Treasurys, more JGBs in the cards for Japan life insurers
NikkeiAsia/Toshihiro Sato and Kosuke Iguchi/5-10-2023
“Dai-ichi Life Insurance plans to cut its holdings of currency-hedged Treasurys, and Nippon Life Insurance also plans a more cautious approach to unhedged foreign debt. This comes amid a broad trend in Japan’s life insurance industry toward buying more JGBs, anticipating a change in policy by the BOJ.”
USAGOLD note: Japanese life insurance companies have been an important part of the demand picture over the past twenty years. The Council of Foreign relations puts the total holdings of foreign bonds by Japanese private investors (of which life insurers is one component at $740 billion) at $3 trillion. One investment manager stated the problem plainly. “After accounting for hedging costs, investing in Treasuries has no appeal in terms of yield.”