Author Archives: News

Poorer countries copied America’s money-printing spree—and are paying the price

Quartz/Roya Wolverson/2-10-2021

graphic image of inflation genie out of the bottle“The Federal Reserve and other powerful central banks have viewed a curiously long bout of low inflation as proof that stimulating the economy through unconventional money-printing measures can ease the pain of downturns. Those tactics traditionally were considered off-limits to less developed economies with unstable politics and weaker currencies.”

USAGOLD note:  The quantitative easing pandemic started in the United States then spread to emerging countries. Now the inflation genie is out of the bottle in many of these countries and foreign investors are becoming skittish about buying their currencies and financing their debts. Will the result be the same in the United States? A good many, too many in fact, say the answer to that question is “yes.”

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Fed backstop masks rising risks in America’s corporate debt market

Financial Times/Joe Rennison

“[C]ompanies’ ability to pay for the increase in debt has declined, with the number of so-called zombie companies — whose interest payments have been higher than profits for three years running – rising close to the historic peak, according to data from Leuthold Group.”

USAGOLD note:  The dangers of moral hazard are covered in detail in this FT article without ever referring to it as such. The question remains: What happens to these companies when the Fed pulls the rug? An even more complicated question might be What happens if it doesn’t?


Repost from 12-28-2020

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‘I’ve never seen anything like this before’ – Alan Greenspan

CNN/Anneken Tappe

stein cartoon image of foot about to meet banana peel an unintended consequence
“‘I’m not convinced at all that we have enough information to know how to deal with this type of problem,’ Greenspan said, adding that there could be unintended consequences for society.”

USAGOLD note: In this article, Greenspan signals he may be amenable to some kind of federal relief package which, of course, would add significantly to the national debt – something to which he has been anathema for most of his career. It would be interesting to hear more about how he reconciles his old beliefs with the new abnormal, I.e., whether he sees it as acceptable to run huge deficits and finance them with printing press money under these circumstances.


Repost from 11-19-2020

 

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From rickety souk to global powerhouse: How Dubai became the City of Gold

CNN Travel/Ashleigh Stewart/2-2-2021

photo of display at gold souk Dubai

“The labyrinthine alleyways and carved wooden roofs of the Dubai Gold Souk haven’t changed much in the last century, aside from some modernization. What has changed is its size and scope. Over the years, the souk has expanded from around 400 square meters to a vast powerhouse more than two kilometers wide and three kilometers in length. More than 700 merchants now ply their trade here, primarily in the Gold Souk or in the Meena Bazaar, just across the Creek. Many shops around here have been in family hands for decades.”

USAGOLD note:  Several years ago a client told of his visit to Dubai’s gold souk and being surprised at the number of merchants who had the USAGOLD website on screen as they went about their daily business.  We still get considerable traffic daily from India and the Middle East. Visits from India rank number two.  The United Arab Emirates (Dubai) is number seven.

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Bond market braces for possible return of long dormant foe – inflation

Financial Times/Tommy Stubbington and Colby Smith

Uncle Sam poster with quote bubble saying 'I need vast sums of money!'“A rebound in inflation, which has been elusive since the 2008 financial crisis, could disrupt these widely held expectations by making the debt market look less attractive. Bonds typically provide investors with a fixed stream of interest payments, which become less valuable as the overall cost of goods and services accelerates.”

USAGOLD note:  JP Morgan Chase’s Jamie Dimon recently said that he wouldn’t touch Treasuries with a ten-foot pole – perhaps an indication that he too sees inflation coming down the road. The problem from a monetary policy perspective is that reluctance to buy evolves to encouragement to sell and we have another “liquidity problem” like we experienced earlier this year. Ultimately, it comes down to financing the huge federal government deficits and how that would be accomplished if buyers of Treasuries were to become sellers – something that might already be underway as it is.


Repost from 12-18-2020

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In silver, Redditors find a fit for raging against the establishment

Bloomberg/Jack Farchy, Eddie Spence and Eddie van der Walt

Photo stacks of silver bullion coins
“The calls for a ‘short squeeze’ appear far fetched, given the market’s size and lack of any clear short position to target. But the sharp run-up in prices and massive surge in demand for coins over the weekend points to mounting interest in the precious metal among retail investors.”


USAGOLD note: The short squeeze may or may not materialize. The new-found interest in silver, though, as means to asset preservation in these precarious times is likely to remain. The Reddit situation seems to have unloosed a considerable amount of pent-up demand for the metal itself, not just ETF shares. Market watchers will take note …… Raging against the establishment is not at the top of the list for most precious metals investors. What does engage their interest, though, is enlisting protection against the mania raging in financial markets and the possibility of being aced out of physical metal ownership by the Reddit Rebellion – or some other version of social media frenzy.

Repost from 2-2-2021

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11 hours of pure mania

Bloomberg/Sarah Ponczek and Claire Ballentine

antique image of Mackay Bubble Card South Seas scheme“Cooped up at home, glued to Reddit and Stocktwits chat forums, empowered by Robinhood accounts, funded by massive government money-printing and emboldened by a bull market that has turned reckless risk-taking into a virtue ……”

USAGOLD note:  Those who have studied the history of money printing know that it not only has an economic impact, it also has a psychological impact inciting uncontrolled greed, financial recklessness, and moral hazard – in short, a mania. Among the references in the foregoing snippet, perhaps the most damning is that the current mania is funded by “massive government money printing.” It goes without saying that Gamestop is unlikely to be the one and only manifestation of the phenomenon.


“Have you ever seen in some wood, on a sunny quiet day, a cloud of flying midges — thousands of them — hovering, apparently motionless, in a sunbeam? …Yes? …Well, did you ever see the whole flight — each mite apparently preserving its distance from all others — suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall — did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.” – Bernard Baruch (1870-1965)


Image: South Seas Bubble Card from the original edition of John Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (Click to enlarge)


Repost from 1-29-2021

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Yellen faces currency war as strong dollar ditched

Bloomberg/Saleha Mohsin and Liz McCormick

“For Yellen, who this month set herself apart from previous Democratic administrations by rejecting a return to a ‘strong dollar’ policy, that could pose a challenge.”

USAGOLD note:  The challenge posed in this article is a global currency war, a phenomenon likely to simultaneously drive up gold demand wherever the battle lines happen to be drawn. In 2020, as shown in the chart below, gold rose significantly in every major currency, including the U.S. dollar.

line chart showing the performance of gold in various currencies for 2020

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


Repost from 1-30-2021

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Visual Capitalist: Debt-to-GDP continues to rise around the world

bar chart showing the percentage grown in debt by country Q419 to Q320 Visual Capitalist

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

“The economic situation, on the other hand, is unlikely to improve anytime soon. Falling revenues combined with costly pandemic relief measures have increased global debt by $20 trillion since the third quarter of 2019. By the end of 2020, economists expect global debt to reach $277 trillion, or 365% of world GDP.”


Repost from 12-15-2020

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The Covid-19 pandemic has added $19.5 trillion to global debt

Bloomberg/Liz Capo McCormick,  Craig Torres, Mathieu Benhamou and Demetrios Pogkas

grapic image of towering debt skyscraper reaching for the stars“In the battle against Covid-19, governments around the globe are on the cusp of becoming more indebted than at any point in modern history, surpassing even World War II.”

USAGOLD note:  No matter how you slice and dice it – no matter how sophisticated the corporations and nation-states involved – there will come a day of reckoning when, as Bloomberg puts it, “the world will be weighed down by larger debt burdens that could hobble growth over the longer term.” And then of course, there is the issue of how these debts will be handled when interest rates begin to rise, and, in the interim, the money that has been printed to cover them.


Repost from 1-27-2021

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Finance capitals imperiled by threats beyond working from home

Bloomberg/James Hertling and Viren Vaghela

photo of city of London financial district“As global finance leaders take a fresh look this year at the hubs that have long been their homes, they’re increasingly seeing high costs and political chaos. Amid a work-from-home boom spawned by the Covid-19 pandemic, those headwinds threaten to redraw the global map of where money is raised and made.”

USAGOLD note: Until recently, the subject of dispersion has been pushed to the back pages in the financial press. This Bloomberg report will raise more than a few eyebrows and stir great concern among economists. How long before cities in general begin to feel the effects of the revolution now transfixing the workplace?


Repost from 12-15-2020

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Inflation is spreading broadly into the economy

Wolf Street/Wolf Richter

graphic image red sticker with the word "inflation"“The signs of inflation building up in the economy are now everywhere. IHS Markit, in its release of the Flash PMI with data from companies in the services and manufacturing sectors, added to that pile of evidence.”

USAGOLD note: Anecdotal evidence that inflation is rising even if it is not being recorded in the federal government’s numbers. Richter says inflationary pressure has been building since last June.


Repost from 1-26-2021

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US carrier group enters South China Sea amid Taiwan tensions

Reuters/Staff

“A U.S. aircraft carrier group led by the USS Theodore Roosevelt has entered the South China Sea to promote ‘freedom of the seas’, the U.S. military said on Sunday, at a time when tensions between China and Taiwan have raised concern in Washington.”

USAGOLD note:  With everything else going on, most have forgotten that we still live in a world rife with geopolitical tensions including those involving the United States, China, and Taiwan. The presence of the USS Theodore Roosevelt in the South China Sea sends a message and elevates tensions.


Image source: https://upload.wikimedia.org/wikipedia/commons/d/de/South_China_Sea_claims_map.jpg


Repost from 1-25-2021

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Deficit spending is expected to skyrocket in 2021

Rogue Economics/Bill Bonner


“And it’s still too early to know if the downward trend in yields has come to an end.But just to be clear about it, rising yields in an economy with $80 trillion of debt is a sign of impending doom. It becomes ever more expensive to finance and refinance the debt… requiring more and more infusions of fake money. The locomotive goes faster and faster… until it flies off the tracks.”

USAGOLD note:  Bill Bonner reminds us of some down-to-earth realities about to impose themselves on the American economy ……


Repost from 1-25-2021

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Gold coins stolen from Reichsbank in early 1940s found buried under tree near Luxembourg

War History Online/Craig Bowman

“He found 10 gold coins in an envelope embossed with a Nazi swastika and eagle. The word ‘Reichsbank’ ‘was inscribed on the envelope. He found the envelope in a hole one meter deep. He immediately informed authorities of his find. Experts then unearthed an additional 207 coins. The experts believe that the coins are of French, Belgian, Italian and Austro-Hungarian origins.”

USAGOLD note: This story will likely generate interest among our clientele many of whom own examples of the very same items found buried under the tree near Luxembourg.


Image: Historic European gold coins


Repost from 10-4-2020

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Biden’s Fed – New mandates, a close White House tie and big challenges ahead

CNBC/Jeff Cox

graphic image of the White House with piles of dollars “But that doesn’t mean the U.S. central bank won’t face pressure as it looks to navigate its way through a new administration. Challenges ahead include the coronavirus pandemic, as well as demands for a more inclusive economy and a stronger approach toward social issues, such as racial equality and climate change.”

USAGOLD note: Not to mention keeping the printing press running at full tilt to cover the costs of all that……Some interesting new dynamics come into play as Biden moves into the White House, Powell remains at the Fed and former Fed chair Yellen moves to Treasury. The upshot, though, is that the new act taking the stage has a far more ‘progressive’ agenda than the one that has just exited. And the one that just departed was not exactly conservative in its approach to economics.


Repost from 1-22-2021

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Inflation rippling through markets is just what the Fed wants to see

Bloomberg/Liz McCormick and Craig Torres

graphic image of inflation genie out of the bottle“Heading into what looks like a monetary-policy gap year, with neither bond purchases nor benchmark interest rates expected to change in 2021, the Fed is far more worried about the risk of long-term scars — which could develop from a slow recovery — than about the risk of overheating the economy.”

USAGOLD note: History shows that once the inflation genie is out of the bottle, it is very difficult to get it back in.


Repost from 1-22-2021

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Yellen’s ‘act big’ reflects long rethink on big government debt

Reuters/Howard Schneider

“Forget about the amount being borrowed, Yellen, a former Federal Reserve chair, told members of the Senate Finance Committee. Focus instead on the interest rate being paid and the returns it will generate, an approach that argues the country’s future economic potential can support more borrowing today and makes the roughly $26.9 trillion in U.S. IOUs seem less formidable.”

USAGOLD note:  Famous last words …… It would be regrettable for investors to forget that the debt – however large – will need to be repaid (with interest), inflated away, or repudiated. One of those options is unlikely. The other two suggest a practical need for portfolio diversification.

Additions to the U.S. National Debt
(Quarterly through Q3-2020, in millions of dollars)

bar chart showing additions to the national debt thru Q3 2020

Sources:  St. Louis Federal Reserve, U.S. Department of Treasury, Fiscal Service


Repost from 1-22-2021

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Investor anxiety mounts over prospect of stock market ‘bubble’

Financial Times/Katie Martin/1-24-2021

grpahic image antique of frog“Screaming stock rallies and wild speculation by have-a-go amateur investors are stirring concerns among market veterans over a bubble to rival anything seen in the past century.”

USAGOLD note:  Money managers, no doubt, are being asked in droves:  “How do we hedge it?” One thing to keep in mind is that it’s not only the market that could break down but the brokerage firms that service it – in which case the investor in many instances is at the mercy of the web portal housing his or her accounts even if one’s advisor is able to structure some sort of derivative solution. The best way to hedge the system is not with more of the system’s paraphernalia, but with something that stands outside it – purchased preferably far in advance of the bubble bursting. First and foremost, do not allow yourself to be grouped without hope of a better result among Klarman’s frogs.

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Major Asset Class Performances 2020

Visual Capitalist/Niccolo Conte/1-1-2021

table showing asset class performances for 2020

Repost from 1-21-2021

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