GnS Economics/Tuomas Malinen/10-15-2019
“No one dares to look at the facts—or if they do, they dismiss them. Denial is a powerful force. The fact is that monetary policy is running on empty, at least in the Eurozone, and governments can provide only limited fiscal stimulus. We’ve reached the end. There’s nothing left to do than prepare for the crisis and wait. And, to be very afraid.”
USAGOLD note: A simultaneously dire and persuasive forecast from economist Tuomas Malinen, chief economist at GnS Economics and Adjunct Professor of Economics at the University of Helsinki.
“I’m not expecting any of this to go away in the years ahead.” – James Bullard, President, St. Louis Federal Reserve Bank
USAGOLD note:
“And what about the possible impact of a positive G20 and momentum toward a U.S./China trade deal? Stocks, no surprise, are readily excitable. For global safe haven bonds, however, it’s of little consequence. How can this be? Because even a trade deal would at this point have minimal impact on what has become deep and rapidly worsening structural impairment. Trade deal or not, Chinese exports to the U.S. will decline, right along with capital investment. Even with a deal, the Chinese financial system faces the consequences of years of rapid expansion as economic prospects deteriorate. Sure, 6% growth as far as the eye can see. That implies a further surge in consumer debt and even more dangerous mortgage finance and apartment Bubbles. Unparalleled overcapacity and maladjustment.”
“Your consultants, like most economists today, will be vociferously opposed to the yellow metal, burdened as they are by ignorance and countless myths and superstitions. This widely shared skepticism will actually be an advantage, as it will keep away well-capitalized imitators.”
“The United States is just one bad recession away from being right back at zero interest rates or even lower, Larry Summers warned on CNBC on Monday.”
“Major gold companies are running out of reserves and every year it costs more to mine. That is causing an “existential crisis” for the gold mining industry, as executives at gold producers like Barrick, Newmont Goldcorp, Randgold, AngloGold Ashanti, Newcrest and Kinross, puzzle over how to replace their depleted reserves, where new gold will come from, and how they will deal with the rising costs of extraction.”
“More than two decades since the Asia debt crisis gripped the region, global consulting firm McKinsey & Co. is warning that signs of a rerun are ‘ominous.’ Increased indebtedness, stresses in repaying borrowing, lender vulnerabilities and shadow banking practices are some of the concerns cited by McKinsey in an August report.”
“Similar to his billionaire hedge fund counterpart Ray Dalio, Baupost Group CEO Seth Klarman is concerned about an incoming financial crisis as well as political and social tension in the US.”
“There isn’t a lack of catalysts to drive the market crazy, including upcoming trade talks, third-quarter earnings reports and President Donald Trump’s impeachment saga. Over the past 30 years, more than 190 S&P 500 companies have seen a daily move of more than 1% in October, the most companies in any given month, according to Macro Risk Advisors.”
“’Normally the business cycle is the key driver of asset prices. … But not at the moment,’ [Deutsche Bank’s Torsten] Slok wrote in a Tuesday note to clients. ‘How can the S&P 500 be so high and credit spreads so tight when rates markets are so worried about the growth outlook and therefore the corporate earnings outlook?’”
“Today, gold is more relevant than ever for institutional investors. While central banks in developed markets are moving to normalise monetary policies – leading to higher interest rates – we believe that investors may still feel the effects of quantitative easing and the prolonged period of low interest rates for years to come. These policies may have fundamentally altered what it means to manage portfolio risk and could extend the time needed to meet investment objectives. In response, institutional investors have embraced alternatives to traditional assets such as stocks and bonds. The share of non-traditional assets among global pension funds has increased from 15% in 2007 to 25% in 2017. And in the US this figure is close to 30%.”
“This is the time where you need to reflect upon your strategy. It’s actually easy to manage assets when the economy is booming. It’s much more difficult to manage into a turning point.” – Campbell Harvey, Duke University
“I see gold as a solution to many of the issues I’ve laid out, whether it’s recessionary spillover from Germany, high debt levels or helicopter money. I’m not alone in thinking this. In a September report, the World Gold Council (WGC) calls the yellow metal ‘the most effective commodity investment,’ adding that ‘allocations of 2 percent to 10 percent in a typical pension portfolio have provided better risk-adjusted returns than those with broad-based commodity allocations.’”
“China remains the largest single consumer of physical gold globally, with estimated annual demand of approximately 2,000 metric tons. . . China is also the largest gold producer in the world, producing approximately 450 metric tons per year.”
“As yet the equity market seems totally unaffected, with volatile and risky stocks still making the running. Although the brontosaurus has been bitten on the tail, the message has not yet reached its tiny brain, but is proceeding up the long backbone, one vertebra at a time.” – Jeremy Grantham, June 2007
“DoubleLine Capital’s Jeffrey Sherman believes the August rush into Treasurys may have been overdone and said that those worried over a potential economic slowdown in the U.S. may be better served buying gold.”
“New highs are times to take profits on a scale-up basis, and significant corrections offer the opportunity to step up to the plate and repurchase the precious metals. Unfortunately, the human emotions of fear and greed often drive traders and investors to buy when markets are peaking and sell on days like September 5 and 6. Trailing stops can be useful tools and capital savers during wild bull markets.”
“You see, after the 1970s, central banks bought into the idea that the U.S. dollar was the savior of the global financial system. They rushed to buy the greenback like there was no tomorrow. After the financial crisis of 2008–2009, it became very clear to central banks that the U.S. dollar isn’t as secure as they were told it would be.”
“In foreshadowing the Fed’s decision earlier this week, Chairman Jerome Powell repeatedly insisted that any planned securities purchases would not be a resumption of quantitative easing — the crisis-era stimulus programs that the central bank used to lower long-term borrowing costs and boost the economy.”
“First, let’s square up the numbers. Pooley and Tupy say the typical working stiff has to put in 30% more hours to get the typical F-150. Our figures show more like 100%. We agree on the prices for the F-150. We agree on the average wage in 1970. But what typical wage earner takes home $32.50 an hour today? Pooley must be adding non-dollar ‘benefits’ to wages, just as he is to products.”
“Even though the bulls have the upper hand in light of optimistic headlines, Cramer says there’s still plenty of time for the next report to send stocks lower.”
“The bullion bounce surge, which has taken off this month, will continue to be propelled by mounting investor worries, according to Swiss bank UBS. ‘Gold is set to gain as recession, trade and geopolitical risks rise, and yields fall,’ the report states. An ounce of the metal, which recently fetched $1,520 could rally more than 10% to $1,680 in 2020, the usually-conservative bank says.”
USAGOLD note:
“A significant bull wedge is in play, and the target zone is well above the $19.75 area highs!”
“’Gold is a good alternative currency because it’s safe, and because it costs nothing to own it compared to paying negative rates on deposits,’ Roche said. As a result, gold prices will likely touch $1,600 before the end of this year, before moving higher to $2,000 next year, he said.”
