Author Archives: Opinion

Two Fed presidents hit the alarm over the broken Treasury market

ZeroHedge/Tyler Durden/11-17-2021

Ramirez cartoon of a Pilgrim finding a cornucopia of debt

Cartoon courtesy of MichaelPRamirez.com

“In the usual post-FOMC meeting jawboning circus, today we had not one but two Fed officials discussing not the topic du jour – Fed policy errors and soaring inflation – but something far more ominous: the broken Treasury market. Just days after a catastrophic 30Y Treasury auction which may well be the harbinger of what’s to come as the market realizes that tapering is tightening and that without the buyer of first resort we will finally get some price discovery …”

USAGOLD note: Durden gives the full treatment to a significant problem that has been curiously underplayed in the financial media: What happens as a practical matter when the Fed pulls the plug on quantitative easing? To conclude the post, he includes a quote from Bloomberg’s Vince Cignarella we see as going to the heart of the matter. “Frankly,” asks Cignarella, “given the biggest buyer of bonds since the financial crisis is slowing purchases, why would anyone else want them?” What happens, in other words, if the Treasury Department calls a bond auction and nobody shows up?

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Leverage on leverage is big danger for investors and their lenders

BloombergOpinion/Paul J. Davies/11-25-2021

“This seems remarkable to me: A very big pension plan [CALPERS], which invests in lots of different funds, including many that use leverage to boost returns, is now going to start using its own leverage on top to try to boost its returns. It highlights how investors of all kinds are having to take more risk to make any money.”

USAGOLD note:  Davies also brings attention to the rapid growth of investor margin debt “breaking new records almost every month.” When the stock market tanked last Friday, the Wall Street Journal blamed the rapid unwinding of margin debt among small investors as contributing to the sharp sell-off – offering a glimpse of the vulnerability leverage brings to the table and a warning of things to come.

Margin accounts with securities brokers and dealers
(1970 to November 2021)

bar chart showing growth of margin debt with brokers
Sources: St. Louis Federal Reserve, Board of Governors of the Federal Reserve System

 

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Joe Wiesenthal thinks debasing the dollar is the moral thing to do

Mises Institute/RobertP. Murphy/11-25-2021

“Joe Weisenthal is an editor and host at Bloomberg who has recently been using his large Twitter platform to cast stones at the inflation hawks. In one recent thread, Weisenthal mocked the people worried about the falling purchasing power of the US dollar, and claimed in fact that it would be immoral for currency to maintain its value over time.”

USAGOLD note: Such thinking beats a path to gold and silver’s door…… The true immorality is that the saver can be deprived of his or her purchasing power over time due to the deliberate erosion of a currency’s purchasing power. There is a workable long-term defense……

Gold and the purchasing power of the dollar
(2000 – November 2021)

overlay line chart showing purchasing power of the dollar and gold 2000 to 2021
Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics, ICE Benchmark Administration

 

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Black holes could be inadvertently making gold, astrophysicists say

Science Alert/Michelle Starr/11-16-2021

Artist rendering of a black hole“The creation of metals such as gold, silver, thorium, and uranium require energetic conditions, such as a supernova explosion, or a collision between neutron stars. However, a new paper shows that these elements could form in the swirling chaos that rings an active newborn black hole as it swallows down dust and gas from the space around it.

USAGOLD note: The anti-gold contingent within financial media will no doubt seize upon this finding as just one more reason to short gold. [smile]

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How durable is the Potemkin economy?

Real Investment Advice/Michael Lebowitz/11-17-2021

photo of Powell and Yellen shaking hands“The original Potemkin Village dates to the late 1700s. At that time, Russian Governor Grigory Aleksandrovich Potemkin constructed facades to hide the poor condition of his town from Empress Catherine II. Since then, Potemkin Village represents a false construct, physical or narrative, created to hide the actual situation. As the pandemic ravaged the economy, the Federal Reserve, White House, and Congress went to work and built a Potemkin economy around the ailing economy.”

USAGOLD note: Lebowitz fears that “sustained inflation will weaken the foundation of the facade and blow our Potemkin economic recovery over.” We are puffing it up, he says, with “fiscal and monetary gimmickry.”

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Fed should hike interest rates immediately to cut stagflation risks, economist Stephen Roach suggests

CNBC Trading Nation/Stephanie Landsman/11-16-2021

artist rendering of the Titanic and icebergs

“Roach has been warning stagflation was one supply chain accident away. Now, he contends the U.S. is in the throes of a broken supply chain while consumer demand is at a fever pitch.”

USAGOLD note: Roach believes that the “supply-demand imbalance is going to be persistent. Enduring.” The Titanic continues to steam through quiet but increasingly dangerous waters.

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The nation’s largest pension plan approves leverage to meet its targets

MIshTalk/Mish Shedlock/11–16-2021

graphic image of the charge of the lemmings“Despite huge stock market gains over the last decade, U.S. pensions are hundreds of billions of dollars short of what they expect to need to pay public worker retirement benefits.”

USAGOLD note: CALPERS takes a bite of the derivatives apple …… Will it be its last? The Wall Street Journal reports that CALPERS, the nation’s largest pension fund, would now “use borrowed money and alternative assets to meet its investment-return target.”  The low yield environment drags another player into the embrace of high-risk leverage and trading.

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The gold price outlook for 2022 and beyond: Central banks buy more gold

Lombardi Letter/Moe Zulfiqar/11-16-2021

photo of gold coins and kilo gold bar“The demand for the yellow precious metal is robust, and this could take the price of gold to a never-seen level. A gold price of $3,000 an ounce is a real possibility within a few years. By early 2022, we could even see gold prices of $2,100 an ounce. Why am I so bullish on gold? The demand side in the gold market is resilient.”

USAGOLD note: Zulfiqar advises investors to keep an eye  on momentum indicators like the MACD which is now starting to trend higher – an indication, he says, that “buyers could be coming in and taking gold prices much higher.”

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Investors need to pay attention to the capital cycle

Financial Times/Merryn Somerset Webb/11-26-2021

grpahic illustration of powder kets with fuse lit“Markets are fragile and set to be highly volatile in 2022.”

USAGOLD note: Webb, the editor of UK’s Money Week magazine, offers a sensible look at central banks’ monetary predicament at one point saying that globalization has played a bigger role in keeping inflation in check than interest rate policies. “If that is true,” she says, “the idea that central banks can sort it out with the odd 0.25 percentage point interest rate rise is laughable. It may be that they must either accept the inflation or actually raise rates properly above inflation rates to control things. That isn’t in anyone’s forecasts.” Webb has indicated a soft spot for gold in recent writings, and with the foregoing as her core conclusion, one would think that has not changed.

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The central bank quandary: Inflation vs recovery

Blain’s Morning Porridge/Bill Blain/11-23-2021

Ed Stein cartoon showing a chart of stock and gold diverging with an investor thinking 'decisions-decisions'

“The problem is by messing around with interest rates, you unbalance the whole financial asset structure. Bonds yield too little, and Equities are overpriced. As I said above, that will continue till interest rates start to normalise, forcing the relative value of equity lower. Which means, have fun in the equity markets today… but we don’t know for how long. There is an alternative. Avoid financial assets. Think about real assets… Gold, Property, etc… Buy assets linked to the real world.”

USAGOLD note: Blain comes to this conclusion after a long excursion into the why’s and wherefore’s on stocks and bonds – all by way of answer to a reader asking about how the bond market works and what she should be doing with her savings.

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Legendary investor Jeremy Grantham issues investor warning

MarketsInsider/Theron Mohamed/11-14-2021

grpahic image of Dr MoneyWise pointing to a chart of the 1929 stock market crash with comment

“The legendary investor and chief strategist of Grantham, Mayo & van Otterloo also sounded the inflation alarm, blasted the Federal Reserve for pumping up asset prices, and reiterated his warning that the worst market crash in US history is coming.”

USAGOLD note: Grantham criticized the mentality that stock prices never decline and “all you have to do is buy.” Investors, he says, are more “blindly optimistic” than they were before the Crash of 1929 or the tech and housing bubbles.

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Investors lulled into ‘dreamland’ by central banks, warns Bill Gross

Financial Times/Robin Wigglesworth/11-15-2021

Advertisement for the 1960s television serial The Twilight Zone“‘It’s dangerous,’ Gross warned of accommodative central bank policy. “It’s all dreamland that’s been supported by interest rates that aren’t where they should be.'”

USAGOLD  note: Gross joins the ranks of prominent investment managers and commentators warning of twilight zone markets saturated with financial euphoria. He points out that the Fed is captive to the markets and cannot do much about it.

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Let’s dance: Buy the credentials – Forget reality, baitballs and financial ergot!

Blain’s Morning Porridge/Bill Blain/11-15-2021

cartoon showing a chorus line corodinatedkick

“Oh dear. When market pricing is determined primarily by the fashion sense of flash-mobs it’s probably time to hang up my hat and go with them… but, of course… I won’t. My spidey-senses are all-a-tingle. I sense a madness in the air, a contagion on the loose. Is it just a disease? Something wicked this way comes… and we all know what it is….”

USAGOLD note: Thoughts on the current financial irrationality …… “Crank up the volume,” he advises, “keep dancing and keep buying! Yay!”

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Gold to see a recovery to last week’s high at $1877 as $1750 holds – Commerzbank

FXStreet/Staff/11-24-2021

OPINION

“Gold has sold off aggressively following a key day reversal. The sell-off is viewed as corrective and the market should remain well supported on dips back to the $1,750 region. Assuming that the $1,750 area holds the downside, we should see a recovery to last week’s high at $1,877. Above here lies $1,917/22, the May 2021 peak and 61.8% retracement and the 2011 high. This will act as the break-up point to the $1,965 November 2020 peak and the 78.6% retracement at $1,989. This is the last defence for the August 2020 peak at $2,072.”

USAGOLD note: Commerzbank technicians undeterred……Make a gutsy call.

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This is Jerome Powell’s shot at a Volcker moment – in reverse

Bloomberg Businessweek/Joe Wiesenthal/11-18-2021

photograph of a row of doves

“But what would pulling a Volcker actually look like in 2021? Perhaps it would be the exact opposite of what people imagine. Because despite elevated inflation, the Fed is nowhere close to maximum employment, which it’s mandated to promote alongside stable prices.”

USAGOLD note: In our view, the Biden administration would not have chosen to nominate Powell had he failed to deliver some assurances on this score when interviewed for the job. We should keep in mind, too, that the Board of Governors, once Biden is through with his appointments, will tilt decidedly to the dovish side of the monetary ledger.

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On inflation and wealth

Linked-in/Ray Dalio/11-11-2021

graphic showing cash as trash“Yesterday’s inflation report showed inflation raging so you are now seeing inflation erode your wealth. That is no surprise. At this time 1) the government is printing a lot more money, 2) people are getting a lot more money, and 3) that is producing a lot more buying that is producing a lot more inflation. Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price without seeing how their buying power is being eroded. The ones most hurt are those who have their money in cash.”

USAGOLD note: The latest from Ray Dalio …… He has not deviated much from the “cash is trash” theme that garnered considerable attention last year. Now with inflation digging in, he is adamant as ever. One of the investments Dalio recommends in lieu of cash is gold, and he has been advocating it for many years.

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El Erian: This is one of the worst inflation calls by the Fed ever

MarketsInsider/Isabelle Lee/11-12-2021

graphic image of bank with red warning flag waving above“I desperately want to be wrong on this call because if inflation ends up to be hotter for longer, it has very unfortunate economic, financial, institutional, social, and political implications.”

USAGOLD note: A clear warning and unusually blunt criticism from the normally staid Cambridge economist ……

 

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Peter Boockvar: Where do we go from here? It’s time for a reality check.

MarketSanity/Interview of Peter Boockvar-Bleakley Financial Group/11-19-2021

photo image of stacks of gold and silver coins“Peter Boockvar believes the Fed is cornered on inflation. Gold upside of $2,500 and Silver at $50 are certainly reasonable in this cycle. It doesn’t matter whether it is Chair Jerome Powell or Lael Brainard.”

USAGOLD note: Thought we would add a positive precious metals outlook to your Thanksgiving weekend!

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Gold, the S&P 500 and stagflation

Zero Hedge/Tyler Durden/11-14-2021

graphic image of a golden bull preparing to charge“[I]s gold about to have a new chance to shine? According to a recent burst of pro-gold articles, golden sentiment may be about to shift. As Bloomberg writes today, ‘gold may outperform the S&P 500 Index about 20% as the threat of stagflation becomes real.'”

USAGOLD note: One of the analysts sourced in this post projects $2300 as a possibility on further sharp declines in real yields.

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Inflation is reaching a boiling point and markets are too relaxed

Bloomberg/Mark Cudmore/11-10-2021

Ramirez cartoon of Treas Sec sitting in a pot of boiling water while an alarmed frog leaps out

Cartoon courtesy of MichaelPRamirez.com

“And yet markets don’t really seem to care too much. Sure, U.S. yields and the dollar both surged, while stocks tumbled. But there’s no panic about the enormity of what we’re seeing.”

USAGOLD note: Cudmore focuses on the repercussions of runaway inflation being signaled on a global basis saying that barely anyone bothered commenting on Japan’s wholesale inflation rate coming in a 8% last week. (We did in Thursday’s Daily Market Report). China, by the way, reported its October producer price index up 13.5% year over year. He says “the metaphor of frogs in a pot of water has never been a more apt analogy” and that “the year ahead will see immense asset-price dislocations.” Meanwhile, the Treasury Secretary, the President, and the chairman of the Federal Reserve do not seem at all worried about the frog in boiling water analogy. Cudmore is a macro-strategist at Bloomberg.

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