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Ultimately, the value of gold is based on its tangibility. So, why do so many investors assume they’re getting the same protection from investments like gold futures that they’re getting from physical gold: while gold futures and ETFs will fill most of the needs of owning gold in normal circumstances, in extraordinary circumstances, something that’s intangible like a futures contract just won’t do. Because how will you collect your gold from the custody bank when all the banks have failed?

This week, the Goldnomics podcast ranks the safest ways to own gold to the least safe. The safest is, of course, owning physical gold bars. The next safest is to own allocated and segregated gold, which is owning physical gold kept in a separate physical account. The next level of safety is unallocated gold, then there are physically backed-ETFs and non-physically backed ETFs.

Further out the safety spectrum is owning shares of gold miners, which trade like equities (because they are). However, the vast majority of investors own gold via an ETF.

While it’s an easily accessible way of owning gold, it’s not designed for physical deliverability. “The idea of having gold in a systemically linked instrument like that could be convenient in normal times but when things get out of hand, suddenly those contracts don’t bear any weight.”

Like Alan Greenspan said, Gold is trusted by everybody as a form of payment. And indeed, most gold investors own the precious metal for its tangibility. And reading the fine print of these ETFs, the fund manager is protected from ever having to be found liable for delivering its gold. Instead, the gold is stored with large custodian banks, and if there’s ever any serious systemic risk, the owner of the ETF won’t ever be made hole.

“Don’t think you’re checking that hedging box if you own gold through an ETF, or a digital gold provider.”

Listen to the rest of the podcast below:

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

February 12, 2018

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

The new Fed Chair may break from his predecessors

The recent gut-wrenching drop in asset prices began on the first day of the job for new Federal Reserve Chairman Jerome Powell.

How is Mr. Powell likely to react to a suddenly sick-looking market? Will he step in forcefully to reassure investors that there’s a “Powell put” in place as a backstop?

To address these questions, former analyst at the Federal Reserve Bank of Dallas, Danielle DiMartino Booth, returns to the podcast this week. In her opinion, having studied Powell’s previous statements, she thinks those expecting him to continue the market support his predecessors provided will likely be quite disappointed.

Powell appears to be no large fan of continued quantitative easing, and has long been on the record as concerned about the eventual pain its unwind will cause. He very well may resist riding to the market’s rescue at this time, allowing natural market forces to finally have their way:

Look, this is a message that market participants do not want to hear: It is not the Federal Reserves job to put a floor under risky asset prices.

Compare and contrast Jerome Powell’s silence in the wake of the flash crash on his first day at work to Alan Greenspan — who got on an airplane the day after the Black Monday crash of 1987, canceling an appearance he was to have made, and reassuring the markets with a statement on Tuesday morning that the Federal Reserve was standing by and ready and willing and available to satisfy any kind of disruption in the banking and financial systems. That was the day — October 20, 1987 — that the Greenspan put was born.

…click on the above link to read the rest of the article…

It’s Looking A Lot Like 2008 Now…

February 3, 2018

It’s Looking A Lot Like 2008 Now…

Did today’s market plunge mark the start of the next crash?

Economic and market conditions are eerily like they were in late 2007/early 2008.

Remember back then? Everything was going great.

Home prices were soaring. Jobs were plentiful.

The great cultural marketing machine was busy proclaiming that a new era of permanent prosperity had dawned, thanks to the steady leadership of Alan Greenspan and later Ben Bernanke.

And only a small cadre of cranks, like me, was singing a different tune; warning instead that a painful reckoning in our financial system was approaching fast.

It’s fitting that I’m writing this on Groundhog Day, as to these veteran eyes, it sure has been looking a lot like late 2007/early 2008 lately…

The Fed’s ‘Reign Of Error’

Of course, the Great Financial Crisis arrived in late 2008, proving that the public’s faith in central bankers had been badly misplaced.

In reality, all Ben Bernanke did was to drop interest rates to 1%. This provided an unprecedented incentive for investors and institutions to borrow, igniting a massive housing bubble as well as outsized equity and bond gains.

It’s worth taking a moment to understand the mechanism the Federal Reserve used back then to lower interest rates (it’s different today). It did so by flooding the banking system with enough “liquidity” (i.e. electronically printed digital currency units) until all the banks felt comfortable lending or borrowing from each other at an average rate of 1%.

The knock-on effect of flooding the US banking system (and, really, the entire world) in this way created an echo bubble to replace the one created earlier during Alan Greenspan’s tenure (known as the Dot-Com Bubble, though ‘Sweep Account’ Bubble is more accurate in my opinion):

…click on the above link to read the rest of the article…

Greenspan Warns: “We Have A Stock Market Bubble”

January 31, 2018

Greenspan Warns: “We Have A Stock Market Bubble”

US equity markets stumbled notably as former Fed Chair Alan Greenspan told Bloomberg TV that “we have a stock market bubble.”

Greenspan stuck to his usual discussion topics of low productivity and fiscal doomsday inevitability…

“Productivity has been dead in the water for the past 10 years…

I’ve never believed in the Phillips Curve…

Adding that “we’ve got to confront the budget deficit,” concluding “we’re dealing with a fiscally unstable long-term outlook.”

Something we have heard before (in 2016) when Greenspan warned

“Entitlements are crowding out savings, and hence capital investment. Capital investment is the critical issue in productivity growth, and productivity growth in turn is the crucial issue in economic growth. We’re running to a state of disaster unless we turn this around.“

“This should be the central issue of the presidential debate. Unless and until we can rein in entitlements, which have been rising at a nine percent annual rate in the United States and comparable levels throughout the world, we are going to find that productivity is going to maintain a very low rate of increase”

Greenspan also doesn’t really view recession as the biggest problem right now, he is concerned (rightfully so) about the longer term problem of low economic growth and soaring entitlement growth.

“I don’t think that’s our problem. Our problem is not recession which is a short-term economic problem, I think youhave a very profound long-term problem of economic growth at the time when in the Western world there is a very large migration from being a worker to being a recipient of social benefits“

But when Greenspan said the following…

“There are two bubbles. We have a stock market bubble and a bond market bubble. At the end of the day, the bond bubble will be the big issue.“

Stocks began to stumble…

…click on the above link to read the rest of the article…

The Greatest Bubble Ever: Why You Better Believe It, Part 2

December 31, 2017

The Greatest Bubble Ever: Why You Better Believe It, Part 2

During the 40 months after Alan Greenspan’s infamous “irrational exuberance” speech in December 1996, the NASDAQ 100 index rose from 830 to 4585 or by 450%. But the perma-bulls said not to worry: This time is different—-it’s a new age of technology miracles that will change the laws of finance.

It wasn’t. The market cracked in April 2000 and did not stop plunging until the NASDAQ 100 index hit 815 in early October 2002. During those a heart-stopping 30 months of free-fall, all the gains of the tech boom were wiped out in an 84% collapse of the index. Overall, the market value of household equities sank from $10.0 trillion to $4.8 trillion—-a wipeout from which millions of baby boom households have never recovered.

Likewise, the second Greenspan housing and credit boom generated a similar round trip of bubble inflation and collapse. During the 57 months after the October 2002 bottom, the Russell 2000 (RUT) climbed the proverbial wall-of-worry—-rising from 340 to 850 or by 2.5X.

And this time was also held to be different because, purportedly, the art of central banking had been perfected in what Bernanke was pleased to call the “Great Moderation”. Taking the cue, Wall Street dubbed it the Goldilocks Economy—-meaning a macroeconomic environment so stable, productive and balanced that it would never again be vulnerable to a recessionary contraction and the resulting plunge in corporate profits and stock prices.

Wrong again!

During the 20 months from the July 2007 peak to the March 2009 bottom, the RUT gave it all back. And we mean every bit of it—-as the index bottomed 60% lower at 340. This time the value of household equities plunged by $6 trillion, and still millions more baby-boomers were carried out of the casino on their shields never to return.

…click on the above link to read the rest of the article…

The Greatest Bubble Ever: Why You Better Believe It, Part 1

December 29, 2017

The Greatest Bubble Ever: Why You Better Believe It, Part 1

It wasn’t. The market cracked in April 2000 and did not stop plunging until the NASDAQ 100 index hit 815 in early October 2002. During those heart-stopping 30 months of free-fall, all the gains of the tech boom were wiped out in an 84% collapse of the index. Overall, the market value of household equities sank from $10.0 trillion to $4.8 trillion—-a wipeout from which millions of baby boom households have never recovered.

Wrong again!

…click on the above link to read the rest of the article…

Doug Noland: There Will Be No Way Out When This Market Bubble Bursts

December 11, 2017

Doug Noland: There Will Be No Way Out When This Market Bubble Bursts

Financial assets will become toxic to hold

This week Doug Noland joins the podcast to discuss what he refers to as the “granddaddy of all bubbles”.

Noland, a 30-year market analyst and specialist in credit cycles, currently works at McAlvany Wealth Management and is well known for his prior 16-year stint helping manage the Prudent Bear Fund.

He certainly shares our views that prices in nearly every financial asset class have become remarkably distorted due to central bank intervention, first with Greenspan’s actions to backstop the markets in the late-1980’s, and more recently (and more egregiously) with the combined central banking cartel’s massive and sustained liquidity injections in the years following the Great Financial Crisis.

All of which has blown the biggest inter-connected set of asset price bubbles the world has ever seen.

Noland foresees tremendous losses as inevitable, as the central banks lose control of the monstrosity they have created:

This is the granddaddy of all bubbles. We are at the end a long cycle where the bubble has reached the heart of money and credit.

There will be no way out. We’re not going to get enough private credit growth to reflate things when this bubble bursts. It’s going to have to come from central bank credit; it’s going to have to come from sovereign debt.

When this bubble bursts, it will shock people how far the central banks will have to expand their balance sheet just to accommodate the deleveraging in the system. And they won’t really be able to add new liquidity to the market; they’re just going to allow the transfer of leveraged positions from the leveraged players onto the central bank balance sheets.

…click on the above link to read the rest of the article…

China’s Minsky Moment

October 26, 2017

CHINA’S MINSKY MOMENT

Sometimes you have to love the naivety of the markets. At this week’s Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following;

“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”

Yet instead of focusing on this dire warning, markets are busy trying to discount the chance of a Powell Fed or a Republican tax cut. Although both of these developments would be important, China is the tail that wags the dog. Full stop. Figure out China, and all the other financial market forecasts become that much easier.

Aren’t Central Bank warnings cheap?

Some might argue this “Minsky moment” warning is nothing more than a Central Bank whistling in the wind. Didn’t Greenspan caution about a similar concern with his “irrational exuberance” speech? And didn’t that end up being a complete non-event?

Yet I would argue that China is not the same as other countries. Although there are market elements to their economy, to a large degree, China is still a command economy. If Chinese leadership wants a particular outcome, they can just demand it, and it will happen.

So when the head of the PBoC warns about a “Minsky moment”, it’s probably not a good idea to load up on financial assets. For the longest time, China exported goods and imported developed nation debt and other financial assets. They had already started down the road of re-balancing their economy away from this export driven model, but this recent development confirms that the old playbook should be thrown out the window. The global financial system is changing, and China is leading the way.

…click on the above link to read the rest of the article…

Weekly Commentary: Arms Race in Bubbles

October 21, 2017

Weekly Commentary: Arms Race in Bubbles

The week left me with an uneasy feeling. There were a number of articles noting the 30-year anniversary of the 1987 stock market crash. I spent “Black Monday” staring at a Telerate monitor as a treasury analyst at Toyota’s US headquarters in Southern California. If I wasn’t completely in love with the markets and macro analysis by that morning, there was no doubt about it by bedtime. Enthralling.

As writers noted this week, there were post-’87 crash economic depression worries. In hindsight, those fears were misplaced. Excesses had not progressed over years to the point of causing deep financial and economic structural maladjustment. Looking back today, 1987 was much more the beginning of a secular financial boom rather than the end. The crash offered a signal – a warning that went unheeded. Disregarding warnings has been in a stable trend now for three decades.

Alan Greenspan’s assurances of ample liquidity – and the Fed and global central bankers’ crisis-prevention efforts for some time following the crash – ensured fledgling financial excesses bounced right back and various Bubbles hardly missed a beat. Importantly, financial innovation and speculation accelerated momentously. Wall Street had been emboldened – and would be repeatedly.

The crash also marked the genesis of government intervention in the markets that would evolve into the previously unimaginable: negative short-term rates, manipulated bond yields, central bank support throughout the securities markets, Trillions upon Trillions of central bank monetization and the perception of open-ended securities market liquidity backstops around the globe. Greenspan was the forefather of the powerful trifecta: Team Bernanke, Kuroda and Draghi. Ask the bond market back in 1987 to contemplate massive government deficit spending concurrent with near zero global sovereign yields – the response would have been “inconceivable.”

…click on the above link to read the rest of the article…

World’s Biggest Ever Junk Bond Bubble in Pictures: What Hath Draghi Wrought?

October 5, 2017

World’s Biggest Ever Junk Bond Bubble in Pictures: What Hath Draghi Wrought?

In regards to ECB QE bond purchases, inquiring minds may be asking: What hath ECB president Mario Draghi wrought?

I can explain in one picture.

The answer in words: The world’s biggest junk bond bubble.

I prefer gold.

On August 4, I commented on the Bubblicious Debate: Greenspan Says “Bond Bubble About to Break”, No Stock Market Bubble

There’s a bond bubble for sure, but it’s in corporate bonds, not treasuries.

This also isn’t the first time Greenspan has expressed concern about a bond bubble. Two years ago, when the 10-year Treasury yield was 2.44% and the CPI was 0.2%, he told Bloomberg TV that “we have a pending bond market bubble.” In a Bloomberg TV interview July 2016, he expressed concerns about stagflation and said “we’re seeing the very early signs of inflation beginning to tick up.” He also said with the 10-year Treasury yield pushed down to 1.50% by Brexit concerns, that he was “nervous” bond prices were too high.

“No Irrational Exuberance in Stocks”

“There is no irrational exuberance that I can see. In fact, it is just the opposite at this stage.”

Greenspan the Contrarian Indicator

Major comments by Alan Greenspan, widely portrayed by the media are most likely perfect contrarian indicators.

He has been calling the bond market a bubble for years but only recently did he say there was no stock market bubble.

With Greenspan, one needs to be careful. He is frequently correct about some things. However, the things about which he is correct are either never widely published, or they are widely disputed.

…click on the above link to read the rest of the article…

Why The Markets Are Overdue For A Gigantic Bust

June 10, 2017

r.classen/Shutterstock

Why The Markets Are Overdue For A Gigantic Bust

It’s just not possible to print our way to prosperity

If you’re not familiar with the term, ‘confirmation bias’ suggests that once we’ve invested time and emotional energy into developing a worldview, we’ll then seek information to confirm that view.

After writing about the economy for so many years, I’m now so convinced that we can’t print our way to prosperity that I find myself seeing signs confirming this view everywhere, every single day. So that’s the danger to be aware of when listening to me. I’m going to keep repeating this mantra and Im going to keep finding data that supports this view.

Based on lots of historical inputs, I have concluded that Printing money out of thin air can engineer lots of things, including asset price bubbles and the redistribution of wealth from the masses to the elites. But it cannot print up real prosperity.

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy. It’s just too clear to me that doing so presents plenty of dangers, due to what we might call ‘economic gravity’: What goes up, must also come down.

Which brings us to this chart:

The 200 bubble blown by Greenspan was bad, the next one by Bernanke was horrible, but this one by Yellen may well prove fatal. At least to entire financial markets, large institutions, and a few sovereigns.

It’s essential to note that more than two-thirds of the net worth tracked in the above chart is now comprised of ‘financial assets.’ That is, paper claims on real things.

…click on the above link to read the rest of the article…

The Coming Great Wealth Transfer

March 4, 2017

WakingTimes.com

The Coming Great Wealth Transfer

Spoiler alert! It’s already here.

In the past, I’ve warned about the coming Great Wealth Transfer. But now we need to talk about it in the present tense, because it’s here.

And it will only accelerate from here on out. The Rich will get richer at the expense of everybody else.

This isn’t personal. It’s simply a feature of what happens near the end of a debt-based monetary system run by corruptible humans.

Of course, those in charge don’t think of themselves as corrupted or villainous. I’m sure that Federal Reserve Chairs Greenspan, Bernanke and Yellen all think of themselves as good and decent people doing “God’s work”. But the truth is they’ve irrevocably harmed millions — if not billions — of innocent people.

They and other central bankers have become the standard bearers of a system that can best be described as a reverse Robin Hood scheme, one that takes from the poor and gives to the Rich. It’s just that in this tale, the ‘poor’ means everybody not in the top 1%.

So you need to understand this wealth transfer process — how it works, who’s perpetrating it, and what dangers to watch for. If not, you’ll be a victim of it. And you’ll probably live in confusion and shock by how hard just ‘getting by’ becomes going forward.

Realizing that you’re being specifically targeted by a system determined to separate you from your wealth is the essential first step towards figuring out how to evade the predators and protect yourself.

The Great Wealth Transfer

What do we mean by a Wealth Transfer?

It isn’t just some academic concept. It’s a playbook that’s been used many times in the past by governments to forcibly extract wealth from the public and use it for the benefit of those in power.

…click on the above link to read the rest of the article…

Alan Greenspan: Ron Paul Was Right About The Gold Standard

February 20, 2017

Alan Greenspan: Ron Paul Was Right About The Gold Standard

As John Rubino eloquently puts it, “when the history of these times is written, former Fed Chair Alan Greenspan will be one of the major villains, but also one of the greatest mysteries. This is so because he has, in effect, been three different people.” Greenspan started his public life brilliantly, as a libertarian thinker who said some compelling and accurate things about gold and its role in the world. An example from 1966: “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

Yet everything changed a few decades later when Greenspan was put in charge of the Federal Reserve in the late 1980s, instead of applying the above wisdom, for example by limiting the bank’s interference in the private sector and letting market forces determine winners and losers, he did a full 180, intervening in every crisis, creating new currency with abandon, and generally behaving like his old ideological enemies, the Keynesians. Predictably, debt soared during his long tenure.

Along the way he was also instrumental in preventing regulation of credit default swaps and other derivatives that nearly blew up the system in 2008. His view of those instruments:

The reason that growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risks.

…click on the above link to read the rest of the article…

The Coming Of Depression Economics

January 29, 2017

The Coming Of Depression Economics

Like it or not, this is where we have been all along and a great many people are just now catching up. No matter what Janet Yellen says about the economy, she is talking out the side of her mouth. Internally, the recovery is gone, and it is never coming back. Externally, we have sub-5% unemployment so we all should be so happy, especially with, in her view, stable prices.

To their credit, many prominent economists aren’t so enthusiastic about those prospects. Among them are Larry Summers, Paul Krugman, and Brad DeLong, all who recognize that “something” just isn’t right and therefore “something” else should be done about it. Thus, the real economic debate over the coming years (unfortunately) will take shape around those two facets. Having wasted nearly a decade on purely central bank solutions that were never going to work, the real discoveries can now possibly take place.

The problem is as I wrote yesterday, where in a rush to do anything and everything “different” the Trump administration might actually spoil the process. De-regulation and income tax cuts, as well as the repeal of Obamacare, are all very good things that sorely need to be addressed; but they didn’t cause this depression and thus won’t get us out of it. And you can bet that none of Summers, Krugman, or DeLong will be in favor of those options, so if they all fail to restore economic growth, as I believe they will if left in isolation, then that will severely diminish those ideas for perhaps a generation or more. That would be a fatal mistake, especially since for the first time in many generations people outside of Economics are receptive to “new” ideas (that are only new because they have been out of practice and actively discouraged for so long).

…click on the above link to read the rest of the article…

This is How Consumers Turn into Debt Slaves

November 12, 2016

This is How Consumers Turn into Debt Slaves

The Fed likes the word “credit.” Sounds less onerous than “debt.”

Consumer debt rose by $19.3 billion in September to $3.71 trillion, another record in a five-year series of records, the Federal Reserve’s Board of Governors reported on Monday. Consumer debt is up 6% from a year ago, at a time when wages are barely creeping up and when consumer spending rose only 2.4% over the same period.

This follows the elegant principle of borrowing ever more to produce smaller and smaller gains in spending and economic growth. Which is a highly sustainable economic model with enormous future potential, according to the Fed.

Consumer debt – the Fed uses “consumer credit,” which is the same thing but sounds a lot less onerous – includes student loans, auto loans, and revolving credit, such as credit cards and lines of credit. But it does not include mortgages. And that borrowing binge looks like this:

us-consumer-debt-total-ex-mortgages-2016-09

Diving into the components, so to speak: outstanding balances of new and used vehicle loans and leases jumped by $22.6 billion from Q2 to $1.098 trillion, another record in an uninterrupted four-year series of records.

Auto loans have soared 38% from Q3 2012, the time when they regained the glory levels of the Greenspan bubble before the Financial Crisis:

us-consumer-debt-auto-2016-09

Auto loan balances have soared because people bought more cars. New car sales hit an all-time record last year, though they’ve started to flatten out or decline in recent months. The balances have also been rising because loan terms are getting stretched, and because the balances on individual loans have been getting bigger as cars got more expensive and loan-to-value ratios rose:

…click on the above link to read the rest of the article…

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