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Gold Prices Will Keep Rising Because Crash Conditions Are Becoming Obvious

Gold Prices Will Keep Rising Because Crash Conditions Are Becoming Obvious

The price movements of precious metals are difficult for some people to understand. In the world of equities, investors are mesmerized by tickers day in and day out, and market movements occur minute by minute. This realm of investment teaches people to shorten their memories, their attention spans and their patience. In the world of gold and silver, however, investors buy and sell according to cycles that last years – oftentimes decades. It is the complete antithesis to stocks.

This is why gold catches a lot of ignorant criticism at times. The “barbaric relic” does not behave the way day traders want it to behave. It sleeps, they ignore it or laugh at it, and then it explodes. It is not surprising that your average stock market player is usually caught completely off guard when an economic crisis hits Main Street, while the average gold investor already saw the event coming many months in advance. The gold mentality lends itself to caution, observation and historical relevance. The stock market mentality lends itself to carelessness and the denial of history.

I would acknowledge here that there is plenty of evidence of paper market manipulation of gold and silver to the downside by major banks like JP Morgan. Any investor in metals should take this into account. However, it is also important to realize that in moments of economic uncertainty, the physical market can and does overtake paper manipulation, and prices rise anyway. This is exactly what happened in the lead up to the 2008 crash, and it’s happening again today.

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

Wealth Bubble Leaves U.S. Economy in Uncharted Territory

wealth bubble

Wealth Bubble Leaves U.S. Economy in Uncharted Territory

There have been numerous signs that the U.S. is likely to go through another major recession at some point. And regardless of when or if a recession happens, it won’t change the fact that the U.S. economy is already in hot water.

At MarketWatch, the “hot water” is explained in terms of a U.S. “wealth bubble” that reveals a peculiar pattern:

Today the United States sits in the midst of the largest wealth bubble in post-World War II history, as measured by household net worth (or wealth) relative to gross domestic product. As I showed in detail recently in the Journal of Business Economics, only two other postwar bubbles come close, with peaks in 1999 and 2006, just prior to the tech stock crash and the Great Recession.

The largest wealth bubble (household net worth relative to GDP) is shown in a chart from the same article. (Shaded areas are recessions):

wealth bubble

As you can see at the bottom, the wealth bubble is “5 times the size” of the GDP.

But notice how the wealth bubble “pops” just before the 2000 and 2008 recessions. If you look at the end of the blue line, it appears the largest wealth bubble since World War II may already be popping.

Also notice how the green line dips before the 2000 tech stock “recession,” and the red line before the 2008 recession (caused mainly by subprime mortgages).

But according to the MarketWatch report, there’s another crucial detail to point out:

In both prior bubbles, the crashes led to a drop in the value of net worth to about 4 times GDP. Even that level remained high relative to prior history, since in no single quarter before 1998 had the household net worth-to-GDP ratio ever reached 4.0 or higher.

With that being said, according to the chart above:

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

Imminent Recession Risk “Doubled” – 3 Signals Sounding the Alarm

recession risk signals

Imminent Recession Risk “Doubled” – 3 Signals Sounding the Alarm

It’s been more than 10 years since the last economic recession. Since the U.S. economy generally operates in cycles, it looks like the time is drawing near for another.

In fact, late last year the Dow Jones took a dive, but that was likely just an appetizer for the course to come…

A recent piece from Bloomberg reported the risk of a recession has “more than doubled this year as leading economic indicators deteriorate, the yield curve inverts and monetary policy tightens,” referencing a note by Guggenheim Partners.

And, according to CIO Scott Minerd, it appears the next recession could last longer than the previous one (emphasis ours):

The next recession will not be as severe as the last one, but it could be more prolonged than usual because policymakers at home and abroad have limited tools to fight the downturn…

Guggenheim oversees $200 billion as an investment banking firm. They issued this dire warning along with major concerns about corporate debt, a severe stock market drop, and uncertainty about the Fed.

Debt, Yield Curve Inversion & QE Signaling Recession Risk

We’ve previously reported that U.S. National, corporate, and consumer debt are at all-time highs. This dangerous “debt trifecta” has even gotten the attention of several billionaires.

Rising national debt currently tops $22 trillion. Corporate debt topped $6 trillion at the end of 2018. And the “ATM” of consumer debt has hit $4 trillion. Americans are tapped out. Combined together, this signal alone should sound recession alarms.

But this is just one of multiple major warning signs…

The yield curve is dangerously close to inverting at only 16 basis points between 2- and 10-year treasuries. What’s even more troubling is yield curve inversion has preceded every major recession over the last 50 years.

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

Why Dollar Dominance Drops to Lowest Mark Since 2013

dollar losing dominance

Why Dollar Dominance Drops to Lowest Mark Since 2013

According to the IMF, the U.S. dollar is known as the “Global Reserve Currency”. There are a number of reasons for this, but mainly because it’s backed by the U.S. economy.

That economy is fraught with uncertainty at the moment. But that isn’t the only issue plaguing the U.S. dollar’s dominance in the global markets.

Wolf Richter writes that the U.S. dollar’s status as reserve currency is dipping to levels not seen since 2013:

But the amount of USD-denominated exchange reserves ticked down to $6.62 trillion, and the dollar’s share of global foreign exchanges reserves dropped to 61.7%, the lowest since 2013.

This is not good. Last year, pressure on the dollar as global reserve currency was threatened by both Russia and China in “petro-currency” wars. Even smaller countries were attempting to apply pressure on the dollar, including Germany.

As you can see from the chart below, the U.S. dollar may have been slowly losing steam since 2001 with the arrival of the euro (source):

global reserve usd share

But perhaps more alarming is the dollar seems to be slipping down towards 1991 levels, where according to the same chart, it accounted for only 46% of the global reserve.

If the dollar keeps dropping, that could severely impact purchasing power and, under current market tensions, possibly drive inflation out of control.

The Dollar’s “Doldrums” Could Trigger Even More Uncertainty

The Balance explained in a recent article how a decline in the U.S. dollar typically happens:

The U.S. dollar declines when the dollar’s value is lower compared to other currencies in the foreign exchange market. It means the dollar index falls.

But the dollar index (DXY) isn’t declining, at least for the moment. It has remained fairly steady since June 2018 after recovering from a loss of over 4% in January.

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

The Reasons Behind The Relentless Ideological Onslaught Against Free Markets

The Reasons Behind The Relentless Ideological Onslaught Against Free Markets

I sometimes think that the free market concept is treated like The Hunchback of Notre-Dame’s Quasimodo in the long novel of global economic history. It is considered ugly and undesirable by most people who judge it at a mere glance without bothering to understand it. It is a bogeyman; a scapegoat for numerous societal problems that it has nothing to do with. In reality, the only time free markets do cause trouble is when they are manipulated or misused by elitists seeking to turn them into something other than free markets. And, even when free markets display their great value and internal beauty, many still prefer other systems that are intrinsically corrupt but flashier on the surface.

There are many reasons behind this persistent attitude. However, they are not coincidental or natural. Human beings actually tend to gravitate toward free markets over and over again in history, and away from centralized government interference and dominance in economic trade. But whenever they do, they get hammered down by the-powers-that-be. In our modern era, establishment elites have chosen to be more subtle (for now) and dissuade people from free markets through disinformation and propaganda.

To break it all down to a simple observation – Whenever disaster strikes economically, free markets are blamed. Whenever something is fixed, even if that fix is a temporary band-aid on a sucking chest wound, government involvement and socialism are applauded. And so the cycle continues until free markets become a pariah with no place in our world and centralization becomes the prevailing answer to everything.

Free market trade is ever present at a local level and always has been. But, those who favor globalism are hell-bent on putting an end to any and all private unregulated commerce forever.

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

Hyperinflation History May Provide Valuable Lessons for Fed’s “Target”

hyperinflation history lesson for fed

From Birch Gold Group

Hyperinflation History May Provide Valuable Lessons for Fed’s “Target”

In April of 1980 inflation peaked at a staggering 14.76%. That same year, the Fed triggered a rise in interest rates to near 20% around the same time, employing the controversial “Volcker Rule.”

Paul Solman explained in a 2009 PBS Newshour:

If by “interest rates” you mean the rate set by the Fed — the Fed funds rate — it rose to TWENTY PERCENT in 1980. But no, it was not inaction but just the opposite: a deliberate rise in rates triggered by inflation.

And as you can see in the chart below, the 1980s also represented the 3rd highest average inflation percentage in a decade since 1913:

average annual inflation

So inflation rose dramatically, and the Fed employed a dramatic strategy, hiking rates through the roof.

But as you look at the same chart, it’s also clear three other decades had severe inflationary periods as well. Each time that happens in the U.S. the dollar loses buying power quickly as prices for food, energy, and fuel go through the roof.

Serious hyperinflation can happen relatively quickly. Venezuela is a recent example, where it only took about 5 yearsfor the local bolivar to lose 90% of its value. Inflation soared to a ridiculous 1.37 million percent.

We also have historic examples of severe hyperinflation. From 1921-1923 the Weimar Republic of Germany suffered massive inflation. Sovereign Man highlighted, “a single egg at the market would cost millions of marks” during this economic upheaval.

Oddly enough, Germany’s hyperinflation came not too long after a decision to print money became standard policy. (Sound familiar?)

Zimbabwe also had a period of massive war-based hyperinflation in 2008-09 after printing money and devaluing its currency.

These hyperinflation horror stories beg the question, will the Fed’s “target” of 2-3% inflation per year be effective?

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

Corporate Share Buybacks Increasing at Alarming Rate… Again

corporate buybacks

Photo by Mike Kalasnik | CC BY | Photoshopped from original

Corporate Share Buybacks Increasing at Alarming Rate…Again

Corporations have been using buybacks to “rob Peter to pay Paul” since the Reagan administration created laws that allow it.

According to a Goldman Sachs chart, 2018 was a record year for buybacks, which neared $800 billion for S&P 500 companies alone:

Even though these companies bought back shares, which should have spurred investment in more companies, that didn’t keep the S&P from dropping 6 percent by the end of 2018. But corporations are still getting a benefit…

“Buyback Monsters” Perform Market Illusion

This “sleight of hand” illusion allowed Apple to increase their market cap by $118 billion in 2018 on news that it would complete share buybacks in the amount of $210 billion.

They used tax incentives along with other forms of capital to complete the buyback. This move only helped Apple’s economy and their shareholders.

But they’re not the only company that has pulled off this amazing magical feat. Home Depot and “nearly 80 others”are also dipping into the “buyback gravy train.”

Home Depot is in a class of corporations I call “buyback monsters,” companies that have reduced their share count outstanding by at least 25 percent since 2010. It is by no means alone. Nearly 80 companies in the S&P 500 have reduced their share count by at least 25 percent since 2010, and more than 100 (20 percent) have reduced their share count by 20 percent or more, including some of the best-known companies in America.

Using Home Depot’s 35% share buyback as an example, a CNBC article highlighted another implication of being a member of the “buyback monster” club:

All other metrics being equal, Home Depot’s 35 percent share count reduction means that earnings appear 35 percent better, without any change in “fundamentals” like revenues, costs or taxes.

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

Gold Will Become the Next Global Currency of Choice

Gold Will Become the Next Global Currency of Choice

With a wobbly stock market, falling Treasury yields and rampant geopolitical strife, the focus on gold as an asset has been intense as of late. The metal’s price gains reflect this, as gold recently proved able to hold above a key resistance level, which holds bullish implications.

But according to Kitco, Sprott CEO Peter Grosskopf sees gold moving past its role as a mere asset and eventually returning to its status as a true global currency. In an interview, Grosskopf explained that this will be fueled by ballooning global debt, which will ultimately debase all fiat currencies.

As Grosskopf pointed out, recent data shows that the global debt rests above $244 trillion and, as such, is more than three times larger than the global economy itself. Whether governments decide to deal with this through quantitative easing or financial repression, he says gold prices will invariably spike.

The recognition of gold’s role in wealth preservation is on the rise, said Grosskopf, with investors increasingly shying away from fiat currencies and moving into gold. The widespread loss of faith in not just assets, but currencies as well, is already in effect, with Grosskopf’s firm noticing more interest from all corners of the investment spectrum.

“We think the overall trend for gold is positive because it is being accumulated,” said the CEO. “It’s being accumulated by central banks; it’s being accumulated by billionaires, it’s been accumulated by endowments and it’s more accepted as a class of currencies in portfolios.”

This New Catalyst Will Drive Silver Prices Higher in 2019

Money Morning’s Peter Krauth writes silver’s recent pullback below the $16 level was not only expected, but also irrelevant for its long-term picture. Even after the pullback, the metal remains up 12% since November, and Krauth sees more gains coming in the near future.

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

Debt Trifecta at All-Time Highs – Billionaires Panic

Debt Trifecta at All-Time Highs – Billionaires Panic

The “trifecta” of national, corporate, and consumer debt has reached all-time highs, and could prove to be catastrophic if a recession hits.

Let’s start by quickly bringing each part of this debt trifecta up to date as much as possible…

U.S. National Debt

The national debt, ever on the rise, currently sits at around $22 trillion:

In just the short decade since 2008, the debt has jumped from $10.6 trillion to $22 trillion. It also comes with a deficit that’s currently over $1 trillion currently. The interest payments alone may be forming a “black hole” from which the U.S. may never escape.

These facts alone should raise concern in any interested observer.

Corporate Debt

The total amount of corporate debt has never stopped rising since 1950. Corporations have taken on a record level of debt since 2007.

You can see the steady rise in corporate debt liabilities here:

One of the main problems with this type of debt, aside from getting repaid, is that some corporations are using it to buy back shares of stock. Instead of this “sleight of hand,” you’d think that they should be using it to fund growth and create jobs.

But one thing is certain, the piper will need to be paid at some point. When that happens, who knows what can happen to the economy.

Consumer Debt

Total consumer debt is near $4 trillion, and has been rising steadily since 1975. But it has risen a staggering 47%since 2008, and shows no signs of stopping.

The chart below reveals this economic “ATM” at work:

When interest rates rise, as they have been thanks to the Fed’s recent spat of rate hikes, they will eventually get high enough that consumers won’t be able to get loans, or repay them.

Economic growth requires that consumers buy things and obtain credit. If they can’t do either, the consequences could be dire.

Now, this debt-fueled trifecta has caused panic among some billionaires.

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

Government Shutdown Reveals Nasty Truth About Americans’ Savings

government shutdown reveals americans have no savings

Government Shutdown Reveals Nasty Truth About Americans’ Savings

The temporarily-ended government shutdown didn’t have had a large effect on the U.S. economy, but it may have revealed something disturbing about the savings of 80% of Americans.

They aren’t prepared if the economy get worse.

MarketWatch published some recent findings in an op-ed (emphasis ours):

Why do a few weeks without pay turn into a crisis for many families? Simple: Nearly 80% of Americans live paycheck to paycheck. That’s a problem when you have little to no savings. In fact, it’s akin to playing financial Russian roulette.

And the problem is terrifyingly pervasive. According to a recent GoBankingRates survey, only 21% of Americans have more than $10,000 in savings, with nearly 60% having less than $1,000 in savings.

The findings come from a recent GoBankingRates survey, which contained the following chart reflecting MarketWatch’s findings:

american savings 2014 - 2018

With interest rates on the rise and the economy at levels of uncertainty not seen since 2008, it’s crucial for Americans to buffer their income with some sort of hedge.

Without reliable “go-to” savings and a plan, there could be tough times ahead if the market continues diving into recession.

But the nasty truth appears to be most Americans don’t have enough savings, if any at all, to get them through the tough times.

Right now, government-reported unemployment is the lowest it’s been since 2000. But as you can see from the chart below, a recession tends to follow the “lowest” unemployment rates:

civilian unemployment rate

It’s not for sure that this is a signal of an imminent recession, but it sure seems like enough circumstantial evidence to consider looking into your savings options. That, and the fact that the shutdown has only been “ended” until February 15. After that, we may see “Part II.”

And the shutdown isn’t only affecting individuals. It even drew the attention of top CEOs.

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

U.S. Debt Worries Fed Chairman Powell – Fears May Be Confirmed in March

U.S. Debt Worries Fed Chairman Powell – Fears May Be Confirmed in March

us debt worries

As we enter 2019, the U.S. national debt continues to grow, approaching $22 trillion with global Government debt sitting at $72 trillion.

It seems like the 21st century is hitting the U.S. with a debt “haymaker,” according to CNBC (emphasis ours):

U.S. debt began accelerating at the turn of the 21st century. The total jumped 85 percent to $10.6 trillion during former President George W. Bush’s two terms, another 88 percent to $19.9 trillion under President Barack Obama and has risen 10 percent during the first two years of President Donald Trump’s term.

And even though the U.S. economy may be growing, the sustained annual deficit exceeds $1 trillion. This is concerning economists, including Chairman Powell:

I’m very worried about it… It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.

If a recession hits (and signals are potentially pointing towards one), then having that amount of sustained deficit could be devastating.

And since the Fed is partially responsible for creating this debt problem, it seems odd for Powell to call it a “long-run” issue when it’s more of a “right-now” issue.

According to a recent CNBC article, normally when the deficit is expanding, the “Fed would be lowering rates”. But they aren’t. In fact, rates have been on a steady rise for the last few years.

At the global level, the picture isn’t much better. Debt has reached record levels, double what it was in 2007.

This is “leaving many countries poorly positioned for financial tightening as global interest rates begin to move higher,” says James McCormack, Fitch’s global head of sovereign ratings, in a statement.

Powell and other economists have every right to be concerned, because both debt and deficit spending may be spiraling out of control.

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

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

hedge against real inflation with gold

Some are under the impression that gold’s performance in the U.S. is not as good as it should be, considering we had a rather uncertain year last year.

In the U.S., even economists who favor the dollar gold price might be blind to an upcoming rise in the financial power of the precious metal.

That, and real inflation may become a better gauge to see just how well this measuring stick is doing. Though revealing it at the federal level may send the market into a panic.

The “Dollar as Yardstick” Problem

According to Ross Norman at Sharps Pixley, using the dollar’s strength to measure net worth in the U.S. could give you the impression that we have a “strong dollar.” But that yardstick shrinks as inflation eats into it. This means using the dollar as a “yardstick” for measurement isn’t consistent.

Using inflation as a gauge for shrinkage can give you a decent picture of how “strong” or “weak” the dollar’s measure is, assuming you’re using an accurate gauge.

As Norman explains (emphasis ours):

Measuring our net worth in local currencies, we might be rather pleased with ourselves – smug even. However we chose to ignore the fact that the yardstick is not a constant … it is shrinking and sometimes really quite fast. It’s the natural corrosive effect of inflation. Knowing this, governments give us a gauge for yardstick shrinkage to use such as RPI or CPI, to reassure you that the shrinkage is minimal… and then lie about it.

For those who don’t know some of the terms Norman uses, the CPI is the Consumer Price Index, which is compiled by the Bureau of Labor and Statistics (BLS) and used by agencies like the Fed. The Retail Price Index (RPI) is essentially the same thing, but based in the UK.

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

We’re Reaching the Beginning of the End of the Pension Fund Crisis

We’re Reaching the Beginning of the End of the Pension Fund Crisis

pensions unstable
Photo by Bank of England | CC BY | Photoshopped from original

The pension crisis has been escalating for quite some time, and accounting for pension shortfalls seems next to impossible for state governments.

The shortfall between pension assets and liabilities is a major problem. But another problem may be spelling the beginning of the end for public pensions altogether.

The Beginning of the “End”

Typically, public pensions assume a 7-percent discount rate so they need to generate a return higher than that. But according to Bloomberg, they aren’t getting those returns often enough.

The Bloomberg article states that the average returns for pension-fund-like portfolios have only generated returns of 7 percent or greater for 50-year periods twice since 1871.

The article continues, saying the problem is worse because of two primary reasons:

  1. “Cumulative returns are lower than the averages.”
  2. “An extended period of bad returns cannot be made up even with astronomical returns later.”

For example: Over a 50 year period, if a fund were to have zero returns in the first 15 years, and goes broke, it wouldn’t matter what it did (or could do) after that. If that seems obvious, that’s because it is.

And this example applies even if a fund started in June 1949 and earned an average of 7.99%, according to Bloomberg. Even if the pension is fully funded, “there is no chance existing assets are enough to pay already-contracted liabilities.”

If that sounds dire, once the base of assets start to decline it’s game over, because shrinking assets can’t keep paying increasing liabilities. And according to Pew Research, they have been in decline since 2016.

So worrying about the next 50 years is “pointless”, says Bloomberg:

Worrying about the next five decades is pointless, because there’s also no chance the current system will survive long enough to discover what the next 50-year average returns will be.

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

The Crash Of The “Everything Bubble” Started In 2018 – Here’s What Comes Next In 2019

The Crash Of The “Everything Bubble” Started In 2018 – Here’s What Comes Next In 2019

everything bubble

In 2018, a very significant economic change occurred, which sealed the fate of the U.S. economy as well as some other economies around the globe. This change was the shift of central bank policy. The era of stimulus and artificial support of various markets, including stocks, is beginning to fade away as the Federal Reserve pursues policy tightening, including higher interest rates and larger cuts to its balance sheet.

I warned of this change under new Chairman Jerome Powell at the beginning of 2018 in my article ‘New Fed Chairman Will Trigger Stock Market Crash In 2018’. The crash had a false start in February/March, as stocks were saved by massive corporate buybacks through the 2nd and 3rd quarters. However, as interest rates edged higher and Trump’s tax cut cash ran thin, corporate stock buybacks began to dwindle in the final quarter of the year.

As I predicted in September in my article ‘The Everything Bubble: When Will It Finally Crash?’, the crash accelerated in December, as the Fed raised interest rates to their neutral rate of inflation and increased balance sheet cuts to $50 billion per month.

It is important to note that when we speak of a crash in alternative economic circles, we are not only talking about stock markets. Mainstream economists often claim that stocks are a predictive indicator for the future health of the wider economy. This is incorrect. Stocks are actually a trailing indicator; they crash long after all other fundamentals have started to decline.

Housing markets have been plunging in terms of sales as well as prices. The Fed’s interest rate hikes are translating to much higher mortgage rates in the wake of overly inflated values and weaker consumer wages. .

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

2018 in Review: Pension Problems, Hawkish Rate Hikes, and Piles of Debt

2018 review

2018 in Review: Pension Problems, Hawkish Rate Hikes, and Piles of Debt

A lot happened in 2018, and while it would be a challenge to cover them all, there are three big trends that appear to have defined this year economically. And, each of them had an impact on retirees, investors, and the overall U.S. economic picture.

Here’s a review of 2018 in light of each of these three, impactful trends…

Corporate and Public Pensions Are Sinking Fast

On a local level, a public pension “Hurricane Harvey” hit a small town in Illinois. The city that once had over 20% unemployment, and property tax rates over 5%, had a major pension shortfall. Ultimately, this small town didn’t know how to make ends meet.

But the pension problem isn’t limited to this one small corner in the U.S.

New Jersey has its own pension conundrum too. Their plan back in April was to tax everything and raise enough revenue to cover their shortfall. This month, it appears they aren’t doing too well, according to a Volcker Alliance study:

It’s a math test that New Jersey, Illinois, and even Texas are nearly failing: How to pay for billions of dollars in unfunded liabilities for public-employee pensions and retiree health care.

All in all, states topped $1.4 trillion in underfunded pensions, according to the most recent data available. The story got even more dire worldwide when Sovereign Man reported a pension savings gap approaching $400 trillion. This amount is more than 20 of the world’s largest economies.

This is indeed a crisis. And it could become a crisis for everyone else, whether you have a public pension or not. Especially, if services get cut or tax dollars for a federal bailout are needed. Plus, if tax dollars are needed to rescue failing pensions, there are a whole host of other consequences for lawmakers following that bailout “script.”

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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