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“Panicking” Central Banks to Power Gold Higher

Panicking Central Banks to Power Gold Higher

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Institutions will be the drivers of gold demand, Ray Dalio issues warning about the greenback, and silver believers could soon be rewarded.

Institutional demand will power gold prices as central banks panic

As Egon von Greyerz notes via ZeroHedge, uncertainty has been the theme across the board this year, and it is unlikely to dissipate any time soon. von Greyerz believes that the uncertainty is tied to the end of a cycle, and while the full timeline of the cycle isn’t entirely clear, its social and economic aspects are directly tied to the abolishment of the gold standard in 1971.

This accelerated the precarious path that the Federal Reserve set for the U.S. when it was created in 1913, one of perpetually expanding debt and an economy based on faith. That there is no solution to the debt issue has been painfully demonstrated by various administrations. The Clinton administration from 1998-2001 and the current Trump administration have been among the most vocal regarding the issue, yet neither has been able to prevent the U.S. national debt from roughly doubling every 8 years.

von Greyerz sees central banks as being on exceptionally shaky grounds, as the aforementioned untethering started the fall of fiat currencies. Most of them have lost around 85% against gold since 2000, and all of them have lost upwards of 97% of their value since 1971. While the U.S. dollar stands out as exceptionally long-lasting, von Greyerz sees economic factors that are beginning to threaten it.

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

The ‘new normal’ has been postponed (and probably canceled)

The ‘new normal’ has been postponed (and probably canceled)

There remains a hope that once we get past the economic and social effects of the pandemic, all of us will be able to return to something resembling normal life before the pandemic—even if it is a “new normal” marked by heightened vigilance and protection against infectious disease and more work at home for office workers as companies realize they don’t need to maintain as much expensive office space.

But the date for this recovery to a new normal seems to keep getting postponed. The International Air Transport Association now projects a full recovery in international passenger traffic will take until 2024, a year later than the association projected back in April. The hotel industry will get a bit of a jump on the airline industry with a projected recovery by 2023The situation is so bad for restaurants that no one seems to be willing to project a date for anything that might be called a recovery.

Office building owners—who are suffering lower rent collections and lease cancellations—seem lucky in comparison with a recovery expected by the end of 2022.

Retailers of all kinds continue to suffer as closures abound throughout the United States. And, anyone who relies on commuter foot traffic for sales is hurting.

Meanwhile, the U.S. Federal Reserve Bank just signaled that in the wake of such a sluggish economy it will keep short-term interest rates near zero until 2023. One commentator provided a list of hobbies that Fed board members could take up to fill their time between now and then.

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

Fed’s GDP and Unemployment Projections: Who Believes Them?

In addition to its blather about interest rates, the Fed also made numerous economic projections.
Economic Projections

Please consider the Economic Projections of FOMC Participants under their individual assumptions of appropriate monetary policy, September 2020.

Fed’s GDP, Unemployment, PCE Inflation Projections

Fed's GDP, Unemployment, PCE Inflation Projections 2020-09

GDP Projection

The Fed believes GDP will only contract 3.7% in 2020 then rebound 4% in 2021, and 3% in 2022.

Do you believe this?

Unemployment Projection

The Fed believes the Unemployment Rate will be 7.6% in 2020, 5.5% in 2021, and 4.6% in 2022.

Do you believe this?

PCE Inflation Projection

The Fed believes Core Personal Consumption Expenditure inflation (excluding food and energy) will be 1.5% in 2020, 1.7% in 2021, and 1.8% in 2022.

Do you believe this?

GDP Poll

Unemployment Poll

PCE Poll

My Take

  • GDP: I will take the under. Way under. Much of the rebound was due to $600 pandemic stimulus checks that expired on July 25. This will be a huge headwind going forward.
  • Unemployment: I am leery of games with the participation rate and labor force but I will go with higher.
  • PCE : This one is humorous. For months, the Fed has committed not only to 2% but letting inflation run hotter than expected for some time to make up for needed lost inflation. Yet the Fed admits it will not hit its targets until 2023. PCE inflation, as measured, is a joke. So perhaps the Fed is on target.

Unspoken Truth

Unspoken Truth

We all know it yet the unspoken truth deserves to be said out aloud.

You all heard the phrases ‘Don’t fight the Fed’, and ‘ there is no alternative’. Can we be clear what these phrases really mean? They mean people are buying assets at prices they otherwise wouldn’t because a central planning committee is putting in market conditions that changes their market behavior.

People are paying forward multiples that are higher than they would if they earned higher interest income. The ‘desperate search for yield’ they call it. Think of it as a forced auction. You must pay, and you must pay more because you can’t bid on anything else and neither can anyone else hence there are now bidders for ever less available product (i.e. think shrinking share floats) driving prices wildly higher. And as central banks have become permanently dovish over the past decade Fed meetings are the principal impetus for rallies. Indeed most gains in markets come around days that have Fed Day written on them, a well established history going back decades now.

A fact the Fed itself is very well aware of:

“In a 2011 paper, New York Fed economists showed that from 1994 to 2011 almost all the S&P 500’s returns came in the 3 days around an FOMC decision. Over this period the index rose by 270%, and most of those gains happened the before, the day of, and the day after a Fed meeting.”

So Pavlovian has the response become that shorts automatically cover ahead of Fed meetings and investors buy ahead of Fed meetings expecting a positive response. The Fed is the market as it’s driving its entire behavior. The “Fed put” they call it. Another phrase that explicitly acknowledges that investors are orienting their risk profile behavior on what this unelected committee does.

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

“Inflation” and America’s Accelerating Class War

“Inflation” and America’s Accelerating Class War

Those who don’t see the fragmentation, the scarcities and the battlelines being drawn will be surprised by the acceleration of the unraveling.

I recently came across the idea that inflation is a two-factor optimization problem: inflation is necessary for the macro-economy (or so we’re told) and so the trick for policy makers (and their statisticians who measure the economy) is to maximize inflation in the economy but only to the point that it doesn’t snuff out businesses and starve workers to death.

From this perspective, households have to grin and bear the negative consequences of inflation for the good of the whole economy.

This narrative, so typical of economics, ignores the core reality of “inflation” in America: it’s a battleground for the class war that’s accelerating. Allow me to explain.

“Inflation” affects different classes very differently. I put “inflation” in italics because it’s not one phenomenon, it’s numerous phenomena crammed into one deceptively simple word.

When “inflation” boosts the value of homes, stocks, bonds, diamonds, quatloos etc. to the moon, those who own these assets are cheering. When “inflation” reduces the purchasing power of wages, those whose only income is earned from their labor suffer a decline in their lifestyles as their wages buy fewer goods and services.

They are suffering while the wealthy owners of soaring assets are cheering.

The Federal Reserve and federal authorities are not neutral observers in this war. The Fed only cares about two things: enriching the banking sector and further enriching the already-rich.

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

Collapse Is A Process, Not An Event

Look, I’m a systems guy.  I think in systems terms.  You should as well.

Why?

Because we’re entering a period of time when the major systems that have supported humanity are going to fail.

Or, put more accurately: they are already failing.

As just one example, our monetary system delivers outsized gains to the already stupendously-wealthy while piling up massive debts on the backs of we citizens, both born and yet-to-be-born.  The US Federal Reserve is the unelected and unaccountable body that is most responsible for have made America’s billionaires nearly $1 trillion ‘richer’ since the pandemic hit.

These next three Fed-related data points are, in a word, obscene.

The first shows that the US Federal Reserve now “owns” more US federal debt than all foreign central banks. The second shows how billionaires are getting grotesquely wealthier from the Fed’s “rescue’” efforts. And the last shows how the Fed’s record-low interest policy has resulted in an explosion in federal debt:

(Source)

(Source)

This is obscene (and infuriating!) to anyone who cares about the future.  Leaving aside the morality issues for a moment, we can at least conclude that the behaviors and values on display are thoroughly unsustainable.

Eventually spending more money than you have ends in ruin.

Speaking of spending what you don’t have, a similar story can be told about ecological overshoot and humanity’s extractive practices —  it’s akin to spending both the entirety of the interest income as well as some principal each year from our environmental trust fund.

There aren’t many resources that one can point to which aren’t in some serious form of either concerning decline or depletion, or both.  Already thousands, if not millions, of people in the American West are considering relocating because of the ever-present danger of disruptive if not life-threatening fires:

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

China is killing the dollar

China is killing the dollar

Introduction

On 3 September, China’s state-owned Global Times, which acts as the government’s mouthpiece, ran a front-page article warning that

“China will gradually decrease its holdings of US debt to about $800billion under normal circumstances. But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times on Thursday”[i].

Do not be misled by the attribution to a seemingly independent Chinese professor: it would not have been the front page article unless it was sanctioned by the Chinese government. While China has already taken the top off its US Treasury holdings, the announcement (for that is what it amounts to) that China is prepared to escalate the financial war against America is very serious. The message should be clear: China is prepared to collapse the US Treasury market. In the past, apologists for the US Government have said that China has no one to buy its entire holding.

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

A Powerful Ally to the Fed Just Boosted the Prospects for Inflation

Inflation Calculator

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: ECB could follow the Fed’s pro-inflation policy, precious metals in a pandemic, and legendary silver coin to be sold for more than $10 million at an auction.

Gold could move up further as the ECB looks to keep the euro down

If one believes that central bank policies are a primary driver of gold prices, the yellow metal should have plenty of room to go up even as it sits above its previous all-time high. Besides the Federal Reserve’s openness to inflation, gold should be buoyed by a surge of the euro and the European Central Bank’s (ECB) efforts to contain it.

Experts like Mechanical Engineering Industry Association’s chief economist Ralph Wiechers and Natixis strategist Dirk Schumacher note that an overly strong euro poses problems for the eurozone. It hinders both exporters and importers, slows the European economy, and can cause inflationary spikes in individual countries.

While the ECB might not be able to control the euro as easily, Schumacher’s firm expects them to try and push it down by introducing looser monetary policies. BNP Paribas’ analysts share a similar view, stating in a recent note that the ECB would also voice its desire to keep the euro lower. This was exemplified when former ECB vice president Vitor Constancio stated in an interview that the ECB would follow in the Fed’s wake by allowing inflation to run above the targeted rate for periods of time.

Strong currencies are among the biggest headwinds for gold prices, and inflation is one of its most powerful drivers. Given recent statements by officials from both central banks, it should come as no surprise that prominent investor Peter Schiff points to inflation as the next big thing that will power gold’s gains.

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

The Four D’s That Define the Future

The Four D’s That Define the Future

When the money runs out or loses its purchasing power, all sorts of complexity that were previously viewed as essential crumble to dust.
Four D’s will define 2020-2025: derealization, denormalization, decomplexification and decoherence. That’s a lot of D’s. Let’s take them one at a time.
I use the word derealization to describe the inner disconnect between what we experience and what the propaganda / marketing complex we live in tells us we should be experiencing.
Put another way: our lived experience is derealized (dismissed as not real) by official spin and propaganda.
The current state of the economy is a good example. We see the real-world economy declining yet the officially approved narrative is that there’s a V-shaped recovery underway because Big Tech stocks are hitting new highs. In other words, we don’t need a real-world economy, all we need is a digital economy provided by Big Tech platforms.
This is derealization at its finest: the everyday world you experience directly no longer matters; what matters is stock prices and various statistics that all paint a rosy picture.
Meanwhile, the wealthiest class is fleeing soon-to-be-bankrupt cities. The wealthiest class has the means to buy the best advice and also has the most to lose, so I give their actions far more credence than official propaganda.
This is why denormalization is an extinction event for much of our high-cost, high-complexity, heavily regulated economy. Subsidizing high costs doesn’t stop the dominoes from falling, as subsidies are not a substitute for the virtuous cycle of re-investment.
The Fed’s project of lowering the cost of capital to zero doesn’t generate this virtuous cycle; all it does is encourage socially useless speculative predation. Collapse isn’t “impossible,” it’s unavoidable.

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

Election Chaos Means Market Chaos – Michael Pento

Election Chaos Means Market Chaos – Michael Pento

Money manager and economist Michael Pento predicts, “We are going to have an election in this country that is the most contested vote this country has ever seen.  Whichever party that loses is not going to accept the results.  That’s mad chaos for the stock market, and that is one of the things I am thinking about when I am managing money.”

Another thing Pento is thinking about is massive Fed money printing in response to CV19.  They have printed a massive amount in a very short amount of time.  Pento explains, “They borrowed $3.3 trillion in fiscal 2020.  All of it was monetized by the Federal Reserve.  We switched to an inflationary hedge, and that worked out wonderfully for us.  Then a funny thing happened at the end of July, the PPP loans, the paycheck protection loans, they were exhausted.  The money that was spent and sent by helicopter, $1,000 per adult, $500 per child and $600 in enhanced unemployment, that was all spent too.  So, you have this massive fiscal cliff I warned about is here and here now.  Last week, I got much more defensive. . . . We borrowed $3.3 trillion, and that was monetized by the Fed, and that is all going away.  The amount of new borrowing is done.”

Pento points out one huge lingering problem, and that is unemployment and people still collecting a check.  Pento says, “There are many programs that people have access to get unemployment insurance.  One of the major ones is called Pandemic Unemployment Assistance (PUA).  That number is 29.6 million people when you include continuing claims and pandemic claims for unemployment.  The PUA portion was up one million people last week.  The number of claims might be going down under the traditional channels, but they are all filing claims under the PUA.

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

Negative Interest Rates Have Arrived

We are often warned that negative interest rates are an approaching menace — not an immediate menace.

Yet are negative rates already reality in the United States? Has the unholy day already arrived?

Today we don the sleuth’s cap, step into our gumshoes… and unearth evidence that negative interest rates are not the future menace… but the present menace.

What is the evidence? Answer anon.

Under negative interest rates…

Your bank does not compensate you for stabling your money with it. You instead compensate the bank for stabling your money.

A man sinks a dollar into his bank. Under standard rules he hauls out a dollar and change on some distant date — perhaps $1.05.

These days he is of course fortunate to bring out $1.01.

Yet under negative interest rates he endures a rooking of sorts. He pulls out not a dollar and change — but change alone. The bill itself has vanished.

His dollar may be worth 97 cents for example. Thus his dollar — rotting down in his bank — is a sawdust asset, a wasting asset, a minus asset.

Would you willingly hand a bank a dollar today to take back 97 cents next year? You are a strange specimen if you would.

Yet that is precisely as the Federal Reserve would have it…

The Federal Reserve wants your money eternally up and doing, searching, hunting, grasping… adventuring…

It must be forever acquiring, forever chasing rainbows, forever upon the jump.

That is, the Federal Reserve would not allow your money one contemplative moment to sit idle upon its hands… and doze.

For a dollar in motion is a dollar in service — in service to the economy.

The dollar in motion runs down goods and services. It invests in worthwhile and productive enterprises.

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

This Is How It Ends: All That Is Solid Melts Into Air

This Is How It Ends: All That Is Solid Melts Into Air

While the Federal Reserve and the Billionaire Class push the stock market to new highs to promote a false facade of prosperity, everyday life will fall apart.
How will the status quo collapse? An open conflict–a civil war, an insurrection, a coup–appeals to our affection for drama, but the more likely reality is a decidedly undramatic dissolution in which all the elements of our way of life we reckoned were solid and permanent simply melt into air, to borrow Marx’s trenchant phrase.
In other words, Rome won’t be sacked by Barbarians, or ignite in an insurrectionary conflagration–everything will simply stop working as those burdened with the impossible task of keeping a failed system glued together simply walk away.
If we examine the collapse of the Soviet Union and the Western Roman Empire, we can trace the eventual collapse to the sudden psychological shift from an assumption of permanence that found expression in denial (Rome can’t fall, it’s eternal…) or in the universal belief that life was unchanging and so everything was forever.
This psychological state was replaced by a shocked awareness that what was unimaginable, “impossible”–systemic collapse–was not only entirely possible, it was happening in real time. This change in consciousness arose in individuals in differing ways and velocities, but eventually everyone accepted that some adaptation was now necessary.
Correspondent R.J. and I have been discussing the consequences of the sharp decline in the value of labor which is painfully obvious in the chart below and the many other charts depicting the declining purchasing power of wages and the skimming of the majority of the economic gains by the top 0.1%.
In effect, it no longer pays to work beyond the bare minimum needed to survive as all the value generated by labor above this minimum is either skimmed by the Bezos, Buffetts, Gates, Zuckerbergs et al. or it’s paid in higher taxes to the government.

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

Have You Noticed How Push-Back Against Powell-Fed’s Actions Is Getting Louder in the Mainstream Media, from NPR to CNBC?

Have You Noticed How Push-Back Against Powell-Fed’s Actions Is Getting Louder in the Mainstream Media, from NPR to CNBC?

Still a lot of fawning coverage, but big dissenters are now given prominent spots, and loaded questions are used to politely hammer Powell into telling obvious nonsense.

This is an interesting turn of events, in a world of Fed-fawning mainstream media. In one version, the push-back takes the form of loaded questions about asset bubbles and wealth inequality caused by the Fed’s asset purchases.

Fed Chair Jerome Powell then answers, following what looks like a script because these loaded questions are now being thrown at him regularly. He admits that the Fed’s policies have increased asset prices, then says the Fed as a matter of policy doesn’t comment on asset prices, and hence cannot comment on asset bubbles, but then assiduously denies that this increased wealth of the asset holders, which he admits the Fed has engineered, widened the wealth inequality to the majority of Americans who hold no or nearly no assets, and who got shafted by the Fed. It’s like getting pushed on live TV into saying that, yes, indeed, two plus two equals three!

This happened many times, most notably during the July 29 FOMC press conference when a Bloomberg reporter pushed Powell on that (transcript of my podcast on the Fed’s role in wealth inequality); and during the interview with NPR which aired on September 4, when he was pushed on both, asset bubbles and wealth inequality.

In another version, the push-back in the mainstream media takes more accusatory forms expressed with exasperation and dotted with exclamation marks.

In early August, notable push-backers were former president of the New York Fed William Dudley and Bloomberg News which carried and promoted his editorial.

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

Weekly Commentary: Summer of 2020

Weekly Commentary: Summer of 2020

QE fundamentally changed finance. What commenced at the Federal Reserve with a post-mortgage finance Bubble, $1 TN Treasury buying operation morphed into open-ended purchases of Treasuries, MBS, corporate bonds and even corporate ETFs holding high-yield “junk” bonds. Markets assume it’s only a matter of time before the Federal Reserve adds equities to its buy list.

For years now, Treasury bonds (and agency securities) have traded at elevated prices – low yields – in anticipation of an inevitable resumption of QE operations/securities purchases. Conventional analysis has focused on persistent disinflationary pressures as the primary explanation for historically depressed bond yields. While not unreasonable, such analysis downplays the prevailing role played by exceptionally low Federal Reserve interest-rates coupled with latent (and escalating) financial fragility. Meanwhile, near zero short-term rates and historically low Treasury and agency securities yields have spurred a desperate search for yields, significantly inflating the demand and pricing for corporate Credit.

The Fed’s COVID crisis leap into corporate debt has wielded further profound impacts on corporate Credit – yields, prices and issuance.

September 2 – Financial Times (Joe Rennison): “Companies have raised more debt in the US bond market this year than ever before… A $2bn bond from Japanese bank Mizuho and a $2.5bn deal from junk-rated hospital operator Tenet Healthcare helped nudge overall US corporate bond issuance to $1.919tn so far this year, surpassing the previous annual record of $1.916tn set in 2017, according to… Refinitiv. The surge marks a dramatic revival for the market since the coronavirus-induced rout in March, when prices slumped and yields soared… ‘There has been a phenomenal amount of issuance,’ said Peter Tchir, chief macro strategist at Academy Securities… ‘It’s been the busiest summer I have ever seen. It’s felt like we have been setting issuance records month after month.’”
…click on the above link to read the rest of the article…

An Unlikely Sector Leads the Way in Surge of Corporate Leveraged Loan Defaults

oil gas companies

From Birch Gold Group

The economic effects of the COVID-19 pandemic and recent Fed monetary policy continue to reveal themselves.

The latest “reveal” that’s taking center stage is risky corporate leveraged loans, with defaults soaring to their highest levels since 2010 by issuer count, and since 2015 by rate.

report by S&P Global Intelligence breaks everything down, starting with a summary:

U.S. loan defaults continued to rise in July, surpassing 4% by issuer count for the first time since 2010, after five constituents of the S&P/LSTA Leveraged Loan Index tripped defaults on $7.7 billion of term loans.

You can see the billions in defaults by year in the chart below, and how the U.S. hasn’t seen an amount even close since 2009 (with four months still remaining in 2020):

us leveraged loan defaulted amount

“With economic fallout from the coronavirus pandemic playing an increasing role, default volume over the last 12 months, at $46.35 billion, outpaces the same period of 2019 by 233%,” according to the same report.

Even more sobering than this astonishing surge, it looks like a critical sector of the economy that shouldn’t be defaulting on leveraged loans is the sector that’s contributing the most defaults…

Oil and Gas Companies Reveal How Fragile the Situation Is

It appears things wouldn’t be “so” bad if oil and gas companies weren’t defaulting by more than 30% of their total loan amount. You can see their “contribution” to this dire situation reflected in the chart below:

us leveraged loan default rate by amount

You can also see how oil and gas leveraged loan defaults could also have played a role in the dramatic Dow crash at the end of 2018 in the same chart above.

The S&P Global report notes that some examples of the energy sector carnage include (but are by no means limited to):

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

 

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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