“Furthermore, in the main, historians educated as Keynesians and monetarists do not understand the economic history of money, let alone the difference between a gold standard and a gold-exchange standard. These similar sounding monetary systems must be defined and the differences between them noted, for anyone to have the slimmest chance of understanding this vital subject, and its relevance to the situation today…
…The pricing of financial assets, and today’s extraordinarily low interest rates indicate that a flight from the dollar is the last thing expected in financial markets. If they were still alive, de Gaulle and his economic advisor, Jacques Rueff, would be instructing the ECB, as successor to the Bank of France, to dump all dollars for gold immediately. And probably to dump all other foreign fiat currencies for gold as well. However, today, it is likely that other actors will blow the whistle on the dollar, such as the Chinese, and the Russians.”
The quotes above are from Alasdair Macleod’s piercing essay on the gold standard and the mechanics underlying an inevitable collapse of the U.S. dollar: Why A Dollar Collapse Is Inevitable. No one can claim to understand the modern monetary system without reading this piece from Macleod. It also explains by Modern Monetary Theorists are full of shit.
As the antithesis to the dollar, gold will soar. I was looking at some charts with a colleague earlier this week and was startled to discover that a very quiet bull move has begun in the miners.
Like the move that began in late 2015, it seems that some of the junior miners per GDXJ have gotten the party going. As you can see in the chart below, GDXJ is up 12.8% since December 7, 2017. GDX is up 9.5% since March 1st. Some individual stocks are quite a bit more than the indices: AEM up 18% since March 1st, EXK up 49.7% since Feb 9th, Bonterra up 25% since March 1st, etc.
I’ve had several stocks in my Mining Stock Journal that have outperformed the sector my several multiples. Some of them are risky junior exploration stocks and some are lower-risk producers. A good example is EXK, which I presented in the August 24, 2017 issue at $2.16. It closed Friday at $3.06, up 41% from my buy recommendation. This is just one out of many examples. You can learn more about the Mining Stock Journal here: Mining Stock Journal Information.
The public pension fund system is approaching apocalypse. Earlier this week teachers who are part of the Colorado public pension system (PERA) staged a walk-out protest over proposed changes to the plan, including raising the percentage contribution to the fund by current payees and raising the retirement age. PERA backed off but ignoring the obvious problem will not make it go away.
Every public pension fund in the country is catastrophically underfunded, especially if strict mark-to-market of the illiquid assets were applied. Illinois has been playing funding games for a few years to keep its pension fund solvent. In Kentucky, where the public pension fund is on the verge of collapse, teachers are demanding a State bailout.
If the stock market were sustain a extended decline of more than 10% – “extended” meaning several months in which the stock market falls more than 10% – every public pension in the U.S. would collapse. This is based on an in-depth study conducted by a good friend of mine who works at a public pension fund. He has access to better data than “outsiders” and I know his work to be meticulous. Please note that the three big market declines since August 2015 were stopped at a 10% draw-down followed by big moves higher. The current draw-down was stopped at 10% but subsequent outcome is to be determined. My friend and I are not the only ones who understand this:
The next phase of public pension reform will likely be touched off by a stock market decline that creates the real possibility of at least one state fund running out of cash within a couple of years. – Bloomberg
I know a teacher in Denver who left her job that was connected to PERA in order to take a lump-sum payout rather than risk waiting until she retired to bankrupt pension plan. She took a job in the Denver school system, which is not part of the PERA system. She’s actually thinking about teaching in Central America, where there’s high demand for English-speaking teachers and the pay relative to the cost-of-living is much higher:
“Teaching sucks right now. Teachers are underpaid for the work we’re doing. After all of these years, I’m making about $60,000. That’s BS! I have a masters. Truthfully, the classroom is burning me out right now. The f#cked up world is spilling into kids’ lives. They’re largely defiant and off-track. I don’t have the energy to try to streamline whole classrooms.” In reference to the pension system: “When the mother f#cking-f#ck is any of this going to be corrected?!?! I am beyond mad. Ecuador has become an option, because this country is beyond f#cked up.”
Unfortunately, I was compelled to answer with the truth – a truth she already knows: “It won’t be corrected. The system will have to collapse and then who knows what will happen. Criminals run everything now and the people who are supposed to enforce Rule of Law are well paid to look the other way. This has been building for at least 2 decades. It doesn’t help when the President is caught shoving a cigar up a staff interns vagina and then a joke is made of it in Congress. “Is oral sex, sex?” Answer: “it depends on what the meaning of the word ‘is,’ is.”
Now the corruption and fraud is out in the open and there’s nothing that can be done about it. The system will have collapse – its the final solution.
Below is a must-read essay from a friend and colleague of mine, Chris Marcus, who is a former options trader (Wharton MBA) that now lives in Denver. Many of you may not be aware, but Mark Cuban made his fortune the old fashioned way – he was lucky to be in the right place at the right time. Cuban owned Broadcast.com (a relic of the 1990’s tech bubble). Yahoo.com used tech bubble stock “wampum” to acquire Broadcast.com. Broadcast.com was no longer around a few years later.
If anyone knows how to get lucky off a worthless asset, it’s Mark Cuban. Currently he spends his time running the Dallas Mavericks into the ground. Chris Marcus eloquently presents the counter-argument to Mark Cuban’s absurd comments about gold in a Kitco.com interview.
During my time training to be an equity options trader, the shop I worked for required that I log 100 hours of poker training. Under the belief that there are great similarities between the decision-making required for poker, and that required for successfully trading the financial markets.
Along those lines, there was a particular lesson that always stood out to me. That while the numbers and percentages are important in both sciences, understanding the people you are playing against is equally, if not a more important element of the game.
Because you might think you’re right, and the person you’re trading against might think they’re right. But if you can identify why they’re wrong and spot the flaw in their thinking, that can really arm you with some confidence in your bet.
If you’ve seen the movie The Big Short, you may remember the scene where right before one of the funds was getting ready to increase the size of their bet against the mortgage industry, they were a little bit concerned.
But to ease those fears, the Deutsche Bank character played by Ryan Gosling took the fund managers to meet the people they were actually trading against. Because once they heard how the people they were trading against were completely caught up in the mania and missing the bigger picture, it gave them the confidence to pile on their trade in even bigger size.
Along those lines, for those investing in gold and silver, there were some interesting recent comments from Dallas Mavericks owner Mark Cuban. That are somewhat reflective of the mainstream view of gold, and similar to the rhetoric you hear out of the central banks.
Which in my own personal opinion comes as extremely fantastic news for those who own precious metals and wonder whether there is still upside to the pricing.
Cuban was interviewed by Daniela Cambone of kitco.com. And with all due respect to Mr. Cuban, some of his answers were so far detached from the reality I’m living in that the more I heard him talk, the more I was tempted to dial Andy Schectman and buy more gold.
Consider the following:
Cambone: Where do you think are some of the safest bets for your money right now?
Cuban: If you need safe, just put the money in the bank. (Editor side note – seems safe to say at this point that Cuban likely hasn’t been reading Von Mises during halftime at the Mavs games).
Cambone: Gold, up 2.5% for the first quarter. I know in the past you’ve seen it as a speculative bet. How do you see it today?
Cuban: I hate gold. Gold is a religion. There’s some fundamental value to gold, but everything else…it’s a collectible.
Cambone: Well hate is a strong word. The miners too?
Cuban: Individually as people, I heard they’re great people (he says giggling). But as an investment, hate is not strong enough. Hate with an extreme prejudice.
Cambone: So you don’t see gold as money.
Cuban: I do not see it as an alternative to currency. No not at all.
Cambone: Do you feel the same about silver, palladium, or platinum?
Cuban: I don’t know those others as well. But those are pretty much based off their intrinsic value as much as I can tell.
Cambone: So you’re in the camp of gold is just a pet rock.
Which makes his current comments all the more baffling. Although perhaps Cuban doesn’t see any cause for concern with rising interest rates and foreign creditors walking away from the dollar system.
Ultimately what Cuban thinks about gold may be irrelevant. Yet to the degree that there are many in the markets who share a similar line of thinking, it’s worth registering that if you own gold, this profile and argument is essentially what you’re betting against.
Personally I receive it as great news. Because in my career, the best trades are not when a person thinks they’re right and puts the trade on. But when a person thinks they’re right, knows why the other person is betting against them, and can spot the flaw in that person’s logic.
I’ll leave it up to you to decide whether Cuban’s argument makes much sense. But his views are generally reflective of what the anti-gold crowd is thinking, and it makes me feel better than ever about owning physical gold and silver. (Article LINK)
…Only this time around they are sponsored by the U.S. Government and guaranteed explicitly by the Taxpayers. I say “explicitly” because Government agency-issued mortgages are directly guaranteed. In 2008, the Government bailed out the banks who had issued subprime mortgages and related derivatives, but the Taxpayer never signed up for the multi-trillion dollar bailout, which largely transferred wealth from the middle class taxpayer to the Too Big To Fail bank executives.
In an attempt to off-set the falling velocity in the housing market, taxpayer-backed Fannie Mae and Freddie Mac have reduced their credit standards on guaranteed conventional mortgages several times over the last 3 years. In 2015 they reduced the down payment requirement to 3% from 5%. In addition, they reduced the amount mortgage insurance required on mortgages with less than 10% down. Then they allowed “soft dollar” contributions to count as part of the 3% down payment, like seller concessions or realtor commission concessions. They also allowed homebuyers to use loans from other sources to fund the down payment. In this manner, a homebuyer could prospectively buy a home with a taxpayer-guaranteed mortgage using no cash out pocket.
Then last June (2017) Fannie and Freddie raised the Debt To Income (DTI) ratio from 45% to 50%. DTI is the ratio of monthly debt payments (all forms of household debt payments) to the borrower’s monthly gross income. A borrower with a DTI of 50%, including the new mortgage, is using 50% of monthly net income to make debt payments (mortgage, credit cart, auto, student loans, personal loans).
The chart on the right shows the spike-up in the number of conventional mortgages issued by Fannie and Freddie once the DTI was raised (source: Corelogic w/my edits). As you can see, before the DTI was raised the number of mortgages issued with a DTI over 45% was one in twenty. After the change, the one in five new mortgages backed by the taxpayer were issued to homebuyers with a DTI over 45%. This is, by far, the highest level of high-DTI mortgages since the financial crisis.
But the story gets worse. The Urban Institute conducted a study of high DTI mortgages and discovered that 25% of all Fannie Mae mortgages issued to borrowers with a credit score below 700 had a DTI over 45% in just the first two months of 2018. This is up from 19% a year earlier. This is after Fannie Mae reported a $6.5 billion loss in Q4 2017 that the taxpayers will cover. The Government raised the DTI in order to stimulate home sales by inducing households, who could otherwise not afford the monthly cost of home ownership, into taking on even more debt to purchase a home. The majority of these home “buyers” will ultimately default and the taxpayer will get the privilege of eating the loss.
Zillow Group Is Now Flipping Homes? – Zillow Group stock plunged as much as 11% on Friday after it announced that it would be adding home flipping to its home-listing services. Clearly the market was spooked by this announcement – and for good reason. The plan will significantly raise ZG’s risk profile and will require the assumption of $10’s of millions in debt, depending on the number of homes ZG holds on its balance sheet any given time. It’s plan now forecasts holding up to 1,000 homes by year-end.
ZG stock is extraordinarily overvalued. The Company released its Q4 and full-year 2017 earnings on February 8th and the numbers had little affect on ZG’s stock. ZG continues to generate operating and net losses. It incurred a $174 million intangibles write-down in Q4 2017 that was related to its 2015 acquisition of Trulia. While the Company and Wall St. analysts will remove this write-down as “non-recurring, non-cash,” it is indeed a write-down that occurred to an asset for which Zillow overpaid by at least $174 million. As the housing market fades, ZG will likely incur bigger write-downs of its “intangibles and goodwill,” which represents 85% of ZG’s book value.
The move into home-flipping signals, at least in my view, that ZG has determined that its current business model will never be profitable. The decision to test home flipping in Phoenix and Vegas can be seen as desperate attempt to generate income. Ironically, in the last housing bubble, flippers in those two markets were decimated. I don’t see how this will end well for ZG, especially now that Congress is exploring rules changes to Fannie and Freddie that will raise the cost of conventional mortgages. The conventional mortgage user is the prime market for home flippers and now the average conventional mortgage applicant has de facto sub-prime credit.
By the way, just for the record, on average and in general, home prices are coming down quickly in most markets. Case Shiller is severely lagged data and it emphasizes price gains from flips. Robert Shiller used to admit to these facts publicly. Now he’s a bubble cheerleader like everyone else who sold out.
Taxpayer: Get ready to eat more losses on the housing and mortgage market.
The commenetary above is from my latest Short Seller’s Journal. For the past several issues I have been focusing on both short-term and long-term homebuilder short ideas. Several of my subscribers have told me they are making double-digit percentage gains on the ideas presented. You can learn more about this unique newsletter here: Short Seller’s Journal information.
“LEN! Bagged another 30% on April $60 puts. Of course took some profits and added more to other ideas” – subscriber email last week
TSLA stock has levitated on statements from Elon Musk that TSL A would be cash flow positive by Q3, an announcement that TSLA would roll out a Model Y “crossover” SUV by November 2019 and the reiteration of ambitious Model 3 production milestones. All three will never happen.
Elon Musk’s attorneys must be giving Elon the same advise given to Jerry Seinfeld by George just before Jerry took a polygraph test: “Elon, just remember, it’s not a lie if you believe it it.”
It looks like reality is catching up to TSLA and TSLA is going into a death spiral. An amended complaint to an existing class-action suit against the Company, Musk and the CFO was filed. The suit accuses Musk and the CFO of knowingly making false and misleading public statements with regard to production and quality targets for all of TSLA’s models. The amended complaint includes testimony from several former employees. The amended allegations give the lawsuit far sharper teeth than the original court filing. When I find the time, I’m going to read the entire court filing.
In addition, recently a judge denied Elon Musk’s request to dismiss a class-action suit stemming from TSLA’s acquistion of Solar CIty (which is turning into a disaster) against Musk and TSLA’s board
As for TSLA generating positive cash flow by Q3 and avoiding the need to raise more money, I found an analysis of TSLA’s current liabilities which shows TSLA’s current cash position is worse than it appears.
At the end of 2017, TSLA showed a cash balance of $3.3 billion. Of that, 25% or $840 million is refundable customer deposits. Another $1.3 billion is current payables which are due over the next few months. This includes $753 million owed for equipment, $378 million in payroll and $185 million in taxes payable. Netting out customer deposits and the accrued payables, TSLA’s net cash position at the end of 2017 was $1.3 billion.
TSLA’s current assets minus current liabilities showed a working capital deficit of $1.1 billion at year-end. TSLA generates a cash loss on every vehicle sold. It’s highly likely that TSLA’s cash net of current cash payable obligations is now well under $1 billion. Elon Musk must have taken LSD before he made the announcement that TSLA would be operating cash flow positive and would not need to raise money in 2018.
Although nothing would surprise anymore in this market, I just don’t see how TSLA breaks higher from the current chart formation. Lawsuits are piling up. Last week the NTSB kicked TSLA out of its participation in the NTSB’s investigation of that fatal accident involving a Tesla in California. The NTSB stated that TSLA violated agency protocols. Consumer Union, the consumer advocacy division of Consumer Reports, issued a report last week which stated that Tesla needs to improve the safety of its autopilot. On top of all of this, I’m convinced that Elon Musk, based on his erratic and volatile behavior, is certifiably insane.
This essay on the ramifications of the United States’ Deep State missile attack on Syria. The OPCW – Organization for the Prohibition of Chemical Weapons – is an independent organization formed to implement the provisions of the Chemical Weapons Convention. There’s 192 member states, including the U.S. and Russia.
Russia sponsored a resolution in the U.N. for the U.N. to endorse the OPCW’s investigation of the alleged chemical attack in Syria. Not surprisingly, the U.S. blocked the U.N. from endorsing the mission, which will still proceed as planned. I would have thought the U.S. would have led call for an independent investigation…
Eric Zeusse of the Strategic Culture Foundation writes:
So: what is at stake here from the OPCW investigation is not only the international legitimacy of Syria’s Government, but the international legitimacy of the Governments that invaded it on April 13th. These are extremely high stakes, even if no court in the world will possess the authority to adjudicate the guilt — either if the US and its allies lied, or if the Syrian Government lied.
The recent stock market volatility reflects the beginning of a massive down-side revaluation in stocks. In fact, it will precipitate a shocking revaluation of all assets, especially those like housing in which the price is driven by an unchecked ability to use debt to make the “investment.” This unfettered and unprecedented asset inflation is resting precariously on a stool that is about to have its legs kicked out from under it.
The primary reason the U.S. is now holding a losing hand at the global economic and geopolitical “poker table” is that this country has been committing too many sins for too long for there not to be a price to be paid. With bankrupt Governments (State and Federal), a bankrupt pension system, a broken healthcare system, all-time high corporate and household debt levels and a broken political and legal system, the U.S. is slowly collapsing. This is the “perfect storm” for which you want to own plenty of gold, silver and related stocks.
Eric Dubin and I are producing a new podcast called, “WTF Just Happened?” The inaugural show discusses the topics mentioned above:
“WTF Just Happened?” w/ Dave Kranzer and Eric Dubin is produced in association with Wall Street For Main Street – Follow Eric here: http://www.facebook.com/EricDubin
The U.K. refuses to release for independent examination any of the evidence that would link the Skirpal poisoning to Russia. As such, we can only assume that Russia was meant to be the scapegoat. Same deal with the chemical attack in Syria. There’s a complete lack of evidence that would connect the incident to any specific perpetrator. But the U.S. seems satisfied that a case built on no-evidence hear-say and western media headlines proves the allegations.
Amazingly, some of neo-cons at Fox News are now questioning the legitimacy and motives for U.S. belligerence toward Russia using Syria as the “host.” Tucker Carlson went nuts on the idea, which is surprising because Fox typically is pro-war against anyone and anything without bona fide cause and for any reason:
Perhaps of more concern is the analysis presented by Paul Craig Roberts, who has a little more experience in DC politics and Government policy advisement than anyone in the cable media:
No sign this morning of Washington coming to its senses. Zero Hedge reports that Trump is canceling his trip to Peru’s Summit of the Americas in order to oversee the US attack on Syria. If the attack is real and not merely a hit at an unimportant target for PR effect, war could be upon us…”War With Russia Approaching” and “On The Threshold Of War.”
Let’s hope saner minds somehow prevail in DC, though I’m not sure where those brain cells might reside. With a debt-riddled and a larger “explosion” than the one that hit in 2008 percolating throughout the U.S. financial system, it seems that Washington’s policy alternative of choice is, “when all else fails, start a war.”
The insane intra-day and inter-day volatility in the stock market is the primary signal that the system is spinning out of control. The “trade war” narrative is strictly cosmetic. The market turmoil reflects the conflict between the extreme inert overvaluation of financial assets and the money sloshing around in the hands of perma-bullish traders who never experienced a market collapse. The drum-beat of war – trade and military – is meant to deflect the public’s attention from the underlying economic reality.
I would suggest that this is why gold is moving higher despite the overt effort by the Fed/banks to suppress the price and the overwhelming negative investor sentiment toward gold.
There’s been an abundance of commentary on the net long position of the “Swap Dealers” in Comex silver futures per the COT report. As of the latest COT report, the Swap Dealers are net long almost 22k silver contracts. This is unprecedented. At the same time, the “Large Speculators,” the majority of which is comprised of the “managed money” (hedge funds) sub-component, are net short nearly 17k silver contracts. The data my business partner tracks goes back to April 2004. In that period of time, the Large Speculator category has never been short until February 2018.
On the surface, the silver COT report appears to be extraordinarily bullish. However, there’s a bigger picture not discussed by “COT” analysts that includes the other segment of the large “Commercial” category and the COT structure of gold.
The other “commercial” segment includes producers of silver, commercial “users” of silver (jewelers) and “merchants.” It would be naive to assume that the Comex banks do not throw a large percentage of their gold/silver short positions in to the this category. That would be within the CFTC regulations. Hell, JP Morgan was fined a little over $650k a few years when it was caught by the CFTC putting a portion of its trades into the “speculator” category of trader. This was not within regulations. $650k is a joke and would not deter Jamie Dimon from speeding on the Long Island Expressway let alone manipulating the silver market.
Currently the “Commercial” segment per the latest COT report is net short 2.6k contracts. Again, this is by far the lowest net short position in the Commercial category going back to at least April 2004 and likely ever. The closest the net short position has been before now was for the June 3, 2014 COT report, when the Commercial category net short in silver was down to 9.6k. Back then silver was trading at $18.80. It bounced briefly to $21 by early July then headed lower from there.
While the silver COT appears to be exceptionally bullish, it needs to be analyzed in the context of the gold COT structure. The gold COT structure currently, based on historical statistics, is neutral but trending toward bullish. I looked at data going back to the beginning of the current bull market cycle in the metals, which is commonly considered to be early-December 2015.
From the beginning of December to the latest COT report, the average large spec net long position in gold is 171k. The high was 315k (bearish) and the low was 9.7k (very bullish). For the Commercials as a whole, the average net short during that time period is 209k contracts. The high was 340k (bearish) and the low was 2.9k (very bullish). The low net short in gold for the commercials banks occurred in the December 1, 2015 COT report. This also corresponded with the low print in the large spec net long. This type of COT structure is the most bullish for both gold and silver.
Currently, the large specs are net long 166.5k gold contracts and the commercials are net short 188.8k contracts. You can see vs the averages over the time period that this is still neutral to bearish, but it’s trending in the direction of becoming bullish.
The other element for a bullish gold COT structure is open interest. A high open interest tends to correlate with a bearish COT structure – i.e. a high commercial bank net short – and a low relative o/i correlates with a cyclical low-point in gold. From December 2015 to present, the average o/i in gold has been 492k contracts. The high was 652k and the low was 357k. The net short of the commercials as percentage of the total o/i at the low-point in total o/i was 0.74% – again in the December 1, 2015 COT report. Currently the open interest is 493k which is about average. The commercial short position as percentage of total o/i is 38%. Again, about average for the time period.
I have noticed that the last two moves higher over the last two years have occurred with the total gold o/i in the 420-440k range. This would suggest that, minimally, the open interest needs to drop by 60-70k contracts before the gold COT structure can be considered favorable for a rally in the price of gold.
On average and in general, gold and silver are highly correlated in their directional movements, especially over long periods of time. Since 2001, it’s been my experience that major moves higher in the precious metals sector begin with gold taking off and tend to end with silver outperforming gold by a substantial margin. The numbers presented above would suggest that both gold and silver will not be set-up to embark on a major move higher until the both the total open interest in gold and the net short position in gold of the commercials banks declines by another 60-70k contracts.
In the context of my analysis and my view on methods used by the banks to manipulate the paper price of gold and silver on the Comex, in my pinion the silver COT report – though remarkably bullish on a stand-alone basis – is not as bullish as some analysts are presenting when both the gold and silver COTs are considered in tandem. At this point, I believe gold will lead both metals higher when the next big move begins. Once that move is underway, I’m highly confident silver contract short-covering by the hedge funds will send silver soaring.
This commentary is emphatically not an endorsement of Trump as President. I have not voted since 1992 because, when the system gives the public a Hobson’s Choice, voting is pointless.
An age-old adage states that “people vote with their wallets.” The chart below suggests that this adage held true in 2016:
The graphic above (sourced from Northman Trader) was prepared by Deutsche Bank and the data is from the Fed. It shows that, since 2007 through 2016, U.S. median household net worth declined between 2007 and 2016 for all income groups except the top 10%.
Given that a Democrat occupied the Oval Office between 2008-2016, and given that the economic condition of 90% of all households declined during that period, it follows logically that empty promises of a Republican sounded better to the general population of voters than the empty promises of a Democrat.
In other words, the “deplorables” didn’t vote for Trump because they wanted a wall between the U.S. and Mexico or they wanted to nuke North Korea off the map, they voted for a Republican because the previous Democrat took money from their savings account.
The rest of the propaganda and rhetoric connected to the 2016 election, which was elevated to previously unforeseen levels of absurdity, was little more than unholy entertainment that served to agitate the masses. These two graphs explain a lot about the outcome of the 2016 “election.”