Tag Archives: ZIRP

Gold: Welcome To The Weimar Death Spiral

For starters, I want to re-emphasize the importance of getting your money OUT of fiat currency and OUT of U.S. banks.  If you read this article and do not come to that conclusion, you will end up getting what you deserve:  Commerzbank To Hoard Euros  The Fed is devaluing the dollar every day.   My solution for day to day cash management is Bitgold.  I am not an “ambassador” or “affiliate.”  But I am convinced that it’s the best viable means of managing money that requires “fungability” – i.e. that you need for daily expenses.  You can sign-up for Bitgold here:   Gold-Backed “Checking” Account.  Bitgold operates OUTSIDE of the global Central Banking system.

Second, a colleague of mine told me he knows why the stock market is up today – because it’s open.   That’s not entirely a joke.  But what is a joke is the underlying cause:  rampant global money printing disguised as “quantitative easing  – or Central Bank asset monetization.”

Goodbye Keynes, hello Havenstein.  The Fed and the ECB have resorted to Weimar-style money printing.   The lack of transparency makes it easy for them to impose various forms of disguise to hide the outright money printing.   Today the ECB rolled out its program to buy corporate bonds.  It prints money and buys the bonds of U.S. and European corporations.  The disguised name is “quantitative easing.”

It’s a meaningless description.  It’s printing money and giving that money to banks and corporations to spend.   It may not increase the official tabulation of the money supply, but effectively it balloons the supply of money.   After all, money is spending or lending power.   That money sitting on bank balance sheets translates into “high powered” reserve credit.  It multiplies the spending power by 10.  That’s the real supply of “money” in the system.

The precious metals market understands this truth.  The move in gold is “quantitative price appreciation.”   It’s gold’s response to “quantitative easing.”  For the last five years, the Fed and the ECB – and with help from China, I suspect – has been able to further disguise its money printing by using paper derivative forms of gold – OTC derivatives, Comex futures, LBMA forwards, Central Bank lease agreements and hypothecation – to hold down gold’s quantitative price appreciation.

But that ability to keep a lid on the price of gold may well be measurably fatigued.  The demand for deliverable physical gold and silver is starting to offset the price dilution that has been imposed on the precious metals market with printed derivative forms of gold and silver.  GATA – on the foundation of the research done by Frank Veneroso in the mid-1990s (he visited several Central Banks and discovered that they were leasing gold in large quantities to help hold down the price) – predicted that eventually the physical market would overwhelm the paper market and lead to a huge parabolic move in the price of gold.

It’s taken a lot longer than any of us could have imagined.   But something different is occurring in the gold market right now, because all the technical indicators over the last 15 years that have foreshadowed a massive take-down in the price of gold are betraying their promoters.  While the price-rigging schemes may not have completely run out of energy, as John Embry said yesterday:  “I’d much rather be playing our hand than theirs.”

I took profits (265%) on a call option trade on a high quality mining stock that I presented to the subscribers of the Mining Stock Journal in the debut issue.  It was a low-risk proposition.  I rolled the profits into shares of the stock.   I currently am sitting on a 25% gain in a short term trade idea presented to MSJ subscribers less than two weeks ago (a high quality junior stock).  I am looking to make 30-40% in total within another week and then take the profit.  Again, another low-risk trade idea.  In the next issue published tomorrow, I am presenting a high-risk, high-return junior silver mining stock idea.  You can subscribe and get all the back-issues (email delivery) with this link:   Mining Stock Journal.

One more note:  I presented a brand new silver explorer to subscribers of the Short Seller’s Journal on Jan 10th.  That stock is up 663% since then and still has room to double from here.

Why Is This Big Hedge Fund Manager Terrified?

When I saw this comment from Ray Dalio I said to myself, “this isn’t someone trying to be a prognosticator or compassionate person, this is someone that has had an epiphany that his huge success probably had more to do with his rolodex and endless supply of free money more than anything else and is becoming depressed over that realization.”  His All Asset fund was down 7% in 2015 and negative 2 of the past 3 years.  –  A colleague who manages money in an email to IRD today

Ray Dalio has achieved “rock star” status in the hedge fund world.  Per a report sourced by Zerohedge, Dalio appears to be frightened by the prospects of the “normalization” of Central Bank monetary policy.  In fact, he penned an op-ed in the Financial Times in which he states:  “Since the dollar is the world’s most important currency, the Fed is the most important central bank for the world as well as the central bank for Americans, and as the risks are asymmetric on the downside, it is best for the world and for the US for the Fed not to tighten.”

What has Ray frightened?  There are several highly problematic assertions embedded in that comment by Dalio.  First and foremost is the idea that the dollar is the world’s most important currency.  I wonder how China might respond to that comment?  China has been methodically getting rid of its use of the dollar.  In fact, it can be argued that the world’s most important currency is gold, which is why China and Russia have been accumulating gold on a daily basis with both hands.  I find it interesting that Dalio can discuss currencies and monetary policy and not utter one word about gold.

Dalio has been making the argument that economic vitality is dependent on asset levels. This idea is endemic to the hubris behind Wall Street’s financialization of the monetary system.  The truth is the only outcome accomplished by a system based on fiat currency, fractional banking and the financialization of assets is the monarchical enrichment of money skimmers like Dalio and his Wall Street bank cohorts. If the Fed were to begin raising interest rates in earnest, it would remove Dalio’s ability to skim the system.

As I discussed in a blog post last week – LINK – contrary to Dalio’s assertion, financial assets do not create real economic growth.  If anything, the proliferation of financial assets creates nothing more than Wall Street-enriching bubbles which culminate with a systemic collapse that destroys everything.   To correlate the trading level of financial assets with the creation and support of economic growth is either an intentional misrepresentation of the truth for the purpose of self-interested preservation or naive ignorance.  My inclination is to dismiss the latter as beyond probable.

Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief…It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.  – William White, former BIS chief economist – Telegraph UK

The debt referenced above by the former BIS chief economist are the credit market liabilities  to which Dalio refers.   It is the world’s inability to service or repay them that Dalio fears – not the contraction of economic activity.  Real economic growth has been contracting for at least 8 years.  Easy monetary policy only serves to exacerbate the predicament.  Of course, the removal of easy monetary policy sabotages Dalio’s ability to continue making a fortune off the inflation of financial assets.

A collapsing global financial system will take away Wall Street’s continued enrichment from QE and ZIRP.   This is what has Dalio frightened and this is why he is urging the Fed to refrain from raising interest rates.  Perhaps he’s also making an appeal for more QE.   What better way to re-inflate monetary assets than for the Fed to print more money?

Unfortunately QE will eventually lose its effectiveness as an asset inflator.  The old law of diminishing returns.  I have no doubt Mr. Dalio is familiar with that law of economics.  But he’s lost sight of this reality because he’s been blinded by wealth-induced hubris.  At some point that proverbial can being kicked by the Fed and the U.S. Government will no longer move.   That’s when the real fun begins and that’s when people will wonder why Dalio never discussed gold except in front of his elitist cohorts at the Council on Foreign Relations.

Yellen Folds Her Cards – Admits It Was A Bluff

“In the summer of 2011 is when things went insane.”  – Remember this quote

In the process, Yellen is making herself out to be a complete fool or a liar:

“I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook,” she said. “The economy has been performing well, and we expect it to continue to do so.”  Bloomberg News

The economy has been “performing well?”  Seriously?   Let’s have a look.  Here’s year over year percentage change in retail sales:

Graph1 As you can see, there’s been a steady decline in the year over year growth in real retail sales since August 2010. Is this 70% of the economy the part to which Yellen is referencing as “performing well?”

But here’s the kicker:

graph2 THIS graph shows the actual dollar change in retail sales LESS auto sales since August 2010. We know that auto sales have been pumped up by the largest expansion in automobile subprime (junk) debt issuance in history. If you strip away that artificially pumped up area of the economy – pumped up by Yellen and Bernanke – look at the stunning decline in retail sales.

Retail sales represents 70% of the economy.  How can the economy possibly be doing well when the only segment of retail sales showing signs of life is the automobile segment, which has been pumped up by what will be the eventual catastrophic availability of junk loans.   Contacts of mine in the local auto business are in outright shock at the number of 2013-2014 cars hitting the repo market.  I have seen with my own eyes leased land lots along busy commercial boulevards which are overflowing with repo’d vehicles.

Perhaps Yellen was referencing the “low” unemployment rate.  The magical 5.1% rate of unemployment that is conjured up with Government fabrication.  Ya that number may be the unemployment rate if you use the Census Bureau guesstimate of employment based on flimsy population samples and if you ignore the fact that nearly 100 million people in the working age population are not part of or have left the labor force – or if you just make up the numbers (birth-death model):

graph3 We’ve all seen this graph several times but it’s worth seeing again in the context of Janet Yellen making the statement that “the economy is performing well.”

In the famous phrase from Macbeth, the employment situation in the United States is “a tale told by an idiot, full of sound and fury, signifying nothing.”

Now here’s another kicker.  Many of you have already seen the outstanding Fed video written and produced by my good friend and colleague, John Titus:   Best Evidence –  Fed Audit Shocker:  They Come From Planet Klepto.    I get previews of his work along the way and he shares a lot of information with me about everything he discovers reading the Fed transcripts, which are released 5 years ex post facto.

The particular transcript John was pouring over for the above video was from the Fed meeting right before QE was introduced.  The information is there for anyone to look at but John actually does the work.

Recall from yesterday that Janet Yellen referenced the unemployment rate as evidence that QE had worked.  I received a text from John last night that said:  “Janet Yellen is such a fucking liar.”   To which I replied: “based on what, this time?”  To which he cited:  “Did you see that shit about the Fed not boosting inequality?  She says QE put people back to work.  Based on what?  Because in the June 2009 Fed transcript she said the unemployment rate b.s.”  As you can see, John is extremely pissed off at Yellen’s blatant dishonesty.

So there you have it.  Yellen is on record stating to her Fed cohorts that the unemployment rates is nonsense.  This was when she was Bernanke’s co-pilot of the FOMC.  From this we can conclude that Yellen is a serial liar.  But we can also conclude that she is an idiot because she has a left a definitive trail of evidence proving that she’s a liar.

This brings me to the “in the summer of 2011 is when things went insane” comment. The very same John Titus attended a conference yesterday put on by Eric Hunsader, of HFT’s Nanex fame.  Titus asked Hunsader when he first noticed that there was no longer Rule of Law in the markets.   Hunsader replied that “I guess it’s always been there but it got worse” [he pondered searching for a reflective answer and compared it the frog in boiling water adage].

But then John said one of Hunsader’s underlings spoke out – the first and only time during the show – and said “the summer of 2011 is when things went insane.”

I would like to tie this back to the two graphs above which show that retail sales began a definitive decline in growth rate in early 2011 AND an outright decline ex-autos in “the summer of 2011.”

By that time the U.S. system had been bombarded with QE for two years and interest rates had been at zero for a bit longer than two years.  Additionally, the Fed and the Government began an undeniably aggressive attempt to reflate all asset markets and pump up housing and auto sales.

graph4 A lot of bad occurrences developed in the summer of 2011. As you can see from this graph to the left, the stock market went on the longest uninterrupted rise in its history without any real correction. 2011 is when it became obvious to most observers willing to admit it that the Fed was controlling the asset markets with QE.  AND, I might add, figured out how to take advantage of HFT trading and the shadow banking system to help serve its objectives.

If we learned one thing yesterday, it’s that the Fed can not and will not raise interest rates. It’s backed into a corner from which it will be impossible to emerge without a full-scale systemic reset or crash. The problem is that, when this cesspool of lies, fraud and corruption starts to really implode, we will all wish we were watching the show from another planet.

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It’s also why have stated in the past, and have increasing confidence in my conviction, that this is leading to world war three and, ultimately, “The Road.” Interestingly, I’ve received emails from some well-known personas in finance that have expressed a similar belief…

“No Virginia, There Will Be No Rate Hikes This Year”

Fed has been signaling it will raise rates for two years now. Same powerplay as #grexit scare. Won’t happen. System is broken till a Reset – next signal will be QE4 rumors  – Willem Middelkoop on Twitter

Yes!  Someone else who gets it.  Every week we getting these dopes from the Fed coming out and saying “hey man, the Fed is behind the curve – time to raise rates.”  But the even bigger dopes are the dopes who believe the hot air.  And now supposedly the Fed is on track to raise rates twice still this year.

The Fed has been on target to raise rates several times a year ever since Bernanke’s infamous “Taper” speech back in May 2013.   Last time I looked, the flag flying above the White House was not a Japanese flag, but the Federal Reserve, Wall Street, financial media stage show sure looks a lot like Kabuki Theatre – quite literally, “the art of singing and dancing.”

ROFLMAO1

Here’s one of the MAJOR reasons that the Fed won’t touch this rates – not this year and not next year:    Housing Starts Unexpectedly Plunge 11.1%

SingleFamStarts2

May housing starts dropped 11.1% in May from April, with single family unit starts falling 5.4% and multi-family units dropping 18.5% (data from the link at the top). Although the month to month data reporting in the housing starts series has been volatile, there has been a definitive downtrend in starts since the beginning of 2013.

You can read the rest of this article I wrote for Seeking Alpha here:   Housing:  Look Out Below

A housing market that is on the precipice of re-collapse is just one of the reasons that the Fed will not be raising rates this year.   The reason the Fed won’t be raising rates next year is because we may well have experienced a systemic reset by then…

Housing Starts Plunge – Apartment Building Bubble Is Popping

Every new apartment building in Denver is now offering one month free as a move-in incentive; some buildings will give you two months free if you push them. There are at least 12 new big buildings in central Denver in various stages of construction. – Investment Research Dynamics

Housing starts plunged 11% in May LINK.  Ironically, this comes a day after the National Home Building Associating reported huge jump in homebuilder “sentiment.”  Let’s remember, “hope” is not a valid investment strategy.

This housing starts number is about as bearish as it can get for the new construction market.  It is also consistent with my detailed research which shows that homebuilder companies have accumulated an all-time high level of inventory, despite a unit sales run-rate which is about 60% below the previous all-time high in inventory back in 2005:

HousingSentimentAs you can see from this graph to the left which shows homebuilder “sentiment,” industry “hope” has perilously disconnected from the reality of sales. Today’s housing starts report is consistent with the actual transaction data. Since when has a business – other than tele-evangelists – ever been able to convert “hope” into cash flow?

The Orwellian financial media is going to focus on the “housing permits” number.  But, to begin with, the filing of building permit is not a valid economic metric.  It costs next to nothing to file a permit and the act of filing for a permit merely gives a builder the right to build.  Second, and more important, the large jump in permits was for mult-family units:

startsandpermitsDespite signs of a glut forming in apartment buildings in most cities, builders filed “permits” to build even more buildings. I know from my own due diligence that every new building in Denver will offer a new tenant up to two months free as a move-in incentive. I am getting reader reports of similar
apartment gluts in many other cities.

Six years of ZIRP and $3.6 trillion of printed money has stimulated an unprecedented degree and catastrophic amount of capital misallocation.  Massive bubbles have formed in every major asset category:   bonds, stocks, real estate and collectibles.

The bubble that has reformed in the housing market is going to result in a more painful collapse than the original housing bubble.  More on this later, but data available from the National Association of Realtors and RealtyTrac shows that 40% of the sales volume this year has been driven by individual investor/flippers.  We are at the point in the cycle at which many of them will be left “holding the bag.”   To compound the problem, many of these “retail” home traders are now using mortgages to fund their  game of hot potato.

I can’t speak on this for every major city, but I know for a fact that in metro-Denver there has been a recent “flood” in home listings.  Even more indicative, I am now receiving “new price” alerts via REColorado several times a day, mostly in the over $800,000 price range. The glut that has formed in both rental apartments and higher end homes for sale in Denver is nothing short of stunning.

The Fed is out of the type of bullets that can be used to support the massive Housing Bubble 2.0 that it has premeditatively blown.  Interest rates are already at zero, although starting to rise uncontrollably on the longer end.  Mortgage rates have blown out close 100 basis points from the recent bottom.  Easy credit has flooded the mortgage banking system in many different forms.

To be sure, the Fed can print a lot more money – and most likely will.  But at this point in the game it will be the equivalent of pushing on the proverbial string.  Only this time the hole through which the Fed will be trying to push the string will be closed.

ZIRP Is Not Stimulating Home Sales

The homebuilders bounced today along with just about everything other financial investment under the sun after the Fed forgot to put the word “patient” in its FOMC policy statement but indicated that it’s no hurry to raised interest rates even a fraction from zero percent.

Perhaps once again the “tell tale” about housing from the market was the fact that lumber – after dead-cat bounce yesterday – was the only commodity besides the U.S. dollar that fell in price.

Even more telling is the fact that Lennar, the biggest homebuilder by market cap, has announced that it is going to try and turn its slower selling inventory into rentals – LINK.

Lennar’s inventory has jumped 54% in the last two years.  For it’s fiscal year that ended in November, its operations generated negative $788 million cash flow.  Lennar focuses on the “move up” and retirement markets.   The move-up market is freezing up because the first-time buyer is becoming a dinosaur and the move-up seller can’t sell to extinct buyers.

I’ll have more to say about Lennar down the road.   But today’s dead-cat bounce in the homebuilders – which was not confirmed by the action in lumber – is a great opportunity to start shorting the sector.   My homebuilder reports will help you get started:   Homebuilder Research.

ZIRP has not stimulated home sales.  The dead-cat bounce in the sector was primarily fueled by the big investment buyers.  They are now looking to unload their unleased holdings.   Lennar is late to a game (single family rentals) that is quickly becoming overloaded with inventory.

P.S.:   the big institutions and hedge funds have already placed their bets in the homebuilding sector.  Just like the big funds that are long homes and are looking for buyers, there will be nothing but sellers when the first couple of big hedge funds pull the rip-chord on their positions.   You want to be positioned ahead of this dynamic.  Any investment manager who does not take a serious look at reducing exposure to this sector – in the face of all the evidence I have been presenting – is breaching its fiduciary duty to its investors.

 

“OH NO!” – The FOMC Forgot The Word “Patient”

Reader response:  “Dave, you are right. I just turned on Bloomberg TV and every 2nd word is “patient”. What a joke! (Michael P);    “This whole market is embarrassing”(Chris G)

I wonder if Grandma Yellen forgot her Depends today (play on an old undergrad economics class joke that the favorite phrase of economists in response to a question is, “well it depends”).

If measured in terms of manpower dollars/hour, the word “patient” is probably the most expensive word in history.   Think about – in terms of dollars paid per hour – all the extraordinarily overpaid Wall Street analysts and buy-side fund managers who spent the better part of the last month talking about the word “patient.”  How about the amount advertising dollars spent during the time used while idiots on financial tv blew hot air discussing the word “patient.”

And then there’s this (source: Marketwatch, edits are mine) – click to enlarge:

MW-BX052_FOMC_m_20140319160153_MG

The above pic shows the 12 FOMC voting plus other sundry Fed “Einsteins.”  Perhaps collectively they might have the brainpower of Shakespeare.   21 Fed officials – probably about $10 million combined in annual compensation.   Think about, from a cost allocation standpoint, how many hours were spent by this brain trust determining whether or not to include the word “patient” in today’s FOMC policy statement and, if not, how to leave it out in a way which implies that we won’t raise rates any time soon.

And now the poor saps who have nothing better to do than watch CNBC, Bloomberg or Fox Business all day long are going to be subjected to another couple weeks of incessant squawking about what the removal of the word “patient” means and to grotesquely foolish forecasts for when the Fed might ever so slight nudge interest rates up one-quarter of one percent.

Here’s your answer – for free:  NEVER.   Not until the market forces the issue and by then the entire U.S. financial and political system will have collapsed.

The “Patient” Insanity

Here’s a prediction, highly educated/paid analysts and “economists” will spend more time debating whether or not the FOMC will remove the word “patient” this week than they spend collectively in an entire year researching and analyzing the actual data and fundamentals underpinning our entire Ponzi system.

Whether or not the FOMC removes one word from its “policy” statement is completely irrelevant to the discussion that should be occurring about whether or not our financial and economic system is collapsing  Which it is.

In fact, the issue of whether or not the Fed raises its Fed rate to .25 from zero – and it’s effectively a negative rate after real inflation is accounted for – is complete lunacy.  Zero-percent interest rates are not stimulating real economic growth.  Raising rates an insignificant amount after 72 months of ZIRP will not have a significant affect on the economy.   The Fed could take rates nominally negative and it won’t stimulate growth.  It will stimulate a bigger financial bubble, which seems to be all the Fed cares about.

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Here’s my prediction:   Our system is at the beginning of a  massive collapse.  The early stages of Mises’ “crack-up boom.”   The Fed is entirely irrelevant anymore except to the extent that it enables the big banks and elitists to loot our system.   That’s why they put a useless piece flesh like Grandma Yellen at the helm.  She knows how to follow orders.