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Bitcoin Is Free From Counterparty Risk? Not So Much…

Hugo Salinas Price is one of the most successful businessmen in Mexico. He also happens to be a brilliant monetary system analyst. In his latest essay, he explains why Governments and Central Banks largely ignore Bitcoin and cryptocurrencies, choosing instead to focus their efforts on containing the price escalation of gold and silver.

{Note – as an aside:  the latest price attack on gold and silver is largely a paper gold/silver market operation. Outside of the massive quantities of gold being imported by India every day right now, very little physical gold is changing hands. Yesterday I saw commentary accompanied by a chart that showed “a record outflow of cash from the largest gold fund.”

Again, the withdrawal of cash from GLD does not at all trigger physical gold selling. Most of the cash that piled into GLD over the last 6 months has been leased from the Bank of England or ECB or counterparty to the massive quantities of BIS gold swaps since July. When enough cash leaves GLD, the gold lease expires or the BIS swap unwinds – not one ounce of gold is moved from the vauts]

Contrary to the promoters of Bitcoin, and to the myth to which the believers in Bitcoin ascribe, Bitcoin has significant counterparty risk. As Mr. Price asserts:

Bitcoin relies on the continued existence of a worldwide electronic Internet. In the event of WAR, the Internet will go down instantly. Goodbye, Bitcoins!

Furthermore, as Price explains, Bitcoin is imaginary money and nothing more:

Bitcoin has a monetary value, only because the – unknown – founder said that it had monetary value, and a few simple souls accepted that statement. Once a few repeated the mantra “Bitcoin is money”, its “monetary value” began to rise. Fundamentally, Bitcoin is nothing more than a satisfying game to play.

You can read his entire essay here: The Bitcoin Game

Note, I do not have any problem whatsoever with treating Bitcoin like any other speculative trading vehicle that relies on the greater fool theory for the buyer of Bitcoin to make money.  But please do not buy and hold Bitcoin thinking that it is a monetary and wealth preservation asset similar to gold.

The Next Move For Silver And Gold

It’s obvious that the Fed, along with its bullion bank market emissaries, has been working hard to keep a lid on the price of gold. From the vertical “zip lines” in the chart over the past two  weeks, the price management team is also making every effort to shake out long positions in Comex paper gold ahead of the December deliver period, which begins next Friday afternoon (first notice officially is November 30th, but notices can be issues starting next Friday afternoon).

The willingness of Comex longs to stand for delivery this year in historic amounts is putting enormous pressure on the Comex/LBMA fractional reserve bullion system. While I do not believe the December delivery period will “break” the Comex, as some suggest, if a large portion of the entities “safe” keeping their gold in Comex vaults decide to move their gold bars out of Comex vault custody and into non-Comex safekeeping, the Comex will implode.

Chris (Arcadia Economics) and I discuss where it looks like gold and silver are headed over the next 6-12 months along with the factors that will drive the precious metals sector higher, not the least of which is the next round of money printing by the Fed:

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The mining stocks have been in a much-needed corrective pullback from the feeding frenzy this summer. But the enormous amount of institutional money funding mining company stock financings signals to us that the bull market in precious metals/mining stocks has a long way to go.

I focus on junior “venture capital” exploration stocks with 5-10x upside potential. I also sprinkle in some large cap mining stock ideas. The next move higher will take many by surprise. For information about my Mining Stock Journal, follow this link:   Mining Stock Journal information.

I am not sponsored by, nor do I take any promotional fees of any nature from, any mining companies. I do my own research and due diligence and invest in many of the ideas I present.

The Economy, Gold, Silver and Mining Stocks

As of last week, the Federal Reserve now owns 16.5% of the total amount of Treasuries outstanding and 18.5% of the total amount of mortgage-backed bonds outstanding. With out this massive amount of Fed intervention,  interest rates would be significantly higher and the housing market would be in shambles.

The Fed’s balance sheet nearly doubled since March.  While the stock market has rallied to all-time highs since March, there’s still well more than 20 million people receiving unemployment benefits on a weekly basis. The economic bounce-back from the shut-down of the economy in March and April appears to have peaked in July.  By many measures, the economy is starting to contract in again in many sectors.

Silver Liberties and I discussed the reasons why it looks like the Fed is prepping the country for another big round of money printing, which means another big move higher in the gold, silver and mining stocks:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

New Mining Stock Journal Subscriber: “This is a lot of value for $20 a month. Thank you so much!” – Jorgen

Gold And Silver Under The Biden Government

Despite the pervasive and omnipresent manipulation of the gold price implemented in the paper derivatives gold market – which in no way reflects the true supply/demand characteristics of the underlying market for physical gold and silver – gold has been the best performing asset over the last 20 years. Silver has been the third best performing asset. Sandwiched in between is U.S. REITs.

The economic, financial and geopolitical factors driving gold’s performance are now strengthening at an increasing rate.  Driving all three variables is the ongoing and escalating money printing by the Central Banks, led by the Federal Reserve.  It is highly likely that the recent violent attack on the gold price is a precursor to another round of money printing. This scenario is unavoidable regardless of whom or what Party occupies the Oval Office.

This in turn should catapult gold over $2,000 – for good this time.  Silver will quickly head over $30.  The mining stocks will soar.

In this week’s podcast, Chris (Arcadia Economics) and I discuss the prospects for the precious metals under a Biden Presidency:

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The Mining Stock Journal is a bi-weekly mining stock newsletter that focuses primarily on the junior exploration stocks. The latest issue includes a review of a junior silver mining company with huge silver optionality. You can learn more about  this newsletter by following this link:  Mining Stock Journal subscription information

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

Recent Economic Data: More Fiction Than Fact

The advance estimate of Q3 GDP was released on Thursday, October 29th. The headline number was 33.1% (annualized rate) vs 31% expected and negative 31.4% for Q2. This was John Williams’ (Shadowstats.com) comment on the headline number: “ShadowStats contends that the headline BEA estimates understated the 2q2020 quarterly plunge and have overstated the 3q2020 rebound.” On a quarterly basis, the reported GDP growth from Q2 was roughly 10%. To get back to the GDP level reported in Q1 prior to the virus shutdown, Q4 GDP will need to increase roughly 15% annualized. This is highly improbable.

I don’t want to dissect the GDP report for areas in which the estimates differ from actual real world numbers reported by companies. But keep in mind the jump in GDP in Q3 was largely generated by the momentum of businesses reopening, furloughed employees rehired and the stimulus provided by the $1.8 trillion CARES Act, which was signed just before the end of Q2.

As I’ve been detailing on a weekly basis, it appears that most of the sugar high from the Fed’s money printing and the CARES Act has worn off. While weekly jobless claims have dropped to an average of 787,000 over the last four weeks, down from a peak of 7 million at the end of April, the weekly number of new claims is still 3.7x higher than the weekly claims right before the lockdown period began.

Including the supplemental jobless benefits that were rolled out as part of the stimulus bill, over 23 million people are still filing weekly claims. Moreover, several large companies have announced 10’s of thousands of more layoffs, including Disney, Boeing and Exxon. If the Government does not soon pass another stimulus bill that includes bailing out States and local governments, there will be a large-scale layoffs of teachers, firemen and police.

ADP employment report vs Government employment report – The employment report released by the BLS on Friday purports that the economy added 638k new jobs in October. Wall St. expected 600k. The manipulative “button” pushed by the BLS this time was the Birth/Death model. The BLS estimates the number of new businesses started less businesses shut down during the month and derives a guesstimate of the net new number of jobs from this. It’s entirely based on flawed modeling theory. For October the BLS added 344k jobs based on its B/D model. Of course, this chart completely discredits the BLS B/D model(chart sourced from @soberlook):

The small business jobs index suggests that business “deaths” currently exceed “births” by a considerable margin. Data on business closures since March reinforce this.

It’s just amazing how the BLS seems to find jobs in the private sector that ADP, the payroll processing business, is unable to detect. ADP’s jobs report, released two days ahead of the Government report, showed 365k new employees were added to payrolls in October (note, this reflects hirings only, not cuts). Also note that the announced layoffs by big companies during Oct also escaped BLS detection. Finally, as John Williams points out on his Shadowstats.com website, “the BLS acknowledged continuing misclassification of some ‘unemployed’ persons as ’employed.'”

In all likelihood, the economy is much weaker that it would appear from stimulus-juiced economic reports that emerged over the summer. Auto and new home sales are already starting to roll over precipitously. With the stock market historically overvalued.  The upward movement since May was largely driven by hedge fund and newly minted retail “expert” momentum-chasing.  These two factors have set-up the potential for breath-taking market sell-off sometime in the next 3-6 months.

 

It’s A Fire Sale In The Mining Stocks

Many junior micro-cap exploration stocks have experienced sharp declines. Low relative liquidity in these names contributes meaningfully to the decline in share-price because for many of these these stocks, most of the trading occurs by the retail shareholder base, which is often 50% or more of the shareholder distribution. When markets get turbulent, the knee-jerk reaction from most less-experienced retail investors is to hit the sell button.

But, assuming the bull-cycle is intact, and I believe it is, this will set-up buy/add opportunities for those of us with “stronger stomachs” for volatility (e.g. Eric Sprott is not selling mining shares – he’s waiting for the much bigger move that’s coming and, if anything, he’s adding to his holdings).

Chris Marcus (Arcadia Economics) and I discuss the elections and the implications that the final outcome will have on the precious metals sector in our weekly podcast:

The junior “micro-cap” exploration stocks have experienced 30-50% pullbacks over the last 6-8 weeks. In most cases this is nothing more than the hot money momenturm-chasers who piled into these stocks during July and August unloading their shares – in some cases at a loss. They don’t know what they are doing. I will featuring in my next issue of the Mining Stock Journal several stocks that are now set-up for huge moves. You learn more by following this link:    Mining Stock Journal information. 

Did The Tech Bubble Pop On September 2nd?

For me it doesn’t not matter who wins the election. The person in the Oval Office is not in control of the monetary policies that form the fundamental basis for owning physical gold and silver. Regardless of which party sits in the Oval Office and Congress, the budget deficit and debt load will accelerate and thereby money printing will accelerate. The dollar will start to decline at a more rapid pace than it has declined since mid-March. Gold and Silver will climb over $2,000 and continue moving higher. At some point the stock markets will buckle under the pressure of a falling dollar and rising interest rates.

The chart above (from Crescat Capital) shows an analog that compares the Dow between 1919-1932 and 2009 to the present. The key underlying factors that drove the the stock market in both time periods to an insanely overvalued top and subsequent descent are worse now than back in the 1920’s/early 1930’s: currently stocks have higher multiples, the global economy is more leveraged and Central Banks have created a far bigger systemic imbalance now vs. then.

Also, derivatives were not yet invented and thus not a factor in creating a far bigger “leverage factor” that is impossible to quantify but that will ultimately be lethal to the financial system. This chart illustrates this point using  the volume for exchange-traded options – the OTC derivatives market is far larger in nominal value than the stock market (data from Bloomberg, Artemis Capital):

The light blue line shows total stock market volume plotted against the yellow line which shows total options volume. The proverbial tail is wagging the dog and the Fed and the Government regulators are to blame. The unwind will be ugly for stock market bulls.

That said, I expect the Fed will juice the money supply after a Presidential winner is declared. This may or may not push the stock market higher. I think we can expect a brief move higher in stocks after the election. But soon thereafter the fundamental realities will sink in and have a negative effect on the stock market.

Did the tech bubble pop on September 2nd? –  “Bubbles tend to topple under their own weight. Everybody is in. The last short has covered. The last buyer has bought (or bought massive amounts of weekly calls). The decline starts and the psychology shifts from greed to complacency to worry to panic. Our working hypothesis, which might be disproven, is that September 2, 2020 was the top and the bubble has already popped.” – David Einhorn, Greenlight Capital

 

We won’t know the answer to that question for at least a few months.  In the chart above I sketched in loosely the uptrend line followed by the Nasdaq to an all-time high since the March bottom. The Nasdaq broke below the 50 dma in September (yellow line), then rallied to retest the uptrend line. It bounced off the uptrend line and headed lower almost immediately to form a lower high, after which it fell back below the 50 dma.

At some point I expect the Fed to step in with more money-printing but not until some point after an election winner has been declared. That money will directed at injecting more liquidity into the TBTF banks and funding another big wave of Treasury issuance after the election. But for now the path of least resistance in the stock market is down punctuated with bouts of high two-way volatility.

The commentary above is an excerpt from the Short Seller’s Journal, a weekly newsletter that dissects the latest economic reports and presents ideas for short seller’s. You can learn about it here:  Short Seller’s Journal information.

End Of Days For The U.S. Dollar Reserve Currency Status

The eastern hemisphere Eurasian geopolitical economic bloc of countries led by China and Russia have been systematically reducing their usage in the U.S. dollar to settle bilateral trade activity: “In the first quarter of 2020, trade between Russia and China in dollars fell below 50 percent for the first time to 46 percent, a significant decrease from 75 percent in 2018.”

It also happens to be the case that the eastern bloc of countries, spear-headed by the Shanghai Cooperative Organization, which includes some key Middle Eastern countries as well as India, have been the source of the demand for physical gold over the last 10 years that is required to be delivered from vaults in London and that has prevented the western Central Bank cartel from preventing the gold price from rising.

The U.S. dollar is backed by the “full faith and credit” of a Government that is technically insolvent other than its ability to print currency to fund the Treasury’s enormous and rapidly growing spending deficit – a deficit that will climb rapidly over the next 12 months.

In short, the dollar is doomed. Here’s the rest of the report:

In A Major Move, China & Russia-led EEU Block To Replace Trade In Dollar & Euro With Domestic Currencies

 

Former CFTC Chairman Admits Futures Can Be Used To Control Prices

Gold and silver futures have been used for decades to control the price of gold and silver. In fact, declassified letters )which can be found in the GATA archive) that bounced between Henry Kissinger and his advisors in the early 1970’s discuss the need for a market mechanism to help control the price of gold. Gold futures did not exist until 1974, three years after Nixon closed the gold window, shortly after which the Fed began to print money.  The price of gold had more than quintupled between 1971 and 1974.

Fast forward to present times.  A former CFTC Chairman, Christopher Giancarlo, was interviewed by CoinDesk a year ago. In that interview, he likely inadvertently admitted in reference to the creation of Bitcoin futures that futures contracts can be used to manipulate markets for the purpose of implementing and achieving official Government policies:

“One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of bitcoin futures would have the impact of popping the bitcoin bubble.  And it worked.” (CoinDesk)

Wittingly or unwittingly, that assertion by Giancarlo vindicates the contention – led by GATA starting in over 20 years ago and backed by reams of evidence – that gold and silver have been manipulated as part of official Government and Central Bank policy implementation to support fiat currencies and the dollar’s role as the reserve currency.

As an aside, I find it curious that Giancarlo states that the Government specifically identified Bitcoin as a bubble that needed to be deflated.  Ever since the dot.com bubble of the late 1990’s, every Federal Reserve Chairman and FOMC member, starting with Alan Greenspan, as been adamant that investment bubbles are impossible to identify  until AFTER they’ve popped.  Yet, here is a former high level Government regulatory official explicitly stating that Bitcoin was not only identified as a bubble but that it needed to be deflated.

Are Central banks Really Net Sellers Of Gold Now?

The following commentary is from Chris Powell, the Treasurer of GATA. I fully endorse his view. In fact, when the report initially surfaced that the World Gold Council reported Central Banks to be net sellers of gold in September, I summarily dismissed it for the reasons stated below by Chris. GATA

According to the old saying, sometimes attributed to Mark Twain, there are three kinds of lies: ordinary lies, damned lies, and statistics.

Of course not all statistics are lies, but statistics always need to be challenged when the entities issuing them have an interest in spinning them a certain way, as government almost always has such an interest.

So while it is understandable, given the slovenliness and corruption of mainstream financial news organizations and market analysts, it is still disappointing that central bank gold statistics are routinely accepted without question, even as it is the longstanding policy of the primary compiler of these statistics, the International Monetary Fund, to fudge the numbers.

That is, according to the March 1999 secret report of the IMF’s executive staff, the agency’s central banks are authorized to conflate gold in their vaults with gold they are lending. The acknowledged purpose of this fudging is to prevent the world from discerning just how much central banks are manipulating the gold and currency markets – see this link: GATA.

Lately there have been many reports asserting that central banks have become net sellers of gold after many years of being net purchasers. But as that IMF report suggests, central banks are never more misleading than they are with gold.

Indeed, the location and disposition of national gold reserves are secrets more sensitive than the location and disposition of nuclear weapons. For nuclear weapons can only destroy the world while governments understand that control of gold is control of the valuation of all capital, labor, goods, and services — control of nearly everything:  GATA.

While the recent news stories and market commentaries assert that central banks are now net sellers of gold, the authors of those stories and commentaries don’t really know that. They know only what central banks report doing. And of course nobody questions this, though throughout the years central banks have both sold or leased gold and acquired gold secretly. China has gone as long as five years acquiring gold without reporting the acquisitions to the IMF.

The gold data is especially ripe for questioning now in light of the assertion a few days ago by London metals trader Andrew Maguire that China has begun bypassing the London bullion market in its acquisition of gold and has begun acquiring unrefined gold directly from mines in Africa and South America.

[Note: the report from Maguire explains the highly irregular data that has been reported by the Shanghai Gold Exchange and the paucity of imports into China from Hong Kong; gold purchased directly from mining companies in all probability is going to the PBOC and imported through Beijing and Shanghai; gold imports through those two ports are intentionally not reported per this 2014 report from the South China Morning Post]

Maguire identified no sources for his assertion, but any financial news organization that wanted to get serious with its reporting about gold and central banking could easily pursue the issue by inquiring with central bankers, gold traders, gold mining companies, and customs agencies. Of course few such sources might want to go on the record, but some might comment confidentially.

At least news organizations and market analysts could acknowledge that while government statistics may not always be damned lies, they also aren’t always necessarily the truth either, especially on a subject as sensitive as gold.