Category Archives: Financial Markets

QE Madness: Is It Worse Now Than In 2008?

Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , , ,

Unequivocally, the “repo” operations by the Fed is “QE.” Well, let’s just call it what it is because “QE” was coined in place of “money printing.”  The socially correct posture to assume on Wall Street and in DC at the Fed is to label the current bout of money printing “repo operations.”  In fact, based on all of the underlying data I scour daily, let’s just cut to the chase and call this a de facto banking system bailout.

The technical details on why the “plumbing” in the banking system is getting “clogged” is mere surface analysis.  The underlying systemic problems are similar to the problems that pulled the rug out from under the financial system in 2008.  Bank assets, specifically subprime lending assets, are melting down again.

We’ve seen this movie before and the “regulators” were supposed to have blocked the banks from engaging in financial pornography. But, of course, just like teenagers who discover Pornhub, the greedy bankers undeterred by superficial legislation and an absence of independent regulatory oversight (every senior regulatory official has either worked on Wall Street or worked a law firms who get paid to keep Wall Street bankers out of jail) couldn’t help themselves.  CLO’s, 100% LTV lending, non-income verification consumer loans and OTC derivatives with orgasmic fees have re-emerged in full force.

As an example, Citibank is now sitting on top of nearly $1 trillion in credit default swaps – see this, which has the appropriate links:  Citibank CDS.   The article notes that:  “the New York Fed secretly hid from the public’s view that it had funneled $2.5 trillion (yes, trillion) to Citigroup and its trading units from December 2007 to at least July 21, 2010. That last information only became public after more than two years of court battles with the Fed.”

In the minutes released from the last FOMC meeting, the Fed is now discussing extending the money printing operations to April. Imagine that, what started as giving corporations a little help to pay quarterly taxes in September has morphed into and is on its way to half a trillion dollars of printed money handed over to the banks. Doesn’t seem strange that all the money created for corporate tax payments has not  found its way into the Treasury Department’s bank account? How do we know?  Because  a large portion of the money printed has financed new Treasury debt issuance.

Wall Street on Parade is making a motivated, if not valiant, effort to dredge up the truth with regard to to re-start of the Fed’s massive money printing operation. But I hope the Martens are not holding their breath on getting a response without an expensive legal battle:

On October 2, 2019 we filed a Freedom of Information Act (FOIA) request with the New York Fed. We requested “emails or any other forms of written correspondence from the Federal Reserve Bank of New York to JPMorgan Chase or any of its subsidiaries or affiliates containing any of the following words or phrases: ‘repo,’ ‘repurchase agreements,’ ‘overnight lending,’ or ‘reserves'”…

Our FOIA request was acknowledged by the New York Fed as received on October 2. We should have had a meaningful response on November 1. Instead, we received an email advising that we would not hear further from the New York Fed until December 5, 2019…Instead of the mandated 10-day extension that is allowed under law, we were given more than a month-long extension. On December 5, the New York Fed emailed us to say it was extending the time to respond to January 9. – Fed Balance Sheet Explosion

Make no mistake, the melt-up in the stock market, the majority of which is confined to just a handful of stocks – AAPL, MSFT plus a few insanely overvalued unicorn-type stocks (TSLA, SHOP, etc) – does not reflect a “booming economy.” Rather, it’s evidence that the financial and economic system is melting down beneath the propaganda.  With its bailout policies, the Fed has made a complete mess of the financial markets. And it’s worse this time  than it was in 2008.

Aside from some select shorts in stocks like TSLA and AAPL, buying gold and silver (physical bullion not paper derivatives – yes, GLD is a derivative) and mining stocks is the no-brainer trade of 2020.

The Comex Is A Complete Joke

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

Comex gold contracts were brought to life in 1974. Correspondence between senior officials in, and advisors to, the Nixon Administration discussed the need to create an “investment” vehicle to “capture” institutional investment money directed into gold in order to prevent the rapid rise in gold after Nixon closed the gold window. If you are curious, the letters are posted in the GATA archive (GATA.org).  For instance:  LINK.

Since the introduction of paper gold, the Comex – gold and silver trading – has evolved into what can only be described as a caricature of a “market.” The open interest in gold contracts is nearly 10x the amount of physical gold reportedly held in Comex vaults; it’s 60x the amount of “registered” gold, or the gold designated as available for delivery.

Total open interest on the Comex as of last Thursday is 787k contracts representing 2,459 tons of paper gold.  Global annual physical gold production is around 2,700 tons.  The net short position of the Commercial trader category per the current COT report – “commercials” are primarily the banks which make markets on the Comex – is 134k contracts, or 418 tons of paper gold.

That the open interest in paper gold contracts is nearly equivalent to  the amount of actual gold produced yearly by gold mines is an absolute joke. The purpose of the Comex, period, is to give the western Central Banks – primarily the Fed – the ability to control the price of gold.  Based on the preliminary o/i report for Friday, the paper gold interest has spiked up to approximately 800,000 contracts.

But the good news is that rapid escalation of open interest in paper gold on the Comex is evidence that the banks are losing their ability to keep a lid on the rising gold price.  Bill Powers invited me onto this Mining Stock Education podcast to discuss this issue, my outlook for the price of gold in 2020 plus some of my favorite mining stocks:

A few of the stocks I follow, recommend in my Mining Stock Journal and invest in myself have doubled or more since the May 2019. Several more are poised for big gains in 2020. You can learn more about  Investment Research Dynamics newsletters by following these links ( 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 compensation from any mining stock companies and I do not accept any precious metals industry sponsors.  My research and my views are my own and I invest my own money in many of the stocks I present.

Money Printing And Physical Demand Will Drive Gold Higher

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

I’m growing more confident that we’re on the cusp of a big move higher in the precious metals sector because of the Fed’s massive money printing. Also, because the money printing and near zero interest rates are visibly not stimulating economic growth, we’re at the point at which unless the Fed continues increasing the amount of money it puts into the system, the melt-up in the stock market is completely unsustainable.

This is very similar to late 1999/early 2000 when Alan Greenspan tried to reverse his Fed’s massive money printing operation ahead of that notorious boogieman, the Y2k Bug. Not only did the tech stocks collapse then, but also the precious metals sector transitioned from the end of a 19 year bear market into the current secular bull market.

From what I’m hearing – and something that’s been referenced by Alasdair Macleod and Egon von Greyerz – a shortage of physically deliverable gold is developing in London. The action this past week fits the information. Given the size of the derivative short position (futures, LBMA forwards, leased gold, OTC derivatives, hypothecated gold) in London and New York, if obligated counterparties begin to default on delivery demands, the precious metals sector could become explosive next year.

The paper gold open interest continues to hit new all-time highs almost on a daily basis. The current open interest is 765.5k contracts. That’s 76 million ozs of paper gold. The quantity is a little less than double the average open interest on the Comex over the last 10 years.  The amount of open interest has nearly doubled since the end of 2018,  with record o/i levels almost every day since October 29th.

Never in the recent history (last 20 years) has the Comex  sustained this many open interest hit  record highs without being followed by a significant price take-down.  Hidden factors seem to preventing this as evidenced by the inability of the Comex banks to implement a run-of-the-mill open interest liquidation price attack operation. These used to be good for over $100 of downside in a short period.

The Comex gold vaults reportedly hold 8.6 million ozs of gold. That figure has remained fairly constant with perhaps 10% variability up or down for at least the last 10 years. If just 10% of the open interest  stands for delivery in any given month, there would be a short squeeze of Biblical proportions in the price of gold.

Notwithstanding that, the soaring open interest in paper gold in relation to the amount of underlying physical gold on the Comex is evidence of the degree of effort required for the banks to at least regulate the rate at which the gold price is rising.

Circling back to rumors of a growing shortage of physical gold in London – see this analysis for instance:  GATA – it’s interesting to note that every attempt to push down the price of gold when the LBMA and Comex trading floors are open is quickly repudiated.

But there are other signs.  I don’t monitor the LBMA a.m./p.m. fix on a daily basis, but I’m apprised of it when there’s unusual activity.  It required 19 iterations for Friday’s p.m. price fix operation to balance out heavy bidding with enough offerings.  The price of gold rose  from the start to the finish.  I have never observed even close to this many iterations needed to establish a price-fix in either the a.m. or p.m. sessions.   Some entity wanted to buy a lot physical gold on Friday afternoon and it took time and effort to find enough offerings to fill the bids.

Of course, smart money has been quietly accumulating large positions in the speculative micro-cap junior exploration stocks for the last three years via private placements or direct investments in many of these companies.  As well, there’s been a rise in gold and silver mining company M&A.

Just like in the early 2000’s, October 2008 and December 2015, we will wake up one day to the start of  a long streak of incessant daily gold and silver price moves higher in the overnight market. Those who are not positioned ahead of this will find themselves running for the train as the doors close and it pulls out of the station.

Part of the above commentary is an excerpt from the latest issue the Mining Stock Journal. You can learn more about this newsletters, which focuses on speculative junior exploration stocks as well as find in value in producing miners, here:   Mining Stock Journal info

 

 

Mining Stocks Are Historically Cheap

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

Early 2000 was the last time the the Amex Gold Bugs Index (HUI) / SPX ratio was as low as it is now. That bottom occurred as the tech/dot.com bubble was popping. Oh, what a coincidence.  By many indicators, the current stock market bubble will likely pop soon and it looks like the precious metals sector is on the cusp of a massive cyclical bull move.

While the micro-cap junior exploration stocks are by far the cheapest segment of the mining stock sector in terms of potential risk/reward, investor distaste and market inefficiency occasionally feeds prospecting mining stock investors an expected “golden nugget,” if you will.  Fortuna Silver is a current example. Chris Marcus invited me onto his Arcadia Economics podcast to discuss why I put a strong buy on FSM in July when the rest of the market was dumping the shares:

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I recently found another “golden nugget” large mining stock contrarian play the December 12th issue of my Mining Stock Journal. This stock should be an easy double over the next 6-12 months.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

Gold May Be On The Cusp Of A Big Upward Price Reset

Financial Markets, Gold, Market Manipulation, Precious Metals, , ,

Precious metals investors may be getting an unexpected Christmas present this year, beginning with the sudden $25 jump in gold on Tuesday and Wednesday. From what I’m hearing, a shortage of physically deliverable gold is developing in London. In fact, Alasdair Macleod and Egon von Greyerz have both alluded to this development.

The action this past week fits the information. Given the size of the derivative short position (futures, LBMA forwards, leased gold, OTC derivatives, hypothecated gold) in London and New York, if obligated counterparties begin to default on delivery demands, the precious metals sector could become explosive next year.

The ability to suppress the price of gold has become problematic for the western bullion banks as evidenced by all-time high open interest in Comex gold, especially relative to the amount of gold reportedly held by Comex vaults. As of Monday, the open interest was 734k contracts representing 73.4 million ozs of paper gold. This is 8.4x more than the total amount of gold reported to be in Comex vaults as of Tuesday and 58.5x more than the amount “registered” gold, which is gold that is designated as available for delivery.

In the last few years the open interest has averaged around 450k (ballpark) contracts. When the price of gold ran toward $1900 in 2011, the highest weekly open interest was 542k the week of July 17, 2011. The last time gold was trading around the $1500 level, which was March 2013, the open interest was in the 420k area. The point here is that an increasing amount of paper gold is required in order for the banks to contain the rate at which the price of gold discovers price discovery.

More significant, every aggressive attempt this year by the bullion banks to push the gold price lower has been countered with a swift rally: “For months the usual central bank-inspired smashes in the gold futures markets have not been having much effect, even as GATA consultant Robert Lambourne has reported increasing intervention in the market by the Bank for International Settlements” – Chris Powell, GATA.

The quote just above is from a must-read essay by GATA’s Chris Powell in which he lays out the case supporting the view that the New York and London gold markets are getting squeezed:

“The Comex has just quickly authorized a vast expansion in what bullion banks can use as collateral for their selling — ‘pledged gold’ held off the exchange, supposedly in London, for whose existence and unimpairment there is no public evidence.

Amid these indications of shortages, the open interest in gold futures on the Comex keeps hitting record highs. The bullion banks selling the contracts seem to be acting as if the gold supply itself is infinite, not just the supply of gold paper.”

I highly recommend reading the rest of Chris Powell’s article:  The signs swirl all around us, so is the reset at hand?   If the theory, which is supported by evidence, of a developing shortage of physical gold on the Comex and the LBMA is correct, the prices of both gold and silver could become explosive in 2020.

“Rates Were Pushed Off The Cliff By The Central Banks”

Financial Markets, Gold, Market Manipulation, U.S. Economy, ,

The title quote is from Tad Rivelle, Chief Investment Officer of TCW (Los Angeles based fixed income management company), who manages one of the largest actively managed bond funds. He goes on to comment about the implications of the negative rate policy that has been implemented by Japan and the EU: “Credit markets look late cycle, manufacturing looks pretty late cycle and corporate profitability, as well. So the proliferation of negative rates may also suggest that central bank policy has reached exhaustion. It’s almost like negative rates are the last thing central bankers are trying to make it work.”

Many investors and market observers wonder why the Fed/Central Banks just can’t print money forever and drive the markets even higher. The answer can be found in the law of diminishing returns. When Central Banks print money – in our case dollars – at a rate that exceeds the amount of wealth produced to “back” that money printed, it begins to diminish the value of each extra dollar created. As the system becomes saturated with dollars, the Central Banks then try to force the market to use the oversupply of currency bu taking rates negative. This problem is reflected in the velocity of money (the number of times each currency unit changes hands):

That chart is the essence of the law of diminishing returns as it applies to the money supply. Think of it as the “productivity” of each dollar in the system.  Greenspan initiated the paradigm of using money printing to “fix” credit market and stock market problems.  These “problems” were in fact the market’s price discovery and risk discounting mechanisms . He was given the name “Maestro” because seemingly fixed economic and financials problems, though all he really did was defer their resolution.

In fact, Greenspan used money printing to paper over the underlying system structural problems going back to the market crash in 1987.  Greenspan, who was installed as Fed Chairman two months prior to the crash, confirmed that the Fed stood ready “to serve as a source of liquidity to support the economic and financial system.”

In effect, the chart above reflects the fact that a large portion of the printed money, rather than circulating in a chain of economic transactions, sits stagnant in “pools.” As an example, the money printed and given to the banks in the first three QE programs sat in the Fed’s excess reserve account “earning” a tiny rate of interest which is nothing more than additional printed money used to boost bank earnings and give the banks no-risk, unearned cash flow.

As printed money sits idly, the Central Banks artificially lower the “cost” of money, which is also known as the interest rate, thereby making an attempt to force money into the system and incentivizing companies and consumers to use this money by making it nearly costless. Currently Central Banks are cutting interest rates at the fastest pace since December 2009.

Lowering rates toward zero is a temporary fix – i.e. it only serves to defer the inevitable economic bust cycle. But an oversupply of currency which can be used – or borrowed – at little to no cost also ushers in credit bubbles which become manifest in the form of the various asset bubbles, like the housing and stock bubbles, or is used for purposes which do not create economic value. The best example of the latter is when corporations borrow money at near-zero interest rates and use that borrowed money to buyback shares. There is absolutely no economic benefit whatsoever from share buybacks – none, zero – other than for the corporate insiders who dump their shares into buybacks.

This brings me to the quote at the beginning from Tad Rivelle: “the proliferation of negative rates may also suggest that central bank policy has reached exhaustion; it’s almost like negative rates are the last thing central bankers are trying to make it work.” The velocity of money chart is evidence that printing money and forcing interest rates to zero are measures which eventually fall victim to the Law of Diminishing Returns.

The Central Banking policy of near zero and zero interest rates combined with unfettered money creation has lost its “traction.” We are approaching the point at which money printing will not produce the intended effects. In response “rates have been pushed off a cliff by Central Banks.” It’s been acknowledged that Trump discussed negative rates with Fed Chairman Powell just a few weeks ago.

The imposition of negative interest rates on the financial system perversely turns the laws of economics inside-out. Ironically, perhaps fittingly, it’s a desperate act of economic treason that will boomerang back and decapitate the global economy, including the U.S. This reality is already reflected in the rapidly contracting manufacturing reportsand the confirmed by the freight transportation data, which have been collapsing for the better part of the last year.

The commentary above is from a recent issue of the Short Seller’s Journal. Despite the melt-up in the stock market, several stocks are sectors are diverging negatively and I have presented some short ideas that have been making money – Lending Tree (TREE) is a good example.  To learn more follow this link: Short Seller’s Journal information.

 

 

Junior Exploration Stocks Are Generationally Undervalued

Financial Markets, Gold, Market Manipulation, Precious Metals, , , ,

Gold and silver are set up potentially for an explosive move, fueled by the inevitable escalation of Central Bank money printing. The Federal Reserve has led the charge on this account over the last three months as the financial system has begun to veer off the rails.

Currently, the Fed is printing money at the fastest rate in its history. The brown stuff is hitting the fan blades in the financial system.  By mid-January the Fed’s balance will be close its all-time high.  Fiat currency devaluation aka QE aka money printing is like rocket fuel for gold and silver.

A lot of mining stock analysts are drooling over the charts of the large cap stocks. And kudos to Crescat Capital for sharing the chart of above (with my edit in yellow). But the junior exploration “venture capital” stocks are the most undervalued relative to the prices of gold and silver in at least the last 19 years, which is the amount of time I’ve been involved in the precious metals sector.

Last Thursday gold  spiked up $14 before the stock market opened. But when Trump tweeted that a trade war “Phase 1” deal was close, gold went $20 off the cliff.  However, February gold closed flat vs Wednesday’s close and March silver has reclaimed the $17 level.  It’s a big positive that the “Phase 1” trade deal was signed because now Trump won’t have the ability to jerk the markets around with his silly “positive trade talks” tweets.

More important to the gold bull market, the Fed once again expanded the repo money printing QE operations. Early today (Thursday, December 12th) the Fed announced an additional $275 billion in repo operations around year-end. Adding all of it up, the Fed will be pumping half a trillion dollars into the repo system over year-end. This is unequivocally due to bank assets melting down and the need to finance new Treasury debt issuance.

The Fed’s re-liquification program will be given creative names – anything but “QE.”  It started off with “balance sheet expansion” but that term was abandoned because of its transparency. The best one I’ve heard so far is “yield curve capping operation.”  Watching Jerome Powell try to camouflage the Fed’s money printing  is like watching a baby  smoke a cigarette.

It’s a good bet that eventually the repo activity will be converted into a permanent “QE” money printing program.  The best way to make this wager  is via the precious metals sector.

Fortuna Silver: An Incredible Value Play

Financial Markets, Gold, Market Manipulation, Precious Metals, ,

I originally shared this analysis with my Mining Stock Journal subscribers in the October 17th issue.  I sent it to Peter Spina at Goldseek.com because I saw the idea from one of his tweets a few weeks earlier.   It’s rare when the market mis-prices a larger cap producing mining company, thereby allowing aggressive investors an opportunity to buy into a high quality operation at a level that can produce a rate of return that would be expected from much higher risk junior exploration stocks.

The market put this opportunity in investors’ laps earlier this year and the analysis below was my rationalization for buying this stock when it dropped to $3 (note, I followed this up after FSM dropped below $3 briefly on its Q3 earnings report with a detailed analysis in my Mining Stock Journal which explained why the market was wrong again and buying FSM at $3 would yield an extraordinary ROR).   Since Thanksgiving,  the FSM  is up 21%.

Value Play – Fortuna Silver – (FSM, FVI.TO – US$3.07) – Most of the stocks I follow are micro-cap junior “venture capital” plays. However, I’ll invest in a larger cap producing mining company if I believe the stock has been sold down irrationally to a price that offers superior upside risk/return potential.

Fortuna was founded in 2005 with a focus on acquiring precious metals projects in Latin America (“Fortuna” was Greek goddess of fortune). One of the co-founders and the current CEO, Jorge Ganoza, is from a Peruvian mining family. FSM currently has two low-cost mines in Peru and Mexico. In 2016 it acquired the Lindero gold project in Argentina, a large open pit, heap-leach gold project that should achieve commercial production in early 2020.

San Jose Mine – The 100% owned San Jose Mine, located in Oaxaca, Mexico, began production in July 2011. The mine produces silver and gold from a 3,000 tonne per day underground operation. In 2018 the mine produced 8 million ozs of silver and 53,517 ozs of gold. San Jose currently has a resource of 46 million ozs of silver and 375,000 ozs of gold. Most of the resource consists of proven/probable reserves.

In addition to the existing resource, FSM budgeted $4.3 million for 11,500 meters of brownfield and exploration drilling. “Brownfield” exploration encompasses looking for deposits near or adjacent to an operating mine. The property hosts a mineralization zone – the Victoria zone – that runs “sub-parallel” to one of the main veins (the Trinidad vein) currently being mined. A drill program from 2H 2017 – 2018 returned several high grade intercepts.

Caylloma Mine – The Caylloma Mine is a 100%-owned underground silver, lead and zinc mine operation in Arequipa, Peru. A small amount of gold is also extracted from the ore, the value of which is used to offset the cash costs of mining. For 2019, the mine is expected to produce around 1mm ozs of silver, 27 million lbs of lead and 40-44 million lbs of zinc.

Fortuna has owned the mine since 2005. On a silver-equivalent (AgEq) basis, the all-in sustaining cost of the Caylloma mine averages about $13/oz. Caylloma currently has five years left of reserves but the property hosts potential for step-out resource expansion.

Lindero Gold Project – In July 2016, FSM acquired Goldrock Mines Corp in an all stock transaction valued at $129 million. This gave FSM 100% ownership of the Lindero open pit, heap leach operation in Argentina’s Salta Province. The mine will process 18,750 ton per day over a 13-year mine life, averaging 100,000 ozs of gold annually at an all-in sustaining cost of about $750/oz.

Fortuna announced the start of pre-production mining at Lindero in mid-September. The first gold pour is planned for Q1 2020. This is an incredibly low-cost operation. Part of the reason for this is that the ore body is high grade with a low “strip ratio.” The strip ratio is the amount of waste rock required to be processed in order to extract a tonne of ore. For instance, a 2:1 strip ratio means two tonnes of rock needs to be processed per tonne of mineable ore. Lindero will have a strip ratio below 1 in the first year of operation.

Once Lindero is up and running efficiently, it will be a literal “cash cow,” especially if the price of gold continues to move higher.

The Company also has a of couple exploration assets. The Arizaro Project is situated in the Lindero land package. It’s a gold-copper porphyry project on which preliminary exploration and drilling was conducted by the previous owners and which was followed-up by Fortuna with a surface core drill program of 2,178 meters over 12 holes down to 200 meters. The results encountered near-surface gold-copper porphyry mineralization.

FSM also acquired a 24.2% in Medgold Resources, which owns the Tlamino Project, a high grade gold-silver project in Serbia. FSM has an option to earn a 51% interest in Tlamino by spending $3 million in development by March 2020. It can earn an additional 19%, or 70% of the project economics, by spending an additional $5 million and completing a preliminary economic assessment by March 2023.

Why FSM dropped in price – In the frenzy of the first 6 months of 2016, FSM traded as as high as US$9.50. Since then the stock has trended down to as low as $2.40 in early May 2019. Most of the decline, I believe, can be attributed to the general downtrend in the price of gold and silver from July 2016 through May 2019. In addition, the price of lead fell as much as 30% and zinc has dropped as much as 37% since early 2018.

You can read the rest of this at  Goldseek.com

In the latest issue of the Mining Stock Journal released last night, I have another similar large cap mining stock that I believe provides a similar opportunity as the market gift handed out on Fortuna.  You can learn more about this newsletter here:  Mining Stock Journal information

As The Financial System Melts Down Gold And Silver Will Soar

Financial Markets, Gold, Market Manipulation, Precious Metals, , , ,

To the extent that some analysts reject the Fed/Wall St/Perma-Bull narrative that the Fed’s repo operation is needed to address “temporary” liquidity issues or was caused by the newer regulatory constraints, the only explanation offered up is that the financial system’s “plumbing” is malfunctioning.  But there has to be an underlying cause…

…The underlying cause is abject deterioration in credit instruments – largely subprime right now – is causing an ever-widening chasm between the value of these securities and the funding used to finance those asset values.  The banks have reduced their willingness to fund  the increasing demand for overnight collateralized loans because they see first-hand the degree to which some of the collateral has become radioactive (CLO bonds, for instance).  The Fed has had to plug the “gap” with its repo operations, several of which have maturities extended up to a month. This is de facto QE, which is de facto money printing.

As this slow-motion train wreck unfolds, more money printing will be required to prevent systemic collapse, which in turn will trigger an explosive move higher in gold, silver and mining stocks.  Chris Marcus of Arcadia Economics invited me onto this podcast to discuss these issues in a little more detail:

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Currently junior mining stocks are the most undervalued relative to the price of gold and silver as at any time in at least the last 20 years.  But several producing gold and silver mining stocks are extraordinarily cheap.  I featured one in my Mining Stock Journal that’s up nearly 14% since Thanksgiving.  I’ll be presenting a similar producing mining stock in the next issue released Thursday.

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

The Fed’s Repo QE: The Underlying Problems Are Escalating

Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, , ,

Pressures are already building on the financial stability front that will make the next economic downturn messier than anticipated.” – Bill Dudley, former President of the NY Fed

I get irritated when I see mainstream media and alternative mainstream media parroting the propaganda used to cover up the truth. This morning Zerohedge echo’d the “corporate tax payments liquidity squeeze” narrative first used back in September to justify the re-start of the repo QE program. I would have thought that idiotic excuse would have been proved wrong after this:

It’s truly amazing that Fed officials come clean after they leave their post at the Federal Reserve. We’ve seen this dynamic for sure with Greenspan. Not so much with Bernanke, but I always considered Bernanke to be a bad liar and it seems that he’s chosen largely to fade from public exposure. Ditto with Janet Yellen.

Bill Dudley, however, is a former partner of Goldman Sachs and thus highly intelligent (as is Greenspan – Bernanke and Yellen not so much). Dudley clearly sees the writing on the wall. Now that he’s not in a position at Goldman in which it’s advantageous for him to promote stocks in exchange for big bonuses, or at the Fed where it’s politically correct to rationalize a bullish narrative (“Fed-speak”), he’s coming “clean” per the quote at the top.

The Fed’s current posture, based on the Fed officials’ weekly speeches ad nauseum, is that the economy is healthy with moderate growth and a strong labor market. If this is the case, however, why is the Fed printing money on a monthly basis in an amount that is close to the peak monthly “QE” after the financial crisis?

The question, of course, is strictly rhetorical. In fact the Fed once again quietly increased the amount of money it is printing and handing over to the banks. On November 25th the Fed released an updated repo operation schedule which showed additional repo operations totaling at least $50 billion. The Fed has also made its website less user-friendly in terms of tracking the total amount by which the repo operations have increased since the first operation in mid-September.

The 28-day repo QE for $25 billion that was added to the program Nov 14th was nearly 2x oversubscribed this morning, which means the original $25 billion deemed adequate 3 weeks ago was not nearly enough – a clear indicator the problems in the banking system are escalating at a rate faster than the Fed’s money printing operation. Just wait until huge jump in subprime quality credit card debt that will be used to fund holiday shopping begins to default in the first half of 2020…

The chart to the right shows the Fed’s repo schedule posted on September 23rd on the top and the latest repo operation schedule on the bottom. I suspect this won’t be the last time the Fed will increase the amount of its “not QE” QE money printing. Additionally, the Fed refuses to identify the specific banks which are receiving most of the repo money. One obvious recipient is Deutsche Bank, which is quietly shutting down a large portion of its business operations and is likely technically insolvent. Per a 2016 IMF report, DB is highly interconnected to all of the Too Big To Fail banks (JPM, GS, C etc). This means inter-bank loans and derivatives counterparty exposure, among other financial connections. Aside from the DB factor, as I detailed last week with deteriorating leveraged loan/CLO assets held by banks, I am convinced that the “repo” money is needed to help banks shore up their liquidity as loans and other assets begin to melt-down. This is quite similar to 2008.

For more insight into the truth underlying the Fed’s renewed money printing operations, spend some time perusing articles like this from Wall Street On Parade.