Category Archives: U.S. Economy

Repos, Money Printing and Paper Gold: It’s One Massive Manipulation

The paper gold derivative open interest on the Comex continues to hit success all-time highs.  This is no coincidence, as the Fed has restarted the money printing press in what ultimately will be a catastrophically failed effort to prevent the coming global credit and derivatives melt-down.  The successive daily all-time highs in the stock market, believe it or not, is evidence that the wheels are coming off the global financial system.

The melt-up in paper gold contracts mirrors the melt-up in the Dow/SPX – both are frauds. Kerry Lutz me invited onto this podcast to discuss the truth behind the repo programs and why the asset bubbles blown by the Fed could be getting ready to pop:

Click on this LINK or on the graphic below to listen/download the show:

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 Real Stock Market Is Declining

The major stock indices – the Dow, SPX and Nasdaq –  have wafted up to all-time highs on a cloud of Central Bank printed money.  Interestingly, most of the stocks in all three indices are below to well below their all-time highs.  Breadth of the move is shockingly thin.  Very few stocks are responsible for pushing the indices higher. The Dow’s move last Friday, for instance, was primarily attributable to AAPL (by far the biggest contributor), MSFT, HD, UTX and JPM. Of those, only AAPL, UTX and JPM hit their all-time high on Friday.  MSFT and HD were close.

Many of the Dow stocks are down significantly this year. If you find this hard to believe, run the 1yr charts of the 30 Dow stocks. I’m certain the same is true for the SPX and Naz.

Despite the appearance of the stock market moving higher, most of the stocks that make up the 2800 stocks on the NYSE are well below their all-time and/or YTD highs. There’s plenty of money to be made shorting stocks despite the headline, mainstream media and White House’s euphoria over the stock market’s performance. Moreover, short interest in the SPY ETF has plunged to a level that has, in the past, led to sharp sell-offs in the stock market.

And then there’s this, which is the best measure of the real rate of return stocks:

Over the past 52 weeks through November 6th, the S&P 500 has declined 10.5% when measured in terms of gold – i.e. real money.  Money printing at a rate in excess of real wealth output diminishes the marginal value of the currency.  Because the price of gold moves inversely with the inherent value of the dollar, the chart above reflects the effect of dollar devaluation on financial assets.

Thus,  the real upward movement of the stock market highly deceptive in terms of both the number of stocks in the NYSE participating in move higher and in terms of using real money to measure the price of stocks.

Sleepwalking Toward A Crisis – Got Gold?

“By sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards that crisis.” – Mervyn King, former head of the Bank of England in a lecture at the IMF’s recent annual meeting

The market levitates higher on phony economic data from the Government, Trump tweets, Fed money printing and hedge fund algorithms chasing headline and twitter sound bites. Currently the stock market, dulled by money printing and official interventions, could care less about economic reality and rising global systemic geopolitical and financial risk. Corporate headline earnings “beats” are considered bullish even if the earnings declined YoY or sequentially.

But for those who don’t have their head in the sand, clinging desperately to the “hope” offered by the misdirecting Orwellian propaganda, it’s difficult to ignore the message signaled by the legendary levels of insider selling.

Someone is not telling the truth – The Fed once again last week increased the size of both the overnight and “term” repo operations. Starting Thursday (Oct 24th) the overnight repos were increased from $75 billion to “at least” $120 billion and the term repos (2 week term) of “at least” $35 billion were extended to the end of November, with two “at least $45 billion” term repos thrown in for good measure. The Fed is also outright printing helicopter money for the banks at a rate of $60 billion per month (via “T-bill POMOs).

At the height of the last QE/money printing cycle, the Fed was doing $75 billion per month. So whatever the problem is behind the curtain, it’s already as large or larger than the 2008 crisis.

That escalated quickly – When the repo operations started in September, the Fed attributed the need to “relieve funding pressures.” At the time the public was fed the fairytale that corporations were pulling funds from money market funds to pay quarter-end taxes. Well, we’re over five weeks past that event and the repo operations have escalated in size and duration three times. Someone is not telling the truth…

The rapid increase in Fed money printing in just five weeks reflects serious problems developing in the global financial system. Actually, the problem is easy to identify:   At every level – government, corporate and household – the level of debt has become unsustainable, with not insignificant portions of that debt in non-performing status (seriously delinquent or in default). Thus, the Central Banks have had to resort to money printing to help the banks manage the rising level of distress on their balance sheet and to monetize the escalating rate of Treasury debt issuance.

The quote at the beginning is from the former head of the Bank of England, Mervyn King. King is warning that the global financial system is headed toward a crisis and that money printing ultimately won’t save it.  While it’s pretty obvious that a disaster waits on the horizon, when the former head of a big Central Bank delivers a message like that instead of Orwellian gobbledygook, the world should pay heed.  I would suggest that the Fed’s money printing signals that the risk of a crisis intensifies weekly.  Got Gold?

Tesla’s Shock And Awe

The degree to which Elon Musk manipulates GAAP accounting in awe-inspiring. That the various regulators in charge of protecting investors allow Musk to commit accounting fraud is shocking.

Note: The commentary below is an excerpt from the latest issue of the Short Seller’s Journal. It’s based on Tesla’s earnings press release. In the next issue I’ll layout the facts about Tesla’s numbers based on a close-reading of the 10-Q which was filed Tuesday.

Tesla both shocked and awed short-sellers with its earnings report. The financials Musk presented to the public were produced from a contorted interpretation of GAAP accounting standards which stretch beyond legality. Any analyst with an intermediate level understanding of accounting can quickly see through the skeletons beneath what can only be described as a financial report awkwardly fit with a Halloween costume. This probably explains why Elon Musk and the CFO did not sign the quarterly letter for the first time ever.

From what has been made available in the earnings release, Musk has outdone all of his previous works of artistic accounting with his latest masterpiece in an attempt to deflect attention from declining revenues and cover-up poor earnings. On a YoY basis for Q3, total revenues declined 7.6%, with automotive sales revenues down 12.7%, with revenues in the U.S. down a shocking 39%. The difference in total vs automotive sales is predominantly revenues derived from services.

Tesla’s gross profit fell 22%, operating profit plunged 37% and net income free-fell 54%. Of the $143 million of reported net income, $107 million was Government subsidies in the form of environmental credits that Tesla sells to the large OEM’s who need to buy them to remain in compliance with environmental regulations (auto manufacturers are required to produce a certain percentage of zero-emission vehicles; if they do not meet the test, they can buy ZEV credits from companies like Tesla which generate a surplus of these credits). But the ZEV sales will eventually disappear as the large OEMs ramp up their line of EVs.

Some portion of the revenues was the recognition of deferred revenues. Deferred revenues occur when a company sells a product for which the complete product is not delivered but which is paid for up-front by the end user. Typically companies that derive revenues on a contractual basis have deferred revenues.

Tesla’s source of deferred revenues includes features like auto-pilot,smart summons and supercharger access which are sold up-front  but available only a limited basis or not yet available. Deferred revenues are set-up as a liability on the balance sheet and amortized into revenues. When recognized, deferred revenues are non-cash because payment from the customer was received at the time of the sale. The amount of deferred revenue recognized, for the most part, flows through the income statement to the bottom line.

In June Tesla said it planned to recognize about $500 million in deferred revenue over the next 12 months, which means Q3’s income statement contained at least $100 million in non-cash deferred revenues. The amount of deferred revenue in any given quarter shows up in the cash flow statement as a source of cash. The cash flow statement in the earnings letter did not have deferred revenues as a line-item in the cash flow statement but there should be a disclosure of the amount amortized into revenue in the 10-Q when it’s released.

The bottom line is that Tesla recognized some portion of deferred revenues in the revenue line, which means that gross profit, operating profit and  net income are overstated by the amount of deferred revenues that was used in Q3’s revenue number.

There several more highly problematic aspects to Tesla’s Q3 financials. The 10-Q will help shine light on most of the areas in which Musk and his financial goons impose the questionable interpretations of GAAP standards on s financials.

Why did the stock jump $73 in two days? Revenues missed Wall Street analyst estimates. Margins were lower than expected. Net income smashed estimates. The net income “beat” expectations because the degree to which Elon Musk is willing to commit accounting fraud is unpredictable.  It certainly can’t be modeled into an analyst spreadsheet.

I believe the move in Tesla’s stock was an orchestrated short-squeeze in conjunction with rabid momentum-chasing by daytraders and hedge fund algos. Let me explain first by sharing this tweet from Charles Gasparino (Fox News business reporter): “Senior management tell bankers they have the short sellers where they want them (on the ropes) with the latest financials.”

Assuming that’s true, and I’m 99.5% certain that it is, it shows that targeting short-sellers is one of Musk’s primary agendas. Reading between the lines, it implies that Tesla manipulated the financials specifically to cause a short-squeeze. I also believe that Musk orchestrated the short-squeeze in conjunction with a couple of Wall St banks, likely Goldman and Morgan Stanley, both of which have significant financial exposure to Tesla stock and to Musk’s personal financial health.

How to orchestrate a short squeeze.  Keep in mind when you short shares, your brokerage firm borrows shares from funds which make shares available to borrow. They do this because they can earn interest on the shares loaned. In the case of stocks with a high short interest like the TSLA, the stock loan rate can be double digits.

Goldman and Morgan Stanley would contact a few of the large “friendly” fund shareholders and ask them to recall the shares they have loaned out.  If they agree, their back office contacts the back office of the hedge fund or broker-dealer to whom the shares are loaned and asks for the shares back (a “recall”).  No reason has to be given. The entity being asked to return the borrowed shares either has to find a new source from which to borrow shares or buy back the shares in the open market to return them.

Keep in mind that, outside of Musk and his circle of friendly shareholders (Larry Ellison, Bailey Gifford, etc), the true free-float of Tesla shares is maybe 30% of the shares. A lot of those shares are borrowed and shorted as a hedge against Tesla’s outstanding convertible bonds.

In the case of a large short-seller, like Greenlight Capital (Steven Einhorn) or Kynikos Partners (Jim Chanos), it might be difficult to find a source from which to borrow the amount of shares being recalled. In that situation, the short-seller has three days to find and return the shares borrowed. It’s likely that large short-sellers were forced to cover part of their short position and then look for a new source of borrow to re-establish the short. In a situation like this, the stock can be driven up sharply in a short period of time.

The move made by Tesla’s shares on Thursday and Friday is similar to the short-squeezes that occurred during the internet bubble. Most of those internet stocks were very obviously highly overvalued and were aggressively shorted. The slightest positive news headline would cause the stocks to move 20 to 30 percent in a couple days from a short-squeeze despite the obvious superficiality of the news reported. Goldman and Morgan Stanley were two of the largest Wall Street promoters of internet stocks.

There’s no telling when the short-squeeze will subside but I think it might be running out of steam. The stock is now – per the RSI – more overbought than it was when it squeezed higher after the “funding secured” tweet by Musk. The stock dropped $120 in 20 trading days after that.

What Is The Fed Hiding With Its “Repo” Operations?

I’m not sure why Trump continues incessantly to harangue the Fed about cutting the Fed Funds rate. The Fed is printing money and sending it to the stock market via the banks. It’s a much more effective policy tool to accomplish Trump’s number one policy agenda, which is to drive the stock market inexorably higher.

I put “repo” in quotes because the term is a thin veil for what is indisputably the return of “QE” money printing.   The statement posted on the Fed’s website announcing the $60 billion per month T-bill purchase operation “explained” that the move is “to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation.”

I use quotes around “explained” because the policy statement is nebulous. The non-reserve liability on the Fed’s balance consists primarily of the money it prints and releases into circulation. Increasing “non-reserve” liabilities is a fancy term for “printing money.” The T-bill “operation” is funded by printing money. The Fed transmits this money into the banking system – not the real economy – by purchasing the T-bills. Presumably as the T-bills mature, the Fed receives the new T-bills printed and issued by the Treasury used to refinance the existing T-bills. The T-bill operation permanently injects money into the financial system.

I surveyed some friends/colleagues who know at least as much as I do about money market fund operations.  None of us can figure out  the nature of the potential  “money market pressures” referenced by the Fed.  Perhaps the Fed fears a run on money market funds by corporations and the public?  Anyone…Bueller?

The original repo operations in September were supposedly to address third quarter-end liquidity pressures because corporations need cash to pay taxes.  Since the passing of the third quarter, the repo operations have escalated to more than double the size of the original repo operation.

I’m not the only one who has noticed the Fed’s furtive behavior. Pam and Russ Martin – Wall Street on Parade –  encountered the same roadblock I ran into this past weekend when I tried to pull up the Markets & Policy Implementation and the repo operations web pages: “Site Maintenance – the page you are looking for is temporarily unavailable.”  The pages were “temporarily unavailable” all weekend.

I have yet to encounter one reasonable explanation for the reimplementation of money printing – money printing which accelerates in size and frequency almost weekly.  Make no mistake, the Fed-apologetic  Wall Street analysts have no clue what’s happening or why.

We know that the Fed used printed and Taxpayer money to bail out the banks in 2008.  These “Too Big To Fails” would have collapsed without the bailout.  The Fed is going out of its way – with help from the Wall Street and media sycophants – to obscure the truth.  But it’s pretty obvious, at least to me, that big bank balance sheets are starting to melt down again.

The Fed Cranks Up Its Printing Press

“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Helicopter Ben Bernanke’s address to the National Economic Club, 2002

It took the Fed more than 4 1/2 years to remove from the banking system just $750 billion of the $4.5 trillion in money it printed. The Fed stopped the removal process (“Quantitative Tightening”) at the beginning of September. But just 13 days later the Fed began adding liquidity back into the banking system via its repo operations. 42 days later, the Fed’s balance sheet has spiked up by $253 billion and is back over $4 trillion:

41% of that $253 billion ($104 billion) was put into the banking system in the last three days of this past week.

Apparently the repo/term repo operations were not enough.  On October 11th, the Fed announced that it was going to purchase at least $60 billion T-bills per month through at least the 2nd quarter of 2020.  The rationale was “in light of recent and expected increases in the Federal Reserves non-reserve liabilities” (link).  “Non-reserve liabilities” refers specifically to “currency in circulation.” The only way to increase currency in circulation is to create it. Thus, the above rationale is a decorative phrase for “money printing.”

The problems in the banking system targeted by the Fed’s money printing are likely getting worse by the day.  The Fed has now conducted three outright money printing operations since October 11th. Each operations has been progressively more over-subscribed. Today’s operation of $7.5 billion had nearly $6 of demand for every $1 printed and offered.

As I have asserted since the Fed’s repo operations commenced, the problem is significantly more profound than the “quarter-end liquidity” needs of corporations and banks. I suggested that the liquidity injection program would quickly increase in size and duration, ultimately morphing into permanent QE/balance sheet growth/money printing.

While some of the money being printed will be used absorb the massive amount of new Treasury issuance, the nexus of the problem is seeded in the big bank balance sheets and business operations. The problems leading up to the 2008 crisis were never fixed – just papered over. Furthermore, the legislation that was promoted to prevent a repeat of 2008 and protect the taxpayers was nothing more than window dressing which enabled the banks to hide their massive fee-generating recklessness (Dodd-Frank, Consumer Financial Protection Bureau).

The “Too Big To Fail” bank balance sheets collectively are close to double their size in 2008. A frighteningly large portion of these assets are sub-prime or near-sub-prime loans plus OTC derivatives that have been well-hidden off-balance-sheet. One of the regulatory initiatives put into effect in 2010 enabled banks to hide their total derivatives holdings behind a nebulous concept called “net derivatives exposure.” The “net” metric supposedly measures a bank’s unhedged net economic risk exposure, netting out off-setting hedges with counterparties.

But counterparty defaults were one of the key detonators of the 2008 financial melt-down. Unfortunately, Congress and the Fed have enabled the banks, after monetizing their catastrophic business decisions in 2008, to create a financial Frankenstein that is now financially apocalyptic in scale. The rapid escalation of the repo operations is evidence that the fuses on the various financial bombs have been lit.

Repo Operations, Money Printing, Gold And Mining Stocks

The Fed is printing money again – this time disguised as “repo operations” instead of “QE.” The price of gold and silver rallied over the summer anticipating an easier monetary policy. The economic problems and financial system excesses are two to three times larger than in 2008. This will necessitate a money printing/QE/balance sheet expansion operation that dwarfs the $4.5 trillion printed the first time around. Plus most of the money printed from 2009 to late 2014 is still in the banking system.

The scale of the inevitable money printing policy will not stimulate economic activity but it will act as rocket fuel for the precious metals market – gold, silver and mining stocks. Ten years of Central Bank money printing has pushed debt issuance, malinvestment, moral hazard and fraud to levels that well-exceed the levels when Lehman collapsed.

Craig “Turd Ferguson” Hemke invited me back onto his “Thursday Conversation” podcast to discuss the the Fed cranking back up its money printing machine and the implications for gold, silver and mining stocks. Click on the link above or the graphic below to listen:


In the latest issue of the Mining Stock Journal, I review several junior mining stocks plus I recommend a larger cap silver/gold/lead/zinc producer that has been sold off irrationally and which will report great earnings in Q3 and Q4 vs the same quarters in 2018.

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 Dutch Central Bank Endorses The Gold Standard

“De Nederlandsche Bank (DNB) holds more than 600 tonnes of gold. A bar of gold always retains its value, crisis or no crisis. This creates a sense of security. A central bank’s gold stock is therefore regarded as a symbol of solidity Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis.” – DNB’s Gold Stock

The quote above is from the “Payments” section of the Dutch Central Bank’s website. Incredibly, it goes on to suggest the possibility of  a systemic collapse: “If the system collapses, the gold stock can serve as a basis to build it up again.”

It’s been 48 years since the U.S. Government unplugged the gold standard, thereby enabling the world’s Central Banks to plug in their fiat currency printing presses. This in turn gave rise to a series of asset bubbles and unfettered credit creation. Don’t forget that the junk bond bubble in the 1980’s led to an acceleration in the creation of paper money, which in turn fueled the internet/tech stock bubble, followed subprime debt/real estate bubble and  the current “everything” bubble.” Which may the last bubble…

The chart below,  shows M3/M2 vs the “real” GDP since 1971 and  illustrates the problem:

Note that the Fed discontinued publishing the M3 money supply data in 2006. The U.S. at the time was the only major industrialized country that refused to publicly disclose M3. Also note that “real” GDP is calculated using the Government’s highly muted measure of price inflation. A real real GDP line would be shifted down on the chart and project at a lower trajectory.

The difference between the two lines somewhat measures the degree to which the U.S. fiat currency has been devalued or has “lost its purchasing power.”  However, the graphic does not capture the creation of credit.  Debt issuance behaves exactly like money printing until the debt is repaid. Think about it.  A dollar borrowed and spent is no different than a dollar created by the Fed and put into the financial system.

But think about this:  since 1971, the U.S. Government has never repaid any of the debt it  issues. It has been increasing pretty much in perpetuity.  This means that $22 trillion+ issued and outstanding by the Treasury Department should be included in the money supply numbers – until the amount outstanding contracts – which it  never will…

Alasdair Macleod, in “Monetary Failure Is Becoming Inevitable,” summarizes the eventual consequence embedded in a morally hazardous currency system:

If history and reasoned economic theory is any guide, the demands for credit by the state will terminate in the destruction of government currencies. For the truth of the matter is inflation of money and credit has created the illusion we can all live beyond our income, our income being what we produce.

“Destruction of Government currencies” is really just a politically/socially polite phrase for “systemic collapse.”

Whether intentional or unintentional, the Dutch Central Bank has alluded to this possibility, which I see more as an inevitability, with just the issue of timing yet unresolved.  I would argue, however, that the financial system liquidity issues currently addressed by the reimplementation by the Fed of repo/extended repo operations – and the inclusion of foreign banks in the liquidity injections – reflects the growing instability of the global financial system.

Furthermore,  the suddenness of these systemic “tremors,” suggests that the Central Banks are losing control of a system dependent on fiat currency and credit creation that expands at an increasing rate in perpetuity.  Unfortunately for the paper money maestros running the Central Banks, the value of fiat currency approaches zero as the supply of currency and credit heads toward infinity.

In all likelihood, the recent rise in the price of gold, which has been driven by escalating demand for physical gold – notably by eastern hemisphere Central Banks – reflects the increasing visibility of an inevitable collapse in the global fiat currency system.  The Dutch Central Bank has made it clear that it sees gold as an ideal asset for wealth protection when the next crisis erupts.

Fed Balance Sheet Expansion, Unicorns, Unintended Consequences and Gold

The Bank for International Settlements (BIS) – the Central Bank of Central Banks – released two reports on “unconventional policy tools” – e.g. QE/money printing and interest rate suppression. It concluded that the extreme Central Bank interference since 2008 has had a negative impact on the way in which financial markets function.

While Jerome Powell and his “Gang That Couldn’t Shoot Straight” at the Fed prefer to use the term “balance sheet growth” in reference to money printing, the big-thinkers at the BIS call it UMPT (Unconventional Monetary Policy Tools).”

“Last month’s spike in short-term US borrowing costs was just the latest in a series of market shocks that have fueled investors’ suspicions that this radical monetary policy is having an impact on how financial markets function.” (Financial Times)

“Moral Hazard” is defined as the “lack of incentive to guard against risk where one is protected from its consequences.” In economics (real economics, not the Keynesian psycho-babble of the current era) this would refer to the egregious misallocation of investment capital caused by the unfettered creation of fiat currency injected into the global financial system.

Additionally, unprecedented permissiveness by the regulators, who are charged with enforcing laws originally established to prevent or at least contain the escalating financial fraud that accompanies asset bubbles, further enables and accelerates the formation and inflation of investment bubbles.

The BIS report of course neglected to discuss the extreme moral hazard engendered by the trillions in money printing. The “unicorn” IPOs are the direct evidence of this. The extreme  overvaluation of the equity in the ones that have sold stock into the public markets reflects the complete disregard of historically accepted tools and guidelines used for business model appraisal and financial valuation analysis. “But it’s different this time.”

The losses racked up by these companies, the ones with public equity plus the ones yet to be IPO’d, will aggregate well into the $100’s billions, possibly trillions before this era dies. A journalist from The Atlantic, in an article titled “WeWork and The Great Unicorn Delusion,” correctly asserted that “most [of these companies] have never announced, and may never achieve, a profit.” But he lost me when he asserts that these companies are “extraordinary businesses with billions of dollars in annual revenue and hundreds of thousands, even tens of millions, of satisfied global customers.”

Quite frankly, the business model of almost every Silicon Valley unicorn is predicated on building revenues and gaining market share by selling products and services for a significant discount to the all-in cost of production and fulfillment.

Every single unicorn IPO’d over the last several years that I have evaluated is not only highly unprofitable, but also burns legendary amounts of cash. Of course there are “millions of satisfied customers” globally – the unicorn business model functions in a way that is the equivalent of selling $1 bills for 75 cents.

The more relevant proposition is that, in all probability, many of these companies would have never  spawned if the Central Banks had not inflated the global money supply well in excess of real economic growth generated by the global economy.

I find it difficult, if not impossible, to refer to these appallingly unsustainable businesses models as “extraordinary” when in fact most if not all of them are nothing more than the product of the extreme moral hazard created by the Central Banks’ printing presses running overtime.

The economic losses incurred by the Silicon Valley unicorns are funded by the “private equity” funds which have managed to harness a significant share of the cash flowing from Central Bank money-spigots and transmitted through the primary dealer banks into the financial system. Little noticed is the fact that since 2014, roughly $1.3 trillion has drained out of the banks’ excess reserve account at the Fed and disappeared into the financial system’s “black hole.”

The 2008 Great Financial Crisis – which was a de facto financial system collapse until money printing bailed out banks and reckless investors – was fueled by the easy monetary and credit policies of Alan Greenspan and Ben Bernanke. Those policies stimulated huge mortgage, housing and general stock market bubbles. The unintended consequences bankrupted a large swathe of households and banks.

But that decade’s reckless Central Bank policies pale in comparison to the current era of unfettered money printing cranked up by Ben Bernanke (recall that he was affectionately called “Helicopter Ben”). The ensuing widespread asset bubbles have fomented into a financial Frankenstein that has broken free from its chains as evidenced by the sudden implementation of the Fed’s repo program, which has yet to be accompanied by a credible explanation.

Jerome Powell yesterday (October 8th) asserted in a speech that “balance sheet expansion is not Quantitative Easing.”  But make no mistake, the repo operations function as emergency room triage until the Fed and the Treasury Department formalize another round of money printing, or QE or whatever you want to call it. At this point it is nothing more than a game of Orwellian semantics.

If you’re curious as why the price of gold has risen 37% since the end of May, look to the events unfolding at the Fed and in the banking system. Just like in late October 2008, the price-action in gold is sending a loud alarm that is no longer containable with manipulative efforts in the paper derivative gold market. Eventually the Government’s Working Group on Financial Markets will be helpless in coaxing the hedge fund trading robots to help hold up the stock market.


The commentary above is an excerpt from the next issue of the Short Seller’s Journal (Sunday). I’ll be reviewing several unicorn short ideas over the next several issues. To learn more about this short-sell focused newsletter, click here:  Short Seller’s Journal info

Fed Delivers More QE “Light” And Gold Responds

On October 4th, as I expected would happen, the Fed announced that it was extending its overnight and term repo operations out to November 26th (the November 12th two-week term repo matures on the 26th).

The Fed added 7 more 2-week  “term repos, ” plus a 6-day “term repo,” with the next three operations upped to $45 billion. It extended the overnight repos until at least November 4th.  Well then, I guess the “end of quarter” temporary liquidity issue with corporate tax payments was not the problem.

Follow the money -The Fed’s repo operation extension further validates the analysis in my last post in which I made the case that an escalation in the non-performance of bank assets (loan delinquencies and defaults and derivatives), caused by contracting economic activity, has created a liquidity void in the banking system that is being “plugged” by the Fed. The Fed’s balance sheet has increased $186 billion since August 28th.

Not only did the Fed end “QT” (balance sheet reduction) two months earlier than originally planned in January, the Fed has effectively reversed in the last 5 weeks all of the QT that occurred since March 28th.

The evolution of Orwellian propaganda terminology for “money printing” has been quite amusing. It seems that the Fed has subtly inserted the phrase “balance sheet growth” into its lexicon. While Jerome Powell referenced “organic balance sheet growth” in his press circus after the last FOMC meeting,  expect that it will be considered politically/socially incorrect to use “QE” or “money printing” instead of “balance sheet growth” in reference to this de facto banking system bailout.

Meanwhile,  thank the Fed for providing the amount of money printing/currency devaluation needed to offset China’s absence from the physical gold market for the last week:

Given the technical set-up in gold plus the enormity of the Comex bank/commercial short position in paper gold, many gold market participants, including me, expected a much bigger price-attack on gold during Golden Week than has occurred. In fact, gold has held up well, with the December future testing and holding $1500 three times in the last week. Business activity in China, including gold and silver trading, resumes tonight.

The Fed’s QE Light program will likely transition into outright permanent money printing before the end of 2019. The November meeting is scheduled for the end of this month (Oct 29-30). But I doubt the Fed will turn its repo money printing into permanent money printing – aka “POMO” or “balance sheet growth” – until the December FOMC meeting (Dec 10-11).