Category Archives: U.S. Economy

Cheap Oil And Money Printing: Rocket Fuel For Mining Stocks

“Gold, unlike all other commodities, is a currency…and the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.” … Alan Greenspan, ex-US Federal Reserve Chairman, August 23, 2011

For now the price of gold has found resistance – likely official resistance – in the high $1700’s. I think there’s a good chance gold pops over $1800 before Memorial Day weekend, if not sooner. Silver continues to frustrate but the gold/silver ratio appears to be headed lower. Patience with silver will eventually be highly rewarded and rewarded in spades with the silver mining stocks.

Bill Powers of Mining Stock Education invited me to chat about oil, the economy, money printing and mining stocks:

**************

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

Fed Lies And Money Printing: Rocket Fuel For Gold

For central banks, monetary inflation is everywhere the solution. Bank rescues, payment chain failures, the furloughing of millions of employees, helicopter money to bail out whole populations, money to bail out governments, money to support all categories of financial assets: the list is endless in scope and infinite in quantity. The survival of the global financial system is at stake. If it survives, state-issued money will have been destroyed. But then what is the point of owning financial assets valued in valueless currency?

While this process of monetary destruction would have reasonably been expected to evolve over time, the coronavirus has accelerated it. The fate of the $640 trillion derivative mountain recorded by the Bank for International Settlements is sealed and will be settled through bank bankruptcies and state-directed elimination. – Alasdair Macleod, The Looming Derivatives Crisis

Phil/John Kennedy hosted John Titus and me to try and untangle The Big Lie that is the Federal Reserve and the real reasons behind the Fed’s massive money printing program:

**************

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

Virus Crisis Used To Transfer Trillion$ To Wall Street

“We have previously called Wall Street an institutionalized wealth transfer system from the 99 percent to the 1 percent. The CARES Act puts the wealth transfer system on steroids by letting the fat cats on Wall Street keep their decade-long obscene compensation which was made by hiding their risks off their balance sheets (privatizing the profits) and now forces taxpayers to pick up the tab for the losses on the toxic debt (socializing the losses). Treasury Secretary Steve Mnuchin has said this is nothing like the 2008 financial crisis – and yet, it is everything like the 2008 financial crisis except that it’s an even more brazen money grab.”  – Wall St On Parade

The taxpayer squeeze is on. Shut down the economy for a few months, open up the Fed’s money fire hose and give Wall Street a good spraying of digital dollars to monetize its bad casino bets and enable the players to continue getting huge bonuses. Wall Street On Parade has the details in this must-read:  How $4.5 Trillion Was Outsource To Wall Street.

The Fed – Kicking People When They’re Down

“You [the public] are the sucker. Your role in the Federal Reserve System is to absorb losses [on the crappy assets the Fed buys off of bank and hedge fund balance sheets]…The Fed is there to facilitate your absorption of those losses and that’s going on right now…the taxpayer is going to eat the losses – not the bankers who will have already been paid to help the Fed collect the bad assets.”

My good friend and colleague, John Titus of Best Evidence productions, uses source documents from the Fed to explain how the Fed and the member banks are going to shift the enormous losses on bad credit market products to the taxpayer while the banks make huge fees assisting the Fed.

The Shortage Of LBMA Bars Persisted Before Coronavirus

I found it amusing that Zerohedge tried to take credit for reporting the problem of a physical gold shortage on the LBMA and Comex earlier last week. Several of we “gold bugs” have been discussing and reporting on this issue since before the virus crisis exploded. The Comex has been settling contracts that stand for deliver through EFT and PNT transactions by which the counterparty accepts cash payment or the transfer of the Comex obligation to London for several months.

GATA’s Chris Powell expounded on this in a must-read essay on Friday: “What the heck are those mysterious ‘exchange for physicals,’ the mechanisms by which contracts to buy gold on the New York Commodities Exchange are neither fulfilled by delivery on the Comex nor settled for cash there but transported for supposed delivery elsewhere?

The mechanism long has been incorporated by the Comex trading system but was described as an “emergency” procedure undertaken upon agreement by buyer and seller — except that the use of this “emergency” procedure has exploded in the last year, involving tens of thousands of contracts and, nominally, hundreds of tonnes of gold.” Gold Traders Paid Not To Redeem Comex EFPs

Chris Marcus of Arcadia Economics and hash out this issue in our latest podcast:

**************

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

“I felt in my gut that something was amiss with the markets a year or so ago and started reading up on sound money/macro. At that time I had most of my money in UK stocks but wanted a way out and a way into the metals. I needed guidance thus why I signed up to your short seller and mining journals.

Today I am way down on the mining stocks and somewhat down on physical silver and gold. But I have offset 80% or so of those paper losses with paper gains on a raft of put options on indexes and sector ETFs. So, thank you for your journals and keep up the excellent work.” – Mike, who subscribes to both journals

Stimulus Bill Gives The Banks $454 Billion In Taxpayer Bailout Money

The Government and the Federal Reserve are exploiting the virus crisis to implement another bailout – or attempted bailout – of the “Too Big To Fail Banks.”  The stimulus Bill approved 96-0 by the Senate gives the Fed a $454 billion taxpayer funded “slush fund” for Wall Street bailouts. Just as troubling, the Bill suspends the Freedom Of Information Act for the Fed until the earlier of the time at which Trump terminates the National Emergency declaration or December 31, 2020.

The latter provision means that the Fed can conduct meetings in secret,  is not under any circumstances required to disclose the meeting details to the public  and it does not have to keep a record of notes.   The public will never know how its $454 billion was spent or which banks and hedge funds (or individuals?) were the recipients of this taxpayer largess.

Wall Street On Parade takes a look at the implications of economic bailout Bill so far passed by the Senate.  It remains to be seen if this secrecy provision will be challenged by the House but I’m not hopeful.  You can read more on this here:  Wall Street On Parade

The Virus Crisis Exposed The Financial Markets’ Black Hole

The biggest bill of sale sold to the public after the great financial crisis was that the legislation enacted forced the banks to maintain a higher level of integrity in their business dealings. But nothing could be further from the truth. The various pieces of legislation enacted after the 2008 de facto banking system collapse ultimately made it easier for the TBTF banks to move their fiat currency-based Ponzi scheme off-balance-sheet.

Over the last 10 years a massive Rube Goldberg credit market black hole has formed. Point of note: the Fed is injecting printed money into the banking system at a faster rate now than at any time after 2008.

While the coronavirus to be sure is the “black swan” that pricked the stock bubble, market forces eventually would have accomplished the same result. The Fed started bailing out the banking system in September, printing half a trillion dollars to save the banks well before anyone had ever heard of coronavirus or Covid-19. As it turns out, the Fed was also bailing out hedge funds. Powell knew back in September that a massive credit problem was starting to bubble up.

Chris Marcus of Arcadia Economics and I try to put some context on the current market crisis that was triggered by coronavirus but was an eventuality anyway:

**************

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

“Thank you – your research saved my finances!!! Your approach to OTM puts really worked for me. I like it when those red put positions turn from red to green in Trader Workstation – and all of a sudden – these puts are in the money! It already happened with CVNA, Citigroup, CACC, FICO, GS, JBHT, LGIH, SHAK, W, TOL, MXI – and I am almost in the money with SHOP, FICO! You turned upcoming crisis into an opportunity for me!” – Short Seller and Mining Stock Journal subscriber, “Philip”

“Risk Parity” Was More Risk And No Parity

The “60/40 risk parity” hedge fund strategy has been decimated in the market sell-off.  The strategy was supposed to generate consistent returns while minimizing risk.  So why not apply hedge fund leverage to the trade and enjoy multiples of “consistent returns” and “minimized risk?”   The risk parity funds were among the most leveraged going into the market plunge, which began in earnest on February 19th, though the Dow started tipping over a week earlier.

We’ve seen this “excess returns/alpha” with “minimized risk” fail badly twice in the era of modern finance – i.e. the post Bretton Woods era of unfettered expansion of fiat money supply, highly questionable use of leverage and untested “quant” strategies.

Most of you reading this will not remember or even know about Fisher Black’s “portfolio insurance” quant strategy, which promised to remove downside risk from all-equity portfolios (if you trade options and don’t know who Fisher Black is, then you shouldn’t be trading options).  But the “quantitative” magic embedded in the strategy failed miserably in the 1987 stock market crash.

In the 1990’s Long Term Capital Management branded a similar though more complex “all upside / no risk” strategy by assembling a “dream team” of quants which included Robert Merton and Myron Scholes, two Nobel laureates in economics.  LTCM was using unheard of amounts of leverage because its mad scientists of quant finance had achieved the goal of removing risk from LTCM’s portfolio.  Again, the strategies failed catastrophically when the high risk/return assets upon which LTCM was highly leveraged began to plummet, liquidity disappeared and the risk removal strategies proved worthless.

Amusingly, the purported “expert” in cross-asset strategies, Nomura’s Charles McElligot, apologizes for the failure of risk parity by explaining that “we now see the 18-day period of returns for [Nomura’s] model ‘World 60/40’ fund was 15.5% greater than an 8-sigma move and truly unprecedented dating back to the model’s start 1999 start date.”  Interesting that this “model” does not include data going to back to the 1987 crash or the LTCM collapse. Everyone is the perfect armchair quarterback the day after. But it’s impossible to model the future. Nomura’s model  didn’t even include the two most important multi-sigma downside events in the era of modern finance.

Funny thing about McElligot.  He was in grade school  during the 1987 crash and in college when LTCM blew up.  These quantitative gimmicks are no different than the methodologies applied by boiler-room stock brokers pitching risky stock ideas doomed to eventual failure. They all work wonderfully and make everyone money – especially the purveyors of these fantasy ideas – when markets are rising and even better when the bulls are all-out stampeding into the market.

But all of these strategies have one thing in common. They fail to incorporate the ability to measure and manage the sudden vacuum of liquidity when markets go from functioning continuously with bids just as “deep” on the downside as were the “offers” on the upside.  “Liquidity” is a risk variable that’s impossible to model or manage when everyone is running for the exits and bids disappear.

Just like Fisher Black’s “portfolio insurance” and LTCM’s Nobel Prize backed downside-risk removal models, the risk parity strategy turned out to provide all risk and no parity when the market had the rug pulled out from under it.  And when this happens the biggest charlatans of modern money management start crying for the Fed and the Government to bail them out.

Helicopter Money Will Send Gold Soaring…

Fiat justitia ruat caelum – Let justice be done though the heavens fall

…and the current gold/silver ratio indicates silver will soar even more.

Central Banks and sovereign Governments have been given a free pass to print money and bail out the banking, hedge fund and corporate interests from catastrophically hopeless loan, bond, subprime asset and derivative positions. The coronavirus crisis will be fingered as the culprit but market forces would have forced a financial collapse eventually anyway (see 2008 for the playbook). While the helicopter money will bail out the real perpetrators, it will also effect insidious currency devaluation aka inflation.

Chris Powell at GATA posted a must-read essay on the systemic effect of the impending acceleration of Central Bank printing presses:

“The success of a system of infinite money requires infinite commodity price suppression to defend government currencies. Gold price suppression has been Central Bank policy since the London Gold Pool of the 1960s.  But not only are government currencies becoming harder to defend amid the dislocations caused by the virus epidemic, governments no longer may want to defend their currencies so much.  They want to reflate asset valuations. But even before the virus epidemic, equities and bonds already were highly overvalued by traditional measures, and how can they be worth as much as they were now that world production is declining? Only devaluation of currencies can accomplish reflation.”

You can read the entire essay here: “As infinite money chases collapsing production, gold is on call