Category Archives: U.S. Economy

Gold Signaling A Financial System Disaster Will Hit

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

And it’s not just gold. The Fed is already hinting that more money printing is coming.  Powell suggested at his semi-annual Congressional testimony that QE would be used in the next recession.  A couple other Fed officials this week confirmed that the FOMC is preparing to crank up the printing press even more than it has been running since mid-September.

But why does the Fed feel compelled to warn us that more money printing/currency devaluation is coming if, as Powell told Congress, “the economy is in a good place?”

To begin with, money printing is not stimulating economic growth. The economy has been sliding into contraction for quite some time. Since the “repo” operations began, that pace of contraction has increased.

Make no mistake, the Fed is printing money for two reasons. First and foremost to plug the widening chasms in bank balance sheets brought on by taking on highly risky lending and derivatives risks.  This why the bank excess reserve account has drained steadily since late 2014:

Why was QE restarted? This article partially explains the reason:  Banks Stuck With Billions In Risky Leveraged Loans As Investors Flee The formal term for this is “moral hazard.”  The second reason is to monetize the flood of new Treasury issuance that began in the fall of 2019. Currently the Fed’s Treasury holdings are nearly as high as its peak during  of the first period of money printing (QE1-3).

Yes, the appearance of coronavirus is going to exacerbate the systemic problems engulfing the world. But Corona has NOTHING to do with the fact that the U.S. is overleveraged at every level of the economic system (Government, corporate, household) and China, Japan, and  EU are overleveraged at the Government and corporate level.

EU and U.S banks are  highly stressed from holding non-performing assets (subprime loans primarily) compounded by derivatives connected to those assets, which are deteriorating rapidly in value. The global economy was sliding into a nasty recession well before corona hit the scene. Corona merely will hasten the inevitable. The that fact that the global economy can’t withstand this particular exogenous shock reflects the extent to which the global economic/financial system was already headed toward the cliff.

With the stock market broken (i.e. its price discovery mechanism removed by Central Bank money printing), gold soaring despite heavy intervention attempts, the 30-yr Treasury bond yield hitting an all-time low and the Fed telegraphing even more money printing is coming, something really ugly is going to surface and cause financial system destruction similar to what occurred in 2008 – only this time it will be worse.

For now my front-runner in the race to collapse is HSBC. Deutsche Bank seems to have been somewhat stabilized from massive intervention by the ECB, Bundesbank and German Government (though that “appearance” of stabilization likely is deceptive). Judging from its stock chart, which has woefully underperformed the sector since mid-2018 and has substantially underperformed DB since mid-December, HSBC appears to be on the ropes. It may be more insolvent than DB now.  HSBC is loaded up on overvalued, illiquid Hong Kong real estate loans among many other reckless investments.

I think whatever coming at us is going to make things unpleasant for everyone. But you can help protect your financial situation by buying physical gold and silver that you safekeep yourself.  Gold broke out in a major way in mid-June. It sniffed out the systemic problems starting to surface well ahead of the reimplementation of money printing in September.

Gold raced to a 6-year, 11-month high last week. It’s only a matter of time before it assaults the previous all-time high of $1900. Though inexplicably underperforming gold, silver is percolating to make a move like the current move in palladium. And last but not least, the junior mining stocks are setting up for a move that will make the current tech-mania bubble seem tame.

Gold Chases The Money Supply Higher

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

Q: “Why is the Fed reluctant to let the boom-bust nature of markets play out?”
A: “Because it what’s they’ve always done [since the Fed was founded in 1913]…Once you’re in power, you’re going to do what you can to defend the system as it is”

The best official measure of the money supply created by the Fed was M3.  “Was” because the Fed under Helicopter Ben removed M3 from public view.  But the “effective” money supply is the currency printed plus the “spendable” currency created by debt issuance. Currency from a loan behaves like printed money until the loan is repaid.  But for the last 10 years the amount of the loans outstanding, and therefore the supply of “spendable” currency,  has risen at an increasing rate.

Gold can “smell” these reams of fiat paper currency being printed and then fractionalized and leveraged by the Central Bank. The “fractionalization,” of course, is the process by which loans (including repos) creates spendable currency.

SilverBullion invited me back onto its SBTV podcast to discuss the markets in the context of the QE4 and what it means for 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

Greed Unbounded: “A Slow-Motion Looting”

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

I made the observation back in 2004 that the elitists would keep the financial and economic system from collapsing using printing money and debt for as long as it took for them to sweep every last crumb of middle class wealth off the table and into their own pockets.  “Middle class” in this context is defined as anyone without enough cash lying around to purchase their own Federal politician, judge and regulator.  If you were not invited to Davos or the annual Bilderberg meeting, you are middle class.

The Huffpost has written a must-read essay describing the vision I had back in 2004 as it is unfolding in real-time:

Country-club nepotism and Gilded Age avarice are nothing new in America, of course. But the rich are enjoying a golden age of impunity unprecedented in modern history…Elite deviance has become the dark matter of American life, the invisible force around which the country’s most powerful legal and political systems have set their orbit.

“OVER THE LAST TWO YEARS, nearly every institution of American life has taken on the unmistakable stench of moral rot. Corporate behemoths like Boeing and Wells Fargo have traded blue-chip credibility for white-collar callousness. Elite universities are selling admission spots to the highest Hollywood bidder. Silicon Valley unicorns have revealed themselves as long cons (Theranos), venture-capital cremation devices (Uber, WeWork) or straightforward comic book supervillains (Facebook). Every week unearths a cabinet-level political scandal that would have defined any other presidency. From the blackouts in California to the bloated bonuses on Wall Street to the entire biography of Jeffrey Epstein, it is impossible to look around the country and not get the feeling that elites are slowly looting it.”

Read the rest of this here: A Slow-Motion Looting

The Fake News Economy

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

The stock market is becoming increasingly disconnected from underlying main street reality. Corporate profits have been declining since the third quarter of 2018. However, pre-tax corporate profits have been declining since the Q3 2014 (this data is available on the St. Louis Fed FRED website). Real corporate profits (adjusted for CPI and including inventory write-downs and capex) are the lowest since the financial crisis. Remarkably, rather than the usual “hockey stick” forecasts, Wall St analysts have revised lower their consensus earnings estimates for the Dow Jones Industrials. In fact, per the chart above, I think you can say that Wall Street’s forward EPS estimates have gone off a cliff.

The “narrative” architects and fairytale spinners are desperately looking for evidence to fit their “consumer is still healthy/economy still fine” propaganda. But a look under “the hood,” starting with the employment report, reveals a reality that is in stark contrast to the manipulated headline numbers.

There’s no b.s. like the BLS (Bureau of Labor Statistics). The BLS publishes the monthly non-farm payroll report.  Predictably, the headline number reporting that 225k “jobs” created was well above the consensus forecast of 160k. But the benchmark revision removed 514,000 jobs reported to have been created between April 2018 and March 2019. This is visually what it looks like when 20% of the prior year’s job “growth” is erased:

The black line shows the number of jobs originally reported between April 2018 and March 2019. The light blue line shows the revised data. The two lines are lined up prior to April 2018 reflecting prior benchmark revisions, which is why they’re in sync. A large portion of the revision came from the BLS’ seasonal “adjustments” model over-estimating job creation related to consumer spending, primarily the retail sector and leisure/hospitality.

The benchmark revision does not apply to the current report, which is largely not credible. As an example, the BLS attributed 44,000 new jobs to construction. But the December construction spending report showed 0.2% decline from November. Private construction spending was 0.1% below November.

The total value of construction spending in 2019 was 0.3% below 2018. Private construction spending for the entire year in 2019 was 2.5% below 2018, with residential construction 4.7% below 2018. Removing construction inflation from the numbers, private residential construction spending in 2019 fell 8.8% from 2018 (per John Williams’ Shadowstats.com).

I glean three conclusions from the construction spending data. First, the BLS attribution for 44k new construction jobs in January is egregiously incorrect. No way construction firms are hiring with construction spending in decline. Recall I mentioned in the last issue (the Short Seller’s Journal) that Caterpillar’s CEO had forecast a further decline in residential construction spending in 2020.

Second, without the increase in Government spending, the decline in construction spending would have been worse. Third, per the CAT CEO’s outlook for lower residential spending in 2020 (and I’m certain his view is derived from residential construction equipment orders) it would seem that homebuilders are not backing their optimism per the homebuilder sentiment report with real money if they are planning to spend less in 2020 than they did in 2019.

Notwithstanding the BLS fantasy employment report this past Friday, here’s a good leading indicator of labor market weakness:

When businesses start reducing payroll to cut expenses in response to expected business weakness, the temp labor goes first. You’ll note that this data series went negative briefly in 2015,  but recovered somewhat. In all probability businesses responded to the Trump election hopium and the stimulative effect from Trump’s massive corporate tax cut. But businesses prematurely implemented expansion and capex spending and now they’re back to using cash for stock buybacks into which insiders are selling.

While December retail sales, released in mid-January, showed a 0.3% increase over November, ex-autos retail holiday spending was slightly better than expected. December retail sales not including autos increased 0.7%. However, if you exclude gasoline and auto sales, retail spending increased 0.5%. Auto sales took a hit in December (predictably) and gasoline price inflation boosted the headline number. Surprisingly, considering all of the hoopla in the mainstream financial media about “strong” online sales for the holidays, online sales only increased 0.2%.

Underlying the “good” holiday retail sales number, is a troubling reality. The Fed reported this past Friday (Feb 7th) that consumer credit soared by $22.1 billion in December ($15 billion was the consensus forecast). Most of that increase is attributable to credit card spending, which accounted for $12.6 billion of the $22 billion. This was the biggest one-month jump in credit card debt since 1998. Total consumer credit outstanding hit a record $4.2 trillion in December.

What makes this statistic even more troubling is the fact that credit card delinquency and default rates are starting to accelerate per the Discover Financial (DFS) data I presented in January 26th SSJ issue. PNC Bank (PNC) also reported rising credit delinquencies and charge-offs when it reported its Q4. Its stock tanked 7% over the next eight trading days. Credit Acceptance Corporation (CACC – subprime auto loans) reported rising delinquencies, defaults and charge-offs on January 30th. It’s stock fell 8.1% the next day though it’s recouped about half of that loss through Friday (Feb 7th).

The chart above shows CPI-adjusted retail sales (blue line) vs consumer credit outstanding (red line) for the last 5 years. CPI-adjusted retail sales declined slightly in 2019, which means “unit volume” declined slightly, while consumer credit continued to rise. Now imagine if a real inflation adjustment was applied to retail sales instead of the phony CPI. Real retail sales would show a decline in 2019. The chart above is not a “friend” of perma-bulls and economic fantasy promoters, which is probably why you will never see a chart like that in the mainstream financial media.

Target (TGT, $115) said its same-store-sales were up just 1.4% during the holidays vs 5.7% a year ago. Toy sales were flat, electronics sales were down 6% and home items sales were down 1% (apparel was up 5%, food/beverage up 3% and beauty items up 7%). Macy’s, Kohl’s and JC Penney all reported same-store-sales declines for the holiday period. Macy’s announced earlier this past week that it was going to cut 2,000 jobs and shutter 125 stores.

While it’s clear e-commerce is slowly taking market share from brick/mortar, the latter’s troubles are derived primarily from the deteriorating financial condition of the average household. A study released this past week from a survey taken in late November showed that nearly 70% of all respondents said they had less than $1,000 in savings.

The economy is contracting in most sectors. Any area of the economy that still has pulse is being driven by debt issuance.  Any media reports or official proclamations that the economy is “doing  well” are nothing more than fake news and propaganda.

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The commentary above is  excerpted from the February 9th is of the Short Seller’s Journal. Each weekly issue contains macro economic analysis, market analysis, and short ideas.  I  To learn more about this short-sell focused newsletter, click here:  Short Seller’s Journal info

The Stock Market, Gold, Silver, Mining Stocks And Tesla

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

The stock market has become a powerful political and economic propaganda tool. It’s hard to dispute the idea that economy is not “in a good place” or “booming” when the Dow goes up 100 points or more everyday. Trump understands this and has been coercive in the Fed’s decision to loosen monetary policy and re-start the money printing press. Ironically, Trump tweeted this in 2012 (as sourced by northmantrader.com):

Make no mistake, the economy nearly every sector of the economy is contracting  except consumer spending and defense spending, both of which are being driven by record levels of consumer and Government debt.

Meanwhile, the precious metals sector is getting ready for another move higher and, according to Factset, currently 45% of all research analysts either have a sell or underweight (which is diplomatic “sell”). Silver Liberties invited me onto this podcast to have some fun and discuss these topics:

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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

Will Tesla Ever Generate A Real Profit?

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

The only part of Tesla’s business model that generates profitability – gross, operating and net – is the sale of greenhouse gas credits to other OEM manufactures and tax subsidies.  Neither of those sources of profitability is sustainable.

The GAAP net income of $105mm in Q4 was 17% below the consensus of $126mm. Regarding net income, Tesla generated $133mm of income from selling Zero Emission/Greenhouse Gas credits to the big OEMs who need them – for now – to remain in compliance with environmental regulations. Net of these credits, Tesla lost $28 million in the quarter (before the fraudulent accounting manipulation). Subtracting these credits from the full-year loss, Tesla’s 2019 net loss attributable to shareholders is $1.5 billion.

The problem with this reliance on the sale of these credits to generate income is that, starting this year, the buyers of these credits (GM, Audi, Chrysler, etc) will soon be selling more than enough EVs and hybrids to remain in compliance. This source of income for Tesla will thus eventually be non-recurring.

With subsidies disappearing and an onslaught of competition,  2020 could be a bloodbath for Tesla in terms of deliveries. Not only is the global auto market contracting, but the much larger, better funded and operationally credible OEMs will be flooding the market with competitive EVs that will significantly cannibalize Tesla’s market share.

There’s just no telling when this Electric Tulip will inevitably crash. But, like with any investment bubble,  the popping will happen suddenly and unexpectedly, when the bulls are convinced that the upside is limitless and the bears are in a state of terror

Mining Stocks Are Setting Up For Another Run

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

The Fed is trapped.  If it stops adding money to the money supply, the stock market will crash.  It’s already extended the repo money printing program twice. The first extension was to February and now it has extended it again to April.

What was billed as a temporary “liquidity problem” in the overnight repo market is instead significant problems developing in the credit and derivative markets to an extent that it appears to be putting Too Big To Fail bank balance sheets in harm’s way.  That’s my analysis – the official narrative is that “there’s nothing to see there”.

The delinquency and default rates for below investment grade corporate debt  (junk bonds) and for subprime consumer debt are soaring.   Privately funded credit,  leveraged bank loans,  CLO’s and subprime asset-backed trusts (credit cards, ABS, CMBS)  are starting to melt down. The repo money printing operations is a direct bail out of leveraged funds, mezzanine funds and banks, which are loaded up  on those subprime credit structures.    Not only that,  but  a not insignificant amount of OTC credit default derivatives is “wrapped around” those finance vehicles, which further accelerates the inevitable credit meltdown “Minsky Moment.”

The point here is that I am almost certain, and a growing number of truth-seeking analysts are coming to the same conclusion, that by April the Fed will once again extend and expand the repo operations. As Milton Friedman said, “nothing is so permanent as a temporary government program.”

Gold will sniff this out, just like it sniffed out the September repo implementation at the beginning of June 2019.  I think there’s a good chance that gold will be trading above $1600 by this June, if not sooner.

Eventually the market will discover the junior exploration stocks and the share prices will be off to the races. This is part of the reason Eric Sprott continues to invest aggressively in the companies he considers to have the highest probability of getting enough “wood on the ball to knock the ball out of the park” (sorry, baseball is right around the corner).

Precious metals mining stocks are exceptionally cheap  relative to the price of gold (and silver).   Many of the junior exploration stocks  have sold down to historically cheap levels  in the latest pullback in the sector.   As such, this is a good opportunity to add to existing positions in these names or to start a new position.

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In my latest issue of the Mining Stock Journal, I present a penny stock idea that I believe could be a 5-10 bagger.  I’m not alone in this view because a royalty company I know and respect recently took a 9.5% position in the company’s stocks and purchased a royalty stream on several of the company’s mining claims.  You can learn more about this mining stock newsletter here:   Mining Stock Journal 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.

Tesla, Gold And Coronavirus – Fraud And Global Depression

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

To say the current stock market is in a bubble is an insult to the word “bubble.” Tesla experienced an insanely idiotic stock price move after reporting “shock and awe” headline numbers for revenue and EPS which “beat” estimates – estimates that had been lowered by analysts throughout 2019. But as always there’s plenty of dirt in the details which point to a reality that is far different than is represented by headline numbers and Tesla’s highly orchestrated earnings presentation.

There’s just no telling when this Electric Tulip will inevitably crash. But, as with any investment bubble the popping will happen suddenly and unexpectedly, when the bulls are convinced that the upside is limitless and the bears are in a state of terror.

Meanwhile, the physical gold market which underlies the complicated web of paper gold derivatives continues to push the gold price higher despite aggressive efforts by the western Central Bank and bullion bank price management team. In fact, data from the BIS indicates that the BIS had a heavy hand in the effort to cap the price-rise of gold during January using its physical gold swap and leasing transactions.

Paul at Silver Doctors invited me onto its podcast to discuss these issues

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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

Fake News And The “Healthy Economy” Myth

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

The “narrative” architects and fairytale spinners are desperately looking for evidence to fit their “consumer is still healthy / economy still fine” propaganda. The hype over strong holiday sales was premature if not fraudulent, as data-manipulators appear to have taken the growth in online holiday sales and projected it across the entire retail sales spectrum. I guess they overlooked the fact that online sales took market share from brick/mortar stores.

Despite the plethora of data showing that U.S. manufacturing was down last year, real retails sales are declining, restaurant traffic – including delivered food – has been contracting almost every month for two years and most households are over-bloated with debt, the Fed continues to insist that the economy is healthy with “sustainable moderate growth.” This is sheer and nonsense and the Fed knows it, which is why the Fed printed over $400 billion and tossed it at the financial system.

Chris Marcus – Arcadia Economics – and I discuss the truths underlying the U.S’ fake news economy:

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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

Printed Money Blowing The Bubbles Even Bigger

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

The total US stock market valuation  at $33.9 trillion is 157.4% of the last reported GDP. It’s the highest market valuation ever. The more the policy-makers try to pump and jawbone the market higher, the worse the consequences will be on the downside when the rug is pulled out from under stocks. The trigger could be anything. Eventually the market will acknowledge and accept the fact that the economy is getting worse and earnings will continue to decline. But fundamental reality is just one of many possible catalysts that will cause a painful drop in the stock market.

For now the rising stock market is shaping the Wall Street narrative being  transmitted through the mainstream media that the economy is in good shape. Funny thing about that – the stock market is not the real economy. But this is:

To be sure, rising stock prices enhance the wealth and spending capacity of the top 1% who own stocks outside of their retirement funds. But that wealth does not “trickle down” to the average middle class household (everyone below the top 1% wealth demographic). Let’s look briefly at some facts.

I’ve been making the case for quite some time that freight shipping volume is a valuable tool by which to gauge the relative level of economic activity:

The Cass freight shipment volume index tanked nearly 8% YoY in December. This number includes the growth in online shopping fulfillment deliveries and would have been worse if online shopping was not taking market share from brick/mortar stores. The index has fallen to its December 2009 level, which is part of the time period that the NBER has declared the economy to be in a recession.

The Cass data is reinforced by the sharp decline in the Baltic Dry Index. The BDI measures global ocean freight shipment activity and is considered a leading indicator for global commodities and raw materials demand. This includes incoming/outgoing vessels to and from the U.S. Not only is the global economy, including the U.S. growing weaker, the IMF has slashed its global economic growth outlook for 2020 and 2021.

The Conference Board’s Leading Economic Index released Thursday showed a 0.3% drop vs the 0.2% decline expected. The index has now declined in five of the last six months of 2019. Without the large run-up in the stock market, the index would have fallen even more. Rising unemployment claims (hmmm…) were the largest contributor to the decline. YoY for December the index gained just 0.1% – the weakest YoY change since November 2009.

One of the false narratives being promoted by talking heads and Wall St. is the idea that the consumer is still strong. Wrong. Consumer spending over and above necessities is being driven by the easiest access to credit in my lifetime. Evidence of this is the rapid growth in auto, credit card and personal loans. And in fact more than a third of all households report using credit cards to make ends meet every month.

But as evidence of the deteriorating condition of the consumer’s financial health, Discover’s (DFS) stock plunged 11.1% on Friday despite “beating” earnings estimates. The dagger in Discover’s quarter was loan charge-offs, which jumped to 4% of the outstanding balance. This is the highest charge-off rate since DFS’ charge-off rate peaked at 5% during the financial crisis. Delinquency rates are also accelerating. On a YoY basis for Q4, 30+ day delinquencies were up 11% while 90+ day delinquencies jumped 13%. For credit card loans, 30+ day delinquencies were up 14% and 90+ day delinquencies soared 15%.

In fact, loan loss reserves are starting to rise at a double-digit rate at many banks and finance companies. The average consumer is stretched, a fact that shows up in the numbers that never get reported in the mainstream media or Wall Street. The last time bank financials evidence rising consumer borrowing distress like this was in late 2007. We know how that played out. This time around the bubbles are bigger, the fraud is better disguised and households and policy-makers are even less prepared for the inevitable.

This is why gold is up 24% since May 2019, outperforming the stock market and most other financialized or commodity investments. No, it has very little to do, if anything, with coronavirus fear. But it’s why the western Central Bank and bullion bank gold price managers are having a difficult time containing the rising price.