Category Archives: U.S. Economy

Gold / Silver May Be Breaking Free From Manipulation

The price of gold has rejected numerous attempts by the banks to hammer the gold price below $1400 using paper gold derivatives on the Comex and the LBMA. I have not seen gold behave with such resiliency in the last 19 years when the Comex banks have an extremely large short position in Comex paper.

The action in the price of gold is signalling that large buyers are accumulating a lot of physical gold. This is preventing the banks from using the Comex as a manipulative tool. Based on historical preferences, I highly doubt the buying is coming from the hedge funds, who have been content playing in the paper gold sandbox of the Comex.

Per the World Gold Council numbers, which are notoriously understated, Central Banks have purchased 374 tonnes of gold in the first half of 2019. This is the highest level of CB gold purchases in over 50 years. Note that western Central Banks – specifically the Fed, ECB, BoE and BoJ have been notably absent from the buying frenzy. The buying has been led by China, Poland and Russia.

“With governments everywhere itching to increase spending without raising taxes and as the global economy sinks into a trade and credit-cycle induced recession, budget deficits will fuel monetary inflation at a faster pace than seen before. Re-learning that gold is sound money is now the most urgent priority for all those charged with responsibility for other peoples’ investments.”

The quote above is from Alasdair Macleod’s must-read essay titled, “The Reasoning Behind Gold’s Breakout.”  The article dispels the common “Fake news” myths about gold. It would be a great article to read for Warren Buffet, who believes that gold “just sits there doing nothing.” Of course, students of gold and history know that gold has outperformed the Dow since 1971. Macleod revisits the math behind this fact.

If you are looking for mining stock ideas to take advantage of the emerging bull market move in gold and silver, please consider my Mining Stock Journal.  In the latest issue released last night I review a popular silver stock that I believe is overvalued and I present a high risk/high return junior exploration stock that is relatively unknown but has 10x potential. You can learn more about this newsletter here:  Mining Stock Journal information.

The Economy Is Starting To Implode

Regardless of the Fed Funds rate policy decision by the FOMC today, the economy is spinning down the drain. Lower rates won’t help stimulate much economic activity. Maybe it will arouse a little more financial engineering activity on Wall Street and it might give a temporary boost to mortgage refinancings. But the economic “recovery” of the last 8 years has been an illusion based on massive money printing and credit creation. And credit creation is de facto money printing until the point at which the debt needs to be repaid. Unfortunately, the system is at the point at debt saturation. That’s why the economy is contracting despite the Fed’s best efforts to create what it incorrectly references as “inflation.”

The Chicago PMI released today collapsed to 44.4, the second lowest reading since 2009 and the sharpest monthly decline since the great financial crisis. The index of business conditions in the Chicago area has dropped 5 out of 7 months in 2019. New orders, employment, production and order backlogs all contracted.

The Chicago Fed National Activity index for June remained in contraction at the -0.02 level, up slightly from the reading in May of -0.03. The 3-month average is -0.26. This was the 7th straight monthly decline for the index – the longest streak since 2009. This index is a weighting of 85 indicators of national economic activity. It thus measures a very wide range of economic activities.

The Richmond Fed manufacturing survey index fell off a cliff per last week’s report. The index plunged from 2 in June to -12. The June level was revised down from 3. Wall Street was looking for an index reading of 5. It was the biggest drop in two years and the lowest reading on the index since January 2013. Keep in mind the Fed was still printing money furiously in 2013. The headline index number is a composite of new orders, shipments and employment measures. The biggest contributor to the drop was the new orders component, as order backlogs fell to -26, the lowest reading since April 2009. The survey’s “business conditions” component dropped from 7 to -18, the largest one-month drop in the history of the survey.

Existing home sales for June declined 1.7% from May and 2.2% from June 2018 on a SAAR (seasonally adjusted annualized rate) basis. This is despite the fact that June is one of the best months of the year historically for home sales. Single family home sales dropped 1.5% and condo sales fell 3.3%.

On a not seasonally adjusted basis, existing home sales were down 2.8% from May and down 7.5% from June 2018. The unadjusted monthly number is perhaps the most relevant metric because it removes both seasonality and the “statistical adjustments” imposed on the data by the National Association of Realtors’ number crunchers.

The was the 16th month in a row of year-over-year declines. You can see the trend developing. June 2018 was down 5% from June 2017 (not seasonally adjusted monthly metric) and June 2019 was down 7.5% from June 2018. The drop in home sales is made more remarkable by the fact that mortgage rates are only 40 basis points above the all-time low for a 30-yr fixed rate conforming mortgage. However, this slight increase in interest expense would have been offset by the drop in PMI insurance charged by the Government for sub-20% down payment mortgages.

The point here is that pool of potential home buyers who can afford the monthly cost of home ownership is evaporating despite desperate attempts by the Fed and the Government to make the cost of financing a home as cheap as possible. 

New home sales for June were reported to be up 6.9% – 646k SAAR from 604k SAAR – from May. However, it was well below the print for which Wall St was looking (660k SAAR). There’s a couple problems with the report, however, aside from the fact that John Williams (Shadowstats.com) referenced the number as “worthless headline detail [from] this most-volatile and unstable government housing-statistic.” May’s original number of 626k was revised lower to 604k. Furthermore, the number reported is completely dislocated from mortgage application data which suggests that new home sales were lower in June than May.

The new home sale metric is based on contract signings (vs closings for existing home sales). Keep in mind that 90% of all new home buyers use a mortgage for their purchase.
Mortgage applications released Wednesday showed a 2% drop in purchase applications from the previous week. Recall, the previous week purchase apps were down 4%. Purchase apps have now been down 6 out of the last 9 weeks.

Because 90% of new home buyers use a mortgage, the new home sales report should closely correlate with the Mortgage Bankers Association’s mortgage purchase application data. Clearly the MBA data shows mortgage purchase applications declining during most of June. I’ll let you draw your own conclusion. However, I suspect that when July’s number is reported in 4 weeks, there will a sharp downward revision for June’s number. In fact, the Government’s new home sales numbers were also revised lower for April and May. The median price of a new home is down about 10% from its peak in November 2017.

The shipments component of Cass Freight index was down 3.8% in June. It was the seventh straight monthly decline. The authors of the Cass report can usually put a positive spin or find a silver lining in negative data. The report for June was the gloomiest I’ve ever read from the Cass people. Freight shipping is part of the “central nervous system” of the economy. If freight shipments are dropping, so is overall economic activity. Of note, the price index is still rising. The data shows an economic system with contracting economic activity and infested with price inflation.

The propagandists on Capitol Hill, Wall Street and the financial media will use the trade war with China as the excuse for the ailing economy. Trump is doing his damnedest to use China and the Fed as the scapegoat for the untenable systemic problems he inherited but made worse by the policies he implemented since taking office. Trump has been the most enthusiastic cheerleader of the biggest stock market bubble in history. This, after he fingered his predecessor for fomenting “a big fat ugly bubble” when the Dow was at 17,000. If that was a big fat ugly bubble in 2016, what is now?

Tesla’s Questionable “Free Cash Flow” Claim

In last week’s earnings release, Elon Musk made the claim in the headline release that Tesla generated $614 million of “free cash flow,” which he defined as “operating cash flow less capex.”  Additionally, in the 2nd paragraph of the earnings release Musk states that, “As a result of this growth and operational improvements, we generated $614 million of free cash flow (operating cash flow less capex) in Q2.”

Notwithstanding that fact that Tesla has slashed its capex spending to what appears to be the bare minimum, and setting aside Musk’s claim of “operational improvements,” a careful dissection of the cash flow statement, balance sheet and footnote disclosures calls into question Musk’s assertion that the Company generated $614 million of “free cash flow.”

The graphic above is from the operating cash flow section of Tesla’s cash statement. I use the earnings release version to make comparisons YoY for Q2 and Q1 2019 easier (the 10Q only shows the YTD 6-month numbers in the cash flow statement). You’ll note that Tesla’s capex was $30 million less than Q1 2019 and 59% below the capex spent in Q2 2018. Strange for an automotive OEM that is building a factory in Shanghai, developing a new model (the Model Y), reconfiguring its OEM facility in the U.S. to accommodate the new model and planning an OEM facility in Europe.

However, the big source of Musk’s alledged “free cash flow” comes from the “changes in operating assets and liabilities.” The netted number shows $287 million provided by changes in the various balance sheet accounts. But a detailed analysis of the accounts that provided this “cash flow” would call into question the reliability of Musk’s assertion. In fact, most of the cash was generated from “accumulator” sub-accounts that can be found in the footnote disclosures. These accumulator accounts are liability accounts which account for near-term cash payment obligations which would have used up all of that “free cash flow” had Musk signed the checks to make the payments by June 30th.

The graphic above shows the liability section of Tesla’s balance sheet. I’ve highlighted the liability accounts in question.   The “accrued liabilities and other” account increased from Q1 2019 by $346 million, meaning that it contributed $346 million in cash to the “changes in operating assets/liabilities” number in the cash flow statement.  Most of this is a “current liability” for which Musk is obligated to make payments in the near term. Tesla does not disclose the breakdown of “accrued liabilities” in its 10-Q, but it shows the contents of this account in the 10-K.  In 2018, the two biggest items were payroll and taxes payable, which represented 21.4% and 16.6% of accrued current liabilities.

The second largest contributor to the “free cash flow” calculation was the change in “other  long term liabilities” from Q1.  The details of this account are disclosed in Note 9 of the 10-Q.  This account contains longer term cash payment obligations like “accrued warranty reserve” and “sales return reserve.”  Again, this is an “accumulator” account that accumulates future payment obligations.  This account increased by $180 million from end of March, meaning the accumulation of cash payment obligations contributed $180 million to the “change in operating assets/liabilities” account in the cash flow statement.

Finally, there’s “deferred revenue.” Deferred revenue for Tesla is derived from the portion of the revenue for each vehicle sold which is attributable to access to the supercharger network, internet connectivity, autopilot (LOL), full self-driving (LOL) and software updates.  In other words it represents some portion of the revenue which is paid up-front which is contingent on Tesla delivering performance obligations.  It’s revenue received but not earned.  It also means that Tesla did not recognize the corresponding expense that needs to “amortized” against this revenue source. Thus, it’s a source of cash.  This contributed $121 million in “cash flow” to Tesla’s Q2 “free cash flow.”  But in reality it’s not free cash flow.

The point of this analysis is that Telsa is on the hook to make cash payments on obligations and liabilities incurred well in excess of the amount to which Musk refers as “$614 million  of operating cash flow less capex.”  Most of the money – payroll, taxes, facility lease payments – will be due on or before the end of July.  Some of it will have be paid out of Tesla’s cash balance over the course of the next several months.  But to make the claim that Tesla generated $614 million of “free cash flow” is highly deceptive.

It’s Just A Matter Of Time (before the market tips over again)

Texas Instruments reported its Q2 yesterday after the close.  Revenues were down 9% YoY for Q2 and management forecast an 11% decline for Q3.  The stock market rewarded this fundamental deterioration in TXN’s business model by adding nearly $8 billion to TXN’s valuation as I write this.

The Dow Jones Transports index is up 1% on the news that the U.S. is sending envoys over to Shangai for a face-to-face love-in with their Chinese counterparts to discuss the two Governments’ differences of opinions on how to conduct bi-lateral trade.  The  stock  market momentum chasers are happy because the headline announced that the meeting would “face to face,” therefore it’s a given that the meeting will save the freight industry from the deep recession into which it’s headed.

The U.S.’ economic woes are not caused by the trade war anymore than China’s issues are caused by the trade war.  The trade war is a symptom of the underlying systemic structural issues.  Trump’s handlers crafted a clever strategy to enable the policy-makers and war-mongers of the Deep State to use China and the trade war as a scapegoat.

Fixing the trade differences – which likely won’t happen in any meaningful manner – and taking interest rates to zero will not stimulate economic activity.   The stock market is melting up because the western Central Banks have made money free to use for those closest to the money spigot.  The banks and companies with access to the free money know that investing it in capital formation is a waste of time because real economic activity is contracting.  Instead they plow this cash into the stock market (cheap loans to hedge funds from banks in  lieu of margin credit and corporate share buy-backs).

The real source of the problem is too much debt.  The global financial system is on the precipice  of a Von Mises’ “crack up boom.”  The melt-up in the chip stocks and unicorns is stunningly similar to the melt-up in the same chip stocks and the dot.coms in late 1999/early 2000.  The “unicorn” stocks are this era’s “dot.com stocks.”  Most of the hedge fund managers and daytraders were in grade school during the first tech bubble.  They will remain clueless until the rug  is pulled out from under them.

The stock and housing markets will eventually collapse because the foundation of debt on which both asset markets are propped will implode.  This process of systemic cleansing started in 2008 but was deferred by the trillions in printed money and credit creation thrown at the problem.  Rather than “fixing” the system, the “solution” did nothing more than add gasoline on the underlying fire.

Someone asked me yesterday what triggered the sell-off in tech stocks in early 2000.  I said, “the market started to shit the bed for no specific reason other than it stopped going higher and decided to go south. The Fed jawboning was not nearly as pervasive although Greenspan was good at ‘talking’ stocks higher. The President then never cheered on the stock market like Trump does. At some point, no one can for sure when, this stock market is going tip-over – it’s just a matter of time…”

Tesla, Gold, Silver And A Historical Stock Bubble

“Tesla’s headed for bankruptcy. It’s got a flawed business model; costs are way too high for the price charged for the vehicles and its riddled with accounting fraud. But the regulators will look the other way until it’s too late.”

Silver Liberties invited me on to its podcast to discuss reality. We spend 35 minutes trying to blow away the Orwellian “smoke” that is engulfing the United States’ economic, political system:

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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

Modern Monetary Theory, Centralized Control And Gold

My friend and colleague, Chris Powell, Treasurer of GATA, wrote a compelling essay on Modern Monetary Theory. MMT has been in operation by the western Central Banks since Bretton Woods. The “QE” program that began in 2008 is the most recent and blatant implementation of MMT. This is a must-read if you are interesting in understanding the hidden mechanism at work that is destroying the United States.

Modern Monetary Theory, which has been getting much attention lately, is so controversial mainly because it is misunderstood. It is misunderstood first because it is not a theory at all but a truism.

That is, MMT holds essentially that a government issuing a currency without a fixed link to a commodity like gold or silver is constrained in its currency issuance only by inflation and devaluation.

This is a very old observation in economics, going back centuries, even to the classical economist Adam Smith, and perhaps first formally acknowledged by the U.S. government with a speech given in 1945 by the chairman of the board of the Federal Reserve Bank of New York, Beardsley Ruml. The speech was published in 1946.

Ruml said:

“The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last 25 years which have substantially altered the position of the national state with respect to the financing of its current requirements.

“The first of these changes is the gaining of vast new experience in the management of central banks. The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank and whose currency is not convertible into gold or into some other commodity.”

Ruml noted that in a fiat currency system such as the United States had adopted by 1945, government did not need to tax to raise revenue but could create as much money as it wanted and deploy it as it thought best, using taxes instead to give value to its currency and implement social and economic policy.

MMT does not claim that the government should create and deploy infinite money. It claims that money can be created and deployed as much as is necessary to improve general living conditions and eliminate unemployment until the currency begins to lose value.

The second big misunderstanding about MMT is that it is not a mere policy proposal but is actually the policy that has been followed by the U.S. government for decades without the candor of Ruml’s 1945 acknowledgment.

The problem with MMT is that, in its unacknowledged practice, it already has produced what its misunderstanding critics fear it for: the creation and deployment of infinite money and credit by central banks as well as vast inflation.

In accordance with MMT, this creation of infinite money and credit has necessitated central banking’s “financial repression” — its suppression of interest rates and commodity prices through both open and surreptitious intervention in bond and futures markets and the issuance of financial derivatives.

That is, since money creation in the current financial system is restrained only by inflation, this restraint can be removed or lessened with certain price controls, which, to be effective, must be disguised, lest people discern that there are no markets anymore, just interventions.

The British economist Peter Warburton perceived this in his 2001 essay, “The Debasement of World Currency — It Is Inflation, But Not As We Know It“:

“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities, or anything else that might be deemed an indicator of inherent value.

“Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value not only of the U.S. dollar but of all fiat currencies. Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets. [EMPHASIS ADDED.]

“Central banks have found the battle on the second front much easier to fight than the first. Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably no more than $200 billion, using derivatives.

“Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have overtraded their capital so flagrantly that if the central banks were to lose the fight on the first front, then the stock of the investment banks would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.”

This “financial repression” and commodity price suppression have channeled into financial and real estate assets — the assets of property owners — the vast inflation resulting from the policy of infinite money creation, thereby diverting inflation from assets whose prices are measured by government’s consumer price indexes. Meanwhile those indexes are constantly distorted and falsified to avoid giving alarm.

As a result the ownership class is enriched and the working class impoverished. Of course this is exactly the opposite of what MMT’s advocates intend.

But while the monetary science conceived by MMT people well might develop a formula for operating a perfect monetary system with full employment and prosperity for all, the monetary system always will confer nearly absolute power on its operators, and as long as the operators are human, such power will always corrupt many of them — even MMT’s advocates themselves.

That’s why market rigging is the inevitable consequence of MMT as it is now practiced and why the world is losing its free and competitive markets to monopoly and oligopoly and becoming less democratic and more totalitarian.

So what is the solution?

Maybe some libertarianism would help: Let governments use whatever they want as money, but let individuals do the same and don’t mess with them. Gold, cryptocurrencies, seashells, oxen, whatever — leave them alone.

Most of all, require government to be completely transparent in whatever it does in the markets. If government wants to rig markets, require that it be done in the open and reported contemporaneously.

After all, the world can hardly know where to go when it isn’t permitted to know where it is.

Could A Deutsche Bank Collapse Crash The Markets?

“I don’t think it’s any coincidence that gold runs from $1285 to as high as $1445 around the time that all the news about Deutsche Bank started coming out” [the failure to merge with Commerzbank followed by the “good bank / bad bank” split announcement].

It was reported by Bloomberg that Deutsche Bank clients – mostly hedge funds – are pulling $1 billion in capital per day from the collapsing bank.  Still no details have emerged on the how the “bad bank” holding company will be funded or what will go into it. What we do know is the original proposal for a bad bank was for $43 billion in bad assets. That number has bubbled up to a proposed $74 billion. In truth, no one knows for sure the degree to which DB’s derivatives holdings are radioactive.  Disgraced former CEO, Anshu Jain, admitted that near the end of his failed tenure.

Deutsche Bank is being prevented from collapsing by the German Government, the Bundesbank and the ECB.  That’s been implicitly acknowledged over the last few years that this is case.  The attempt to wash Deutsche Bank’s problems through a merger with Commerzbank failed.  In 2008/2009, Bear Stearns’  and Wash Mutual’s sins were cleansed through bankruptcy court and through JP Morgan. In the same way, Merrill Lynch’s disastrous balance sheet was cleansed through Bank of America.

The fact that a similar attempt to wash Deutsche’s bad assets using Commerzbank failed  should give us an idea of the relative scale of Deutsche Bank’s hidden financial nuclear waste compared to the derivative bombs that detonated in 2008.  I guess the money the Fed and U.S. Taxpayers gave Deutsche Bank in 2008 wasn’t enough…

Chris Marcus, of Arcadia Economics, invited me on to his podcast to discuss DB, gold, mining stocks and, of course, silver:

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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

Jerome Powell Fails The Gold Standard Test

“You’ve assigned us the job of two direct, real-economy objectives: maximum employment, stable prices. If you assigned us [to] stabilize the dollar price of gold, monetary policy could do that, but the other things would fluctuate and we wouldn’t care,” Powell said from Capitol Hill. “We wouldn’t care if unemployment went up or down. That wouldn’t be our job anymore.” – Jerome Powell in response to a question about returning to the gold standard

Everything about that answer is incorrect. To begin with, the Fed apparently now has three “assigned” jobs: employment maximization, price stability and “moderate long-term interest rates” (federalreserve.gov).  How can we take anything Powell says seriously if he’s not aware of the the duties of his job?

But let’s set that issue aside.  In fact, if the dollar was backed by gold, the Fed would be irrelevant – the gold standard would take away completely any need for a Central Bank. Powell and his cohorts would not have any job at the Fed.

The function of a gold standard is not to “stablize” the price of the currency which is backed by gold.  Interest rates can be used to “stabilize” the value of currency.  Free markets, if ever allowed, would set the price of money.  The function of the gold standard, fist and foremost, is to stabilize the supply of currency in relation to the wealth output of an economic system.

A Central Bank is not necessary to any economic system which has its currency backed by gold.  If the U.S. had its monetary system tied to the value of the gold it holds in reserve,  it would automatically serve the function of price stability. Remove gold from the equation and the macro variables fall apart rather quickly.

But let’s use reality to test this.  Prior to the closure of the “gold window,” the U.S. largely was a creditor nation and never incurred unmanageable Government spending deficits except during wars.  In fact, the amount of Treasury debt issued to fund the Viet Nam war ultimately led to the removal of the last remnants of the gold standard.  This is because the U.S. Treasury did not have enough gold left to redeem debt issued to foreigners with that gold per the Bretton Woods Agreement.  In short, the U.S. ran out gold so Nixon closed the gold window.

Take a look at the economic and fiscal condition of the United States from inception to 1971 and post-1971.  Any “economist” or Central Banker (Powell is not an economist and probably never thought about gold until he was prepped to answer the possibility of a gold standard question) who opposes the gold standard is ignorant of historical facts or has ulterior motives.

Aside from his inability to respond intelligently to the gold standard question (he should have taken notes from Greenspan), Powell knows that  a zero interest rate policy and money printing are the only ways that he and his elitist cronies can keep the system from collapsing until they finish extracting the last remnants of wealth from the public.  A gold standard would stand in the way of this effort.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. – Alan Greenspan, “Gold And Economic Freedom,” 1966

The U.S. (and Global) Economy Is In Trouble

Jerome Powell will deliver the Fed’s semi-annual testimony on monetary policy (formerly known as the Humphrey-Hawkins testimony)  to Congress this week.  He’ll likely bore us to tears bloviating about “low inflation” and a “tight labor market” and a “healthy economy with some downside risks.”  Of course everyone watching will strain their ears to hear some indication of when the Fed will cut rates and by how much.

But the Fed is backed into a corner.  First, if it were to start cutting rates, it would contradict the message about a “healthy economy.”  Hard to believe someone in control of policy would lie to the public, right?  Furthermore, the Fed is well aware that it has created a dangerous financial asset bubble and that price inflation is running several multiples higher than the number reported by the Government using its heavily massaged CPI index.

Finally, the Fed needs to keep support beneath the dollar because, once the debt ceiling is lifted again, the Treasury will be highly dependent on foreign capital to fund the enormous new Treasury bond issuance that will accompany the raising, or possible removal, of the debt ceiling.  If the Fed starts slashing rates toward zero, the dollar will begin to head south and foreigners will be loathe buy dollar-based assets.

However, if the Fed does cut rates at the July FOMC meeting, it’s because Powell and his cohorts are well aware of the deteriorating economic conditions which are driving the data embedded in these charts which show that US corporate “sentiment” toward the economy and business conditions is in a free-fall:

The chart on the left is Morgan Stanley’s Business Conditions index. The index is designed to capture turning points in the economy. It fell to 13 in June from 45 in May. It was the largest one-month decline in the history of the index. It’s also the lowest reading on the index since December 2008.

The chart on the right  shows business/manufacturing executives’ business expectations (blue line) vs consumer expectations. Businesses have become quite negative in their outlook for economic conditions. You’ll note the spread between business and consumer expectations (business minus consumer) is the widest and most negative since the tech stock bubble popped in 2000.

Regardless of the nonsense you might read in the mainstream media or hear on the bubblevision cable channels, the U.S. and global economies are spiraling into a deep recession.  Aside from the progression of the business cycle, which has been hindered from its natural completion since 2008 by money printing and ZIRP from Central Banks, the world is awash in too much debt,  especially at the household level. The Central Banks can stimulate consumption if they want to subsidize negative interest rates for credit card companies.  But short of that, the economy is in big trouble.

I publish the Short Seller’s Journal, which features economic analysis similar to the commentary above plus short selling opportunities to take advantage of stocks that are mis-priced based on fundamentals.  You can learn more about this weekly newsletter here: Short Seller’s Journal information.

A Predictable Gold Price Attack – Now What?

Today’s attack on gold and silver was one of the most predictable in my 18 years of involvement in the precious metals sector. On Wednesday just before the close of the NYSE, I loaded up at-the-money puts on NUGT that expire today. I sold them right after the open for home run trade. The sector has been grinding higher since the first hour of trading, which is bullish.

Trevor Hall and I discuss the recent move up in gold (and the new move below $1400), silver expectations, and the increasingly positive investor sentiment toward the junior mining sector. We also share a few stocks which we have likened over the first half of 2019 along with a few disappointments. You can listen to the discussion by clicking here: MINING STOCK DAILY  or on the graphic below:

The Mining Stock Journal  covers several mining stocks that I believe are extraordinarily undervalued relative to their upside potential. I also present opportunistic recommendations on select mid-tier and large-cap miners that should outperform their peers.  In response to subscriber requests, in the latest issue released Wednesday  I presented an initial opinion on Great Bear Resources. You can learn more about this newsletter here:   Mining Stock Journal information.