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Going Down The Bitcoin Rabbit Hole
“There was euphoria in stocks and cryptos late in 2017, but now we are seeing much more retail participation. There was a lot of optimism even 6 months ago, but now the worst stocks (penny stocks) are leading the way instead of FAAMNG. This is a sign we are in the final stages of the bubble. Investors in money losing hype stocks and cryptocurrencies will have nothing to hold onto when the momentum shifts.” – Alex Pitti, “The Warning Sign That Correctly Called The Last Bitcoin Crash Is Back,” Seeking Alpha
In going down the Bitcoin rabbit-hole and digging even deeper into the inner-workings of the Bitcoin market, I discovered that some of the offshore Bitcoin trading platforms have enabled Bitcoin buyers/traders to employ up 100x leverage. The offshore platforms do not accept dollars. There’s an intermediate cryptocurrency which is considered a “stablecoin” called Tether issued by Tether Ltd. U.S. Bitcoin buyers using the offshore platforms to trade Bitcoin have to exchange dollars for Tethers or other stablecoins. Supposedly a Tether is fixed at $1. Tethers are then used to purchase Bitcoins on margin.
Tether Ltd represents that it holds the dollars (or euros and yen) issued for Tethers in an offshore bank in the Bahamas (Deltec Bank). Thus, on paper anyway, the Tether is backed 1:1 by dollars. However, I came across an article in which the author, who happened to have made a small fortune recently in Bitcoin, did some clever investigative work and discovered that from January 2020 to September 2020 the amount of all foreign currencies held by all domestic banks in the Bahamas (so, not just Deltec Bank used by Tether) had increased by $600 million while the total amount of Tethers over the same time period increased by nearly $5.4 billion.
Not only are the Tethers being used to load up on Bitcoin by retail investors not fully-backed by dollars as claimed, the offshore cryto trading platforms are allowing investors to leverage up their Bitcoin purchases. In one case, Bybit, offers up to 100x leverage.
The recent high in Bitcoin is double the high that it hit in December 2017. When Bitcoin peaked back then, the stock market peaked one month later. The reversal in both was swift and sharp. At the same time as Bitcoin was peaking in 2017, a crypto exchange called Bitfinex had been under regulatory scrutiny for highly questionable dealings and missing customer funds.
A research paper by a University of Texas finance professor and a graduate student found that price manipulation accounted for about half of the price increase leading up to the 2017 peak. At the time, Bitfinance was the exclusive purveyor of Tether (both companies had the same CEO). The authors examined the flow of Tether during periods in 2017 when Bitcoin was rising in price and discovered that about half of the time price increases could be traced to the hours immediately after Tether flowed to a handful of other crypto exchanges. The price rose much more quickly on exchanges that accepted Tether than on those that did not. The pattern no longer occurred when Bitfinance stopped issuing new Tether in 2018.
To date, Tether has been able to maneuver around allegations that its stablecoin is not fully-backed by dollars. In April 2019 the NY Attorney General opened an investigation into Tether with regard to how Tethers are issued, backed, accounted for and flow through the cryptocurrency trading networks (“ecosystem”). Up until July 2020, Tether has used legal maneuvers to defer the NY AG’s document requests. But on July 9th, the NY Supreme Court denied Tether’s final appeal, forcing Tether to comply and set a deadline of January 15, 2021 for compliance.
In September, after the NY Supreme Court ruling, the issuance of Tethers by Tether Ltd began to accelerate on a daily basis. In the first two weeks of January 2021 (just ahead of the final compliance date), $2.3 billion in Tethers were issued. The theory is that Tether Ltd was looking to maximize the amount of value it could extract from the crypto ecosystem issuing Tethers ahead of the possibility that it might be shut down by the NY AG. The deadline has been delayed another 30 days.
If you look closely at the daily Bitcoin chart above, Bitcoin’s price began to go parabolic in early September, in correlation with the accelerating rate of Tether issuance.
This is important background information because it would appear as if Tether not only is not 100% backed by dollars held in Deltec Bank in the Bahamas, and therefore a large percentage of Tethers have been fraudulently issued, but that the acceleration in the issuance of Tether since the end of August has been partially if not largely responsible for funding the retail speculation and price rise of Bitcoin (and other cryptos).
If this these turns out to be correct, and my “sniffer” tells me that there’s enough evidence to suggest that it is, at some point the price of Bitcoin will collapse just as suddenly as it did after the 2017 parabolic move. That collapse may have already begun.
Here’s links to the sources I used in the above analysis (hover your cursor over the link and click): The Bit Short: Inside Crypto’s Doomsday Machine; Tether; Bitfinex; NY Times; Bloomberg.
Last week, Bitcoin bounced on Friday after trading down to just below $29,000 on Thursday night. I believe the bounce in part was “technical” after it had dropped 30% from the high-tick on January 8th. But also the bounce is attributable to the announcement Friday morning that MSTR had purchased another $10 million in Bitcoin. On Saturday (1/23) Bitcoin was trading down about 4.8% (Bitcoin trades 24/7).
MSTR’s CEO, Michael Saylor, believes that the Biden Administration will address “legal ambiguities” in cryptocurrencies and that will increase institutional interest in the crypto space. I guess Saylor has chosen to ignore Janet Yellen’s remarks her second day as Treasury Secretary that there needs to be increased regulatory scrutiny of and implement an effective regulatory framework for cryptocurrencies.
Meanwhile, the BIS – the Central Bank for all central banks, announced that it would begin testing a cross-border Central Bank Digital Currency testing platform. I’m fairly confident that if a Central Bank Digital Currency is established, it will usher in an era of official intolerance for private label cryptocurrencies. Furthermore, if Tether is shut-down or is forced to comply with an independent audit of its operations, it will rather quickly introduce legitimate price discovery on the value of Bitcoin.
“Fourth Turning Detonation”
“I knew 2020 had the potential to be a chaotic year, but didn’t anticipate a flu with a 99.7% survival rate being used by totalitarian minded politicians to destroy the global economy, usher in Orwellian police state lockdown measures across the globe; a stock market crash followed by Fed created bubbles still growing ever bubblier through $4 trillion of money printing; adding $4 trillion to the national debt (with another $3 trillion on the way in 2021); paying millions to sit at home eating Cheetos and watching Netflix; destroying a few hundred thousand small businesses while enriching mega-corporations; putting a nail in the coffin of the 1st Amendment through censorship of conservative speech; and blatantly stealing a presidential election.
The globalist elite want to keep the fear at a high level to institute their global reset, where you will own nothing and be happy, or you will be brought to heel by the truncheon. This was the year it became crystal clear, the world is filled with good people, governed, and manipulated by bad people.”
Read the rest here: FOURTH TURNING DETONATION
Gold And Silver Are Looking Bullish
I believe that there’s a relatively high probability of another big move in the precious metals sector is coming. The charts of gold and silver are starting to look bullish again after the sharp sell-off in the sector that started on January 5th. This technical back-drop is supported by the incoming Presidential administration’s professed willingness to accelerate the level of Federal deficit spending, something which can only be facilitated by a large increase in the Fed’s money printing agenda which currently stands at $120 billion per month.
In the table above (goldsilver.com), I would toss out the 1985-1987 and 1992-1996 numbers because the precious metals were still mired in a secular bear market. I would also consolidate the last two line items into 2001-2011. In doing that, the average ROR for silver for a secular bull cycle is 720%. Silver ended 2015 just below $14. Late December 2015 is when the current secular bull cycle began. Applying an average bull cycle move of 720% to silver, it would imply the potential for silver to run as high as $100/oz. Using a gold/silver ratio objective of 30, it would imply a $3,000 price target for gold.
In terms of the potential duration for this current secular bull cycle, recall that Paul Volcker ended the 1970’s cycle, which really went from 1971-1980, because he had the luxury of jacking the Fed funds rate up to 20%. The current Fed does not have that option to curtail the coming high rate of inflation by shutting off its printing press and hiking the Fed funds rate without completely decimating the economy and crashing the financial markets. In short, the current bull move is just getting started relative to the 1970’s and 2001-2011 cycles.
To be sure, the calculus above is just one of many methods to project a price objective for silver and gold. Without question, both metals could, and probably will, move much higher before some type of reset occurs that reincorporates gold and silver in the global monetary system.
It’s also worth noting in support of a bullish view for gold and silver that, in addition to India’s relentless import demand for physical gold, China – based on price premiums reported on the Shanghai Gold Exchange – has resumed steady gold importation after an 11-month unexplainable hiatus. Note: I get my data on India and China from John Brimelow’s Gold Jottings report. It’s quite expensive but worth it for anyone who manages precious metals money or writes newsletters.
Make no mistake, the sharp sell-offs that have hit gold and silver recently, are purely a product of the manipulation that occurs in the gold/silver paper derivatives market. This is why gold and silver tend to move higher during eastern hemisphere trading hours and are sold back down during London/NYC trading hours.
That said, I am confident that transition of U.S. monetary policy into “Modern Monetary Theory,” which is based on limitless Government spending and Central Bank money creation, combined with voracious demand for physical gold and silver primarily in the eastern hemisphere, will forcefully push gold, silver and the mining stocks considerably higher over the next couple of years.
Earlier this week the Hulbert Gold Newsletter Sentiment Index went negative, dropping 12.51 points to -3.13%. The HGNSI is a reliable contrarian indicator, though it does not impart information on the timing of a contrarian move. When it goes negative, it means that more newsletters that include precious metals sector forecasts are recommending shorting the sector. As an example, on Tuesday the HGNSI went negative and the next day GDX jumped over 3%. In addition, the charts for gold, silver and mining stocks are starting to look bullish after the sharp sell-off that started earlier this month.
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The above commentary is from the latest issue of the Mining Stock Journal. The next big move in financial assets will come from the mining stocks. Mining stocks offer potential wealth enhancement through exposure to the “optionality” upside of pric gold and silver prices. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.
A Clear And Present Danger
“Power is in tearing human minds to pieces and putting them together again in new shapes of your own choosing.” – Eric Arthur Blair, aka “George Orwell”
I knew this country was in serious shit soup when I began to see references in the mainstream media to the somewhat non-peaceful protest in Washington, D.C. on January 6th as “domestic terrorism” and “an attempted coup.” Amusingly, yet alarmingly, Hillary Clinton referred to the people involved as “insurrectionists” and “terrorists.”
Unfortunately, but as prophesied by George Orwell and a few others way back in the 1940’s, the truth has been turned inside-out, as “lies have become truth, war is peace and ignorance is strength. ” I was truly hoping this fait accompli would not engulf the United States in my lifetime. But now I’m horrifyingly watching it unfold before my eyes. And once you have the misfortune of seeing reality, it’s impossible to “unsee” it. I truly wish I could bury my head in the sand like so many of those around me and make reality disappear.
Glenn Greenwald has written a must-read essay which describes the cloud of fascism and totalitarianism that is engulfing the U.S. political system and society at large. Ironically, those who self-identify as “liberal free-thinkers” are the basic fabric of the current authoritarian zeitgeist, which promotes intolerance over freedom of expression and civil liberties.
“Nothing is but that which is not” – Shakespeare.
Greenwald’s piece reads like an obituary for the United States:
“Neoliberalism and imperialism do not care about the pseudo-fights between the two parties or the cable TV bickering of the day. They do not like the far left or the far right. They do not like extremism of any kind. They do not support Communism and they do not support neo-Nazism or some fascist revolution. They care only about one thing: disempowering and crushing anyone who dissents from and threatens their hegemony. They care about stopping dissidents. All the weapons they build and institutions they assemble — the FBI, the DOJ, the CIA, the NSA, oligarchical power — exist for that sole and exclusive purpose, to fortify their power by rewarding those who accede to their pieties and crushing those who do not.”
The entire essay is well-worth the time to read it contemplatively: The New Domestic War on Terror is Coming
Money Printing, Money Printing and More Money Printing
“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
2020 was an interesting year, to say the least. One aspect of the markets that is not mentioned in the mainstream media is that gold turned in its best year since 2010. Skepticism with regard to the durability of the rally in gold and silver imposed restraint on the mining stocks, as the stock segment of the 2020 precious metals rally lagged the returns on gold and silver.
There are two ways to interpret the relative performance of the mining stocks vs gold/silver. One interpretation is that, because they underperformed, the stocks are signaling at some point the entire sector will decline in 2021. The alternative analysis suggests that, because the metals historically lead the mining stocks in the early stages of an extended bull move in the sector, the entire sector will push higher in 2021 and the mining stocks will “catch up” to and begin to outperform the metals. I am inclined to believe the latter. The precious metals sector is in the middle-stage of a cyclical bull move that began at the end of 2015.
The previous cyclical bull move lasted from late 2000 to the mid-2011. The primary factors that drove the previous cyclical bull move include expansion of the money supply, which facilitated expansionary Government spending deficits and rapidly rising Treasury debt outstanding. This in turn fueled the tech and housing bubbles of the first decade this century. The implosion of the housing bubble and the related financial instruments that exacerbated the bubble caused the de facto collapse of the financial system in 2008 and led to a massive bail-out of the banks and other financial intermediaries, funded by the taxpayer and an unprecedented amount of money printing.
The same underlying fundamental factors have supported the current cyclical bull move in precious metals. In response to large cracks emerging in the health of the banking system, the Fed began quietly to print money starting in mid-September 2019. Contrary to its insistence that these “repo” operations were temporary, the monetary support provided to the banks quickly escalated both in size and frequency. Note that the system problems were bubbling to the surface well before anyone had ever heard of “coronavirus.”
The deteriorating health of the economy and financial system was exacerbated by the virus crisis. In response the Fed printed even more money than it printed after the 2008 financial crisis, under the guise of supporting and “stimulating” the economy. After a brief sugar high early in the summer of 2020, many measures of economic activity began to slip again. Though some portion of those who lost their jobs in March and April have returned to work, there’s still over 20 million recently unemployed who are dependent on jobless benefits.
Worse, the lock-down forced the closure of a large percentage of small businesses across the country. According to a survey done by Yelp, some 60% of these businesses are permanently closed. Over 100,000 restaurants have closed permanently. That plus the fact that many large shopping malls are losing tenants at an increasing rate will lead to a commercial real estate debt crisis. By the way, the taxpayers are on the hook for a large portion of the commercial real estate loans that end up in default.
Print or collapse – The only trick left in the bag for the Government to keep the economic and financial system from complete collapse will be the implementation of massive “stimulus” programs. Biden has already called for $trillions of new support programs. Because of this, the Fed will be compelled to print a lot more money this year. That money will be funneled into the financial system to fund massive amounts of Treasury issuance. Printed money not used to fund Treasury issuance will flow into “things” – primarily commodities and maybe stocks.
Currency depreciation through an expansion in the money supply in excess of the marginal output wealth (increase in real GDP) is a slow and silent cancer to any financial and economic system. As history has shown repeatedly, starting with the demise of the Roman Empire, a fiat -currency based monetary system ultimately leads to exploitation and abuse by those who happen to be in a position to benefit from it. The collapse is inevitable, occurring slowly and then suddenly. We believe the current system is entering the “suddenly” stage.
The dollar has lost 98% of its value vs gold since 1971, the year Nixon closed the gold window, presumably temporarily. It is the further decline to zero that will cause the most damage to the global financial and economic system and that will fuel a move in gold and silver that will take most of the populace by surprise. The most salient contemporary example is the collapse of German mark in November 1923.
The best way to protect your wealth from this inevitability is to own physical gold and silver and mining stocks.
Electric, Digital And Dutch Tulips
The market value of all outstanding bitcoin has risen $580bn since the start of last year, hitting a new record this week of more than $700bn. That closely matches the trajectory of Tesla: the electric car maker has added $670bn in market cap in the same period, and is now valued at $750bn…as each soars towards $1tn, they look like the clearest examples of the pandemic era’s spreading financial bubbles. – Financial Times, “Pandemic tech bubbles echo those of the dotcom era”
Bitcoin and TSLA have gone parabolic, just like tulip prices in the 1600’s. The charts above epitomize the degree to which the current stock market is in a massive bubble, the scale of which is considerably larger than the dot.com bubble. The M2 measure of the money supply is nearly 4x greater now than at the end of 1999, yet real GDP has grown just 40% over the same time period. Nominal GDP has only doubled.
No one knows when the parabolic move of a stock will terminate. As happened when the Dutch tulip bubble imploded, buyers willing to pay a higher price disappeared. When this happens, the price collapse is spectacular. Bitcoin went through this cycle once already, though last time around it topped out at $20,000. It’s twice as high now.
Bitcoin is running in correlation with the run-up in the stock market, but especially with riskiest stocks like the tech “unicorns” and TSLA. Bitcoin last peaked at $20k at the end of 2017, in correlation with a move from early 2016 to the end of 2017 that took the SPX from roughly 1,830 to 2,870 (56.8%) by the end of January 2018. The SPX then dumped 10%. Bitcoin plunged from $20,000 to below $4,000.
I am highly confident that this paradigm will repeat, I am not confident on the timing. However, I believe it will be worth having short exposure of some sort when the Roman Candle burns out and plummets. At the height of a bubble, the issuance of stratospheric price targets proliferates. Right now, there’s calls for Bitcoin to go anywhere from $100,000 to $1 trillion (yes, I’ve seen articles in which the “analyst” predicts $1 trillion). Sheer insanity.
For several reasons I won’t delve into here, there’s plenty of reasons to question Bitcoin’s sustainability as a currency-surrogate, or anything beyond that of a vehicle for reckless speculation.
Several subscribers have asked me about ways to short Bitcoin, as the coin itself can not be borrowed and shorted (at least that I know of). Bitcoin futures trade on the CME but that would be the riskiest way to short the digital coin. You can short GBTC (the Bitcoin trust) but it is difficult and expensive to borrow. GBTC trades at a 17% premium to its underlying NAV. This means that investors have poured more cash into GBTC than the market value of the Bitcoins held by the Trust. This is another reflection of the degree to which bubble-mania has invaded the digital coin.
I’ve decided the best way to short Bitcoin is with “surrogate” stocks. Microstrategy (MSTR, $531) is the perfect example:
As you can see, MSTR’s stock chart looks like that of TSLA’s and Bitcoin’s. Investors in MSTR bought the stock because they were investing in the software business. Any institutional investor that wants to invest in Bitcoin can buy Bitcoin on its own. Through December 21st, MSTR announced that it had purchased $1.125 billion worth of Bitcoins, now worth $2.86 billion. As of Friday’s close, MSTR’s market cap was $4.9 billion. When it announced the original Bitcoin purchase, MSTR’s market cap was $1.2 billion. So far the ploy has worked. But if my view of Bitcoin prevails, eventually, MSTR’s stock price will get slaughtered.
MSTR is even more overvalued vs its Bitcoin holdings than GBTC. As of Friday, its stock is valued at $4.94 billion, which is 22.5% above the Company’s market cap at the time it announced its first Bitcoin purchase plus the value as of Friday of its Bitcoin holdings.
Another Bitcoin surrogate that has gone insanely “Roman Candle” is Marathon Patent (MARA):
MARA bills itself as a “digit asset technology company that mines cryptocurrencies with a focus on the blockchain ecosystem.” Huh? “Blockchain ecosystem?” In 2013 it changed its name from American Strategic Metals Corporation. At that time it described its business as an “intellectual property company” offering consulting services that allow its “clients to maximize the value of their IP assets.
In 2015, it generated $21 million in revenues. In 2017, it produced $519,000 in revenues. In 2019, it generated $1.2 million in cryptocurrency mining revenues. I think you get the idea here – this company is largely a scam operator. On a trailing twelve month basis, MARA produced $2 million revenues, generating a $6.8 million operating loss. The stock sports a $930 million market cap and trades at 465x sales.
“In my day I’ve seen a lot of wild rallies with a lot of mispriced stocks, but there is one thing they all have in common. Eventually they hit a wall and go into a major painful correction. Nobody can predict when it will happen, but when that does happen, look out below.” – Carl Icahn, billionaire investor
The commentary above is an excerpt from the Short Seller’s Journal, a weekly newsletter that dissects the latest economic reports and presents ideas for short seller’s. You can learn about it here: Short Seller’s Journal information.
Gold And Silver Victimized By Paper Games
Gold and silver gave precious metals bulls a harrowing ride on the “down” price elevator on Friday, as gold had as much as $82 removed from its price and silver was hammered as much as 10%. However, make no mistake, the bulk of the sell-off occurred in the paper derivative markets of London and NYC. This graphic shows Comex February paper gold over the last 24 hours:
Very little if ANY physical gold transacted in institutional size during this price ambush. The sell-off did not start until AFTER the Asian physical markets had closed for the weekend and London was open. The first big push below $1900 didn’t start until 3:00 a.m. The next leg down – from $1890 to $1827 occurred after the Comex floor opened. This was a pure paper market endeavor.
Furthermore, the sell-off was not triggered by any specific news or events. In fact, and I leave it to the readers to verify for themselves, at least 90% of the time gold is price-ambushed like this ahead of and concurrently with the release of the Government’s monthly non-farm payroll report. Today’s report was far worse than expected and this should have been a bullish catalyst for the gold price (and silver).
A bounce in the dollar and rising interest rates do not explain today’s price-action in gold. A study by Adam Hamilton that goes back to the early 1970’s demonstrates that gold’s best periodic rate of return occurs while interest rates are rising. This is because rising rates, among other things, reflect the expectation of rising inflation.
In all probability, today’s price manipulation is in advance of another big round of money printing by the Fed. If you doubt this connection, look at the price action in gold in the summer of 2008, ahead of the bailout of the big banks by Ben Bernanke, and look at the massive gold price hit in March, ahead of an even bigger money printing operation initiated by Jay Powell.
I would suggest that the Fed is gearing up another large money printing operation – possibly bigger than the one in March – in order to fund the a multi-trillion dollar spending (“stimulus”) program once the Biden Government takes over the White House (see this: Washington Post).
The motive to prevent the gold price from rising is two-fold. First, it’s an effort to support the U.S. dollar, which has lost over 12% of its value vs the euro, yen, pound and swiss franc since March. Second, and more importantly for keeping the U.S. stock market propped up, it’s an attempt to prevent a soaring price of gold from reflecting the escalating risks embedded in the global financial system, of which the U.S. is the biggest component.
Money Printing, Inflation Drives Gold And Silver Higher This Year
The Fed will be compelled to print a lot more money this year under the guise of “stimulating the economy.” That money will be funneled to into the financial system to fund massive amounts of Treasury issuance. Printed money not used to fund Treasury issuance will flow into “things” – primarily commodities and maybe stocks. The best way to take advantage of this is to buy physical gold and silver and mining stocks.
Bill Powers (Mining Stock Education) and I discuss my good and bad mining stock picks in 2020 and I discuss a couple of the stocks I think have the potential for huge gains in 2021:
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Buying physical gold and silver – not GLD or SLV – should be your first priority in seeking shelter from the eventual fate of the dollar. But mining stocks offer the potential wealth enhancement as well “optionality” upside to the prices of gold and silver. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.
Expect A Big Move In Gold, Silver And The Mining Stocks This Year
Gold, silver and mining stocks are historically cheap in relation to the size of the money supply. And the Fed assured us after its December FOMC meeting that a lot more money supply is coming. Furthermore, mining stocks both have formed a powerful consolidation base after the huge rally last summer and are cheap relative to the gold and silver prices.
Chris and I, in our last podcast of 2020, discuss the factors why we both believe the precious metals sector will make a powerful move higher in 2021:
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The next big move in financial assets will come from the mining stocks. Mining stocks offer potential wealth enhancement through exposure to the “optionality” upside of pric gold and silver prices. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.
The Fed Is About To Go Weimar – Gold And Silver Will Soar
Note: I learned of the Fed’s redefinition of M1 from the invaluable research of John Williams at Shadowstats.com – This information was not reported by any mainstream financial news sources.
The Federal Reserve quietly announced on December 17, 2020 that it is redefining the M1 and M2 Money Supply Measures (H.6 Release) by shifting the savings deposits component into M1 from M2. M1 is supposed to measure “demand money” – i.e. funds that can be accessed for use without prior notice, primarily checking account funds, including travelers checks and free-floating currency. M2 is M1 plus “term” deposits: savings accounts, CD’s in amounts of less than $100k and retail money market funds.
This chart below, sourced from Alasdair Macleod’s must-read “The Next Dollar Problem Has Just Arrived,” shows the vertical move in the M1 aggregate since the end of 2019:
The graphic above was prepared before the Fed announced its redefinition of M1. The jump in M1 was primarily the result of a huge shift in funds from term/savings accounts into demand deposits. It’s a flight to safety of sorts in that depositors have shifted a unprecedented amount of funds from “term” deposits at banks into “demand” deposits. In a sense, it’s a low-grade “run on the banks.”
Nothing the Fed does happens by coincidence or merely on a whim. Recall that the Fed decided to no longer report the all-encompassing M3 monetary supply aggregate in 2006. The Fed’s stated reason for this was that it was not worth the expense involved with calculating and reporting M3 because the difference between M2 and M3 was primarily eurodollar deposits (not an insignificant quantity of money). The disingenuity of this excuse was palpable. The U.S. is the only major industrialized nation that hides the M3 calculation.
More likely, it was a move to hide the best measure of the money supply in preparation for the “QE” era. Many of us saw the banking system collapse unfolding well before 2006. As such, it’s clear – at least to me – that the Fed knew it would be forced to start inflating the money supply ahead of the actual event.
Thus, it’s not a coincidence that the Fed’s decision to obfuscate the movement of funds from M1 to M2 occurred after a parabolic shift of funds into M1 commenced. The change is retroactive back to May 2020, which is around the time of the movement of cash from M2 to M1 started to go vertical. While the movement of funds continues, the change in the Fed’s reporting of the “M’s” will make it impossible to see it as it happens.
In that regard, the Fed has taken further steps to increase the opacity of the monetary aggregates. This is direct from the Fed’s website: “Of particular note, the publication frequency of the release will change from weekly to monthly, and the release will contain only monthly average data.” The Fed also will no longer publish non-M1/M2 account balances, like institutional money funds, which help enable the reconstruction of M3.
In addition to the reporting of the numbers monthly rather than weekly, the H.6 statistical release will provide components of the monetary aggregates only “at a total industry level without a breakdown of components by banks and thrifts.” Well, guess what? The breakdown by the bank and thrift components contains the data that truthseeking Fed analysts would like to see. The last weekly statistical release will be on February 11, 2021. And the data will be cleansed retroactive back to May 2020. Again, no coincidence with the May 2020 retroactivity.
For perspective on this latest move by the Fed, recall that Jay Powell promised more transparency when he assumed the Fed’s helm. Predictably, since Powell’s tenure began the Fed has taken measures to reduce the Fed’s transparency and accountability.
It is my view that the Fed is further obscuring the money supply numbers, as it did in 2006, ahead of another massive round of money printing. In fact, I would argue that the Fed’s latest obscuration of the money supply numbers is an indicator that the Fed’s printing press will go “Weimar” over the next 12-24 months. This will translate directly in soaring gold and silver prices.