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QE Has Already Begun – The Next Upleg In Gold Is Coming

by | Jan 16, 2024 | , , , , ,

I find it quite amusing that the market believes inflation is tied to rates – the propagandists at the Fed did their job there. Distract while creating bank reserves (print money) out of plain sight. The Monetary Base is up over 7% since March. M2 is also a bit higher. This is why the rate of inflation has been slowly rising again since June. It’s also why gold is up 7% and silver is up 2% since the end of June (silver is up 15.9% since early March).

The primary driver of my bull thesis is the shift in the Fed’s monetary policy. It was only a matter of time before this occurred. The Fed informally “pivoted” away from hiking rates at its November FOMC meeting. The markets immediately began to price several rate cuts in 2024 into stock valuations and bond yields.

“Follow the money” – While most observers are watching what the Fed does with interest rates, few have noticed that the Fed stopped shrinking the money supply in response to the regional bank crisis in March 2023. In fact, the M2 measure of the money supply has actually increased slightly since April 2023 (while everyone merely glares at the YoY %-change in M2 that circulates social media) . In addition, the Monetary Base, consisting of bank reserves and coin/currency in circulation, has increased over 7% since March 2023. This is the primary reason why the price of gold ran from $1,825 in March to $2,070 by year-end 2023.

Money printing – much more so than changes in interest rates – is the fuel that drives precious metals prices higher. While the economy is likely headed into a nasty recession this year (many sectors of the economy, like manufacturing, were already contracting during 2023), the primary factors that dictate Fed policy are the health of the banking system and the monetization of new Treasury bond issuance. Both factors will need to be addressed, in my opinion, with more money printing.

Although the Fed’s “dual mandate” is to use its monetary policy to promote stable prices and full employment, its first priority is to prevent the “too big to fail” banks from collapsing. We saw this in 2008, again in 2020 and again in March 2023. In 2023, in response to the collapse of some big regional banks due outflow of checking and savings account funds from banks into money market funds, the Fed swiftly printed $400 billion and injected it into the banking system. In addition, it made available a “QE-like” facility called the “Bank Term Funding Program” which made funds – money created by the Fed – available to all banks.

The $400 billion was removed by late June. But growth in the Monetary Base between March and the end of November (the most recent money supply report) shows that the Fed actually increased bank reserves by $410 billion. Very little of this is explained by the change in the level of currency/coin in circulation. This means that it used various “back door” liquidity facilities to replace the $400 billion it printed and then removed plus it added an additional $410 billion, of which only $147 billion is explained by the Bank Term Funding Program. In other words, the Fed is opaquely creating banks reserves (aka “printing money”) to address a burgeoning liquidity problem in the banking system.

But the Fed will also have to help fund new Treasury bond issuance at some point this year. Over the next twelve months, an unprecedented $8.2 trillion in Treasury bonds will have to be refinanced. In addition, based on the first quarter of the Government’s fiscal year (starting October 1, 2023), the Government’s spending deficit on an annualized basis would be over $2 trillion. This is additional new debt issuance that will have to be funded – a task made more difficult by the fact that our Government’s biggest foreign financiers (China, Japan and OPEC) have been reducing their participation in Treasury auctions.

Unless the Fed can find investors large enough to replace the missing foreign investment capital, it will either have to be the buyer of last resort or risk watching Treasury yields soar to a level that might induce foreign capital back to the table at Treasury bond auctions. Because considerably higher interest rates would throw the U.S. into an economic depression, the second motive for renewed money printing in 2024 will thus be a requirement for the Fed to bridge the gap between the supply and demand for Treasuries.

I strongly believe that the financial and economic fundamentals are set up quite similarly, only much worse, to the conditions in 2008 that led to the Great Financial Crisis. As such, I also believe that the Fed’s response to the next full blown financial system crisis will be much larger than its responses in 2008 and 2020. This should result in a cyclical bull move that I believe will be bigger than the move from late 2008 to mid-2011.

If you are interested in mining stock ideas to take advantage of the next bull move coming, follow this link to learn more about my Mining Stock Journal.

From a long time subscriber after the last issue:  “Sometimes the best recommendations are what NOT to buy rather than what to buy. I really appreciate your insights on Dolly, West Red Lake and AbraSilver. Good analysis like that makes it easier for us amateurs to decide whether to buy or not. Definitely helps flesh out the decision-making process.”

Household Financial Distress Is Rising – Short Ally Financial

by | Jan 8, 2024 | , , ,

The following is an excerpt from the Decemer 31, 2023 issue of my short seller’s newsletter. To learn more follow this link:  Short Seller’s Journal

As an indicator of rising consumer stress and stretched household finances, a report from Edmunds.com showed that auto loan borrowers with negative equity were underwater by an average of $6,054. This is the most since April 2020 and well above pre-pandemic averages. Auto loan delinquencies and defaults continue to rise as do repossessions. This is a double-whammy for auto loan lenders because used car prices are falling which means the value of collateral backing these loans is declining. This also means that recoveries are declining and write-offs are increasing – and will continue to increase. I discussed this with respect to $CVNA in the December 10th SSJ.

This is bad news for Ally Financial (ALLY – $35.17). While ALLY offers mortgages and credit cards, auto loans represents 78% of its finance receivables and loans. For the latest quarter, ALLY’s pre-tax income from continuing operations plunged 45.3%. In Q3, 33% of its auto loan originations were to subprime borrowers, which is consistent with the historical pattern. I suspect this will bite ALLY in the ass in 2024.

The 30+-day and 60+-day delinquency rates have been rising steadily over the last four quarters. The charge-off rate rose 54% in Q3 YoY. The declaration of a “delinquent” loan is nebulous, however. This is because lenders will grant an extension (temporary forbearance) up to a certain point. Extended loans are not classified as delinquent. Recall from the last issue that CVNA has granted extensions on over 10% of its outstanding loan balance in September, up from 1.97% in September 2022. While it is likely that ALLY has not extended 10% of its loans outstanding, I have no doubt that it has extended a material percentage (over 5%). Ally is likely massaging its GAAP numbers with the granting of extensions, the deferment of charge-offs and the minimizing of its allowance for loan losses (a non-cash GAAP expense). That’s a common source of GAAP earnings management with banks and finance companies.

While the financial distress numbers above may look small in relation to the total size of ALLY’s balance sheet, I believe that they understate the true level of delinquencies and defaults that ALLY may be experiencing. Moreover, when loans start to go bad because the economy is in a recession, the rate of default accelerates. I expect this to happen in 2024.

Recall that ALLY was formerly GMAC (the auto finance arm of General Motors). While Obama bailed out GM, GMAC went into Government receivership. It was eventually “sterilized” with Fed and taxpayer funds and IPO’d as ALLY in 2014. Given the subprime credit quality of over one-third of its auto loans, I think it’s a good bet that ALLY goes “chapter 22” sometime in the next 2 years, barring a Fed and taxpayer-funded bailout.

The stock has run from $22.50 to $34.92 in two months. ALLY in that respect could be considered a meme stock. From the viewpoint of economics, given the latest data on auto loan delinquency rates at several different banks and finance companies that do auto loans, there’s no fundamental reason whatsoever for that big move in ALLY’s stock price. ALLY’s profitability is declining and the riskiness of its balance sheet is rising.

For this play, I think it makes sense to go out at least six months and use OTM puts. I like the June $30 puts and may start a position this week unless it looks like the standard beginning of a new year rally unfolds. Another interesting high ROR/high-risk play that won’t require much capital is the January 2025 $20 puts. Those traded last at 79 cents on Friday. These puts were trading at $2.80 at the beginning of November.

The same analysis holds true for Synchrony Financial and Discover Financial Services. These two companies have a huge percentage of their assets in credit card loans. At least auto loans are secured by the automobiles. Credit card debt is unsecured. The same ridiculous market impulse that caused ALLY’s chart to like it does has caused the same with SYF and DFS.

The Fed Gave Precious Metals Investors The Green Light

by | Jan 2, 2024 | , , , ,

This is the opening commentary in the December 14th issue of my Mining Stock Journal. I also the updates on two my portfolio stocks (I also reviewed Franco Nevada in the issue). To learn more, follow this link:  Mining Stock Journal information

Yesterday (Wednesday, December 13th) the Fed signaled the end to interest rate hikes and, in so many words, implied that now the timing of rate cuts is being informally discussed. While stocks and bonds staged a rally, the precious metals sector sprinted higher. Gold and silver rose 2.4% and nearly 5%, respectively, while the mining stocks as represented by GDX soared over 6%. Across the board, the precious metals sector and mining stocks in terms of percentage price gains ran circles around the rest of the stock market. This should be the start of a long, sustained bull cycle in the precious metals sector that could take even seasoned gold bugs like me by surprise with the size of the moving coming.

Based on the FOMC policy statement from the December FOMC meeting, combined with what I believe are the key comments from Powell’s post-FOMC media circus, for all intents and purposes the Fed has pivoted toward easing with respect to its interest rate policy. In addition, I believe there was a subtle signal – intentional or not – that points to the potential for an eventual pivot from QT to more QE. As such, I believe the Fed has triggered the next big move higher in the precious metals sector.

As an aside, I have to believe in order for the Fed to lay itself out like it did Wednesday, it must be seeing highly adverse events unfolding “behind the curtain” in the banking and economic system.

Here are the salient comments from Powell (sometimes my English major comes in handy):

“Policymakers are thinking we have done enough.” Translation: “put a fork in the rate hikes”

“We haven’t worked out if we will follow a threshold-based path for cutting rates.” Translation: “We’re already discussing the implementation of rate cuts.”

“You need to reduce restriction on the economy well before 2%.” This last statement is measured confirmation that the Fed will soon start to cut rates. But the term “restriction” is intentionally nebulous. The meaning can encompass both rate hikes and the expansion of the money supply. Rate cuts in 2024 are a foregone conclusion. However, based on the Fed’s actions this year in response to the banking crisis, I believe “reduce restriction” means that the Fed will take further action in 2024 to increase banking system liquidity though it will likely be forms that are different from overt QE.

Though the Fed reaffirmed that QT program will remain intact (for now), it has used other means to inject liquidity into the banking system. In March the $400 billion it printed to prevent even more regional banks from collapsing is one example. The Bank Term Funding Program, which increases in size almost weekly, hitting an all-time high last week, is another form of QE (the Fed takes long-maturity fixed income assets at par value from the banks in exchange for giving the banks capital – that’s QE).

In addition, the Reverse Repo Facility has declined from $2.55 trillion in December 2022 to $823 billion, or $1.7 trillion as of December 13th. While this does not affect the size of the Fed’s balance sheet, it has enabled the dissemination of that $1.7 trillion into the financial system. The facility served as a “holding tank” for a couple trillion dollars worth the over $4 trillion the Fed printed during the pandemic period.

The facility was a way to withhold that money from the financial system and real economy in order to avert even worse inflation. The Fed could incentivize the retention of funds in that facility by raising the rate it pays. Instead it has let it leak out over the last 12 months because it is needed either to help fund new Treasury debt issuance or shore up banking system liquidity. Though the CPI will be rigged to hide it, this liquidity will stimulate price inflation.

More opaque is a $500 billion bailout facility created in 2021 called the Standing Repo Facility. This facility was the successor to the repo operations that began in September 2019. Establishing it in 2021 was done to make sure that the start of bailout measures are already in place when the next big bank crisis hits. This is different from the BTFP because the BTFP is open to any and all banking institutions. The Standing Repo Facility is limited to the list of primary dealers, which are the big banks, domestic and foreign, that have been approved to help underwrite and fund Treasury debt auctions. The SRF is, in effect, a ready-made QE facility the banks determined to be systemically important.

The Fed thus has in place a couple different avenues available by which it can inject liquidity into the domestic and international banking system as needed and it can direct this liquidity at specific banks. Just recently, a little-known bank outside of Japan was added to the list of banks on the Standing Repo Facility. This is why I maintain the view that the Fed has already been engaged in subtle forms of quantitative easing.

The point I’m making is that, despite the FOMC’s affirmation that it will continue with its balance sheet reduction plan, it’s an optical illusion. The next phase of quantitative easing, also known as “money printing,” has begun and precious metals investors have been given the green light to invest aggressively in the sector.

For point of note, I don’t necessarily expect the junior project development stocks to take off all at once. In fact, I hope they lag the larger cap stocks for a while. I also expect that large moves in micro-cap juniors will occur at any given time to specific individual stocks based on individual company news releases or positive events. Twenty-two years ago I likened this aspect of junior stock investing to watching popcorn pop. You don’t know when a specific kernel will pop but you know most of them will eventually. My point here is don’t be discouraged if some positions lag. At some point any stocks with merit – and many without merit – will make big moves when you least expect it.

In brief: Cabral Gold (CBGZF, CBR.V – US$0.11) released more drill results from the oxide material at the Central Gold deposit. The assays show that drilling continues to hit wide intervals of high-graded gold mineralization. One intercept showed 6.5 gpt over 2 meters within 28 meters of 1.2gpt. The results are important because they demonstrate and confirm continuity and confidence in the oxide blanket mineralization as well as help optimize the resource model for the PFS the eventual mine operation. Cabral continues to be egregiously undervalued. I added shares today. Alan Carter (CEO) told me that his excitement about this project keeps him up at night!

i-80 Gold (IAUX, IAU.TO – US$1.70) released more drill results from Granite Creek. Ordinarily I have not been updating every drill result release because there’s been so many, especially from Ruby Hill and Granite Creek (this is a good thing because it shows the Company is serious about aggressively and expeditiously advancing both projects). But today’s results stand out because of the high grades encountered underground. Just one example is 31.1 gpt over 21.9 meters. The stock jumped 8% on the news.

This degree of high-grade is why big companies like Barrick and Newmont spend a lot of capital developing and processing Carlin Trend underground high-sulphide ore. It’s what makes access to an autoclave so valuable. It’s why I think IAU, currently valued at $500 million, will eventually be worth over $1 billion.

Stock Bubble Mania

by | Dec 21, 2023 | , , ,

The following commentary and analysis is from the December 17th issue of the Short Seller’s Journal. To learn more about this newsletter, follow this link: Short Seller’s Journal information

The stock market, led by the Dow, is going parabolic as it inflates on helium forced into the financial system by the Fed. The bubble has become more manic and all-encompassing than the late 1990’s dot.com/tech bubble, which was led by the Nasdaq. This time around the Dow is leading the pack and has become irrationally exuberant.

While this could become even more insane to the upside, the sentiment and level of speculative activity are back to levels historically indicative of a top. Yesterday’s (December 20th) sudden, sharp reversal in the stock market is likely a warning shot – tremors before a bigger earthquake.  Retail trading accounted for 30% of the total trading volume on Friday, compared to the 30-day average of 10%. Volume in sub-$1 stocks is surging, reflecting an extreme degree of risk-taking. But it’s not just the penny stocks. The meme stocks like CVNA and SNAP are going parabolic.

A long-time subscriber asked me how I explain the big move higher in CVNA because it’s pretty clear CVNA will eventually have to file bankruptcy. I asked him to look at this chart to tell me:

The chart plots CVNA (candlesticks) vs the MEME stock ETF (blue line). Note the strong correlation between MEME and CVNA. In fact, what does it say about CVNA that it has been underperforming MEME in the move higher that began in early November. Every retail idiot trading this market is chasing the worst garbage stocks higher. Most of the stocks in MEME have a very high short-interest. Most will be bankrupt within the next three years.

Long positioning by CTAs is at its most extreme level in at least eight years. Extreme long or short positioning by CTAs is a highly reliable contrarian indicator. The VIX is at its lowest level since mid-January 2020. Also, the weekly survey by the Association of American Individual Investors (high net worth, retail) shows that bullish sentiment jumped up to 51.3% through Wednesday, its highest level since July 19th. At 19.3%, the percentage of bears is at its lowest over that same period.

No one can say for certain when this madness will reverse. But we can say for certain that it will and when it does the ensuing sell-off will likely be brutal. Though I took a beating over the last three weeks in my put portfolio and closed out most of the positions. I continue to hold January CVNA $50 puts, AN January $125 and $130 puts, NVDA March $435 puts and TSLA April $220 puts. In addition, on Friday I started a position in IWM (Russell 2000 ETF) late December $195 puts. Earlier in the week I started buying late January SNAP $16.5 puts. Take a look at SNAP’s chart [next page] to understand why. Oh, I also hold January GDDY $100 puts.

C’mon, man. For its Q3, SNAP’s operations lost $380 million. Through 9 months it’s incurred a $1.14 billion operating loss. The only reason this Company is still in business is that the capital markets have enabled it to raise over $4.8 billion via convertible bonds between 2019 and 2022. It did not issue any debt in 2023. But the only thing keeping SNAP from going out of business is the $3.4 billion in cash it had at the end of Q3 2023.

The stock gapped up on November 14th when it was reported that SNAP signed a deal with AMZN that enables AMZN to run ads on SNAP which let SNAP users shop on AMZN and check out without exiting the SNAP app. The economic terms connected to the agreement were not disclosed, which means that the terms do not directly generate revenues from the agreement for SNAP. In terms of the financial benefit of this deal for SNAP, the only thing I could dig up after scouring articles and reports is that the deal might increase average user time on the SNAP app which might enable SNAP to charge higher advertising rates.

In my opinion, SNAP is worth no more than the value per share of the cash on its balance sheet, which will deplete over time. Currently it has $2.42/share in cash. At some point I plan to increase my capital commitment to SNAP puts beyond the January $15.50 puts I have now.

Housing market update – The homebuilder and home construction stocks have gone absolutely parabolic:

The Dow Jones Home Construction Index has soared 17% since the end November. The MACD momentum indicator is by far at its most over-bought reading in the history of the index (2000).
But while the homebuilders have been increasing deliveries via the use of heavy price discounts and other incentives, they are not reporting record levels of revenues and profitability. And the contract value of their order backlogs is plummeting. And here’s the 10-year picture of the monthly seasonal adjusted annualized rate for new home sales:

While new home sales bounced after declining for nearly two years, overall the rate of new home sales has been in a steep downtrend since late 2020. In other words, the differential between the market cap of the homebuilders and their profitability may be at the widest in stock market history. The DJUSHB is 2.4x higher that it was at the peak of the early 2000’s housing bubble while the SAAR peaked at over 700k back them compared to the current SAAR of 679k. I believe that reality will hit the stock market hard in 2024 accompanied by a swift sell-off in the homebuilder stocks.

Lennar (LEN – $149) reported its FY Q4 and full-year numbers on Thursday after the close. Despite “beating” revenue and EPS consensus, as well as the expected FY Q1 2024 forecast, the stock dropped 3.6% Friday. This is because it was apparent to the market that LEN sacrificed margins by cutting prices and offering fat incentives.

While Q4 revenues rose YoY 7.9%, operating income rose just 4.8%. Ordinarily in a healthy operating environment, homebuilders would benefit from economies of scale and operating income would rise percentage-wise more than revenues. But the ASP declined 8.7%. This does not include incentives like rate buy-down loans and architectural upgrades.

LEN’s share price has soared 42% since the end of October. I would be an idiot if I didn’t admit that I wish I had bought calls 7 weeks ago. But the increase in market cap is not in any way remotely justified by fundamentals.

The value of LEN’s backlog, despite a 4.3% increase in new unit orders, plunged 24%. The ratio of LEN’s market cap to the value of the backlog is 6.4. A year ago this ratio was 2.98. This illustrates the degree to which LEN’s market value has become completely unhinged from reality.

While the builders enjoyed a bounce in sales during 2023 thanks to rate buy-down gimmicks as well as other tweaks to mortgage terms that lower the cost for the first two years, with the “savings” added to the back-end cost of the mortgage, plus huge price and upgrade incentives, I have no doubt that homebuilders face a tough 2024.

What’s in store for the economy, the precious metals and the mining shares?

by | Dec 12, 2023 | , , , , ,

Most sectors of the economy are already in a recession and the Fed has already started to ease monetary policy. But when will the Fed cut rates? I think it will take the onset of a banking system crisis or a steep decline in the stock market, or both, before the Fed cuts rates.

Craig “Turd Ferguson” Hemke invited me back onto his Thursday Conversation podcast to discuss the economy and precious metals sector as well some specific mining stocks.  You can access out conversation from his website:  TFMR – Thursday Conversation  or from the MP3 below:

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You can learn more about my Mining Stock Journal and Short Seller’s Journal newsletters via the links at the top of this website.

Fake Economic Reports And The Stock Market “Echo Bubble”

by | Dec 8, 2023 | , , ,

The Conference Board’s Consumer Confidence for November is 102; 101 was expected. However, the big story is that October was revised to 99.1 from 102.6! The November Present Situation is 138.2. October was revised to 138.6 from 143.1. The November Expectations is 77.8; October was revised to 72.7 from 75.6. Why did Conference Board statisticians botch October metrics so badly? Why have there been so many downward revisions to US economic data? Qui bono? – The King Report, November 29, 2023

The following commentary is the opening salvo of my December 3rd Short Seller’s Journal newsletter. Follow this link to learn more about SSJ: Short Seller’s Journal info

Many of the Government and some non/quasi-Government association economic reports are being released with suspiciously bullish data only to be revised lower in subsequent months. But the revisions are buried in the reports and never make the headlines. The Conference Board’s Consumer Confidence survey is one of the examples just from this week. Typically parallel data from the private sector do not corroborate the data from these reports.

The Chicago PMI on Thursday morning, released by the Chicago Institute of Supply Management, spiked up to an index level of 55.8 from 44 in October and vs 45.4 expected by Wall Street. The report triggered a 1.47% manic rally in the Dow, though the SPX closed up 0.38% and the Nasdaq was red. The big jump in “measured” economic activity was one of the biggest “beats” in the history of the index, with a 13-sigma beat (i.e. the probability that the reported result is the actual result is near-zero).

I think the explanation for the unexpected spike in the Chicago PMI data is attributable to the fact that auto labor union strike was resolved in November. The Chicago Fed region hosts a large number of automotive OEM parts suppliers and many other businesses related to the manufacturing of automobiles. All of the sub-index components of the Chicago PMI, in my opinion, reflect the surge in orders, shipments and other economic activity related to the post labor settlement ramp-up of automotive manufacturing.

The Chicago PMI likely does not have a methodology to adjust, or “smooth out,” the data points connected to the post-strike ramp-up in automobile production. Thus, I am confident that this particular economic report does not support the “recession avoided” narrative promoted by the Biden people, the Fed and Wall Street. In fact, a day later S&P Global reported its Manufacturing PMI and it showed a decline to 49.4 from 50 in October, driven by a decline in new orders and employment. A reading below 50 indicates contraction in business activity.

Speaking of the Fed, the Fed’s Beige Book for November said the economy continued to show a slowdown in activity from the October report. The October report basically said that economic activity stagnated. The point here is that the Chicago PMI in all probability does not at all reflect economic reality. This is particularly true given that the other major Fed regional bank economic indices, as well as the leading indicators, point to a continued contraction in economic activity.

The ISM Manufacturing PMI for November was reported at 46.7, unchanged from October, but was expected to improve to 47.6 by Wall Street. All sub-indices contributed negatively (new orders, production, employment, inventories and supplier deliveries). However, contrary to the Chicago PMI which said that prices paid moderated, the ISM prices paid jumped higher. Some of the respondents to the survey described their business sector (fabricated metal products, chemicals) as in recession.

Further reinforcing the recession view, the Cass Transportation Index shows continued contraction in shipping and freight transportation activity. The shipments index fell 4.7% MoM and 9.5% YoY; the The expenditure index declined 2.2% MoM in October and 23% YoY; and the truckload linehaul index fell 0.6% MoM and 8.3% YoY. The timeline charts for all of these indices are down considerably from the peak in early/mid-2022 and down to their respective levels in late 2020/early 2021. Freight transportation directly reflects the level of economic activity at all levels of the economy.

The Cass metrics thereby do not corroborate the heavily massaged Government and trade association economic reports. Certainly the Leading Economic Indicators, reported in mid-November, having declined for 19 straight months indicates that the U.S. economy is in recession.

The reason I’m hammering on this is that another stock market “echo bubble” has reinflated, particularly in the cyclically sensitive Dow Jones Industrial, fueled by a dovish pivot by the Fed and hyperinflated market expectations of rate cuts and money printing in 2024. In fact, the Dow appears ready to go parabolic:

The Dow is just 1.6%, or about 600 points, from the all-time high close on January 4, 2022. In comparison, the Nasdaq is still 12.5% away from its ATH while the SPX is 4.6% below its ATH.  Speculative frenzy, momentum-chasing and outright gambling have engulfed the stock market, fueled by a Federal Reserve that has stealthily, or maybe so stealthily, ushered more liquidity in the financial system while financial condtions since the last FOMC meeting per the various financial conditions indices (Goldman, for instance) have eased at the fastest rate in four decades. The most overvalued shitco garbage stocks have soared like dot.com stocks during the tech bubble (CVNA and SNAP, for instance).  CVNA likely will be in bankruptcy sometime within the next 24 months. It’s high-coupon debt still trades at a big discount to face, which means the bond market believes the equity is a bagel.

I have to believe that this echo bubble will soon quickly deflate, as did the echo bubble that inflated earlier in 2023. Though this market insanity could last for a few more weeks, certainly all of the signs of a top are present. Any fear of risk has evaporated from the market. The VIX has melted down to a level not seen since early February 2020, when the market at the time hit an all-time high. Retail investors have been furiously piling back into the stock market. For the weekly period ending November 22nd (a week ago Wednesday), retail investors net bought $4.8 billion in cash equities. This is 2.3 standard deviations above the last 12-month weekly average and the highest weekly inflow since April 2022.

In terms of sentiment, the CNN Business Fear & Greed index is almost back to extreme greed. But even more telling is the American Association of Individual Investors (retail, high net worth) sentiment readings. The percentage of bullish respondents hit 48.8%, its highest reading since August 2nd (the stock market started a 3-month decline in early August) while the percent of bearish respondents fell to 19.6%, the lowest level since January 3, 2018. The spread between the bullish and bearish respondents, at 29.2 points, is more than four times higher than the historical average for the differential.

Finally, sentiment and investor positioning is getting “stretched” again to extreme bullishness. As an example, a sentiment indicator compiled by Goldman Sachs measures stock positioning across retail, institutional and foreign investors versus the past 12 months. Readings below -1.0 or above +1.0 indicate extreme positions, long or less long and very short. The indicator is a reliable contrarian signal. Currently the indicator shows extreme long positioning. Part of this is the automatic algo positioning of CTA funds. They have piled head-first into long positions. It could unwind at any moment.

Circling back to the integrity of Government economic reports, the differential between the Gross Domestic Income (GDI) measurement and the Gross Domestic Product (GDP) measurement is the widest in the history of the two data series. The differential in the YoY% between the two metrics is 3 points, with the GDP three points higher than the GDI. The GDI measures the total income generated by all sectors of the economy including wages, profits and taxes (tax revenues have been declining, by the way).

The Government (BEA) claims that two metrics conceptually are equivalent. However, conceptually, the level of corporate revenues, income and tax revenue generated is a more accurate measure of wealth output and it can be measured more accurately than the GDP variables, which are estimated/ guesstimated and statistically massaged (GDP = consumption + investment + Government spending + exports – imports).

The point here is that, based on the GDI rather than the GDP, the economy is not generating the level of wealth portrayed by the quarterly GDP calculus. In fact, in Q3 the GDI registered a slight YoY percentage decline. 2001 and 2007 were the only other times going back to 1971 the GDP was positive YoY while GDI was negative. In both cases the economy spiraled into tough recessions.

Speaking of the economy, Best Buy and Lowes both cut their forecasts and warned that shoppers were pulling back on big-ticket items like appliances ahead of the holiday season. This is particularly true for higher income demographics. According to a report from Bloom-berg, foot traffic at shopping malls that serve higher income areas is starting to decline for the first time since the pandemic. In October, 21 of the 25 shopping areas surveyed across the country posted declines in foot traffic, with overall foot traffic down 3.3% YoY for the latest three-month period. I have been making the case that household disposable income is tapped out. Further, based on early holiday spending reports, use of buy now/pay later credit is soaring.

Straightforward Questions The Fed Refuses To Answer

by | Dec 7, 2023 | ,

Most people do not understand that the Fed supposedly is the “safekeeper” of the gold allegedly owned by the U.S. Treasury Department Taxpayers. But in all likelihood most if not all of that gold has been hypothecated, leased or sold outright in the Fed’s effort to remove bona fide price discovery from the gold market. As fact, the gold said to be owned by the Treasury has not been subjected to a formal and rigorous independent audit since Eisenhower occupied the White House.

GATA’s Chris Powell submitted some interesting questions – questions that should be answered but is not legally required because the Fed is a privately-owned entity, the fact of which most Americans are unaware. And, as it turns out, the NY Fed refuses to say if it been repatriating or intervening in gold. The post below was dispatched by GATA on December 2nd. I would love to know the answers to these questions but I’m not holding my breath…

Dear Friend of GATA and Gold (link):

With repeated telephone calls and e-mails, for three weeks your secretary/treasurer has been trying to get the Federal Reserve Bank of New York to answer two simple questions about its gold responsibilities — questions the New York Fed has answered for others in years past — but has been unable to get any form of acknowledgment.

Would you be kind enough to help?

Here are the questions.

1) Does the New York Fed’s statement of November 9 asserting that the Federal Reserve and U.S. Treasury Department did not intervene in the foreign exchange markets during the July-September 2023 quarter —

https://www.newyorkfed.org/newsevents/news/markets/2023/20231109

— cover the gold market as well?

2) Has the New York Fed repatriated any gold to foreign nations this year? If so, how much and to which countries, and how much was repatriated in each month?

Answers to these questions might illuminate how the gold market is being directly if surreptitiously influenced by central banks quite apart from any announced purchases of gold for reserves.

You can help in two ways.

First, try putting the questions directly to the publicists for the New York Fed as your secretary/treasurer has been doing. A list of the New York Fed’s publicists with their telephone numbers and e-mail addresses can be found at the bank’s internet site here —

https://www.newyorkfed.org/press

— when you click on the “Media Contacts” line in the middle of the right column. If you have time, try both a telephone call and an e-mail.

Second, call or write to your members of Congress and ask them to get the answers for you from the New York Fed.

Contact information for U.S. representatives is available here:

https://www.house.gov/representatives/find-your-representative

Contact information for U.S. senators is available here:

https://www.senate.gov/senators/senators-contact.htm

And of course if you get any response, please let your secretary/treasurer know.

Your secretary/treasurer will bring these questions to the attention of a large number of reporters for mainstream news organizations and some financial letter writers, just in case any are ever allowed or inclined to put critical questions to central banks, the institutions that determine the value of all capital, labor, goods, and services in the world but seldom are asked to answer for what they do.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Will The Current Rally In Gold And Silver Turn Into A Big Move?

by | Nov 28, 2023 | , , , , ,

With respect to the economy, the hard reality on Main Street is the opposite of the propaganda and lies pitched at us by Wall Street, Capitol Hill and the mainstream financial media. Most sectors in the economy are in recession.  At some point the Fed will either have to let financial and economic system implode or it will be forced to crank up the money printing press again. In some ways this has already occurred in response to the regional bank crisis last spring. Kai Hoffman and I discuss economic reality and the precious metals sector.

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Liquidity in the primary dealer Treasury market is drying up.  Deposit outflows from the big banks continue unabated. The outflows at the small, regional banks haveg abated but some banks continue to draw on the Fed’s Bank Term Funding Program, which hits a new high almost weekly. The facility matures in March but it’s doubtful the debtor banks will be in a position pay back the loans. Just like the “temporary” repo program that began in September 2019, the BTFP will continue to hit ATH’s and the Fed will extend the maturity of the facility. This is de facto QE.

In my bi-weekly Arcadia Economics podcast, I discuss the indicators that point to a large-scale banking crisis percolating. The day after I recorded the podcast, Citigroup announced 10’s of thousands of layoffs – another sign of the onset of financial distress.

The mining stocks are historically undervalued relative to the price of gold and to fraudulent, fiat securities, especialy in the junior microcap project development stocks. If you interested in ideas to capitalize on the re-instatement of QE, check out my mining stock newsletter: Mining Stock Journal information