Tag Archives: FOMC

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

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

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

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

Extreme Disconnect Between Paper And Physical Gold

“The further a society drifts from truth the more it will hate those who speak it” – George Orwell

The western Central Banks, led by the BIS, are operating to push the price of gold and silver as low as possible.  It’s a highly motivated effort to remove the proverbial canary from the coal mine before it dies.  A soaring price of gold signals to the world that the Central Banks have lost control of their fiat currency, debt-induced profligacy.

“In the last 10 years,” George said, “the central banks have effectively shown that when there is a real crisis, gold actually goes down — and it’s so blatant, it’s a joke.” – Peter George, South Africa’s “Mister Gold,” at 2005 GATA conference

The signs of massive intervention abounded last week:   record levels of PNT and EFP transactions;  aggressive interventionary gold swap transactions by the BIS in January/February (per the monthly BIS statement of operations) – and presumably this month as well;  and a big physical dump of gold last Thursday at the p.m. London gold price fix which knocked down the gold price. These opaque Central Bank operations thereby triggered even more paper selling on the Comex.

The most overt signal of the disconnect between the physical and paper markets is coming from large international bullion coin dealers. I have seen three letters from large dealers (BullionStar, JM Bullion and SD Bullion) which detail shortages and an inability to replace what’s being sold.   Here’s insightful commentary from BullionStar sent out over the weekend:

“The bullion supply squeeze and shortages are getting worse and worse every day. We are working very hard to source metal but regret that we can not replenish most products as they sell out. We will be getting some additional inventory which is already on the way in transit to us by the end of March. Following that, our expectation is that we may not be able to replenish for months…

Paper gold is traded on the and on the in New York. Both of these markets are derivative markets and neither is connected to the physical gold market…By now it is abundantly clear that the physical gold market and paper gold market will disconnect. If the paper market does not correct this imbalance, widespread physical shortages of precious metals will be prolonged and may lead to the entire monetary system imploding.” – Torgny Persson, founder & CEO of BullionStar

The removal of supply/demand price discovery by the oppressive manipulation of gold and silver in the paper derivative markets has created a shortage in the availability of physical metal, with buyers currently willing pay 50% above the spot price of silver.

This is highly reminiscent of the price take-down that occurred in 2008, a few months head of Helicopter Ben launching his money helicopters AND the massive taxpayer bailout of the big banks.  Back then silver eagles were trading at 50-60% over the spot price. This preceded the remarkable 2 1/2 year price rally in gold and silver that took gold up to an all-time high.

Historically, official induced market intervention fails. And when it fails, it fails spectacularly.  Gold ran from $700 to $1900 and silver ran from $7 to $49 between late 2008 and mid-2011, before the bullion banks were able to gain control of  the price discovery mechanism.  This time around the systemic problems – notwithstanding the virus crisis – are far worse than the problems that erupted in 2008.

Barring some type of systemic debt and monetary reset – and I have no idea what something like that would look like –  gold and silver will eventually be trading several multiples higher than their current price.

Coming Soon: More Money Printing And Higher Gold Prices

Two economic reports were released which demonstrate that the money printing is not helping the economy. In the fourth quarter of 2019, U.S. household debt pushed over $14 trillion, reaching an all-time record high. This was fueled by a surge in mortgage and credit card debt. Much of the the new mortgage debt consisted of cash out” refis, which helped exacerbate the last housing bubble/collapse.

Second, the U.S. Treasury announced that the Government spending deficit for January was $32.6 billion. This was considerably worse than the $11.5 billion deficit expected. The cumulative deficit for the first four months of the Government’s Fiscal 2020 year (which starts in October), surged to $389 billion, or an annualized rate of $1.16 trillion. The four month cumulative total was 25% higher than a year ago and was the widest since the same four month period of time in 2011.

Make no mistake, the Fed is printing money to keep the fragile financial system glued together and to monetize new Government debt issuance. The economy will continue to contract with or without the help of coronavirus. The Fed knows this, which is why several Fed officials including Jay Powell are already telegraphing more money printing.

The good news is that you can benefit from this – or at least protect your wealth – by moving a significant amount of your investible money into physical gold and silver that you safekeep yourself. I joined up with Arcadia Economics to discuss why the Fed is compelled to further crank up the printing press:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Fake News And The “Healthy Economy” Myth

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

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

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

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Printed Money Blowing The Bubbles Even Bigger

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

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

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

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

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

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

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

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

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

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

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

The Fed Is Going All-In To Keep The System From Collapsing

Gresham’s Law in action: The diminishing availability of physical gold from the market (per several different accounts in London) corresponds to the proliferation of fiat currency printing and paper gold derivatives.

Since September the Fed has increased the size of its balance sheet by $414 billion or 11% in less than four months. It’s the fastest rate at which the Fed has printed money in its history.  The Fed insists that this “repo” program is not the reinstatement of “Quantitative Easing.”  In one sense the Fed is correct. This money printing program is a direct bailout of the big banks. And now the Fed is proposing to start bailing out hedge funds:

Federal Reserve officials are considering lending cash directly to hedge funds through clearinghouses to ease stress in the repo market. But that could be a tough sell for policy makers  (WSJ).

Yes, liquidity in the inte-rbank overnight collateralized lending system dried up in September.  But it’s not because of a shortage of cash to lend. The reason is two-fold.  First, banks needed cash/Tier 1 collateral to shore up their own reserves. Why?  Because bank assets – especially subprime loans – are starting to melt-down – i.e.  rising delinquencies and defaults. This is provable just by looking at the footnotes in quarterly bank 10-Q’s.  Second,  hedge fund assets – primarily the bottom half of CLO’s, credit default swaps, leveraged loans – are melting down.

The banks know this because these are the same deteriorating assets held by banks. In order to induce overnight repo lending, it would require a repo rate many multiples of the artificially low repo rate in order to reflect the risk of holding compromised collateral  overnight. This is why the repo rate spiked up briefly to 10% in September. That rate reflected the overnight interest rate desperate borrowers were willing to pay for an overnight collateralized loan.  Banks pulled away from lending in the repo market because they no longer trusted the collateral – even on an overnight basis. This is why the Fed was “forced” to start printing $10’s of billions and make it available to the repo market.

The Fed created the problem in the first place by holding interest rates artificially low and leaving several trillion of its first series of QE operations in the banking system. This in turn fostered  a catastrophic level of morally hazardous investing by banks and hedge funds. Now the Fed will try to monetize this – it has already hinted that the “repo” bailout will be extended now to April.  Absence this Fed intervention, 2008 x 10 will ensue – which will happen eventually anyway.

Ultimately, it will be a tragedy if the Fed bails out the the banks and the hedge funds – especially the hedge funds. Who benefits from this?  Bank and hedge fund operators should be penalized for making reckless investment decisions – not bailed out by  what will end up to be taxpayer money.  We already saw in 2008 that banks take the bailout funds and continued to pay themselves huge bonuses despite making lending decisions for which they should be penalized.

And a bailout of the hedge funds would reward hedge fund managers for investments that would never have been made had the Fed let a free market determine the true cost of making those investments.

I said back in 2003 that the Fed would print money and monetize debt until the elitists had swept every last crumb of middle class wealth off the table and into their own pockets before letting the system collapse. The bank bailout in 2008 and now the bank/hedge fund bailout is an example of this wealth transfer process.  The only question that remains in my mind is whether or not the current bailout operation will be the last “sweep.”

Time To Buy Gold And Silver On Every Pullback

The soaring paper gold open interest on the Comex is just one indication of a shortages developing in the physical gold bullion market. It’s no coincidence that just prior and accompanying the sell-off in gold this week that Exchange for “Physical” and Privately Negotiated Transactions (EFPs and PNT) volume spiked up on the Comex. EFPs and PNTs are “derviative” transactions which enable the bullion banks to settle futures with cash or some other form of gold derivatives like shares of GLD.

There are other indications as well, which Chris Marcus and I discuss this week on his Arcadia Economics podcast:

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I recently found another “golden nugget” large mining stock contrarian play the December 12th issue of my Mining Stock Journal. This stock should be an easy double over the next 6-12 months.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

QE Madness: Is It Worse Now Than In 2008?

Unequivocally, the “repo” operations by the Fed is “QE.” Well, let’s just call it what it is because “QE” was coined in place of “money printing.”  The socially correct posture to assume on Wall Street and in DC at the Fed is to label the current bout of money printing “repo operations.”  In fact, based on all of the underlying data I scour daily, let’s just cut to the chase and call this a de facto banking system bailout.

The technical details on why the “plumbing” in the banking system is getting “clogged” is mere surface analysis.  The underlying systemic problems are similar to the problems that pulled the rug out from under the financial system in 2008.  Bank assets, specifically subprime lending assets, are melting down again.

We’ve seen this movie before and the “regulators” were supposed to have blocked the banks from engaging in financial pornography. But, of course, just like teenagers who discover Pornhub, the greedy bankers undeterred by superficial legislation and an absence of independent regulatory oversight (every senior regulatory official has either worked on Wall Street or worked a law firms who get paid to keep Wall Street bankers out of jail) couldn’t help themselves.  CLO’s, 100% LTV lending, non-income verification consumer loans and OTC derivatives with orgasmic fees have re-emerged in full force.

As an example, Citibank is now sitting on top of nearly $1 trillion in credit default swaps – see this, which has the appropriate links:  Citibank CDS.   The article notes that:  “the New York Fed secretly hid from the public’s view that it had funneled $2.5 trillion (yes, trillion) to Citigroup and its trading units from December 2007 to at least July 21, 2010. That last information only became public after more than two years of court battles with the Fed.”

In the minutes released from the last FOMC meeting, the Fed is now discussing extending the money printing operations to April. Imagine that, what started as giving corporations a little help to pay quarterly taxes in September has morphed into and is on its way to half a trillion dollars of printed money handed over to the banks. Doesn’t seem strange that all the money created for corporate tax payments has not  found its way into the Treasury Department’s bank account? How do we know?  Because  a large portion of the money printed has financed new Treasury debt issuance.

Wall Street on Parade is making a motivated, if not valiant, effort to dredge up the truth with regard to to re-start of the Fed’s massive money printing operation. But I hope the Martens are not holding their breath on getting a response without an expensive legal battle:

On October 2, 2019 we filed a Freedom of Information Act (FOIA) request with the New York Fed. We requested “emails or any other forms of written correspondence from the Federal Reserve Bank of New York to JPMorgan Chase or any of its subsidiaries or affiliates containing any of the following words or phrases: ‘repo,’ ‘repurchase agreements,’ ‘overnight lending,’ or ‘reserves'”…

Our FOIA request was acknowledged by the New York Fed as received on October 2. We should have had a meaningful response on November 1. Instead, we received an email advising that we would not hear further from the New York Fed until December 5, 2019…Instead of the mandated 10-day extension that is allowed under law, we were given more than a month-long extension. On December 5, the New York Fed emailed us to say it was extending the time to respond to January 9. – Fed Balance Sheet Explosion

Make no mistake, the melt-up in the stock market, the majority of which is confined to just a handful of stocks – AAPL, MSFT plus a few insanely overvalued unicorn-type stocks (TSLA, SHOP, etc) – does not reflect a “booming economy.” Rather, it’s evidence that the financial and economic system is melting down beneath the propaganda.  With its bailout policies, the Fed has made a complete mess of the financial markets. And it’s worse this time  than it was in 2008.

Aside from some select shorts in stocks like TSLA and AAPL, buying gold and silver (physical bullion not paper derivatives – yes, GLD is a derivative) and mining stocks is the no-brainer trade of 2020.

“Rates Were Pushed Off The Cliff By The Central Banks”

The title quote is from Tad Rivelle, Chief Investment Officer of TCW (Los Angeles based fixed income management company), who manages one of the largest actively managed bond funds. He goes on to comment about the implications of the negative rate policy that has been implemented by Japan and the EU: “Credit markets look late cycle, manufacturing looks pretty late cycle and corporate profitability, as well. So the proliferation of negative rates may also suggest that central bank policy has reached exhaustion. It’s almost like negative rates are the last thing central bankers are trying to make it work.”

Many investors and market observers wonder why the Fed/Central Banks just can’t print money forever and drive the markets even higher. The answer can be found in the law of diminishing returns. When Central Banks print money – in our case dollars – at a rate that exceeds the amount of wealth produced to “back” that money printed, it begins to diminish the value of each extra dollar created. As the system becomes saturated with dollars, the Central Banks then try to force the market to use the oversupply of currency bu taking rates negative. This problem is reflected in the velocity of money (the number of times each currency unit changes hands):

That chart is the essence of the law of diminishing returns as it applies to the money supply. Think of it as the “productivity” of each dollar in the system.  Greenspan initiated the paradigm of using money printing to “fix” credit market and stock market problems.  These “problems” were in fact the market’s price discovery and risk discounting mechanisms . He was given the name “Maestro” because seemingly fixed economic and financials problems, though all he really did was defer their resolution.

In fact, Greenspan used money printing to paper over the underlying system structural problems going back to the market crash in 1987.  Greenspan, who was installed as Fed Chairman two months prior to the crash, confirmed that the Fed stood ready “to serve as a source of liquidity to support the economic and financial system.”

In effect, the chart above reflects the fact that a large portion of the printed money, rather than circulating in a chain of economic transactions, sits stagnant in “pools.” As an example, the money printed and given to the banks in the first three QE programs sat in the Fed’s excess reserve account “earning” a tiny rate of interest which is nothing more than additional printed money used to boost bank earnings and give the banks no-risk, unearned cash flow.

As printed money sits idly, the Central Banks artificially lower the “cost” of money, which is also known as the interest rate, thereby making an attempt to force money into the system and incentivizing companies and consumers to use this money by making it nearly costless. Currently Central Banks are cutting interest rates at the fastest pace since December 2009.

Lowering rates toward zero is a temporary fix – i.e. it only serves to defer the inevitable economic bust cycle. But an oversupply of currency which can be used – or borrowed – at little to no cost also ushers in credit bubbles which become manifest in the form of the various asset bubbles, like the housing and stock bubbles, or is used for purposes which do not create economic value. The best example of the latter is when corporations borrow money at near-zero interest rates and use that borrowed money to buyback shares. There is absolutely no economic benefit whatsoever from share buybacks – none, zero – other than for the corporate insiders who dump their shares into buybacks.

This brings me to the quote at the beginning from Tad Rivelle: “the proliferation of negative rates may also suggest that central bank policy has reached exhaustion; it’s almost like negative rates are the last thing central bankers are trying to make it work.” The velocity of money chart is evidence that printing money and forcing interest rates to zero are measures which eventually fall victim to the Law of Diminishing Returns.

The Central Banking policy of near zero and zero interest rates combined with unfettered money creation has lost its “traction.” We are approaching the point at which money printing will not produce the intended effects. In response “rates have been pushed off a cliff by Central Banks.” It’s been acknowledged that Trump discussed negative rates with Fed Chairman Powell just a few weeks ago.

The imposition of negative interest rates on the financial system perversely turns the laws of economics inside-out. Ironically, perhaps fittingly, it’s a desperate act of economic treason that will boomerang back and decapitate the global economy, including the U.S. This reality is already reflected in the rapidly contracting manufacturing reportsand the confirmed by the freight transportation data, which have been collapsing for the better part of the last year.

The commentary above is from a recent issue of the Short Seller’s Journal. Despite the melt-up in the stock market, several stocks are sectors are diverging negatively and I have presented some short ideas that have been making money – Lending Tree (TREE) is a good example.  To learn more follow this link: Short Seller’s Journal information.

 

 

As The Financial System Melts Down Gold And Silver Will Soar

To the extent that some analysts reject the Fed/Wall St/Perma-Bull narrative that the Fed’s repo operation is needed to address “temporary” liquidity issues or was caused by the newer regulatory constraints, the only explanation offered up is that the financial system’s “plumbing” is malfunctioning.  But there has to be an underlying cause…

…The underlying cause is abject deterioration in credit instruments – largely subprime right now – is causing an ever-widening chasm between the value of these securities and the funding used to finance those asset values.  The banks have reduced their willingness to fund  the increasing demand for overnight collateralized loans because they see first-hand the degree to which some of the collateral has become radioactive (CLO bonds, for instance).  The Fed has had to plug the “gap” with its repo operations, several of which have maturities extended up to a month. This is de facto QE, which is de facto money printing.

As this slow-motion train wreck unfolds, more money printing will be required to prevent systemic collapse, which in turn will trigger an explosive move higher in gold, silver and mining stocks.  Chris Marcus of Arcadia Economics invited me onto this podcast to discuss these issues in a little more detail:

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Currently junior mining stocks are the most undervalued relative to the price of gold and silver as at any time in at least the last 20 years.  But several producing gold and silver mining stocks are extraordinarily cheap.  I featured one in my Mining Stock Journal that’s up nearly 14% since Thanksgiving.  I’ll be presenting a similar producing mining stock in the next issue released Thursday.

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