Tag Archives: money printing

Gold, Silver And Mining Stocks Smell The Demise Of The Dollar

The news that Warren Buffet took a stake in Barrick Gold stimulated animal spirits in the precious sector on Monday. To be sure, this was a factor in the move on Monday. However the precious metals are starting to price in the next round of money printing by the Fed and the coming avalanche of new Treasury bonds, both of which will be considerable in quantity and serve to further devalue the U.S. dollar. On that note, the US dollar index tumbled below 93 on Monday. In addition, per the TIC report which shows the flow of international capital into and out of U.S. securities, foreign entities led by China dumped $20.6 billion worth of Treasury securities in June.

The message is clear: the Fed will need to be a large buyer of the upcoming Treasury bond issuance and the precious metals sector loves the smell of this.

Chris (Arcadia Economics) and I discuss last week’s one-day price pullback in the precious metals sector and factors that will drive gold, silver and the mining stocks up to levels that may even surprise jaded goldbugs:

**************

Several of my junior and larger cap stock ideas have had huge moves higher. I will be discussing what to do with these stocks in the next few issues of my Mining Stock Journal plus presenting any new ideas I uncover that have yet to be widely discovered. You can learn more about Investment Research Dynamic’s 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

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

Owning Gold And Silver Is Critical For The End Game

“…unprecedented monetary stimulus is fueling asset bubbles and corporate debt addiction — rendering interest-rate hikes impossible without an economic crash…gold could rise to $3,000 to $5,000 an ounce in the next three to five years” – Diego Parrilla, head of the $450 million Quadriga Igneo fund, which is up 47% YTD

My personal view is that Diego is low by several  multiples on his estimate for the eventual price of gold before the entire system is reset. And, based on the current gold/silver ratio, the price of silver is 4x undervalued in relation to gold.

Kenneth Ameduri invited me back on to his Crush The Street podcast to discuss the factors behind the precious metals raging bull market and what the end game might look like:

**************

Several of my junior and larger cap stock ideas have had huge moves higher. I will be discussing what to do with these stocks in the next few issues of my Mining Stock Journal plus presenting any new ideas I uncover that have yet to be widely discovered. You can learn more about Investment Research Dynamic’s 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

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

Jay Powell’s Printing Press And The Idiot Stocks

I’d like to thank Jay Powell and his marvelous printing press.  The equity side of my investment fund, which I manage, is 100% mining stocks – mostly juniors – and as of today it’s up 100% QTD.  Thank you Jay.  Almost every stock we hold is from the ideas I present in my Mining Stock Journal.

But I’m here to discuss the “idiot stocks.” I’ve decided to label stocks like SHOP, W, TSLA, BYND, CVNA, etc as “idiot stocks.” Yes, ignorant speculators have managed to get lucky trading these stocks during a period of time when the Fed has printed the greatest amount of money in its history. But only an idiot would consider them to be long term, fundamentals-based investments. Not one of those stocks has ever produced a valid GAAP profit and never will. They are largely cash-burning furnaces that have benefited from a stock market that, for now, will tolerate any negative event short of nuclear war.

The latest idiot stock with which I’ve started toying is Fastly (FSLY, $86). FSLY is an “edge” cloud-based technology services business focused on real-time content delivery network services. FSLY’s market is $8.14 billion which is 38.6x trailing revenues. For 2019 the Company generated $200 million in revenues. It looks like, based on its growth rate and Q1 revenues of $63 million, that it will generate maybe $270-280 million in revenues in 2020. The point of this is that it’s a small company with significant inherent business risks, not the least of which is obsolescence and competition.

Like most of the idiot stocks, FSLY operates at a loss every quarter and its operations burn cash every quarter, even adding back the non-cash expense of stock-based compensation. Of course, stock-based comp imposes silent shareholder dilution. And insiders are ensuring this dilution happens quickly, as almost everyday insiders exercise zero-cost stock options and then turnaround and dump the shares in the market. At the end of Q1/19, there were 25 million shares outstanding. Now the share-count is 95 million.

The stock chart, RSI and MACD pretty much speak for themselves. This is one of the more overvalued stocks I’ve analyzed, ergo an idiot stock. I’ve been playing around with near-money puts for the last 7 trading days. Despite the chart appearance, I’ve managed to eek out a modest profit.

The implied vol is very high, especially for the call options. This means shorting OTM calls is a better proposition than buying puts. The July 17th $120 calls were $2.20 bid on Friday. Shorting these would be the equivalent of picking up nickels in front of a steam-roller. If you feel like stepping up the risk for higher profits, the August $120 calls can be shorted around $7, plus or minus 20 cents. The short interest is not very high (6%) so you won’t have to worry about a short-squeeze. If you short the calls, use a 20% stop-loss.

Because the implied vol is so high (on average it’s 100%), the puts are expensive – even deep OTM puts. This is why I’m sticking with weekly near-money puts for now. But this stock was trading at $45 on June 11th. On this basis it might be worth taking a shot with August $60’s. Another interesting idea is the January 2021 $20’s. The last trade in this put was this past Wednesday at $2.81. If you short the stock, use a 20% stop-loss. You want to give yourself room to weather the high volatility and avoid getting stopped out on a brief 10% intra-day spike.

The commentary above is from my Short Seller’s Journal.  FSLY dropped as much as $10 on Monday. I scored a double on the puts I bought on Friday. Several of my subscribers bought puts in early trading Monday and booked profits that made it worthwhile getting out of bed today. You can learn more about this newsletter here:  Short Seller’s Journal information.

The Bull Move In Gold, Silver And Mining Stocks Is Just Getting Started

The current financial and economic environment supporting a significant and durable move in the precious metals sector is similar to conditions in 2000 through 2008 that fueled the 11 year run from 2000 – 2011.  Only this time those factors – Fed money printing, a collapsing financial system and massive financial asset bubbles – are several multiples more powerful.

Bill Powers invited me onto his Mining Stock Education podcast to discuss risks involved in investing in junior mining stocks, use of stop-losses and attributes which underlie junior exploration projects that become successful, including a couple junior stocks I think could do well in the next few years:

**************

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

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

Fed Lies And Money Printing: Rocket Fuel For Gold

For central banks, monetary inflation is everywhere the solution. Bank rescues, payment chain failures, the furloughing of millions of employees, helicopter money to bail out whole populations, money to bail out governments, money to support all categories of financial assets: the list is endless in scope and infinite in quantity. The survival of the global financial system is at stake. If it survives, state-issued money will have been destroyed. But then what is the point of owning financial assets valued in valueless currency?

While this process of monetary destruction would have reasonably been expected to evolve over time, the coronavirus has accelerated it. The fate of the $640 trillion derivative mountain recorded by the Bank for International Settlements is sealed and will be settled through bank bankruptcies and state-directed elimination. – Alasdair Macleod, The Looming Derivatives Crisis

Phil/John Kennedy hosted John Titus and me to try and untangle The Big Lie that is the Federal Reserve and the real reasons behind the Fed’s massive money printing program:

**************

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

Physical Gold And Silver Continue To Disappear

I was watching one of the Fed Governors who made the assertion that “low interest rates would be here for a long time” and I thought to myself this guy must be on drugs because the U.S. has had low interest rates for 12 years now, which is already a long time.

The current shortage in physical gold and silver was developing many months before anyone ever heard of “coronavirus.”  In fact, what’s happening now as Central Banks print trillions of paper currency further validates Gresham Law. Bad money drives out good money – physical gold and silver will be hoarded and fiat paper Central Bank money will be used for transactions.

Rob Kreinz of GoldSilverPros invited me onto his podcast to discuss the ramifications of rampant money printing and the rush into physical gold and silver:

**************

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

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:

**************

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

“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.

 

 

Junior Exploration Stocks Are Generationally Undervalued

Gold and silver are set up potentially for an explosive move, fueled by the inevitable escalation of Central Bank money printing. The Federal Reserve has led the charge on this account over the last three months as the financial system has begun to veer off the rails.

Currently, the Fed is printing money at the fastest rate in its history. The brown stuff is hitting the fan blades in the financial system.  By mid-January the Fed’s balance will be close its all-time high.  Fiat currency devaluation aka QE aka money printing is like rocket fuel for gold and silver.

A lot of mining stock analysts are drooling over the charts of the large cap stocks. And kudos to Crescat Capital for sharing the chart of above (with my edit in yellow). But the junior exploration “venture capital” stocks are the most undervalued relative to the prices of gold and silver in at least the last 19 years, which is the amount of time I’ve been involved in the precious metals sector.

Last Thursday gold  spiked up $14 before the stock market opened. But when Trump tweeted that a trade war “Phase 1” deal was close, gold went $20 off the cliff.  However, February gold closed flat vs Wednesday’s close and March silver has reclaimed the $17 level.  It’s a big positive that the “Phase 1” trade deal was signed because now Trump won’t have the ability to jerk the markets around with his silly “positive trade talks” tweets.

More important to the gold bull market, the Fed once again expanded the repo money printing QE operations. Early today (Thursday, December 12th) the Fed announced an additional $275 billion in repo operations around year-end. Adding all of it up, the Fed will be pumping half a trillion dollars into the repo system over year-end. This is unequivocally due to bank assets melting down and the need to finance new Treasury debt issuance.

The Fed’s re-liquification program will be given creative names – anything but “QE.”  It started off with “balance sheet expansion” but that term was abandoned because of its transparency. The best one I’ve heard so far is “yield curve capping operation.”  Watching Jerome Powell try to camouflage the Fed’s money printing  is like watching a baby  smoke a cigarette.

It’s a good bet that eventually the repo activity will be converted into a permanent “QE” money printing program.  The best way to make this wager  is via the precious metals sector.

The Fed’s Repo QE: The Underlying Problems Are Escalating

Pressures are already building on the financial stability front that will make the next economic downturn messier than anticipated.” – Bill Dudley, former President of the NY Fed

I get irritated when I see mainstream media and alternative mainstream media parroting the propaganda used to cover up the truth. This morning Zerohedge echo’d the “corporate tax payments liquidity squeeze” narrative first used back in September to justify the re-start of the repo QE program. I would have thought that idiotic excuse would have been proved wrong after this:

It’s truly amazing that Fed officials come clean after they leave their post at the Federal Reserve. We’ve seen this dynamic for sure with Greenspan. Not so much with Bernanke, but I always considered Bernanke to be a bad liar and it seems that he’s chosen largely to fade from public exposure. Ditto with Janet Yellen.

Bill Dudley, however, is a former partner of Goldman Sachs and thus highly intelligent (as is Greenspan – Bernanke and Yellen not so much). Dudley clearly sees the writing on the wall. Now that he’s not in a position at Goldman in which it’s advantageous for him to promote stocks in exchange for big bonuses, or at the Fed where it’s politically correct to rationalize a bullish narrative (“Fed-speak”), he’s coming “clean” per the quote at the top.

The Fed’s current posture, based on the Fed officials’ weekly speeches ad nauseum, is that the economy is healthy with moderate growth and a strong labor market. If this is the case, however, why is the Fed printing money on a monthly basis in an amount that is close to the peak monthly “QE” after the financial crisis?

The question, of course, is strictly rhetorical. In fact the Fed once again quietly increased the amount of money it is printing and handing over to the banks. On November 25th the Fed released an updated repo operation schedule which showed additional repo operations totaling at least $50 billion. The Fed has also made its website less user-friendly in terms of tracking the total amount by which the repo operations have increased since the first operation in mid-September.

The 28-day repo QE for $25 billion that was added to the program Nov 14th was nearly 2x oversubscribed this morning, which means the original $25 billion deemed adequate 3 weeks ago was not nearly enough – a clear indicator the problems in the banking system are escalating at a rate faster than the Fed’s money printing operation. Just wait until huge jump in subprime quality credit card debt that will be used to fund holiday shopping begins to default in the first half of 2020…

The chart to the right shows the Fed’s repo schedule posted on September 23rd on the top and the latest repo operation schedule on the bottom. I suspect this won’t be the last time the Fed will increase the amount of its “not QE” QE money printing. Additionally, the Fed refuses to identify the specific banks which are receiving most of the repo money. One obvious recipient is Deutsche Bank, which is quietly shutting down a large portion of its business operations and is likely technically insolvent. Per a 2016 IMF report, DB is highly interconnected to all of the Too Big To Fail banks (JPM, GS, C etc). This means inter-bank loans and derivatives counterparty exposure, among other financial connections. Aside from the DB factor, as I detailed last week with deteriorating leveraged loan/CLO assets held by banks, I am convinced that the “repo” money is needed to help banks shore up their liquidity as loans and other assets begin to melt-down. This is quite similar to 2008.

For more insight into the truth underlying the Fed’s renewed money printing operations, spend some time perusing articles like this from Wall Street On Parade.