Tag Archives: money printing

The Economy, Gold, Silver and Mining Stocks

As of last week, the Federal Reserve now owns 16.5% of the total amount of Treasuries outstanding and 18.5% of the total amount of mortgage-backed bonds outstanding. With out this massive amount of Fed intervention,  interest rates would be significantly higher and the housing market would be in shambles.

The Fed’s balance sheet nearly doubled since March.  While the stock market has rallied to all-time highs since March, there’s still well more than 20 million people receiving unemployment benefits on a weekly basis. The economic bounce-back from the shut-down of the economy in March and April appears to have peaked in July.  By many measures, the economy is starting to contract in again in many sectors.

Silver Liberties and I discussed the reasons why it looks like the Fed is prepping the country for another big round of money printing, which means another big move higher in the gold, silver and mining stocks:

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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

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.

New Mining Stock Journal Subscriber: “This is a lot of value for $20 a month. Thank you so much!” – Jorgen

Did The Tech Bubble Pop On September 2nd?

For me it doesn’t not matter who wins the election. The person in the Oval Office is not in control of the monetary policies that form the fundamental basis for owning physical gold and silver. Regardless of which party sits in the Oval Office and Congress, the budget deficit and debt load will accelerate and thereby money printing will accelerate. The dollar will start to decline at a more rapid pace than it has declined since mid-March. Gold and Silver will climb over $2,000 and continue moving higher. At some point the stock markets will buckle under the pressure of a falling dollar and rising interest rates.

The chart above (from Crescat Capital) shows an analog that compares the Dow between 1919-1932 and 2009 to the present. The key underlying factors that drove the the stock market in both time periods to an insanely overvalued top and subsequent descent are worse now than back in the 1920’s/early 1930’s: currently stocks have higher multiples, the global economy is more leveraged and Central Banks have created a far bigger systemic imbalance now vs. then.

Also, derivatives were not yet invented and thus not a factor in creating a far bigger “leverage factor” that is impossible to quantify but that will ultimately be lethal to the financial system. This chart illustrates this point using  the volume for exchange-traded options – the OTC derivatives market is far larger in nominal value than the stock market (data from Bloomberg, Artemis Capital):

The light blue line shows total stock market volume plotted against the yellow line which shows total options volume. The proverbial tail is wagging the dog and the Fed and the Government regulators are to blame. The unwind will be ugly for stock market bulls.

That said, I expect the Fed will juice the money supply after a Presidential winner is declared. This may or may not push the stock market higher. I think we can expect a brief move higher in stocks after the election. But soon thereafter the fundamental realities will sink in and have a negative effect on the stock market.

Did the tech bubble pop on September 2nd? –  “Bubbles tend to topple under their own weight. Everybody is in. The last short has covered. The last buyer has bought (or bought massive amounts of weekly calls). The decline starts and the psychology shifts from greed to complacency to worry to panic. Our working hypothesis, which might be disproven, is that September 2, 2020 was the top and the bubble has already popped.” – David Einhorn, Greenlight Capital

 

We won’t know the answer to that question for at least a few months.  In the chart above I sketched in loosely the uptrend line followed by the Nasdaq to an all-time high since the March bottom. The Nasdaq broke below the 50 dma in September (yellow line), then rallied to retest the uptrend line. It bounced off the uptrend line and headed lower almost immediately to form a lower high, after which it fell back below the 50 dma.

At some point I expect the Fed to step in with more money-printing but not until some point after an election winner has been declared. That money will directed at injecting more liquidity into the TBTF banks and funding another big wave of Treasury issuance after the election. But for now the path of least resistance in the stock market is down punctuated with bouts of high two-way volatility.

The commentary above is an excerpt from the Short Seller’s Journal, a weekly newsletter that dissects the latest economic reports and presents ideas for short seller’s. You can learn about it here:  Short Seller’s Journal information.

Gold, 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:

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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:

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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:

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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

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:

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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

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:

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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

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

“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.