Tag Archives: repo

Helicopter Money Will Send Gold Soaring…

Fiat justitia ruat caelum – Let justice be done though the heavens fall

…and the current gold/silver ratio indicates silver will soar even more.

Central Banks and sovereign Governments have been given a free pass to print money and bail out the banking, hedge fund and corporate interests from catastrophically hopeless loan, bond, subprime asset and derivative positions. The coronavirus crisis will be fingered as the culprit but market forces would have forced a financial collapse eventually anyway (see 2008 for the playbook). While the helicopter money will bail out the real perpetrators, it will also effect insidious currency devaluation aka inflation.

Chris Powell at GATA posted a must-read essay on the systemic effect of the impending acceleration of Central Bank printing presses:

“The success of a system of infinite money requires infinite commodity price suppression to defend government currencies. Gold price suppression has been Central Bank policy since the London Gold Pool of the 1960s.  But not only are government currencies becoming harder to defend amid the dislocations caused by the virus epidemic, governments no longer may want to defend their currencies so much.  They want to reflate asset valuations. But even before the virus epidemic, equities and bonds already were highly overvalued by traditional measures, and how can they be worth as much as they were now that world production is declining? Only devaluation of currencies can accomplish reflation.”

You can read the entire essay here: “As infinite money chases collapsing production, gold is on call

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.

Stocks, Bonds, Paper Gold – What The Hell Is Happening?

Make no mistake, the financial system is collapsing under one giant margin call being issued to banks and hedge funds. How big?  No one knows. The Fed obviously was preparing for something when it commenced its money printing in September. But it had no idea of the scale of the underlying systemic problems.  Coronavirus is not the cause of what’s unfolding in the markets – it merely served as the pin that pricked the biggest financial asset bubble in history.

The $1.5 trillion “repo” QE announced by the Fed today did a complete belly flop, as the Dow closed 400 points lower than where it was trading when the QE was announced.  This will take the Fed’s balance sheet well above its peak level during QE1-3.

Craig “Turd Ferguson” Hemke and I had a short discussion about the devastation in the stock and credit markets, including trying to make sense of the action in the precious metals sector – Use this link to access the podcast and TF Metals or click on the image below:

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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

Gold Signaling A Financial System Disaster Will Hit

And it’s not just gold. The Fed is already hinting that more money printing is coming.  Powell suggested at his semi-annual Congressional testimony that QE would be used in the next recession.  A couple other Fed officials this week confirmed that the FOMC is preparing to crank up the printing press even more than it has been running since mid-September.

But why does the Fed feel compelled to warn us that more money printing/currency devaluation is coming if, as Powell told Congress, “the economy is in a good place?”

To begin with, money printing is not stimulating economic growth. The economy has been sliding into contraction for quite some time. Since the “repo” operations began, that pace of contraction has increased.

Make no mistake, the Fed is printing money for two reasons. First and foremost to plug the widening chasms in bank balance sheets brought on by taking on highly risky lending and derivatives risks.  This why the bank excess reserve account has drained steadily since late 2014:

Why was QE restarted? This article partially explains the reason:  Banks Stuck With Billions In Risky Leveraged Loans As Investors Flee The formal term for this is “moral hazard.”  The second reason is to monetize the flood of new Treasury issuance that began in the fall of 2019. Currently the Fed’s Treasury holdings are nearly as high as its peak during  of the first period of money printing (QE1-3).

Yes, the appearance of coronavirus is going to exacerbate the systemic problems engulfing the world. But Corona has NOTHING to do with the fact that the U.S. is overleveraged at every level of the economic system (Government, corporate, household) and China, Japan, and  EU are overleveraged at the Government and corporate level.

EU and U.S banks are  highly stressed from holding non-performing assets (subprime loans primarily) compounded by derivatives connected to those assets, which are deteriorating rapidly in value. The global economy was sliding into a nasty recession well before corona hit the scene. Corona merely will hasten the inevitable. The that fact that the global economy can’t withstand this particular exogenous shock reflects the extent to which the global economic/financial system was already headed toward the cliff.

With the stock market broken (i.e. its price discovery mechanism removed by Central Bank money printing), gold soaring despite heavy intervention attempts, the 30-yr Treasury bond yield hitting an all-time low and the Fed telegraphing even more money printing is coming, something really ugly is going to surface and cause financial system destruction similar to what occurred in 2008 – only this time it will be worse.

For now my front-runner in the race to collapse is HSBC. Deutsche Bank seems to have been somewhat stabilized from massive intervention by the ECB, Bundesbank and German Government (though that “appearance” of stabilization likely is deceptive). Judging from its stock chart, which has woefully underperformed the sector since mid-2018 and has substantially underperformed DB since mid-December, HSBC appears to be on the ropes. It may be more insolvent than DB now.  HSBC is loaded up on overvalued, illiquid Hong Kong real estate loans among many other reckless investments.

I think whatever coming at us is going to make things unpleasant for everyone. But you can help protect your financial situation by buying physical gold and silver that you safekeep yourself.  Gold broke out in a major way in mid-June. It sniffed out the systemic problems starting to surface well ahead of the reimplementation of money printing in September.

Gold raced to a 6-year, 11-month high last week. It’s only a matter of time before it assaults the previous all-time high of $1900. Though inexplicably underperforming gold, silver is percolating to make a move like the current move in palladium. And last but not least, the junior mining stocks are setting up for a move that will make the current tech-mania bubble seem tame.

Gold Chases The Money Supply Higher

Q: “Why is the Fed reluctant to let the boom-bust nature of markets play out?”
A: “Because it what’s they’ve always done [since the Fed was founded in 1913]…Once you’re in power, you’re going to do what you can to defend the system as it is”

The best official measure of the money supply created by the Fed was M3.  “Was” because the Fed under Helicopter Ben removed M3 from public view.  But the “effective” money supply is the currency printed plus the “spendable” currency created by debt issuance. Currency from a loan behaves like printed money until the loan is repaid.  But for the last 10 years the amount of the loans outstanding, and therefore the supply of “spendable” currency,  has risen at an increasing rate.

Gold can “smell” these reams of fiat paper currency being printed and then fractionalized and leveraged by the Central Bank. The “fractionalization,” of course, is the process by which loans (including repos) creates spendable currency.

SilverBullion invited me back onto its SBTV podcast to discuss the markets in the context of the QE4 and what it means for 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

The Stock Market, Gold, Silver, Mining Stocks And Tesla

The stock market has become a powerful political and economic propaganda tool. It’s hard to dispute the idea that economy is not “in a good place” or “booming” when the Dow goes up 100 points or more everyday. Trump understands this and has been coercive in the Fed’s decision to loosen monetary policy and re-start the money printing press. Ironically, Trump tweeted this in 2012 (as sourced by northmantrader.com):

Make no mistake, the economy nearly every sector of the economy is contracting  except consumer spending and defense spending, both of which are being driven by record levels of consumer and Government debt.

Meanwhile, the precious metals sector is getting ready for another move higher and, according to Factset, currently 45% of all research analysts either have a sell or underweight (which is diplomatic “sell”). Silver Liberties invited me onto this podcast to have some fun and discuss these topics:

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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

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.