Tag Archives: silver

Repos, Money Printing and Paper Gold: It’s One Massive Manipulation

The paper gold derivative open interest on the Comex continues to hit success all-time highs.  This is no coincidence, as the Fed has restarted the money printing press in what ultimately will be a catastrophically failed effort to prevent the coming global credit and derivatives melt-down.  The successive daily all-time highs in the stock market, believe it or not, is evidence that the wheels are coming off the global financial system.

The melt-up in paper gold contracts mirrors the melt-up in the Dow/SPX – both are frauds. Kerry Lutz me invited onto this FinancialSurvivalNetwork.com podcast to discuss the truth behind the repo programs and why the asset bubbles blown by the Fed could be getting ready to pop:

Click on this LINK or on the graphic below to listen/download the show:

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

The Real Stock Market Is Declining

The major stock indices – the Dow, SPX and Nasdaq –  have wafted up to all-time highs on a cloud of Central Bank printed money.  Interestingly, most of the stocks in all three indices are below to well below their all-time highs.  Breadth of the move is shockingly thin.  Very few stocks are responsible for pushing the indices higher. The Dow’s move last Friday, for instance, was primarily attributable to AAPL (by far the biggest contributor), MSFT, HD, UTX and JPM. Of those, only AAPL, UTX and JPM hit their all-time high on Friday.  MSFT and HD were close.

Many of the Dow stocks are down significantly this year. If you find this hard to believe, run the 1yr charts of the 30 Dow stocks. I’m certain the same is true for the SPX and Naz.

Despite the appearance of the stock market moving higher, most of the stocks that make up the 2800 stocks on the NYSE are well below their all-time and/or YTD highs. There’s plenty of money to be made shorting stocks despite the headline, mainstream media and White House’s euphoria over the stock market’s performance. Moreover, short interest in the SPY ETF has plunged to a level that has, in the past, led to sharp sell-offs in the stock market.

And then there’s this, which is the best measure of the real rate of return stocks:

Over the past 52 weeks through November 6th, the S&P 500 has declined 10.5% when measured in terms of gold – i.e. real money.  Money printing at a rate in excess of real wealth output diminishes the marginal value of the currency.  Because the price of gold moves inversely with the inherent value of the dollar, the chart above reflects the effect of dollar devaluation on financial assets.

Thus,  the real upward movement of the stock market highly deceptive in terms of both the number of stocks in the NYSE participating in move higher and in terms of using real money to measure the price of stocks.

With The Return Of QE, Mining Stocks Are Cheap

There’s a strong probability that the Fed’s “non-QE” QE operations will morph into a full-blown money printing program that will exceed the one implemented starting in late 2008. The same fundamentals variables that fueled a massive move in the the precious metals sector from late 2008 thru mid-2011 have resurfaced with a vengeance.

The pullback in gold, silver and the mining stocks that began in early September appears to have run its course. Currently the entire sector is technically and fundamentally set-up for a big run into the end of the year. The re-activation of Indian imports last week for the first time since June will give the coming bull move a powerful boost.

Bill Powers of MiningStockEducation.com invited me back onto his podcast to discuss some of the stocks that I believe will outperform the sector. These three ideas are among several that I cover in my Mining Stock Journal:

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The Mining Stock Journal  covers several mining stocks that I believe are extraordinarily undervalued relative to their upside potential. I also present opportunistic recommendations on select mid-tier and large-cap miners that should outperform their peers.  You can learn more about this newsletter here:   Mining Stock Journal information.

Subscriber feedback: “I am a professor of aerospace engineering. I have studied and invested in junior mining stocks for 25 years. I have learned much about this sector. The stocks that you have recommended since starting MSJ have outperformed the other junior investment services that I follow. Perhaps one reason is that, because your service has a smaller circulation, you can find and recommend smaller companies that have not been discovered and cannot be recommended by services with huge circulations.”

The Fed Cranks Up Its Printing Press

“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Helicopter Ben Bernanke’s address to the National Economic Club, 2002

It took the Fed more than 4 1/2 years to remove from the banking system just $750 billion of the $4.5 trillion in money it printed. The Fed stopped the removal process (“Quantitative Tightening”) at the beginning of September. But just 13 days later the Fed began adding liquidity back into the banking system via its repo operations. 42 days later, the Fed’s balance sheet has spiked up by $253 billion and is back over $4 trillion:

41% of that $253 billion ($104 billion) was put into the banking system in the last three days of this past week.

Apparently the repo/term repo operations were not enough.  On October 11th, the Fed announced that it was going to purchase at least $60 billion T-bills per month through at least the 2nd quarter of 2020.  The rationale was “in light of recent and expected increases in the Federal Reserves non-reserve liabilities” (link).  “Non-reserve liabilities” refers specifically to “currency in circulation.” The only way to increase currency in circulation is to create it. Thus, the above rationale is a decorative phrase for “money printing.”

The problems in the banking system targeted by the Fed’s money printing are likely getting worse by the day.  The Fed has now conducted three outright money printing operations since October 11th. Each operations has been progressively more over-subscribed. Today’s operation of $7.5 billion had nearly $6 of demand for every $1 printed and offered.

As I have asserted since the Fed’s repo operations commenced, the problem is significantly more profound than the “quarter-end liquidity” needs of corporations and banks. I suggested that the liquidity injection program would quickly increase in size and duration, ultimately morphing into permanent QE/balance sheet growth/money printing.

While some of the money being printed will be used absorb the massive amount of new Treasury issuance, the nexus of the problem is seeded in the big bank balance sheets and business operations. The problems leading up to the 2008 crisis were never fixed – just papered over. Furthermore, the legislation that was promoted to prevent a repeat of 2008 and protect the taxpayers was nothing more than window dressing which enabled the banks to hide their massive fee-generating recklessness (Dodd-Frank, Consumer Financial Protection Bureau).

The “Too Big To Fail” bank balance sheets collectively are close to double their size in 2008. A frighteningly large portion of these assets are sub-prime or near-sub-prime loans plus OTC derivatives that have been well-hidden off-balance-sheet. One of the regulatory initiatives put into effect in 2010 enabled banks to hide their total derivatives holdings behind a nebulous concept called “net derivatives exposure.” The “net” metric supposedly measures a bank’s unhedged net economic risk exposure, netting out off-setting hedges with counterparties.

But counterparty defaults were one of the key detonators of the 2008 financial melt-down. Unfortunately, Congress and the Fed have enabled the banks, after monetizing their catastrophic business decisions in 2008, to create a financial Frankenstein that is now financially apocalyptic in scale. The rapid escalation of the repo operations is evidence that the fuses on the various financial bombs have been lit.

Repo Operations, Money Printing, Gold And Mining Stocks

The Fed is printing money again – this time disguised as “repo operations” instead of “QE.” The price of gold and silver rallied over the summer anticipating an easier monetary policy. The economic problems and financial system excesses are two to three times larger than in 2008. This will necessitate a money printing/QE/balance sheet expansion operation that dwarfs the $4.5 trillion printed the first time around. Plus most of the money printed from 2009 to late 2014 is still in the banking system.

The scale of the inevitable money printing policy will not stimulate economic activity but it will act as rocket fuel for the precious metals market – gold, silver and mining stocks. Ten years of Central Bank money printing has pushed debt issuance, malinvestment, moral hazard and fraud to levels that well-exceed the levels when Lehman collapsed.

Craig “Turd Ferguson” Hemke invited me back onto his “Thursday Conversation” podcast to discuss the the Fed cranking back up its money printing machine and the implications for gold, silver and mining stocks. Click on the link above or the graphic below to listen:

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In the latest issue of the Mining Stock Journal, I review several junior mining stocks plus I recommend a larger cap silver/gold/lead/zinc producer that has been sold off irrationally and which will report great earnings in Q3 and Q4 vs the same quarters in 2018.

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

The Fed’s Money Printing Escalates

Last week the Fed announced that it was going to start buying $60 billion in T-Bills per month at least into Q2 2020.  The Fed will also rollover the proceeds as the T-Bill’s mature. The rationale was to address the decline in the “non-reserve” liabilities of the Fed.  So what are “non-reserve” liabilities?  Federal Reserve Notes.

The directive as written was “Fed Speak” which means that the Fed would print $60 billion per month for the next 4-6 to months cumulatively.  If it’s only 4 months, it means that the Fed will be printing at least a quarter trillion dollars which apparently will be become permanently part of the Fed’s balance sheet.

Chris Marcus invited me onto this Arcadia Economics podcast to discuss probably reasons why the Fed has ramped up its money printing operations despite explaining a month ago that it was only temporary to address quarter-end issues:

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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

Fed Delivers More QE “Light” And Gold Responds

On October 4th, as I expected would happen, the Fed announced that it was extending its overnight and term repo operations out to November 26th (the November 12th two-week term repo matures on the 26th).

The Fed added 7 more 2-week  “term repos, ” plus a 6-day “term repo,” with the next three operations upped to $45 billion. It extended the overnight repos until at least November 4th.  Well then, I guess the “end of quarter” temporary liquidity issue with corporate tax payments was not the problem.

Follow the money -The Fed’s repo operation extension further validates the analysis in my last post in which I made the case that an escalation in the non-performance of bank assets (loan delinquencies and defaults and derivatives), caused by contracting economic activity, has created a liquidity void in the banking system that is being “plugged” by the Fed. The Fed’s balance sheet has increased $186 billion since August 28th.

Not only did the Fed end “QT” (balance sheet reduction) two months earlier than originally planned in January, the Fed has effectively reversed in the last 5 weeks all of the QT that occurred since March 28th.

The evolution of Orwellian propaganda terminology for “money printing” has been quite amusing. It seems that the Fed has subtly inserted the phrase “balance sheet growth” into its lexicon. While Jerome Powell referenced “organic balance sheet growth” in his press circus after the last FOMC meeting,  expect that it will be considered politically/socially incorrect to use “QE” or “money printing” instead of “balance sheet growth” in reference to this de facto banking system bailout.

Meanwhile,  thank the Fed for providing the amount of money printing/currency devaluation needed to offset China’s absence from the physical gold market for the last week:

Given the technical set-up in gold plus the enormity of the Comex bank/commercial short position in paper gold, many gold market participants, including me, expected a much bigger price-attack on gold during Golden Week than has occurred. In fact, gold has held up well, with the December future testing and holding $1500 three times in the last week. Business activity in China, including gold and silver trading, resumes tonight.

The Fed’s QE Light program will likely transition into outright permanent money printing before the end of 2019. The November meeting is scheduled for the end of this month (Oct 29-30). But I doubt the Fed will turn its repo money printing into permanent money printing – aka “POMO” or “balance sheet growth” – until the December FOMC meeting (Dec 10-11).

An Unavoidable Global Debt Implosion

“[Whatever] the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. a new banking crisis is not only in the making, for which the repo problem serves as an early warning, but it could escalate quite rapidly.” Alasdair Macleod, “The Ghost of Failed Bank Returns”

The delinquency and default rate on consumer and corporate debt is rising. This creates funding gaps and cash flow shortfalls at banks. In a fractional banking system, banks only have to put up $1 of reserve for every $9 of money loaned. When the value of the loans declines because of non-performance, it requires capital – cash liquidity – to make up the shortfall in debt service payments received by the banks. In simple terms, the banks are staring at a systemic “margin call.”

To be sure, the current repo funding shortfall may subside. But it will not fix the underlying causes (Deutsche Bank, CLO Trusts, subprime debt, consumer debt, derivatives), which are likely leading up to another round of what happened in 2008 – only worse this time.

Chris Marcus of  Arcadia Economics  invited me to discuss my thoughts on the meaning behind the sudden need for the Fed to inject $10’s of billions into the overnight bank lending system:

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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

With More Money Printing Coming (“QE”) Gold, Silver And Miners Will Soar

It would be difficult to find a chart with a  more bullish set-up than that of GDX unless it was a chart of the imminent move higher in the U.S. dollar money supply:

The Fed was unable to move the Fed funds rate within 50% of the long term average “normalized” level. It was also unable to unwind little more than 20% of the money it printed under Bernanke and Yellen, despite Bernanke’s insistence that the $4.5 trillion printed and injected into the banking system was “temporary.”  Not only was the first series of QE operations not temporary, the Fed is preparing to re-start its printing press.

I believe we are very close to a major shift in investor sentiment, as investors lose faith in the Central Banks’ ability to control the markets with monetary policy. As you can see from the chart above, we experienced just a “whiff” of the type action we can expect in the precious metals sector as reality ushers in true price discovery in the markets.

I can tell the sentiment is not getting frothy in the precious metals sector when several people, subscribers and others, have expressed disappointment in the rate of return for the mining stocks. From May 30th thru the start of Labor Day weekend, gold rose 15.3% and silver climbed 32.3%. Over the same period of time, GDX rose 43.7%. Call me old fashioned, but I can remember when 43.7% over a two or three year period of time was considered a great return on stocks (this was before the tech bubble).

Where I really see disappointment expressed is with the junior exploration micro-cap stocks. Although some have been stuck in mud, many have doubled or tripled. One example is Discovery Metals (AYYBF, DSV.V), which ran from 17 cents to as high as 52 cents this summer. Based on today’s closing price, it’s more than doubled since May 30th. Many of the other stocks I feature in my  Mining Stock Journal newsletter provided double-digit percentage returns this summer and some have doubled or tripled.

I believe the pullback in the sector this month is a necessary and healthy technical correction, with some help from the price management squad, that will lead to higher highs sometime between now and year-end. Certainly investor sentiment, from the metrics I see daily, are far from exuberant, which is bullish.

 

Repo Rates And Gold: Something Big Is Happening

“We can ignore reality, but we cannot ignore the consequences of ignoring reality.” – Ayn Rand

Something big is happening beneath the surface of a Dow and S&P 500 trading near all-time highs. The soaring repo rate, more demand for overnight Fed funding loans than is being supplied and a big move in the price of gold since the end of May are clear indicators.

The global financial system is unsustainably over-leveraged. This problem is compounded by the massive increase in OTC derivatives. The U.S. financial system, in exceptional fashion, leads the way. Trump calls it “the greatest economy ever.” Yet the Fed was unable to “normalize” the Fed Funds Rate back up to just the historically average level without crashing the financial system. In fact, the Fed couldn’t even get halfway there before it had to reverse course and take rates lower plus hint a more money printing.

Phil Kennedy of Kennedy Financial hosted me plus Larry Lepard (mining stock fund manager) and Jerry Robinson (economist and trend trader)  to discuss what appears to be a giant margin call on the global financial system and where we think the price  of gold is headed:

NOTE:  I will be analyzing the signal being sent by the soaring repo rate this week and why it may be evidence that the fractional reserve banking fiat currency system is collapsing in my Short Seller’s Journal this week. You can learn more about my newsletters here  Short Seller’s Journal  and here  Mining Stock Journal. Two weeks ago I presented ROKU as a short at $169 and last week Tiffany’s (TIF) at $98. So far my put play on ROKU has been a home run.