Tag Archives: stock bubble

The Market Is More Dangerous Now Than Early 2000

This market reminds me of the late 1999/early 2000 tech bubble. But back then it was primarily the Nasdaq that bubbled up. This time around the absurd dislocation between value and reality is more comprehensive. It’s not just tech stocks but also non-tech related stocks like HTZ, AAL, BA etc.

Back in late 1999/early 2000, like now, newly minted retail day-trading geniuses who couldn’t explain what a p/e ratio is were piling into tech stocks with risky OTM call options and heavy use of margin.   Most were wiped out when the Nasdaq crashed just like most will be wiped out when this market has the rug pulled out from under it. The February-mid March decline was just an appetizer for patient short sellers.

Silver Liberties invited me back onto its podcast to discuss the insanity of the current stock market and, of course, to talk about 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.

Retail Sales Headlines Are A Complete Joke

The stock market promoting mainstream media this morning reported “U.S. Retail Sales Rose Record 18% in May” (e.g. the Wall St Journal).  The S&P futures jumped from up 45 points to up 90 points.

But, as usual, the details are in the fine print of the report itself, and it’s apparent that nobody in the financial media bothered to look beyond the headlines.

In fact, the 18% rise is measured from April’s report, which was heavily depressed due to the shelter-in-place restrictions and the closure of many retail businesses. Funny thing about using the percentage change as the metric of measurement. If April had one dollar of retail sales and May had two dollars, the percentage gain would have been 100%.

Measured from May 2019,  the “seasonally adjusted” numbers show that May 2020 retail sales dropped 6.1%.  In retail sales terms, especially given the healthy rate of inflation built into the numbers, that’s a cliff-dive. If the numbers had been adjusted for price inflation, the percentage decline would have been even larger.  Here’s the report if you want to check for  yourself – Retail Sales.

Then there’s the credibility of the data collection, which is done by the notoriously unreliable Census Bureau.  The Census Bureau would have us believe that sales at restaurants (“food services and drinking places” if you bother to look at the report) gained 29% from April to May. I find this impossible to believe given that most of the country, including many restaurants, were still shut down until late May.  The gross negligence in this particular number is likely attributable to the highly opaque “seasonal adjustments.”

Same for auto sales, which the CB would have us believe increased 50% in May from April. Certainly the 23.6% drop in the Cass Freight index belies the numbers from the Census Bureau, especially for autos. I play tennis with someone who owns a trucking business that transports new vehicles from OEMs to dealers. His business completely stopped until late May.  John Williams, of Shadowstats.com, believes the May number for auto sales will be reversed in June’s report.

Keep in mind as the various economic reports for May and June hit the tape, the percentage change from April to May and from May to June will make it appear as if economic activity is bouncing back strongly. In truth, with the economy re-opening, the May and June numbers will be calculated on a percentage basis from the severely depressed level in April and an inordinately depressed level in May, while the nominal numbers will be considerably lower compared to the same month in 2019.

In fact, it’s going to take at least a few months before the real fall-out from the closure of the economy is known. As an example, commercial real estate company Cushman & Wakefield has forecast that as many as 25,000 stores will close in 2020 – mostly in malls. This not only affects directly the employees who work at those stores, but also the surrounding businesses that benefit from store employees who spend money while at work (food establishments, etc.)

Without question the economy is not even remotely close to being in the “V” recovery that is implied by the action in the stock market. The immediate economic impact of high unemployment is deferred somewhat by Government “stimulus” payments and unemployment benefits. Many of those unemployed can still pay some bills and feed their families while stimulus payments continue and unemployment benefits are not exhausted. But once those pools of assistance are tapped out, the economic impact will be severe.

Infinite QE, Bear Market Rallies, Gold, Silver And Mining Stocks

The precious metals sector continues to be glaringly ignored by the mainstream financial media and most “alternative” forms of media. This is a “loud” indicator that the fattest part of the bull move is yet to come. YTD gold is up 11.8%, GDX is up 16.4% while the SPX is down 12.6%. If the SPX were up 16% YTD, they’d be doing naked cartwheels on CNBC.Mining Stock Journal – May 14, 2020

The stock market is reflecting the expectation of a “V” recovery in the economy. The Trump Government, specifically Treasury Secretary, Steve Mnuchin, believes economic activity will be largely restored by the end of August. It’s nothing but propagandist fantasy.  I’d be stunned if he really believes that.  This bear market rally is a just that – a bear market rally. The same pattern occurred after the tech bubble popped in 2000. The Naz plunged 40% followed by a 42% rebound rally. When the bear rally ran out of steam, the Naz declined 42% over the next four months.

A lot of money is flowing into mining stocks, especially junior exploration companies. More investors are aware that the cat is out of the bag w/regard to the physical vs. paper situation in London and NYC. The money flowing into mining stocks – especially speculative juniors – is starting to go from a trickle to a heavy current.  A lot of stock deals that have been announced in the last couple of weeks have been up-sized by a considerable amount. This is highly bullish indicator for the precious metals sector.

Silver Doctors / SD Bullion invited me back to discuss the insanely overvalued stock market and the precious metals market:

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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

“I’ve always thought your newsletter is the best value in the junior mining world. It’s great to get your insight as things get moving here. Some of your suggestions are among my best performers.” – subscriber, “James,” to the Mining Stock Journal

Wayfair: Extreme Stock Market Insanity

Wayfair is one of the tech-borne “unicorn” style companies which has become a  symbol of the most over-inflated stock bubble in U.S. history. The dot.com bubble on steroids.  Its business model is geared to generate sales growth as a device to inflate the company’s market cap by enticing  enough volume from momentum chasing gamblers to enable the insiders to dump shares in copious quantities.

The problem for anyone holding the stock as an “investment,” as opposed to renting the stock long enough in hopes that another stock renter will come along and pay a higher rental rate, is that the business model is hopelessly unprofitable and the operations now burn an increasing amount of cash every quarter.

For the full year 2019, Wayfair lost $929 million on an operating basis. Its pre-tax net loss was nearly $1 billion and nearly double the pre-tax loss in 2018, which was more than double the pre-tax loss in 2017.  W’s operations burned $196 million in cash (from the cash flow statement) in 2019 (these numbers include the add-back for non-cash stock comp).  In those three years long term debt more than quadrupled from $333 million in 2017 to $1.5 billion by the end of 2019.

In its first quarter 2020 reported today, Wayfair’s operations lost $284 million, this was  a 36% increase in its operating loss from Q1 2019.  Its operations burned $256 million in cash in Q1 2020, inclusive of the non-stock comp add-back, more than triple the cash burn in the year earlier quarter.

After the quarter ended, just 7 days into Q2, Wayfair issued another $535 million in debt to bring its debt-load over $2 billion.  Granted its debt consists of convertible bonds, but the Company still incurs cash interest expenses plus principle accretion.  This is notwithstanding the potential massive share dilution if/when the converts convert.

And management wants the market to believe that  the business model will “turn positive this quarter.”  Hmmm…Management also gushed over the increase in traffic to its website and increase in sales.  This assertion from the CEO, Niraj Shah,  is absurd:  “all incremental revenue will be additive and we would expect it to generate additional profitability this quarter.”

What?  To begin with “incremental revenue will be additive” is a redundancy. If corporate CEO’s are going to rip off public shareholders, at least learn proper use of the language.  How can this added x 2 revenue generate “additional profitability?”  W has not been profitable in over two years.   If it were the case that W was going to generate profitability from the increase in sales, why did Company roll out an 80% off sale in April?

Funny thing about management’s confidence. It’s not putting its money where its mouth is.  Over the last three months insiders dumped over 1 million shares right up to five business days before Q1 earnings were released.

Wayfair clearly drives its revenues by selling its products at a price which is highly competitive in cyberspace but not nearly high enough to cover the all-in cost of operating its business model. If it charged prices which enabled it generate an operating profit, its sales would be hit hard. If it continues forward using the same revenue generation strategy, the Company will hit the wall when it runs out of cash.

Wayfair’s existence is attributable exclusively to the money sloshing around the financial system from Fed money printing. At some point the market will no longer be willing to risk throwing capital into W’s black hole and it will be lights out,  with shareholders left holding the bag.

Stocks Bubble Up From More Money Printing

The stock market spiked up last week as Trump started in with his trade war optimism tweets, which excited the algos and momentum chasers. As Monday rolled around, however,  it was determined that a “Phase 1” trade agreement amounted to nothing more than a commitment from China to buy some farm products. On Tuesday China made the purchases contingent on Trump removing tariffs. So there is no “Phase 1” trade deal.

But the hedge fund computers don’t care.  Now the market is bubbling higher on the reimplementation of Federal Reserve money printing. Call it whatever your want – QE, balance sheet growth, term repos, whatever. But the bottom line is that Fed is printing money and injecting it into the banking system, which thereby acts as a transmission mechanism channeling some portion of this liquidity into the stock market.

The semiconductor sector is traveling higher at the fastest rate as hedge fund computers and daytraders are chasing the highest beta stocks up the most. The SOXX index is pressing its all-time today.   This is in complete disregard to underlying fundamentals in the sector which are melting down precipitously.

For the 1st ten days of October, exports from South Korea fell 8.5% YoY with chip exports down a staggering 27.2%. Remember back in January when the CEO of Lam Research forecast an upturn in 2H of 2019? Does that look like an industry upturn? Two of the world’s five largest chip manufacturers are based in S Korea:  Samsung is the world’s largest and Hynix is ranked fourth.

Today the Fed’s daily money printing repo program surged to $87.7 billion, which is the highest since “QE Renewed”  began in mid-September.  Recall back then the popular Orwellian narrative explained that the “temporary” funding was necessary  to address quarter-end cash needs by corporations and banks.  Well, certainly the banks need the money…

But on Friday the Fed announced that it was going to extend the overnight and term repo operations at least until January. In addition, the Fed added a  $60 billion per month T-bill purchasing program. The Fed explained that it was implementing the  operation to supplement the liability side of its balance sheet.  Besides currency and coin issued by the Fed, deposits from “depository institutions” –  aka demand deposits from banks – represent the largest liability on the Fed’s balance sheet.

This means that this liability account needs more funding because either bank customers are holding less cash at banks OR banks need to increase reserves to maintain regulatory reserve ratios. The latter issue would imply that bank assets – aka loans – are deteriorating more quickly than the banks can raise the funds needed to meet reserve requirements. Given the recent data on MZM, it would appear that customer cash deposits at banks have increased recently. This implies that banks are experiencing stress in the performance of the loans and derivatives on their balance sheet, thereby requiring more reserve capital.

Money printing apologists want to point at DB or JPM as the target of the Fed’s money printing.  And I’m certain they are among the largest contributors to the problem.   But GS, MS, BAC, HSBC, C should be included in there as well.  They’re all connected via derivatives and I’m guessing subprime asset exposure at all the big banks is blowing up,  causing cash flow shortfalls and counterparty derivatives defaults on credit default and interest rate swaps.  Just look at the dent  WeWork is putting into the exposure to the failed unicorn at JPM and GS.  Then there’s the melt-down going in energy/shale sector debt…

Eventually the Fed will have to announce that it is permanently implementing temporary liquidity relief programs – or “organic” balance sheet growth operations.  Jerome Powell will take painstaking measures to assure the market this is not Quantitative Easing.   And he’ll be right. That’s because it is outright money printing.

I expect the stock markets to get a temporary “meth” fix that pushes the SPX back up to the 3,000 area of resistance.  I also expect that it will fail there again, triggering a sharp sell-off into the end of the year, similar to last year. The risk the Fed is running here by using more money printing to juice the stock market is that eventually – like all heroin or meth addicts – stocks will become immune to increasing doses of the happy drug.   At what point will the Fed be forced administer a dosage level that kills the market?

Massive Bull Run In Gold And Silver Is Just Starting

Several Central Banks already buy stocks and bonds with printed money, including the Bank of Japan, Swiss National Bank and the PBoC.  It now looks like Germany’s Bundesbank is going to begin dabbling in the German stock market, extending  its market invention beyond the bond market.

I’m certain the United States’ Exchange Stabilization Fund buys at least stock index futures, if not the shares of companies deemed essential to “national security.”   Given Trump’s tendencies toward dictatorial decrees (see “The Wall” debacle), I suspect eventually he’ll order the Fed to print money and buy stocks directly rather than by proxy via the ESF in an effort to keep the stock bubble from blowing up in the context of a deepening economic recession.

Bill Powers invited me onto his Mining Stock Education podcast to discuss why I believe the move in the precious metals this summer is just beginning.  We also discuss why it will pay off to focus on junior exploration “venture capital” companies, many of which will throw off 50-1000% returns (or more) if gold and silver continue to move higher:

If I’m right, and if the metals continue moving a lot higher, we should start to see stocks like AG move well above their 2016 highs. Eventually many of the juniors will be 3-5x higher than their current level. We got a taste of the type of moves juniors will start to make this week.

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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.

Everything Is Worse Now Than In 2007

Does anyone seriously believe that in the next global recession equity markets will not collapse? Do market participants really believe fiscal stimulus and helicopter money will save us from a gut-wrenching global bust that will make 2008 look like a picnic? Has the longest US economic cycle in history beguiled investors into soporific complacency? I hope not. – Albert Edwards, Market Strategist at Societe Generale

Friday’s 625 point plunge in the Dow capped off another volatile week. Three of the top 20 largest one-day point declines in the Dow have occurred during this month. Remarkably, the Dow has managed to hold the 200 dma 5 times in August. The SPX similarly has managed to hold an imaginary support line at 2,847, about 40 SPX points above the 200 dma. The Russell 2000 index looks like death warmed-over and it’s obvious that large funds are unloading their exposure to the riskier small-cap stocks.

The randomness of unforeseen events causing sudden market sell-offs is starting to occur with greater frequency. Friday’s sell-off was triggered by disappointment with Jerome Powell’s speech at Jackson Hole followed by an escalation of the trade war between China and Trump. Given the response of the stock market to the day’s news events, I’m certain no one was expecting a less than dovish speech by the Fed Head at J-Hole or the firing of trade war shots.

It’s laughable that the stock market soars and plunges based on whether or not the Fed will cut rates, and by how much, at its next meeting. At this point, only stocks and bonds will respond positively to the anticipation of more artificial Central Bank stimulus. And the positive response by stocks will be brief.

Morgan Stanley published a table of 21 key global and U.S. economic indices – ranging from the Market Global PMI manufacturing index to the Goldman Sachs US financial conditions index – and compared the current index levels to the same indices in September 2007. Every single economic index was worse now than back in late 2007. September 2007 was the first time the Fed cut rates after a cycle of rate hikes.

But there’s a problem just comparing a large sample of economic indices back then and now. By the time the Fed started to take rates down again in 2007, it had hiked the Fed funds rate 425 basis points from 1% to 5.25%. This time, of course, the Fed started at zero and managed to push the Fed funds rate up only 250 basis points to 2.5%. Not only is the economy in worse shape now than at the beginning of the prior financial crisis but the Fed funds rates is less than 50% as high as it was previously.  For me this underscores that fact that everything is worse now than in 2007.

The commentary above is an excerpt from the latest issue of the Short Seller’s Journal. Each issue contains economic and market analysis short sell ideas based on fundamental analysis, including ideas for using puts and calls to express a short view. You can learn more about this newsletter here:  Short Seller’s Journal Information.

Thanks Dave for the TREE recommendation. I covered in the high $200’s for a very profitable trade after it cracked finally – subscriber “Daniel”

Inching Toward The Cliff – Why Gold Is Soaring

The global economy is headed uncontrollably toward the proverbial cliff. Although the Central Banks will once again attempt to defer this reality with more money printing and currency devaluation, systemic collapse is fait accompli.

Gold and silver are behaving in a way I have not observed in over 18 years of active participation in the precious metals sector. It’s quite possible that the is being driven by the physical gold and silver markets, with the banks losing manipulative control over precious metals prices using derivatives.

Silver Doctors invited me to discuss a global economy headed for economic and financial disaster; we also discuss the likely reintroduction of gold into the global monetary 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

The Economy Is Starting To Implode

Regardless of the Fed Funds rate policy decision by the FOMC today, the economy is spinning down the drain. Lower rates won’t help stimulate much economic activity. Maybe it will arouse a little more financial engineering activity on Wall Street and it might give a temporary boost to mortgage refinancings. But the economic “recovery” of the last 8 years has been an illusion based on massive money printing and credit creation. And credit creation is de facto money printing until the point at which the debt needs to be repaid. Unfortunately, the system is at the point at debt saturation. That’s why the economy is contracting despite the Fed’s best efforts to create what it incorrectly references as “inflation.”

The Chicago PMI released today collapsed to 44.4, the second lowest reading since 2009 and the sharpest monthly decline since the great financial crisis. The index of business conditions in the Chicago area has dropped 5 out of 7 months in 2019. New orders, employment, production and order backlogs all contracted.

The Chicago Fed National Activity index for June remained in contraction at the -0.02 level, up slightly from the reading in May of -0.03. The 3-month average is -0.26. This was the 7th straight monthly decline for the index – the longest streak since 2009. This index is a weighting of 85 indicators of national economic activity. It thus measures a very wide range of economic activities.

The Richmond Fed manufacturing survey index fell off a cliff per last week’s report. The index plunged from 2 in June to -12. The June level was revised down from 3. Wall Street was looking for an index reading of 5. It was the biggest drop in two years and the lowest reading on the index since January 2013. Keep in mind the Fed was still printing money furiously in 2013. The headline index number is a composite of new orders, shipments and employment measures. The biggest contributor to the drop was the new orders component, as order backlogs fell to -26, the lowest reading since April 2009. The survey’s “business conditions” component dropped from 7 to -18, the largest one-month drop in the history of the survey.

Existing home sales for June declined 1.7% from May and 2.2% from June 2018 on a SAAR (seasonally adjusted annualized rate) basis. This is despite the fact that June is one of the best months of the year historically for home sales. Single family home sales dropped 1.5% and condo sales fell 3.3%.

On a not seasonally adjusted basis, existing home sales were down 2.8% from May and down 7.5% from June 2018. The unadjusted monthly number is perhaps the most relevant metric because it removes both seasonality and the “statistical adjustments” imposed on the data by the National Association of Realtors’ number crunchers.

The was the 16th month in a row of year-over-year declines. You can see the trend developing. June 2018 was down 5% from June 2017 (not seasonally adjusted monthly metric) and June 2019 was down 7.5% from June 2018. The drop in home sales is made more remarkable by the fact that mortgage rates are only 40 basis points above the all-time low for a 30-yr fixed rate conforming mortgage. However, this slight increase in interest expense would have been offset by the drop in PMI insurance charged by the Government for sub-20% down payment mortgages.

The point here is that pool of potential home buyers who can afford the monthly cost of home ownership is evaporating despite desperate attempts by the Fed and the Government to make the cost of financing a home as cheap as possible. 

New home sales for June were reported to be up 6.9% – 646k SAAR from 604k SAAR – from May. However, it was well below the print for which Wall St was looking (660k SAAR). There’s a couple problems with the report, however, aside from the fact that John Williams (Shadowstats.com) referenced the number as “worthless headline detail [from] this most-volatile and unstable government housing-statistic.” May’s original number of 626k was revised lower to 604k. Furthermore, the number reported is completely dislocated from mortgage application data which suggests that new home sales were lower in June than May.

The new home sale metric is based on contract signings (vs closings for existing home sales). Keep in mind that 90% of all new home buyers use a mortgage for their purchase.
Mortgage applications released Wednesday showed a 2% drop in purchase applications from the previous week. Recall, the previous week purchase apps were down 4%. Purchase apps have now been down 6 out of the last 9 weeks.

Because 90% of new home buyers use a mortgage, the new home sales report should closely correlate with the Mortgage Bankers Association’s mortgage purchase application data. Clearly the MBA data shows mortgage purchase applications declining during most of June. I’ll let you draw your own conclusion. However, I suspect that when July’s number is reported in 4 weeks, there will a sharp downward revision for June’s number. In fact, the Government’s new home sales numbers were also revised lower for April and May. The median price of a new home is down about 10% from its peak in November 2017.

The shipments component of Cass Freight index was down 3.8% in June. It was the seventh straight monthly decline. The authors of the Cass report can usually put a positive spin or find a silver lining in negative data. The report for June was the gloomiest I’ve ever read from the Cass people. Freight shipping is part of the “central nervous system” of the economy. If freight shipments are dropping, so is overall economic activity. Of note, the price index is still rising. The data shows an economic system with contracting economic activity and infested with price inflation.

The propagandists on Capitol Hill, Wall Street and the financial media will use the trade war with China as the excuse for the ailing economy. Trump is doing his damnedest to use China and the Fed as the scapegoat for the untenable systemic problems he inherited but made worse by the policies he implemented since taking office. Trump has been the most enthusiastic cheerleader of the biggest stock market bubble in history. This, after he fingered his predecessor for fomenting “a big fat ugly bubble” when the Dow was at 17,000. If that was a big fat ugly bubble in 2016, what is now?

Modern Monetary Theory, Centralized Control And Gold

My friend and colleague, Chris Powell, Treasurer of GATA, wrote a compelling essay on Modern Monetary Theory. MMT has been in operation by the western Central Banks since Bretton Woods. The “QE” program that began in 2008 is the most recent and blatant implementation of MMT. This is a must-read if you are interesting in understanding the hidden mechanism at work that is destroying the United States.

Modern Monetary Theory, which has been getting much attention lately, is so controversial mainly because it is misunderstood. It is misunderstood first because it is not a theory at all but a truism.

That is, MMT holds essentially that a government issuing a currency without a fixed link to a commodity like gold or silver is constrained in its currency issuance only by inflation and devaluation.

This is a very old observation in economics, going back centuries, even to the classical economist Adam Smith, and perhaps first formally acknowledged by the U.S. government with a speech given in 1945 by the chairman of the board of the Federal Reserve Bank of New York, Beardsley Ruml. The speech was published in 1946.

Ruml said:

“The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last 25 years which have substantially altered the position of the national state with respect to the financing of its current requirements.

“The first of these changes is the gaining of vast new experience in the management of central banks. The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank and whose currency is not convertible into gold or into some other commodity.”

Ruml noted that in a fiat currency system such as the United States had adopted by 1945, government did not need to tax to raise revenue but could create as much money as it wanted and deploy it as it thought best, using taxes instead to give value to its currency and implement social and economic policy.

MMT does not claim that the government should create and deploy infinite money. It claims that money can be created and deployed as much as is necessary to improve general living conditions and eliminate unemployment until the currency begins to lose value.

The second big misunderstanding about MMT is that it is not a mere policy proposal but is actually the policy that has been followed by the U.S. government for decades without the candor of Ruml’s 1945 acknowledgment.

The problem with MMT is that, in its unacknowledged practice, it already has produced what its misunderstanding critics fear it for: the creation and deployment of infinite money and credit by central banks as well as vast inflation.

In accordance with MMT, this creation of infinite money and credit has necessitated central banking’s “financial repression” — its suppression of interest rates and commodity prices through both open and surreptitious intervention in bond and futures markets and the issuance of financial derivatives.

That is, since money creation in the current financial system is restrained only by inflation, this restraint can be removed or lessened with certain price controls, which, to be effective, must be disguised, lest people discern that there are no markets anymore, just interventions.

The British economist Peter Warburton perceived this in his 2001 essay, “The Debasement of World Currency — It Is Inflation, But Not As We Know It“:

“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities, or anything else that might be deemed an indicator of inherent value.

“Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value not only of the U.S. dollar but of all fiat currencies. Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets. [EMPHASIS ADDED.]

“Central banks have found the battle on the second front much easier to fight than the first. Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably no more than $200 billion, using derivatives.

“Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have overtraded their capital so flagrantly that if the central banks were to lose the fight on the first front, then the stock of the investment banks would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.”

This “financial repression” and commodity price suppression have channeled into financial and real estate assets — the assets of property owners — the vast inflation resulting from the policy of infinite money creation, thereby diverting inflation from assets whose prices are measured by government’s consumer price indexes. Meanwhile those indexes are constantly distorted and falsified to avoid giving alarm.

As a result the ownership class is enriched and the working class impoverished. Of course this is exactly the opposite of what MMT’s advocates intend.

But while the monetary science conceived by MMT people well might develop a formula for operating a perfect monetary system with full employment and prosperity for all, the monetary system always will confer nearly absolute power on its operators, and as long as the operators are human, such power will always corrupt many of them — even MMT’s advocates themselves.

That’s why market rigging is the inevitable consequence of MMT as it is now practiced and why the world is losing its free and competitive markets to monopoly and oligopoly and becoming less democratic and more totalitarian.

So what is the solution?

Maybe some libertarianism would help: Let governments use whatever they want as money, but let individuals do the same and don’t mess with them. Gold, cryptocurrencies, seashells, oxen, whatever — leave them alone.

Most of all, require government to be completely transparent in whatever it does in the markets. If government wants to rig markets, require that it be done in the open and reported contemporaneously.

After all, the world can hardly know where to go when it isn’t permitted to know where it is.