Recently, there has been a parade of central bankers along with their lackeys on Wall Street coming on the financial news networks and desperately trying to convince investors that there are no bubbles extant in the world today. Indeed, the Fed sees no economic or market imbalances anywhere that should give perma-bulls cause for concern. You can listen to Jerome Powell’s upbeat assessment of the situation in his own words during the latest FOMC press conference here. The Fed Chair did, however, manage to acknowledge that corporate debt levels are in fact a bit on the high side. But he added that “we have been monitoring it carefully and taken appropriate steps.” By taking appropriate steps to reduce debt levels Powell must mean slashing interest rates and going back into QE. The problem with that strategy being that is exactly what caused the debt binge and overleveraged condition of corporations in the first place.
Last week’s failure in the US repo market might have had something to do with Deutsche Bank’s disposal of its prime brokerage to BNP, bringing an unwelcome spotlight to the troubled bank and other foreign banks with prime brokerages in America. There are also worrying similarities between Germany’s Deutsche Bank today and Austria’s Credit-Anstalt in 1931, only the scale is far larger and additionally includes derivatives with a gross value of $50 trillion.
If the repo problem spreads, it could also raise questions over the synthetic ETF industry, whose cash and deposits may face escalating counterparty risks in some of the large banks and their prime brokerages. Managers of synthetic ETFs should be urgently re-evaluating their contractual relationships.
Metals investors are anxiously awaiting the market’s reaction to next week’s Fed meeting. We may see players in the futures markets move to smash gold and silver prices down to lower support zones in the trading around the Fed’s decision.
But flushing out some more speculative longs and late comers with weak hands would be a healthy development in setting up the next rally.
Those who got left behind in this summer’s big moves in metals markets should certainly consider taking advantage of favorable buying opportunities as they present themselves ahead of a possible seasonal push higher in the sector this fall.
Conventional financial markets could become volatile as uncertainties surrounding America’s economy and political future weigh on investors. We are potentially only one election away from falling into socialism and one quarter’s GDP report away from falling into recession.
In this interview Max Keiser and Egon von Greyerz discuss the enormous pressures in the financial system and the coming stampede into gold. Also:
- The final phase of the currency race to zero has just started
- Massive energy in gold, built up over the last 6 years
- Gold will break its all-time high of $1920, without effort
- Gold hit new all-time highs in many currencies. Now on its way to at least $10,000 or even $50,000
- Central banks panicking over global banking system
- Negative rates – Government bonds, world’s most risky investment
- At some point, investors will dump overvalued bonds, resulting in hyperinflation and implosion of bond market
- Dow Jones stock index, will face a vicious fall very soon and in years to come
HERE IS THE INTERVIEW:
As global interest plummets to historically negative levels—and as the U.S. bond market reveals a deeply inverted yield curve—it’s time again to assess what all of this means for the precious metals investor.
Just yesterday, a fellow on CNBC remarked that “no one had seen this coming”. By “this”, he meant a sharp rally in both gold and bonds. Oh really? We write these articles for Sprott Money each and every week.
- On April 2, we posted this, a warning of what was coming… as foreshadowed by the bond market:https://www.sprottmoney.com/Blog/painted-into-a-co..
- On May 28, the very day this ongoing surge in precious metals prices began, we posted this article. If you missed it, you should be certain to read it now: https://www.sprottmoney.com/Blog/what-is-the-bond-…
Growing evidence of a severe global recession is sure to provoke more aggressive monetary policies from central banks. They had hoped to have the leeway to cut interest rates significantly after normalising them. That hasn’t happened. Consequently, as the recession intensifies central banks will see no alternative to deeper negative nominal rates to keep their governments and banks afloat through a combination of eliminating borrowing costs and inflating bond prices. It will be the last throw of the fiat-money dice and, if pursued, will ultimately end in the death of them. Gold and bitcoin prices are now beginning to detect deeper negative rates and the adverse consequences for fiat currencies.
Central banks face a dilemma: how can they cut interest rates enough to stop an economy sliding into recession. A central banker addressing it will note that the average cut required to put an economy back on its feet is of the order of 5%, judging by the experience of 2001/02 and 2008/09 and what their economic models tell them. Yet, in Euroland the starting point is minus 0.4% and in Japan minus 0.1%. In the US it was 2.5% before the recent reduction and in the UK 0.75%. The solution they will almost certainly favour is deeper negative nominal interest rates.