Think Deficits Are Bad Now? You Ain’t Seen Nothin’ Yet

The U.S. government was on track for a $1 trillion deficit this fiscal year, even before coronavirus. That’s the kind of budget deficits one would expect to see during a major economic downturn. The federal government has only run deficits over $1 trillion in four fiscal years, all during the Great Recession. The U.S. was on that path before the recent coronavirus economic upheaval even while Trump called “the greatest economy in the history of America.”

And now it looks like the U.S. is on the cusp of a legitimate economic crisis.

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Golden Vaccines And Dow To Gold Ratio

By GE Christenson – Re-Blogged From Gold Eagle

Things appeared normal, and then everything changed…

U.S. COVID-19 official cases on March 7: 338.

U.S. COVID-19 official cases on April 28: over 1,000,000, if you believe the Johns Hopkins numbers. Exponential growth in sickness, debt, and expenditures are “killers.”

The economic, emotional, and physical scars from the virus will torture us for a long time. Disneyland and Disneyworld are closed indefinitely.

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Yellen: Federal Reserve Should Have the Ability to Buy Stocks

By CNBC- Re-Blogged From Headline Wealth

[Here comes another abomination from the FED!  –Bob]

Former Federal Reserve Chair Janet Yellen thinks the central bank is not in a position where it needs to buy equities but thinks lawmakers should give it more leeway for the future.

“It would be a substantial change to give the Federal Reserve the ability to buy stock,” Yellen told CNBC’s Sara Eisen on “Squawk on the Street.” “I frankly don’t think it’s necessary at this point. I think intervention to support the credit markets is more important, but longer term it wouldn’t be a bad thing for Congress to reconsider the powers that the Fed has with respect to assets it can own.”

Normally, the Fed is only allowed to own government debt and agency debt with government backing, Yellen said.

The central bank has also received special powers during the coronavirus outbreak to buy other assets such as corporate debt through exchange-traded funds. The Fed has also cut rates to zero and launched an unlimited quantitative easing program to help stabilize markets.

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Will Corona Virus Lead To A Gold Standard?

By Alasdair Macleod – Re-Blogged From Gold Eagle

Even before the coronavirus sprang upon an unprepared China the credit cycle was already tipping the world into recession. The coronavirus makes an existing situation immeasurably worse, shutting down China and disrupting global supply chains to the point where large swathes of global production simply cease.

The crisis is likely to be a wake-up call for complacent investors, who are content to buy benchmark bonds issued by bankrupt governments at wildly excessive prices. A recession turned by the coronavirus into a fathomless slump will lead to a synchronised explosion of debt issuance for which there are no genuine buyers and can only be monetised.

The adjustment to reality will be catastrophic for government finances, and their currencies. This article explains why the collapse in overpriced financial assets and fiat currencies is likely to be rapid, perhaps giving ordinary people in some jurisdictions an early prospect of a return to gold and silver as circulating money.

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Motte And Bailey Fallacy

By Keith Weiner – Re-Blogged From Gold Eagle

This week, we will delve into something really abstract. Not like monetary economics, which is so simple even a caveman can do it.

A Clever Ruse

We refer to a clever rhetorical trick. It’s when someone makes a broad and important assertion, in very general terms. But when challenged, the assertion is switched for one that is entirely uncontroversial but also narrow and unimportant. The trick is intended to foreclose debate of the broad assertion, not really to retreat to the narrow one.

The essence is bait-and-switch, or equivocation.

So let’s start with a simple example: diversity in a corporate board body is good. Suppose you demand why. The predictable answer is that it would be a boring world with less creative solutions if everyone on the board had the same background and perspective. Most people would agree with this, of course.

And that is the trick.

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The Yield “Curve” Knows

By Craig Hemke – Re-Blogged From Gold Eagle

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.

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Deep State And Financial Powers Worry About Alternative Currencies

By Mike Gleason – Re-Blogged From Silver Phoenix

As markets continue to gyrate on global trade and tariff threats, precious metals are struggling to capture investor interest.

Lately, the big push in alternative assets has been in Bitcoin. The cryptocurrency has doubled in price over the past two months, though it remains well below its old high.

The full implications of new U.S. tariffs and retaliatory tariffs by China have yet to be reflected in markets. The media has reported on how tariffs could help or hurt particular industries. American farmers, for example, are worried they will suffer most from Chinese retaliation.

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The Fed’s Failure is a Fait Accompli

By David Haggith – Re-Blogged From The Great Recession Blog

Here is a single chart that proves how completely the Fed’s end-game for its recovery failed, which means the fake recovery, itself, is failing. It’s not hard to figure out what happened here.

Talk about a euphoric rise at the end of the Trump Rally heading into 2018, followed immediately by a massive blow-off top. When you compare the size of the blow-off to the total size of the S&P 500, it looks almost like Mount Saint Helens blew its top off.

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How “Free Money” Helped Create Sizzling Housing And REIT Gains In Recent Years

By Dan Amerman – Re-Blogged From Silver Phoenix

Housing prices and the associated REIT returns have worked very differently in the United States since the recession of 2001. The increasing financialization of the real estate markets by Wall Street, and the aggressive and unconventional interventions by the Federal Reserve over that time, have combined in multiplicative fashion to produce new and volatile sources of housing profits and losses.

One such change has been the creation of an extremely powerful profit engine for housing, that most real estate investors have not been taking into account. Indeed, there is a strong mathematical case to be made that “yield curve spread compression” has supported and enabled the substantial majority of housing price gains for homeowners and investors on a national average basis since the beginning of 2014.

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“The PetroDollar Matrix”

At the forefront of the media’s attention today is Russia. We’re not really sure why, (well, of course we are) but it seems that Russia has become the new boogeyman. Everything is Russia’s fault. I’ve even heard rumors that the National Weather Service has plans to blame Russia for all the confounded rain in the Northeast and Mid-Atlantic this summer. We know – right away you’re thinking this is going to be about Russia but it’s really not. It’s about what the media isn’t telling you. It’s why (we believe), Trump’s Tweets, Ivanka’s Sweets, Russiagate, the left’s hate, the right’s hate (aka, establishment theatre) are all taking the headlines while a very disturbing trend is left in plain sight. It’s the 800-pound gorilla in the room during any discussion involving economics and geopolitics, but nobody wants to talk about it.

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Russia Massively Buying Gold

By Bloomberg – Re-Blogged From Newsmax

Russia is rethinking what counts as a haven asset as it duels with the U.S.

Although investors usually seek safety in U.S. debt, Russia cut its holdings of Treasuries nearly in half in April as Washington slapped the harshest sanctions to date on a selection of Russian companies and individuals. In a shift Danske Bank A/S attributed to a deepening “geopolitical standoff,” Russia is instead keeping up its purchases of gold.

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The Number That Ends This Cycle…Part 2

By John Rubino – Re-Blogged From Dollar Collapse

Everyone seems to agree that if interest rates keep rising a recession and equities bear market will ensue. But no one knows where the breaking point is in terms of, say 10-year Treasury yields. So it’s become a topic of debate with a lot of heavy-hitters offering opinions. Yesterday Goldman Sachs weighed in:

Goldman: Don’t worry about rising interest rates until the 10-year yield hits 4%

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Stocks Perfectly Poised To Plummet Past Point Of No Return

By David Haggith – Re-Blogged From http://www.Silver-Phoenix500.com

We are now well into the year when I said stocks would plunge in January and would prove to be a gaping “crack” in the economy by summer, and look at how seriously the market has fallen apart since it started to drop in the last week of January:

It was just three months ago that stock-market investors were being swept up by a euphoria pinned to the idea of economic expansion taking hold harmoniously across the globe—a dynamic that hadn’t occurred since the 1980s, and one that was expected to extend into 2018.

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The Crisis Next Time

By Nicole Gelinas – Re-Blogged From City Journal

Ten years after a financial meltdown, America hasn’t grappled with the root problems.

Interest rates on the United States’ ten-year Treasury bond recently hit 3 percent, which should be regarded as historically low. Instead, a decade after the financial crisis began, it’s remarkable for being that high, and economic and financial experts can’t agree on whether this new rate portends a brewing economic miracle or a looming economic crisis. What it really reflects is a conundrum: the economy is doing well, but in large part because Americans have borrowed too much, too fast, and at too-low rates—and a real risk exists that normal interest rates will kill this debt-fueled boom. In the decade after the 2008 debt-based meltdown, the U.S. still hasn’t kicked its addiction to borrowing.

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Potential ‘Market Panic’

By Mark O’Byrne – Re-Blogged From http://www.Gold-Eagle.com

JPMorgan Chase CEO Jamie Dimon sees ‘chance of market panic’
– In annual letter to shareholders Dimon warns of increased inflation and interest rates
– Concerned QE unwinding could cause chaos as ‘markets will get more volatile’
– Hard to look at the last 20 years in America “and not think that it has been getting increasingly worse.”
– Positive about US economy over next year, but ignores record levels of world and government debt
– Believes major buyers of US debt (e.g. China) could reduce their purchases of US government debt
– Investors can protect portfolios with gold and silver bullion
– U.S. debt and dollar crisis coming which will propel gold higher (see chart)

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Will Inflation Burst The Everything Bubble?

By Graham Summers – Re-Blogged From http://www.Silver-Phoenix500.com

The economic data is now beginning to reveal what the bond market has been screaming for weeks: namely that INFLATION. HAS. ARRIVED.

In the last 24 hours we’ve seen:

Core inflation rose 2.2% year over year for the month of February.

Media one-year inflation expectations rose to 2.83% from 2.71%

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Bigger Deficits = Higher Interest Rates =…Many Bad Things

By John Rubino – Re-Blogged From http://www.Gold-Eagle.com

Mainstream economics uses a fairly simple equation when it comes to public policy: More government spending equals more growth, which is just about always a good thing.

The problem is with the “just about always” part. At the bottom of recessions, tax cuts and higher government spending can indeed stop the shrinkage and get things going again. And fiscal stimulus might be relatively harmless when an economy has minimal debt and can therefore handle a bit of deficit spending without negative side effects.

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US-China Trade War Escalates

By Mark O’Byrne – Re-Blogged From http://www.Silver-Phoenix500.com

Trade war between two superpowers continues to escalate

– White House likely to impose steep tariffs on aluminium and steel imports on ‘national security grounds’

– US may impose global tariff of at least 24% on imports of steel and 7.7% on aluminium

– China “will certainly take necessary measures to protect our legitimate rights.”

– China is USA’s largest trading partner, fastest-growing market for U.S. exports, 3rd largest market for U.S. exports in the world.

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China Officials View Treasuries Less Attractive

By Bloomberg – Re-Blogged From Newsmax

Officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter.

China holds the world’s largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them. It isn’t clear whether the recommendations of the officials have been adopted.

Image: China Officials Are Said to View Treasuries Less Attractive

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Investment Prospects For 2018

By Alasdair Macleod – Re-Blogged From http://www.Gold-Eagle.com

Predicting the future is a mug’s game, and in financial markets we simply cannot know tomorrow’s prices. All we can do is make assessments of the factors that can be expected to influence them.

Economists’ forecasts today, with very few exceptions, are a waste of time and downright misleading. In 2016, we saw this spectacularly illustrated with Brexit, when the IMF, OECD, the Bank of England and the UK Treasury all forecast a slump in the British economy in the event the referendum voted to leave the EU. While there are reasonable suspicions there was an element of disinformation in the forecasts, the fact they were so wrong is the important point. Yet, we still persist in paying economists to fail us.

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Yawning Debt Trap Proves the Great Recession is Still On

By David Haggith – Re-Blogged From Great Recession Blog

While David Stockman stated early this year with resolute certainty that the debt ceiling debate would blow congress up and send the nation reeling over the financial precipice, I avoided jumping on the debt-ceiling bandwagon. While I was convinced major rifts in the economy would start to show up in the summer, I was not convinced they would have anything to do with the debt ceiling debate. If there is anything you can be certain of this in endless recovery-mode economy, it is that the US will just keep pushing its bags of bonds up a hill until it can finally push no more. So, I figured another punt down the road was more likely.

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Another Financial Elite Goes On Record About The Bubble

By Graham Summers – Re-Blogged From http://www.Gold-Eagle.com

Last week former Fed Chairman Alan Greenspan warned that the bond market was a gigantic bubble waiting to burst.

This week, another financial elite, Jamie Dimon, CEO of JP Morgan, has said the same thing.

I do think that bond prices are high,” the chief executive officer of JPMorgan Chase & Co. said Tuesday in an interview on CNBC. “I’m not going to call it a bubble, but I wouldn’t personally be buying 10-year sovereign debt anywhere around the world.”

Source: Bloomberg

This would be an ASTONISHING admission from ANY bank CEO. But coming from the CEO of JP Morgan, the single largest bank in the United States, it is truly incredible.

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Something Big, Bad And Ugly Is Taking Place In The US Retirement Market

By SRSrocco – Re-Blogged From http://www.Silver-Phoenix500.com

While the highly inflated value of the U.S. Retirement Market reached a new high this year, something is seriously wrong when we look behind the scenes.  Of course, Americans have no idea that the U.S. Retirement Market is only a few steps from falling off the cliff, because their eyes are focused on the shiny spinning roulette wheel called the Wall Street Stock Market.

Yes, everyone continues to place their bets, hoping and praying that they will win it big, so they can retire in style.  Unfortunately, American gamblers at the casino have no idea that the HOUSE is out of money.  The only thing remaining in their backroom vaults is a small stash of cash and a bunch of IOU’s and debts.

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5 Reasons to Fear the Fall

By Michael Pento – Re-Blogged From http://www.PentoPort.com

This powerful and protracted bull market has made Cassandras look foolish for a long time. Those who went on record predicting that massive central bank manipulation of markets would not engender viable economic growth have been proven correct. However, these same individuals failed to fully anticipate the willingness of momentum-trading algorithms to take asset prices very far above the underlying level of economic growth.

Nevertheless, there are five reasons to believe that this fall will finally bring stock market valuations down to earth, and vindicate those who have displayed caution amidst all the frenzy.

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Fed’s Shrinking Balance Sheet

By Arkadiusz Sieron – Re-Blogged From http://www.Gold-Eagle.com

The latest FOMC minutes suggest that the Fed may start decreasing its balance sheet later this year. There are many unknowns about this process, so we invite you to read our today’s article about the unwinding of the Fed’s balance sheet and find out how it could affect the gold market.

As we wrote in the Gold News Monitor, the latest FOMC minutes suggest that the Fed may start decreasing its balance sheet later this year. There are many unknowns about this process, so we will closely watch the US central bank’s comments and actions in this context. But let’s dig into the subject with the information we have.

Timing. In December’s statement, the FOMC members declared that shrinking the central bank’s balance sheet will not start until normalization of the level of the federal funds rate is well under way. It means that rate increases come first, balance sheet reductions come later. Some of the Fed officials suggested that a funds rate target at 1 percent would enable the U.S. central bank to begin the reduction of its balance sheet. This is why most participants of the FOMC March meeting “judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year.” However, according to the March survey of primary dealers by the New York Fed, the median dealer expects the FOMC to allow the balance sheet to begin shrinking in the second quarter of 2018, when the federal funds rate is believed to reach target range of 150-175 basis points.

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Exploding Debt, Inverted Yield Curve, and Then “Economic Armageddon”

By Mike Gleason – Re-Blogged From http://www.PentoPort.com

Listen to the Podcast Audio: Click Here

Mike Gleason: Michael, how are you today? Welcome back.

Michael Pento:  I’m doing fine, Mike. Thanks for having me back.

Mike Gleason:  When we had you on last you commented that you believed the market was pricing in President Trump getting virtually all of his policy agenda pushed through Congress, the tax cuts, repealing Obamacare, and so forth. To say Trump has encountered some resistance in Washington would be a major understatement. The establishment of the right doesn’t seem to like him. The left and the mainstream media of course hate him. So, Michael before we get into the effects this will have on the markets here, first off, handicap for us the chances of Trump, based on what’s been transpiring in recent weeks, miraculously gaining enough allies in Congress in order to get his initiatives passed.

Michael Pento:  I did say that the market was pricing in the imminent effect of a massive tax cut — and I meant tax cut, not a tax reform package. In other words, cutting the rate from 30% to 15% or even 20%, but certainly not offset by any spending cuts or an elimination of deductions. The market is still pricing in a lot of that hope and hype, in my opinion. But I had said and warned from the beginning, this was back right after the election, I did say that the Trump “stimulus” package — and I’ll put “stimulus” in quotes and I’ll explain why in a second — I said that the Trump “stimulus” plan would be both diluted and delayed.

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Trump’s Victory: What Does It Mean For Gold?

By John Hathaway – Re-Blogged From http://www.Gold-Eagle.com

In our view, the systemic risks that existed prior to the presidential election have not suddenly vanished. Most important among these is a massive bond-market bubble. Close behind, equity valuations remain at historically extreme levels. How the new administration deals with these vexing issues, assuming that it even begins to comprehend them, is a complete unknown. Any unwinding promises to be precarious, full of pitfalls and setbacks, all of which are reason enough to hedge bets on a trouble-free return to robust economic growth with exposure to gold and precious-metals equities.

Reasons for post-election optimism abound. We agree with the following assessment by MacroMavens (11/17/16):

The vicious cycle of low rates – forcing households to save twice as hard, further depressing growth and inflation, pushing interest rates lower still and making saving even more urgent – will finally be broken. Rather than ping-ponging from one asset bubble to the next, papering over the deep wounds in between with more and more debt, we will finally get back to genuine economic growth built on entrepreneurial spirit and a rising standard of living for the populace. Velocity of money will at last lift off the mat.

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Is A Dollar Crash Imminent After the Senate Overrides Obama Veto on Saudi 9/11 Bill And September 30th D-Day Approaches?

By Jason Hamlin – Re-Blogged From http://www.Gold-Eagle.com

President Obama just had his first veto override of his entire presidency today, as the Senate and House both voted to override his veto of the 9/11 victims bill, Justice Against Sponsors of Terrorism Act (JASTA). As of this moment, the Sept 11 bill is now law.

Intense lobbying by both the Obama Administration and the Saudi government didn’t amount to much in the end, with strong public support leading to a 97-1 veto override vote today. The long defector from the unanimous vote back in May was Sen. Harry Reid (D – NV). The House easily cleared the two-thirds threshold with a 348-77 vote.

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United States Imported Oil and Gold

By Gary Christenson – Re-Blogged From The Deviant Investor

The US has imported crude oil for many decades. The following data (1970 – 2015) comes from the Energy Information Administration of the US government. This data shows reported barrels of crude oil imported into the US.

(Note: This is not a comprehensive analysis of imported energy, nor does it compensate for exports of crude oil, imports or exports of coal, natural gas or other energy sources.)

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Record Bond And Stock Prices Sending the Same Message

By Michael Pento – Re-Blogged From http://www.Silver-Phoenix500.com

The S&P500 is trading near an all-time record high. But investors should not take this as the all clear signal. According to most indicators, the market is now more overvalued than ever before.

The Cyclically Adjusted Price to Earnings Ratio analyzes the value of the S&P500 Index with the 10-year average of “real” (inflation-adjusted) earnings as the denominator to determine if the market as a whole is overvalued or undervalued. Today this ratio sits at 26.73, close to the short-term high of 27.2 seen in 2007 and well above its historic average of around 16.

Then we have the Q ratio, developed by James Tobin. This metric takes the total price of the market divided by the replacement cost of all its companies’ assets. The average Q ratio is .68, but the latest estimate of the Q ratio .98.  This suggests that the S&P 500 is currently dramatically above the mean.

Adding to this, the total market cap of U.S. stocks is now 122.5% of GDP. This is the highest level since mid-2000, which was during the NASDAQ bubble. This measure reached its peak at 142%, before crashing back to the more traditional level of just 70% by 2002.

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ECB And BOJ Now Trapped In Endless Counterfeiting

By Michael Pento – Re-Blogged From http://www.Gold-Eagle.com

The Fed was able to end its massive $3.7 trillion series of Quantitative Easing campaigns without the stock market and economy falling apart. The end of QE 3, in October of 2014, did cause temporary turmoil in the major averages; but all in all, it did not lead to a protracted market decline, nor did it immediately send the economy into a recession.

The consensus view then became that the Fed’s strategy of unprecedented interest rate and monetary manipulations was a huge success, and it would be able to slowly raise the Fed Funds rate with impunity.

Perhaps it was this assurance that gave Ben Bernanke’s successor, Janet Yellen, the temerity to begin liftoff in December of 2015. However, when the Fed commenced its first rate hike, it led to the worst beginning of a year in stock market history, as the Dow Jones industrial average lost more than 10% of its value between January 1st and Feb. 11th. Therefore, while the markets seem to have become somewhat comfortable with the end of QE (at least for now), they have also reached the consensus that a protracted tightening cycle is a completely untenable position for the Fed to hold.

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Negative US Yields

cropped-bob-shapiro.jpg   By Bob Shapiro

The real – after inflation – yield on US Treasuries is NEGATIVE all the way down the maturity yield curve.

As I write, the 30 year T-Bond is listed at 2.14%. The May CPI came in at 0.2% – in line with the recent trend – showing the CPI rising at a 2.4% annual rate. So a 2.14% yield and a 2.4% CPI indicates a negative real yield of -0.26% per year. Over the 30 year life of a T-Bond, an “investor” would be guaranteed to lose about 7.5% of his capital!

Yields Curve 070516

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Taking The Petro Out Of The Dollar

By Alasdair Macleod – Re-Blogged From http://www.Silver-Phoenix500.com

Saudi Arabia has been in the news recently for several interconnected reasons. Underlying it all is a spendthrift country that is rapidly becoming insolvent. While the House of Saud remains strongly resistant to change, a mixture of reality and power-play is likely to dominate domestic politics in the coming years, following the ascendency of King Salman to the Saudi throne. This has important implications for the dollar, given its historic role in the region.

Last year’s collapse in the oil price has forced financial reality upon the House of Saud. The young deputy crown prince, Mohammed bin Salman, possibly inspired by a McKinsey report, aims to diversify the state rapidly from oil dependency into a mixture of industries, healthcare and tourism. The McKinsey report looks like a wish-list, rather than reality, particularly when it comes to tourism. The religious police are unlikely to take kindly to bikinis on the Red Sea’s beeches, or to foreign women in mini-shorts wandering around Jeddah.

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More Productive Than Cash?

By Axel Merk – Re-Blogged From http://www.Gold-Eagle.com

Is gold, often scoffed at as being an unproductive asset, more productive than cash? If so, what does it mean for asset allocation?

There are investors that stay away from investing in gold because it is an ‘unproductive’ asset: the argument points out gold doesn’t have an intrinsic return, it doesn’t pay a dividend. Some go as far as arguing investing in gold isn’t patriotic because it suggests an investor prefers to buy something unproductive rather than investing into a real business. In many ways, it is intriguing that a shiny piece of precious metal raises emotions; today, we explore why that is the case.

Investing is about returns…
Each investor has their own preference in determining asset and sector allocations. Some investors prefer to stay away from the tobacco, defense or fossil fuel industry. During times of war, countries have issued bonds calling upon the patriotism of citizens to support the cause. At its core, however, investing, in our assessment, boils down to returns; more specifically, risk-adjusted returns. The “best” company in the world may not be worth investing in if its price is too high. Similarly, there may be lots of value in a beaten down company leading to statements suggesting profitable investments may be found “when there’s blood on the street.”

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Rising Default Rates

By Chris Ciovacco – Re-Blogged From http://www.Gold-Eagle.com

Yield vs. Safety Of Principal

If an investor was given the opportunity to invest in two nearly identical bonds with one bond paying 2% per year and the other paying 6% per year, logic says most would choose to invest in the higher-yielding bond. In the real world, the bond paying 6% also comes with a higher risk of default. Therefore, when investors start to become more concerned about the economy and rising bond default rates, they tend to gravitate toward lower-yielding and safer bond ETFs, such as IEF, relative to higher yielding alternatives, such as JNK. The chart below shows the performance of JNK relative to IEF. The chart reflects a bias toward return of principal over yield.

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Two Amazing Stories With One Inevitable Result

By John Rubino – Re-Blogged From http://www.Silver-Phoenix500.com

Anyone who doubts that the global financial system has run out of (good new) ideas has only to track the recent words and deeds of central bankers and mainstream economists: Slightly-negative interest rates didn’t lead people to borrow more? We’ll go more negative! Buying up all the government bonds didn’t prevent deflation? We’ll start buying corporate bonds and equities!

Still, it’s shocking to see where this endless repetition of the same actions takes us. A recent Bloomberg article, for instance, notes that even though corporate profits are falling and individual investors are dumping equity mutual funds, company share buybacks are surging:

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What We Need From the Candidates

cropped-bob-shapiro.jpg   By Bob Shapiro

The US is 5 months into Fiscal Year 2016, and the 2016 Presidential nomination process is moving along quickly. It looks like we may know who the two Big Party candidates will be within just a few months.

Even so, it appears that the candidates, and the “question asking” media have been ignoring one of the economic elephants in the room. I’m referring to the eternal US Budget Deficit, and the National Debt it causes, which are destroying our once great country.

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Oil and the Dollar

cropped-bob-shapiro.jpg   By Bob Shapiro

Crude Oil prices broke down from $100+ about a year and a half ago. Since then, there has been minimal fallout in the US oil patch, mostly due both to price guarantees built into many contracts and to the availability of loan money.

As the price of oil still lingers in the $30 range (today at $33+), and as all that borrowed money carries interest which must be paid, oil shale producers will start to be pinched more and more this year.

Some shale oil companies will close up shop this year, and some banks with huge oil company non-performing loans also will go bankrupt. And lets not forget the collateral damage to quite a few others businesses whose sales depend on the soon to be out of business companies.

Production will be lost, at least until the price of oil rises a bit. Then there are producers which will run their wells until they’re dry (shale oil wells have a relatively short producing life span). If oil prices remain low, these producers will not replace production right away, so some additional supply decreases will occur.

The cutbacks over the next year or two will be offset by new supply elsewhere, for example Iran as they resume selling oil following the end of sanctions.

So, what could cause oil prices to rise, saving the bacon of the marginal US shale oil producers?

One possibility, both directly and indirectly, is a reversal of the soaring US Dollar, which rose over 20% during the 2nd half of 2014.

Without that rise in the Dollar, oil might be 20% higher than today, or a little over $40 a barrel.

The rise in the Dollar itself was caused in part by the Yen carry trade. As the Japanese Economy foundered, and as the Central Bank kept interest rates significantly lower than the FED did here in the US, speculators were able to borrow in Yen, using the Yen to buy Dollars. Those Dollars bought Treasuries and US stocks, helping to explain rising markets last year.

US markets rose to unsustainably high PE Ratios, at the same time that the rising Dollar was hurting corporate profits. US multinationals’ overseas profits, while still growing in the local markets, started falling in US Dollar terms. The “strong” Dollar also made US domestic companies less competitive with imports, cutting sales and profits.

High PE Ratios, together with falling profits, are a recipe for a severe pullback (50% or more) in US stocks. Falling expected returns on all that borrowed money likely will cause considerable unwinding of much of the Yen carry trade. As the Dollars are withdrawn from US markets to buy Yen to repay the loans, the Dollar will fall.

Oil Drilling

Assuming the Congressional Republicans keep their word and refuse Mr Obama’s proposed $10 a barrel oil tax, I expect the falling Dollar to raise the oil price to make many proposed shale projects profitable.

So, for 2016, expect:

  • A few oil producer bankruptcies
  • A couple of banks with oil patch exposure to fail
  • The US markets to fall quite a bit further from here
  • The US Dollar to fall 20% or so
  • The oil price to go up over $40

All this does not factor in any additional craziness coming out of Washington (and the FED), or collateral damage from a market crash. We certainly could see quickly rising unemployment and CPI numbers, even after the hacks in the agencies massage the numbers.

Germans And Japanese Play “Rollover!”

By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com

After my last article we received two logical questions from readers.  The first one pertaining to “gaps” and the Deutsche Bank derivative exposure; the second pertaining to Japan’s strong currency with negative yields while the debt to GDP levels are astronomical.  Below is the first question.

“In the past you have warned about derivative exposure and now gapping.

One of my worst fears as a day trader on a derivatives platform is gapping. That is why I will never have an open position when the market is closed. Even then, that is not guaranteed.

A lot of trading platforms got hammered when the Swiss franc was revalued.

Could you put out a letter for your readers explaining why for example the Deutsche Bank derivatives exposure is so dangerous in terms of gapping.”

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Some Countries Have Begun To Ban Physical Cash

By Graham Summers – Re-Blogged From http://www.Gold-Eagle.com

Central Banks hate physical cash. So much so they there will likely try to ban it in the near future.

You see, almost all of the “wealth” in the financial system is digital in nature.

  • The total currency (actual cash in the form of bills and coins) in the US financial system is a little over $1.36 trillion.
  • When you include digital money sitting in short-term accounts and long-term accounts then you’re talking about roughly $10 trillion in “money” in the financial system.
  • In contrast, the money in the US stock market (equity shares in publicly traded companies) is over $20 trillion in size.
  • The US bond market  (money that has been lent to corporations, municipal Governments, State Governments, and the Federal Government) is almost twice this at $38 trillion.
  • Total Credit Market Instruments (mortgages, collateralized debt obligations, junk bonds, commercial paper and other digitally-based “money” that is based on debt) is even larger $58.7 trillion.
  • Unregulated over the counter derivatives traded between the big banks and corporations is north of $220 trillion.

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Negative Interest Rates

cropped-bob-shapiro.jpg   By Bob Shapiro

Several countries, especially in Europe, are suppressing interest rates to the point that creditors must pay for the honor of lending the debtors money – Interest Rates are negative.

Here in the US, we have had negative REAL interest rates for most of the last generation. Negative Real Rates just means that the nominal rate is below your favorite measure of price increases in the Economy.

Negative Real Rates are extremely hard to measure, since the wonks running the various federal agencies tasked with putting out statistics such as the CPI, are political appointees. As such, they torture the data until it confesses to a low rate of Inflation. Another way to describe these agencies activities is to say, “They LIE!”

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Stock Market Calls Fed’s Bluff

By Michael Pento – Re-Blogged From http://www.pentoport.com

As the Fed nears its proposed first rate hike in nine years the stock market is becoming frantic. The Dow Jones Industrial Average is down around 10% on the year, as markets digest the troubling reality that our central bank may be raising interest rates into an emerging worldwide deflationary collapse.

The Fed normally raises rates when inflation is becoming intractable and robust growth is sending long-term rates spiking. However, this proposed rate hike cycle is occurring within the context of anemic growth and deflationary forces that are causing long-term U.S. Treasury rates to fall.

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Keeping the Bubble-Boom Going

By Thorsten Polleit – Re-Blogged From http://www.mises.org

The US Federal Reserve is playing with the idea of raising interest rates, possibly as early as September this year. After a six-year period of virtually zero interest rates, a ramping up of borrowing costs will certainly have tremendous consequences. It will be like taking away the punch bowl on which all the party fun rests.

Low Central Bank Rates have been Fueling Asset Price Inflation

The current situation has, of course, a history to it. Around the middle of the 1990s, the Fed’s easy monetary policy — that of Chairman Alan Greenspan — ushered in the “New Economy” boom. Generous credit and money expansion resulted in a pumping up of asset prices, in particular stock prices and their valuations.

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China’s Release of Its Peg

cropped-bob-shapiro.jpg   By Bob Shapiro

Last year, in May, the US Dollar began to strengthen against most of the other currencies around the world. More correctly phrased, I believe, is that the other currencies fell against the Dollar, since the US government – running massive Balance of Payments deficits – and the US Central Bank, the Federal Reserve, continued to print paper Dollars with wild abandon.

As the Dollar became relatively more expensive – on average by 20%! – than the currencies of our trading partners, US exports became less competitive than previously, so our exports have fallen. Similarly, other countries’ exports to us – our imports – have fallen in price, and US imports are up dramatically.

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How To Identify A Classic Bubble

By Michael Pento – Re-Blogged From http://www.Silver-Phoenix500.com

One of the most ironic and fascinating characteristics about an asset bubble is that central banks claim they can’t recognize one until after it bursts. And Wall Street apologists tend to ignore the manifestation of bubbles because the profit stream is just too difficult to surrender.

The excuses for piling money into a particular asset class and sending prices several standard deviations above normal are made to seem rational at the time: Housing prices have never gone down on a national basis and people have to live somewhere, the internet will replace all brick and mortar stores, and perhaps the classic example is that variegated tulips are so rare they should be treated like gold.

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An Interview Worth Watching

cropped-bob-shapiro.jpg   By Bob Shapiro

Michael Pento is an stock market money manager who follows the Austrian School of Economics (as do I). For those of you unfamiliar with what that is, Austrian Economics is Free Market Economics, as opposed to Keynesianism and other names for Socialism.

Michael was interviewed recently, and I’d like to share the video with you. It’s one of the few lucid, straightforward pieces that I’ve seen recently. But, understand that some of what he says is scary, so if you have a bad ticker, you’d better take a pill before watching.

 

What “Exit Door?”

By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com

Often times I like to write about an event or someone else’s article because of the importance to the overall picture.  Today I will do something a little different.  Below is an e-mail I received last Thursday from a friend.  I have the utmost respect for his thought process and his knowledge.  The writer is “plugged in” if you will, he has very high and powerful contacts in both China and London while he operates out of North America.  The following is chilling to say the least because it comes from someone who “knows”, it is not a speculation on his part because he is seeing it real time!  I will add my comments afterward.

I have been pounding the drum for some time about shrinking liquidity and what the impact will be. Well, I can tell you that we are almost there and a real crisis is developing far faster than what I envisioned that is impacting the 75 Trillion Shadow Banking sector which is on the verge of implosion. Focus on Europe as the real crunch will spread like a wildfire from there seizing up all credit markets.

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We Are At A Similar Situation Where Japan Was Before 1989!

The markets are only “allowed” to go up! The more you control the less you are in control!

Why do I say that – because in Japan in the end of the eighties there was only one way and that was up till the bubble broke in 1989 and we all know what happened afterwards. The Japanese even didn’t have any put options until 1987 when the modern OTC equity derivatives market was born with the creation of put options that were linked to the performance of the Nikkei 225 Index and that came with debt instruments issued by Japanese companies. London banks

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