Steve Bull's Blog, page 1173
March 5, 2018
It’s Not A “Conspiracy Theory”: Here’s How Central Banks Actively Suppress The Price Of Gold
Alhambra Investment Partners CIO Jeffrey Snider returned to Erik Townsend’s MacroVoices podcast this week to discuss one of his favorite topics: How central banks’ use gold lending to manipulate their balance sheets, and also to manipulate the broader market for precious metals by sheer dint of their size, and willingness to buy and sell without any consideration for the price.
Their conversation begins with Snider explaining the history of “gold swaps” between central banks that helped birth the concept of fractional reserve lending.
The first “gold swap” conducted between the Federal Reserve and the Bank of England: The Fed handed the BOE $200 million in bullion through the New York Fed; in exchange, the BOE gave the Fed a “gold receivables” in the same amount. This is essentially an IOU that could (in theory, at least) be cashed in for gold, but allowed the Fed to keep the gold deep in its vaults. As Townsend explains, the gold is being taken out of the accounting for the balance sheet, but it’s not being removed from the accounting.
Again, in theory, one could argue that these gold receivables were, in fact, “as good as gold” because the default risk from a counter party central bank is, effectively, zero.
Essentially, what happened was the Federal Reserve Bank of New York on behalf of the Federal Reserve system made $200 million of gold bullion available to the Bank of England for its disposal in whatever transactions it might take in defending sterling at that pre-war parity price. What’s important about that is that it aids both sides of the equation.
Because the way a gold swap works is that, essentially, the central bank agent that is providing the gold exchanges it for what’s called a gold receivable.
…click on the above link to read the rest of the article…
March 4, 2018
Doug Noland: No Bailouts Anytime Soon, So Let Those Short Bets Run
Now that equities are behaving the way they should have since, oh, 2013 – volatile with a pronounced down bias – everyone is wondering how far the crazy will go before the Fed starts buying the S&P 500.
Short sellers, of course, want to know when to close out their at-long-last-profitable bets (seeDavid Einhorn). Cautious investors (see Warren Buffett) with money on the sidelines want to know when to step in and buy. And fully invested optimists (the vast majority these days), are wondering if they should keep buying the dips till the cavalry arrives.
Credit Bubble Bulletin’s Doug Noland has been through at least three such cycles in his career as a short seller, and he’s parsed the testimony of new Fed chair Jerome Powell to reach a conclusion that the shorts will love and the longs will hate. Here’s an excerpt from his latest post:
The new Chairman is not in awe and, at least to commence his term, seems disinclined to pander to the markets. With greed waning, the change in tone was difficult for an uncomfortable Wall Street to ignore. Markets have grown too accustomed to central bank chiefs with an academic view of “efficient” markets – scholars wedded to doctrine that it’s the role of central banks to bolster and backstop securities markets. Powell knows better. As the old saying goes, “he knows where the bodies are buried.” Wall Street fancies the naïve. FT: “‘Powell Put’ Assumption Challenged as Fed Chief Shows Hand.”
I believe Powell recognizes the perils associated with backstopping a speculative marketplace. That doesn’t mean he won’t be compelled to do it. At some point, he’ll have little choice. But it likely means he will not act in haste. The Powell Fed will be much more cautious in delivering market assurances.
…click on the above link to read the rest of the article…
March 3, 2018
The Two Janet’s And The Perfect Storm Ahead
The Bloomberg news crawler this morning is heralding the heart of our thesis: Namely, that “flush with cash from the tax cut”, US companies are heading for a “stock buyback binge of historic proportions”.
This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.
And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.
So what could be more timely and efficacious than an enhanced, government debt-financed wave of stock buybacks to rejuvenate the speculative juices on Wall Street and embolden the robo-machines and punters for another round of buy-the-dip?
Indeed, corporate stock buying is now cranking at a $1 trillion annual rate or nearly double the rate of the last several years. That huge inflow of cash and encouragement to Wall Street will undoubtedly break the market’s fall in the short-run; and over the next several quarters, perhaps, enable an extended stop-and-start stepwise decline rather than a sudden sharp plunge as in the fall-winter of 2008-09.
It also underscores why the Paul Ryan school of conservative policy wonks got it so wrong on the corporate rate cut. They still dwell in a pari passu world where higher after-tax rates of return would, in fact, stimulate increased investment, growth, employment and income.
…click on the above link to read the rest of the article…
‘Descent Into Hell’: China Warns of Potential War With US Over Taiwan
(ANTIMEDIA) — It’s no secret that for Beijing, the most sensitive issue within Sino-American relations is that of Taiwan, the semi-autonomous island territory that China considers to be a breakaway province. Now, a political move made by the U.S. on Taiwan has Beijing warning of the possibility of military action.
Back in January, the House of Representatives unanimously passed the Taiwan Travel Act, a bill aiming to significantly strengthen ties between U.S. officials and their Taiwanese counterparts. The bill reached the Senate floor on Wednesday, where it also passed without opposition. Now, all that’s required for the legislation to become law is Donald Trump’s signature.
Taiwan welcomed the bill’s passage. Speaking to reporters in the capital of Taipei, Premier William Lai said the U.S. is a “solid ally” of Taiwan and that the two sides’ ties can now become even stronger.
“We wholeheartedly anticipate that this law can in the future further raise the substantive relationship between Taiwan and the United States,” Lai said.
Unsurprisingly, China had an altogether different reaction — one that included a warning to its neighbor and a hint at military confrontation if things continue to progress in this manner.
“We are firmly against the act,” China’s state-run Xinhua News Agency quoted Taiwan Affairs Office spokesperson An Fengshan as saying. “We sternly warn Taiwan not to rely on foreigners to build you up, or it will only draw fire against yourself.”
The U.S. cut formal ties to Taiwan when it recognized Beijing as the Chinese capital in 1979. This event marked official acceptance of the “one China” policy, which regards Taiwan as a Chinese territory.
But Beijing has grown increasingly concerned over what it views as Taipei’s push toward independence since the election of President Tsai Ing-wen in 2016.
…click on the above link to read the rest of the article…
7 Dead After “Monster Nor’easter” Pummels East Coast, Leaving Floods, Outages
At least seven people were dead after a “monster nor’easter” – officially called Winter Storm Riley – slammed the northeastern United States on Saturday, leaving a trail of flooded streets, power outages and brutal winds.
NASA
@NASA
Spotted by @NOAASatellites‘ #GOES16 satellite: today’s #noreaster is seen spinning off the Atlantic Northeast. This storm is slamming the East Coast with intense winds, snow, rain and hail. More: https://www.star.nesdis.noaa.gov/GOES/GOES16_sector_band.php?sector=ne&band=GEOCOLOR&length=24 …
12:42 PM – Mar 2, 2018
A 6-year-old boy died in Virginia after a tree fell on his family’s home, officials said. Others include an 11-year-old boy hit by a falling tree in New York state, a 57-year-old man in Upper Merion, Pennsylvania, hit by a tree while in his car and a 77-year-old woman struck by a branch outside her home in Baltimore.
The Tewksbury Police posted this photo to their Twitter account of a tree severely damaging a jeep, March 2 The storm strengthened rapidly Friday, undergoing what’s known as bombogenesis or “bombing out,” when a low-pressure system drops 24 millibars in 24 hours. It was the second “bomb cyclone,” to hit the region after a similar storm hit the northeast back in early January. home in Baltimore.
Rubble rests on top of a car after a partially burnt building collapsed due to strong winds in Northeast Washington According to Reuters, almost 2.4 million homes and businesses had no power in the Northeast and Midwest early on Saturday. Some utility companies warned customers that power might not be restored until later in the day or Sunday.
Wind knocks down power poles onto Arsenal Street in Watertown, Mass., March 2 New York City saw a mix of rain, snow, sleet and winds that wrapped up by evening. Over 4 inches of rain fell in eastern Long Island and parts of eastern Massachusetts.
…click on the above link to read the rest of the article…
Drilling and Mining Interests Pushed to Shrink Utah National Monuments, Documents Reveal
Even though Interior Secretary Ryan Zinke insisted “this is not about energy,” environmentalists and public lands advocates have long suspected the Trump administration’s cuts to national monuments were driven by its push for more drilling, mining and other development.
Now, internal Interior Department documents obtained by the New York Times show that gaining access to the oil, natural gas and uranium deposits in Bears Ears and coal reserves in Grand Staircase-Escalante were indeed key reasons behind President Trump’s drastic cuts to the two monuments in Utah.
In March 2017, an aide to Senator Orrin Hatch (R-Utah) asked a senior Interior Department official to consider reduced boundaries for Bears Ears to remove land that contained oil and natural gas deposits. Hatch’s office sent a map depicting a boundary change for the southeast portion of the Bears Ears monument to “resolve all known mineral conflicts,” the email said, referring to oil and gas sites on the land that the state’s public schools wanted to lease out to increase state funds.
As the Times reported, the map that Hatch’s office provided—and notably sent about a month before Sec. Zinke publicly initiated his review of national monuments in April—was incorporated almost exactly into the much larger reductions President Trump would later announce.
In December, despite widespread public support to preserve protections for public lands, Trump announced he was gutting the 1.35 million-acre Bears Ears to only 201,397 acres and the 1.87 million-acre Grand Staircase-Escalante to just 997,490 acres. The move was the largest elimination of protected areas in U.S. history.
…click on the above link to read the rest of the article…
Putin’s stunning revelations about new Russian weapons systems
If you have no read it yet, please check out Putin’s full address to the Federal Assembly. What stunned me, and many other, are the new weapon systems Putin has announced.
First, he confirmed that the Sarmat ICBM would replace the old but already formiable SS-18 “Satan”. Then he turned to new weapon systems:
A nuclear powered cruise missile with basically unlimited range
A nuclear powered unmanned submersible with intercontinental range, very high speed, silent propulsion and capable of moving a great depths
A Mach 10 hypersonic missile with a 2’000 kilometer range (named: Kinzhal)
A new strategic missile capable of Mach 20 velocities (named: Avangard)
All of these systems can be armed with conventional or nuclear warheads. Just think of the implications! Not only does that mean that the entire ABM effort of the USA is now void and useless, but also that from now US aircraft carrier battle groups can only be used against small, defenseless, nations !
Right now I simply don’t have the time to write a full analysis of the stunning, truly tectonic, implications of this announcement, so I will turn to my naval warfare expert friend Andrei Martyanov and repost his initial reaction to just one of these systems:
It Is Official And It Is Over.
While the whole Western media are shaking (incompetence will do this to one) in their boots from Vladimir Putin’s address, where he demonstrated, among many things, new RS-28 Sarmat ballistic missile, behind that revolutionary weapon system, one was almost completely ignored by media. Again, “education” based on catch phrases (such a “nuclear weapon) will do this to one. By far most shocking (albeit inevitable) revelation was deployment of a new hyper-sonic missile Kinzhal (Dagger) to regular service with front line Air Force units in Southern Military District.
…click on the above link to read the rest of the article…
From Bling to Plonk – An Update on the Debt Mountain
Serenely Grows the Debtberg
We mentioned in a recent post that we would soon return to the topic of credit spreads and exotic structured products. One reason for doing so are the many surprises investors faced in the 2008 crisis. Readers may e.g. remember auction rate securities. These bonds were often listed as “cash equivalents” on the balance sheets of assorted companies investing in them, but it turned out they were anything but. Shareholders of many small and mid-sized companies learned to their chagrin that quite a bit of this “cash” had for all practical purposes evaporated when the markets for these bonds suddenly froze.
Surprise and shock at the sudden emergence of exotic securities in unexpected places at an inconvenient moment.
We have regularly chronicled the growing insanity in bond markets over the past few years in these pages, since we feel quite certain that debt will once again prove to be the straw that breaks the bubble’s back, so to speak. The massive surge in “cov-lite” bond issuance in the corporate junk bond universe almost speaks for itself, as does the popularity of “frontier market” government bonds or bonds issued by parastatal entities in these markets (“frontier markets” are what the POTUS colorfully refers to as “shitholes”).
The same applies to the resurgence in CLO issuance. Investors in these products often employ up to 10:1 leverage; reportedly banks are eagerly supplying the funds, since back-testing clearly shows that nothing bad ever happened to these carefully over-collateralized cesspools of potential deadbeat debt – and as everybody knows, that means nothing bad will ever happen. Just as there was never supposed to be a nationwide collapse in home prices, this is basically the next doubleplus-certain thing, which means there is little choice but to slap an AAA rating on most of these securities.
…click on the above link to read the rest of the article…
SILVER INVESTMENT: The Lowest Risk, Highest Return Potential vs. Stocks & Real Estate
While silver is completely off the radar to most investors, it will turn out to be one of the best investments to own as the massive amount of leverage in the stock and real estate market evaporates. Unfortunately, investors, today are no longer capable of recognizing when an asset displays a HIGH or LOW risk. Thus, fundamental indicators are ignored as the investors continue the insane strategy of “Buying the Dip.”
A prudent investor is able to spot when an asset becomes a high risk and then has the sense to move his or her funds into one that is a lower risk. However, the majority of investors do not follow this practice as they are caught by surprise when a Market Crash occurs… again and again and again. Even worse, when investors are shown that the indicators are pointing to assets that are extremely risky, then ignore it and continue business as usual.
Today, complacency has turned investors’ brains into mush. They are no longer able to discern RIGHT from WRONG. So, when the market really starts to correction-crash, they will hold on to their stocks waiting for Wall Street’s next BUY THE DIP call.
Regardless, if we can understand the fundamentals, then we would be foolish to keep most of our investment funds in Stock and Real Estate assets. The following chart follows the KISS Principle – Keep It Simple Stupid:
You don’t need to be a highly-trained financial or technical analyst to spot the HIGH vs. LOW-RISK assets in the chart above. Hell, you don’t even need to see the figures in the chart. If we understand that all markets behave in cycles, then it’s common sense that asset prices will peak and decline.
…click on the above link to read the rest of the article…
Economists vs. Scientists on Long-Term Growth
Yegor Aleyev\TASS via Getty ImagesEconomists vs. Scientists on Long-Term Growth
Artificial intelligence researchers and conventional economists may have very different views about the impact of new technologies. But right now, and forgetting the possibility of an existential battle between man and machine, it seems quite plausible to expect a significant pickup in productivity growth over the next five years.
CAMBRIDGE – Most economic forecasters have largely shrugged off recent advances in artificial intelligence (for example, the quantum leap demonstrated by DeepMind’s self-learning chess program last December), seeing little impact on longer-term trend growth. Such pessimism is surely one of the reasons why real (inflation-adjusted) interest rates remain extremely low, even if the bellwether US ten-year bond rate has ticked up half a percentage point in the last few months. If supply-side pessimism is appropriate, the recent massive tax and spending packages in the United States will likely do much more to raise inflation than to boost investment.
There are plenty of reasons to object to recent US fiscal policy, even if lowering the corporate-tax rate made sense (albeit not by the amount enacted). Above all, we live in an era of rising inequality and falling income shares for labor relative to capital. Governments need to do more, not less, to redistribute income and wealth.
It is hard to know what US President Donald Trump is thinking when he boasts that his policies will deliver up to 6% growth (unless he is talking about prices, not output!). But if inflationary pressures do indeed materialize, current growth might last significantly longer than forecasters and markets believe.
In any case, the focus of economists’ pessimism is long-term growth. Their stance is underpinned by the belief that advanced economies cannot hope to repeat the dynamism that the US enjoyed from 1995-2005 (and other advanced economies a bit later), much less the salad days of the 1950s and 1960s.
…click on the above link to read the rest of the article…
