Thursday, 30 April 2020

Everyone Sees The White Swan, No One Sees The Black One.

Let's start with the indisputable facts: the American economy has been destroyed. Look at the GDP, consumer spending, business failures, housing market, personal bankruptcies, etc. That's reality.

Couple that with initial unemployment claims now at 31 Million and you get the picture. You all know that no one, and I mean no one, can repudiate the business cycle so markets should logically be in the tank but they aren't.

In fact, the stock market has just had its best month since the crash of 1987. Why is that, it makes absolutely no economic sense? Easy as pie: The White Swan is called The Fed and it artificially creates money out of nowhere each day and injects it into the Bond Market and companies. Investment and money-centre banks get dough but with strings: they must use the money to purchase stocks of companies in trouble in order to artificially inflate the stock price. And they're doing it, in spades. That's the only reason why the stock market goes up with any regularity. Like I said, you can't get rid of the business cycle but The Fed can monetize its way to putting the final day of reckoning off for God knows how long.

Now, here's the point to this post: no one sees The Black Swan that's out there for all to see. It's called The Fed and it will ultimately crater both the Bond and Stock markets. Plain and simple, you can't do QE To Infinity, Repo Bailouts and everything else forever. You can't create trillions each day and every week and expect it can go on and on. One day, The Fed's Balance Sheet will no longer permit it. Just how many trillions can The Fed accommodate on its off-balance Balance Sheet? And when that day finally comes, The Fed will sink the markets but good.

Don't expect a second leg drop of 40% cause that's Disneyland talking. Prepare yourself for at least a 60% whopper because it's on the way, one hell of a lot sooner than most people think. Even your worst financial nightmare is nothing compared to what's coming. Hold on tight and get the hell out of large-cap and dividend stocks as fast as you can.

Tuesday, 28 April 2020

The Transition From Deflation To Hyperinflation.

You might say it's easy as pie: just check out your current gas price and look at it again in two weeks. If it's suddenly up thirty percent, then voilĂ .

Also do yourself a favour and compare this month's grocery bill with next month's.

After, you can scream ouch if you want to.

Saturday, 25 April 2020

How To Kill The Bond Market.

It's easier than you think: all you have to do is adopt MMT and print money like it's going out of style. That infusion of artificially created liquidity -- liquidity that is not now and will never be paid for in budgets -- has the effect of inflating the economy and with each cash infusion from The Fed, we slowly move from a deflationary scenario to an inflationary one.

Economic crisis by its very nature is normally deflationary -- people lose jobs or end up with a severely reduced income, cut back on spending and try to ride their way through the financial crisis. Personal spending which makes up 70% of the American GDP grinds almost to a halt and economic circumstances continue to worsen.

However, as phoney money printing becomes the normal course of the day, that increasingly sparks inflation leading to a steady increase in prices and business input costs for material and other goods. Meanwhile, bond rates dive and head toward negative interest rates. That means that for every bond you buy, your principle is drained by the corresponding negative interest rate. In other words, you hold bonds to lose money, to watch your capital slowly but efficiently drain away over time. And the more inflation increases, the quicker your bonds are on the path to zero.

By now, most of you are already aware that the Ten-Year Treasury has been below one percent for quite some time. In fact, the current nominal rate is 0.60% and that is likely to go lower. However, in terms of real yields after inflation, the Five, Seven and Ten-Year Treasuries are already in negative rate territory. Treasuries are sovereign debt denominated in the American currency. U.S. government issued bonds, if you prefer. Now, to the current reality: worldwide, there is out there 17 Trillion in sovereign debt that has a negative interest rate. As a result, no one, not institutions nor individuals, is willing to purchase those bonds so as a result, the national central bank, ECB or The Fed become the buyer of last resort and that garbage ends up on their balance sheet.

That's in the context of the world's overall disastrous government debt, which was already at 71 Trillion before the onset of The Greatest Recession. QE To Infinity and similar other national fiat currency infusions have already added another 5 Trillion and there's no indication that manufactured cash injections will end any time soon.

Nominal negative rates are a question of time. Japan has had them since 2016 and little economic growth has occurred since then. But The Fed inevitably will create economic conditions that will go there: in the words of Rita Mae Brown:

"Insanity is doing the same thing over and over again, but expecting different results."

Somebody had better clue The Fed in fast, before the Bond Market dies.


Thursday, 23 April 2020

USA: 26 Million Unemployment Claims.

That works out to 23% as the unemployment rate, two points shy of the worst figure during The Great Depression. And in terms of numbers, at its height, 15 million Americans were unemployed.

And this greatest depression is only getting started.

But the real deal is more like 30 million, according to at least one estimate.

So sadly, we ain't seen nothing yet.

Sunday, 19 April 2020

Markets: Don't Get Sucked In!

Very few of us were around to experience the five bear-market rallies during The Great Depression. This market is heaven for short-term traders but definitely not for investors -- other than those in high-quality gold and silver stocks but I digress.

Let's start with the first low in 1929: the initial drop was in the order of magnitude of almost 48 percent. From there, it took months and months to rally back in the first false bull wave to a gain of 48 percent. That was followed by a 53% percent fall and another 54%, with a 93% gain and a final 67% gain during the first leg of the new bull market. Contrast that with the 2020 crash: we dropped 37% and within about three weeks, we're up 33% from that bottom. In short, a far bigger drop is expected and it's coming within a few weeks. Watch us go down at least 60% and perhaps as much as 80%.

Meanwhile, economic conditions are much worse: the 22 million unemployed in the States know it and as everyone knows, unemployment numbers are a trailing indicator as regards economic health. So, the U.S. economy is basically destroyed in the wake of COVID-19 but remember, the virus didn't bring us record debt and deficits, irresponsible deregulation, particularly in financial services, inadequately funded entitlement programs, derivatives, mortgage-backed instruments, junk bonds, or the individual scourge that is otherwise known as margin.

Clinton, Bush, Obama and Trump did that. So did the financial services industry, more particularly, banks, whose outright greed and fiduciary dishonesty toward clients was no better than in 2008. They falsely inflated this stock market with their criminal stock buybacks and special dividends.

The other major culprit, of course, is The Fed, who artificially held the Fed Interest Rate low thereby creating major bubbles in bonds, stocks and other asset classes. Mortgages rates were too low and house prices too high thanks to The Fed's reckless cheap money policy. Hence, the housing bubble. Add to that the idiotic notion of reducing large bank reserves on deposit to zero and there you go...they quite simply caved in to banks' requests, knowing full well that those institutions had allocated reserve money elsewhere to increase industry profits. Then came the Repo Crisis in September, which basically confirmed bank insolvency as overnight and short-term inter-bank lending to each other seized up, even with a low Fed Funds Rate. No one trusted no one, and everyone knew everyone else was broke, partially due to European banks bond exposure. Naturally, the taxpayer got to print phoney money to the tune of 7 trillion dollars.

Add to that governments' failure to adequately police private pension pools, knowing all the while that the average corporate pension fund was quite deliberately underfunded. Those companies were too busy inflating their stock price to keep the bubble going and paying management horrendous and ill deserved bonuses for good measure.

So, this market is for shorts, traders and gold and silver investors. Everyone else, forget it or invest at your own peril as greed ultimately is never, ever, your friend. Don't learn that the hard way.

Saturday, 18 April 2020

The Stock Markets: Only For High-Risk Investors.

Would I put money in stocks now? No, other than in gold and silver stocks. But even that is a crap shoot, though the trend is your friend.

It's all about the bear and bull and anyone who tells you we're in a secular bull is downright crazy. Never have we fallen this far this fast, so I don't know of any market indicator that remotely comes close to that.

Take 1929 for example: during the bear, there were five -- count 'em -- five rallies. More importantly, the first one led to a fifty percent gain before ultimately crashing below that level. Doesn't mean that 2020 will be a carbon copy but the road ahead hardly looks promising.

In short, it takes far more guts than I've got to trade this market. My gut is still waiting for the other shoe to fall. Next time, I don't expect a 30-35% retrenchment but rather more like a 60% drop. 

To paraphrase Thatcher: you buy the dips if you want to, but this guy's not for turning.

Thursday, 16 April 2020

22 Million And Counting.

That's the number of Americans who've filed for unemployment. But there's more: small businesses are going bust, banks are insolvent but kept alive solely by The Fed's multiple and serial cash injections. Airlines, truckers, cruise lines, insurance companies, states, cities and others are either broke or tottering. And who can leave out failed or delinquent mortgages and an overpriced housing market?

Meanwhile, the economically deluded attribute all of the above to a virus.

You know you're in trouble when the national debt is greater than your GDP. You know ruination is ahead when you can't possibly meet your entitlement obligations. You know that demand and supply-side economics aren't worth two-shits when the printing presses are at it as if fiat money was going out of style. You know you're economically dead when public enemy number one, otherwise known as financial deregulation, is once again deliberately left free to do its disastrous economic work.

So, in the final analysis, going to hell economically ain't the work of a virus that kills less people than your average seasonal flu.

But it does make for a convenient excuse and no finer example of a classic red herring. 

Monday, 13 April 2020

Sunday, 12 April 2020

Thank You, Jason Kenney.

Thanks for paying it forward. That not only says a lot about you and your government but also about the kind-hearted and generous people of Alberta who were already suffering horribly long before this pandemic began.

Now it's our turn to do as much as we can to promote pipeline expansion and development and insure safe access to all possible markets.

Certainly not the time to play politics. May God Bless All Albertans. 

Saturday, 11 April 2020

When The United States Dies.

Remember KISS. Let's start off with basic truths: The Fed cannot cement in place a policy of QE To Infinity. Why? Quite simply for national debt reasons, which if left unchecked would require that the United States default on its debt and start over. You can't do that in economic terms without permanent economic ruination.

The Fed was formed to regulate the money supply and control inflation. In reality, most economic recessions were the result of excessive Fed tightening, thereby increasing interest rates either too quickly or by too much.

But in the QE reality that goes back all the way to the Obama Administration, we are in an entirely different and far more dangerous world where boom and bust cycles are no longer the expected outcome as per traditional capitalist economic cycles.

Treasury being completely complicit with The Fed has turned the stock markets into junkies requiring their daily indirect fix of capital through Fed cash injections into financial services and the banks. That money doesn't go toward stabilizing bank balance sheets, to bank repos or even dealing with bank derivative exposure. Quite the contrary, the money is used by banks to inflate stocks by buying them when no one else can or will.

You also know that The Fed is out to lunch when it starts buying high-yield junk bonds -- that no one else wants -- and their disastrous ETF counterparts. That's lipstick on a pig but it's still a lousy pig.

The Fed recklessly believes that creation of phoney money in infinite and never-ending amounts will stabilize markets and reverse the current depression. Absolute lunacy. You can't keep the printing presses going forever.

When the stock market junkie gets its fix, stocks inevitably go up. But within days, natural market forces kick in again focusing on true economic metrics and down stocks go. Then in comes another Fed fix and stocks rise again, with the cycle continually repeating itself but on a basic downward trend: in other words, lower highs and lower lows. Put another way: serial cyclical bull rallies in a clearly established overall bear market.

Now, let's focus upon the effects of excessive Fed liquidity: this is the period when we transition from increasing inflation to hyperinflation with the initial trigger being money printing, which in and of itself is clearly inflationary. In hyperinflationary environments, stocks take off for the moon but that's entirely deceptive. In local currency terms, stock market valuations increase quickly and at an incredible pace. So, paper returns are in the order of hundreds to thousands of percent increases. But the problem is that excessive money printing leads to rapid currency devaluation coupled with unchecked price increases and escalating corporate input costs. In American terms, the dollar will plummet and lose much of its purchasing power while consumer prices rise at an alarming pace. So, people have less purchasing capacity while at the same time goods prices are making them less accessible.

Meanwhile, corporations experience less demand for goods and services, revenues decline and overall profits are drastically affected by the true underlying economic conditions. That's when companies start trying to avoid bankruptcy or end up going bust. In addition, in a hyperinflationary environment, corporate dividends go the way of the Dodo bird and share buybacks, which normally artificially inflate stock prices, become a thing of the past.

That's when the stock market hyperinflationary cycle turns and stock indexes crater, often down 80-90%. That's what Treasury and The Fed are trying to prevent but in reality, they are only making it inevitable with their excessive and dangerous phoney money printing policy. And if unemployment goes to all-time highs, or unmanageable levels, then hyperinflation becomes stagflation with incalculable economic consequences on working men and women across the United States.

When The Fed launched QE, that was the beginning of the end of normal capitalist economic cycles. It also signed the economy's death warrant, which unfortunately, is playing out today before our very eyes.

Saturday, 4 April 2020

What's Going On With Gold Stocks?

The lid was still on the pot as gold reasonably steadily began an upward trend and that resulted in many large-cap gold stocks spiking up.

That held for quite a while with the shorts still trying to push the gold price lower. Some things never change. But a lot of those people were also on margin -- and they had to start selling their traditional stock and bond holdings to meet their margin requirements.

This is no better example of capitalism's two greatest enemies: buying stocks on margin and using leverage either on derivatives, or worse yet, from an individual perspective, on ETFs. People will be in for one hell of a surprise when the X times ETF come crashing down. But I digress.

Getting back to gold stocks: the bad news is that with inflation accelerating, intermediate and small-cap gold stocks have started to move. Great for gold and silver stock investors. Not so much for everyone else.

Meanwhile, in the United States, unemployment is out of control, with over 10 million jobs already vaporized, at least on a temporary basis. Even The Fed is predicting eventual losses of 47 million, or thirty-two percent unemployment. 4.5-10% unemployment right now, with 24 million losses projected for April or fourteen percent.

So, the transition has obviously been made from a deflationary to an inflationary environment. Don't be surprised if consumer goods prices go up by thirty percent in the next month or two. With that will come the rise of bullion and further upward movement in gold stocks. Remember that silver and silver stocks are slumping right now -- even in a period of physical shortage and temporarily closed mines. But that's merely the calm before the storm when both the metal and stocks will hockey-stick forward, what with the current gold to silver ratio currently set at 113-1, down from 121-1 in March. In short, silver capitulation has happened and it's ever so slowly on the way up.

Thus the transition is clearly underway from deflation, to inflation, then to hyperinflation and ultimately to stagflation. Most investors will be decimated in a period where many are already losing their jobs, homes, cars and even worse, their very lives.