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Feb 26, 2021


2.26.21 - This Catalyst Could Take Gold to $2,100/oz.

Gold last traded at $1,728 an ounce. Silver at $26.43 an ounce.

NEWS SUMMARY: Precious metal prices fell on technical selling as higher interest rates boosted the dollar. U.S. stocks sold off for a second day as Wall Street struggled to shake off fears of rapidly rising bond rates.

The catalyst that could take gold price to $2,100 -ANZ/Kitco

"One catalyst could turn things around and take gold prices as high as $2,100 this year, according to Australia and New Zealand Banking Group (ANZ).

Gold is back below $1,800 an ounce this week as prices struggle to maintain gains amid rising Treasury yields....Despite this lackluster performance, ANZ remains positive on gold, citing one specific driver that could boost gold back to its record highs.

'The real instigator of another leg up in prices will be the expectation around inflation, and certainly that is something that is raising heads of late,' ANZ senior commodity strategist Daniel Hynes. 'We are starting to see energy prices rise. Freight container rates and shipping costs are also rising quite strongly. We saw PPI in China pick up recently. There is some concern that higher prices will start to manifest itself through the global supply chain as the global economy improves.'

Right now, markets are not paying enough attention to inflation concerns, Hynes said, noting that this might change in the medium-term.

'Inflation story is bubbling away in the background, but it will start to gain more focus for investors. Inflation expectations are picking up, which would provide a solid support for investor demand over the medium term. That will continue to benefit the gold sector,' Hynes said.

The Federal Reserve reiterated multiple times that it does not see inflation as a concern and is willing to let it run higher. This sets up an advantageous scenario for gold in the long-term.

'The Fed said they would rather see things overshoot. That is going to give plenty of scope for the continued reflation trade to play out,' Hynes said.

On top of the inflation factor, low interest rates along with more monetary and fiscal stimulus will keep gold prices elevated this year. 'Our year-end price targets for gold is $2,100,' Hynes said."

money How an increase in inflation affects the average American -Rahn/Washington Times

"Will inflation increase, and if so, how will it affect you? The short answer is that many economists, including yours truly, expect inflation to increase. Most measures of human activity get better over time, but not inflation numbers - more on this below.

Economists define inflation as a general increase in the price level where the purchasing power of the money declines. But in the real world, some prices increase while others fall. The government has many measures of inflation - the Consumer Price Index (CPI) being the best known. Economists frequently use Personal Consumption Expenditures (PCE) in the belief that it gives a slightly better measure of real inflation....

In trying to measure inflation and deflation, government statisticians attempt to determine what people spend for durable goods - those that last more than three years (such as automobiles, furniture, appliances, aircraft, guns, etc.); non-durable goods that are consumed in less than three years (such as food, gasoline, paper, etc.); and services (such as banking and other financial services, maintenance or repair work, transportation, legal services, etc.)....

The fracking revolution reduced the real price of gasoline and natural gas, and huge productivity gains in agriculture continued. Also, deregulation under the Trump administration allowed for many production efficiencies, again reducing prices.

Unfortunately, the new Biden administration is reversing course, and its policies are likely to cause the price of energy and many other goods and services to increase. As the restrictions from the pandemic are lessened, temporary supply shortages will arise, again causing price increases....

Service costs have risen most rapidly (by about 86% in the last 25 years) - in part because productivity gains have been so much lower in the service sector than in the goods sector. Medical and educational services are major components of the services price indices. As measured by student achievement and costs per student, most education has shown negative productivity gain - that is, it costs more today in real terms to achieve reading and math proficiency in the average student than it did a quarter of a century ago.

There have been enormous gains in medical science, but these gains have been offset by the ever-growing medical and paperwork bureaucracy...As the medical price system has broken down, the ability to measure medical cost inflation has become nearly impossible.

In future columns, I will explain in more detail why the prices of most goods and services are more likely to rise than fall and explore the various ways people can at least partially protect themselves."

Beware Modern Monetary Theory's damaging potential -Washington Examiner

"Most of us understand that governments spend taxpayer dollars. The 'public money' is ours. In theory, this gives our representatives a fiduciary responsibility to spend it wisely on our behalf. When they borrow money, their fiduciary responsibility is to younger taxpayers and future generations who will repay those debts.

Until recently, nobody seriously challenged this common sense. These ideas informed the spirit of 1776, 'no taxation without representation,' and are embedded in the DNA of American constitutional government. It's our government because it's our money.

All of a sudden, not all lawmakers see it this way. I do not mean that socialists and progressives such as Sen. Bernie Sanders, the new chairman of the Senate Budget Committee, and Rep. Alexandria Ocasio-Cortez are blasé about spending taxpayer dollars. They argue in good faith that social justice, COVID-19, and climate change require massive increases in government spending. Rather, I mean that they embrace a new understanding of government budgets and taxation, called Modern Monetary Theory, which rejects the idea that governments spend taxpayer dollars.

Modern Monetary Theory's supporters think differently about the federal budget than mainstream economists do, and they think very differently than the Stamp Act Congress of 1765, when the then-British colonists petitioned the king and parliament not to tax them without seating their representatives.

Stephanie Kelton, professor of economics at New York's Stony Brook University and onetime senior economic adviser to Sanders, explains Modern Monetary Theory in her 2020 bestseller, The Deficit Myth. Since the federal government, unlike a household or business, issues the currency that it spends, Kelton and other Modern Monetary Theory proponents argue that the government can and should spend as much money as markets profitably can use, without respect to tax revenue or the national debt, which could be repaid simply by issuing more money....

Modern Monetary Theory raises political problems, as well as economic ones. Now that radical new economic thinking has come to Washington, it’s time to think through these political implications.

This theory holds that taxation is a policy tool for controlling inflation because taxes take money out of circulation. But how realistic is it to imagine that Congress and state legislatures, after decades of gridlock, suddenly will be able to pass tax bills that effectively respond to monthly changes in inflation? Even if it were possible for Congress to levy taxes for the purpose of effectively controlling inflation, it is unclear whether the commerce clause from Article I, Section 8 of the Constitution authorizes the federal government to do so.

More profoundly, Modern Monetary Theory would undo the economic common sense that has undergirded the republic since the American Revolution. If the public treasury is not our money, it ceases to be 'our' government in that important respect."

Housing market concerns begin to emerge -CNN

“The housing market is still red hot. But there are growing concerns about how much longer this strength can last.

Home Depot (HD) reported earnings and sales that topped Wall Street's forecasts Tuesday. Lowe's (LOW) also reported better-than-expected earnings and sales on Wednesday morning, and CEO Marvin Ellison said in a statement that sales were lifted thanks to 'broad-based demand driven by the continued consumer focus on the home.'

Still, rising interest rates could eventually be a problem for Home Depot and Lowe's. Even though the Federal Reserve is expected to keep its key short-term rate near zero for the foreseeable future, longer-term bond yields have started to spike. And mortgage rates are influenced more by the 10-year Treasury than Fed rates.

In an ominous sign, Home Depot declined to give any guidance for 2021. Its shares fell 3% on the news.

'Increased demand for single-family homes has driven housing turnover and home price appreciation,' said Home Depot chief financial officer Richard McPhail during a conference call with analysts Tuesday. 'However, significant uncertainty remains with respect to the course of the pandemic, the distribution of vaccines, short-term fiscal policy and how these developments will impact the broader economy and ultimately, consumer spending.'....

S&P/Case Shiller and the Federal Housing Finance Agency reported a more than 1% monthly increase in their latest housing price reports Tuesday."

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Feb 25, 2021


2.25.21 - Expect All-Time Highs for Gold & Silver

Gold last traded at $1,769 an ounce. Silver at $27.50 an ounce.

NEWS SUMMARY: Precious metal prices retreated Thursday on profit-taking and rising interest rates. U.S. stocks fell as higher bond yields continued to put pressure on high-growth technology stocks.

I expect new all-time highs for gold and silver - here's why -Tiggre/Kitco

"One of the most common objections to allocating wealth to gold is that 'it doesn't pay interest' At the same time, the attractiveness of an asset that can’t be inflated away by government fiat is obvious. This is why the most powerful driver of gold prices over the last 50 years has been real interest rates in the U.S.

Why real US rates? Because, as with other commodities, gold prices are quoted in US dollars. This alone gives gold and other commodities a generally inverse relationship with the USD. Indeed, commodities prices are frequently cited as measures of inflation.

But nominal rates don't account for inflation. A nominal 1% interest rate is actually negative if inflation is 2%. This is why gold and nominal rates can rise together during times of higher inflation.

At the same time, gold is also a monetary metal. It's a form of physical wealth that competes with the USD directly as money. That can cause both gold and the USD to rally together when economic uncertainty prompts people to seek the safety of cash....

I am highly confident that we're going to see much higher inflation ahead - even if the economy continues struggling and unemployment remains high. That means real rates will remain low for years, which is very bullish for gold and silver....

This is why I do think gold will not only hit new all-time highs, it'll hit new all-time highs in real terms - which it did not reach last year.

Bottom Line: I think it's a mistake for traders and investors to see higher long-bond yields as bearish for monetary metals - and that's an opportunity for those who see the error...I don't speculate on gold and silver bullion. I buy physical bullion as my preferred form of savings. This is prudence backed by thousands of years of history."

retirement Retiring without savings: 3 options for cash flow -USA Today

"You'll often hear that to retire comfortably, you'll need to kick off your senior years with some level of savings. In fact, ideally, you'll manage to end your career with about 10 times your final annual salary socked away in a retirement plan.

But what if that's just not doable for you? What if constant bills and other expenses prevent you from saving a meaningful sum for your senior years? If that's the scenario you've landed in and you're right on the cusp of retirement, don't despair. Here are some options for salvaging your senior years in the absence of having a nest egg.

1. Boost your Social Security benefits - The great thing about Social Security is that it's designed to pay you for life, and a higher monthly benefit could compensate for a lack of retirement savings. So how do you score a higher benefit? It's simple: Just delay your filing past full retirement age (FRA), which is the age at which you're entitled to your full monthly benefit based on your personal earnings history....

2. Get a part-time job - Working in some capacity during retirement is a great way to make up for absent savings. That paycheck could cover a number of bills, but just as important, working will give you something to do with your time, thereby preventing you from spending money to stay busy that you can't afford to shell out....

3. Rent out part of your home - Seniors are often advised to downsize during retirement, but if you have a larger home that's all paid off and is relatively affordable to maintain (say, your property taxes are pretty low), then hanging on to that home and renting part of it out could be a better bet....

Entering retirement without savings isn't ideal, but it's a scenario plenty of seniors face. If it's too late to build wealth in an IRA or 401(k), these solutions could be your backup plan. You may also need to prepare to cut back on spending and keep your expenses to a minimum."

Overstimulation on the Way -First Trust Outlook

"We’re now estimating that real GDP will rise at about a 6.0% annual rate in the first quarter,and grow about 5.0% (Q4/Q4) in 2021....

A new $1.9 trillion stimulus bill is winding its way through the legislative process. It's like using a credit card to push spending above your current income level. This massive package includes a further extension of unemployment benefits, direct help for households and businesses, more money for vaccinations, $350 billion for state and local governments, and $170 billion for education.

Much of this spending is for 2022 and beyond (which we would argue has nothing to do with the pandemic).In fact, our estimates suggest the US will reach herd immunity by April, allowing organic growth to accelerate....

All the money printing and extra spending will boost demand, which is a recipe for higher inflation. Consumer prices are up 1.4% from a year ago, but that should rise to 2.5% by year end. It'd go even higher than that, but the moratorium on evictions has the government's measure of housing prices – which focuses on rents, not actual prices - artificially low right now.

We have argued that stimulus spending that offsets damage from shutdowns can be viewed as 'just compensation' for a 'taking.' But we are beyond that now. The pandemic is winding down,and economic activity is being boosted by both re-opening and stimulus. What is really happening today is that we are over-stimulating the economy."

House Democrats aim to pass $1.9 trillion Covid relief bill on Friday -CNBC

"House Democrats plan to pass their $1.9 trillion coronavirus relief bill on Friday as lawmakers try to prevent unemployment lifelines from expiring next month.

'The American people strongly support this bill, and we are moving swiftly to see it enacted into law,' House Majority Leader Steny Hoyer, D-Md., said in a statement posted to Twitter on Tuesday night.

The package includes $1,400 direct payments to most Americans, a $400 per week jobless benefit supplement and an extension of programs making millions more Americans eligible for unemployment insurance. It also puts $20 billion into Covid-19 vaccinations, $50 billion into testing, and $350 billion into state, local and tribal government relief.

The plan as of now would hike the federal minimum wage to $15 an hour by 2025. The provision may not survive in the final bill....

Republicans have questioned the need for nearly $2 trillion more in spending as they point to vaccinations putting the country on a path to a broader reopening.

'A lot within this bill is a waste or a wish list from the progressives,' House Minority Leader Kevin McCarthy, R-Calif., contended during a CNBC 'Squawk Box' interview Wednesday morning....

Senate Majority Leader Chuck Schumer, D-N.Y., has predicted the Senate will approve the bill and send it to President Joe Biden before March 14. Programs putting in place a $300 per week unemployment enhancement, an expansion of insurance to gig workers and self-employed individuals, and an increase in the number of benefit weeks formally expire on the date."

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Feb 24, 2021


2.24.21 - Will Dovish Powell Create Gold Spike?

Gold last traded at $1,798 an ounce. Silver at $27.75 an ounce.

NEWS SUMMARY: Precious metal prices eased Wednesday on a firmer dollar ahead of Jerome Powell's Fedspeak, day two. U.S. stocks fell as tech stocks dragged down the broader market and rising Treasury yields putting pressure on risk assets.

Dovish Powell Could Sink the Dollar, Spiking Gold Prices Higher -FX Empire

"Federal Reserve Chair Jerome Powell spoke before the Senate Banking Committee on Tuesday, as investors looked for any potential changes to the central bank’s dovish outlook in recent months....

Powell is mandated to meet with U.S. House and Senate committees to update Washington on monetary policy semiannually. Normally, the question and answer sessions are routine affairs, but recent rises in Treasury yields and renewed fears of inflation have raised concerns about how the Fed may react to these events, encouraging investors to pay closer attention than usual to these particular hearings....

'The Fed is comfortable with an organic rise in rates reflecting shifts in views on growth and inflation,' said Nathan Sheets, chief economist at PGIM Fixed Income. 'But I think the Fed also wants to be careful that it doesn't create and amplify a self-sustaining dynamic that pushes rates higher for other reasons,' Sheets added. Those 'other reasons' primarily would be fears that the economy could overheat....

'We are starting to see inflation creep into the economy more and more, and this is going to create the classic tightening cycle,' said Tom Winwill, portfolio manager of the Midas Fund. 'Inevitably, when the Fed starts to tighten, if they ever do it, they are going to be significantly behind the curve, and that will be good for gold.'

A dovish Powell could send rates lower, which could spike gold prices higher after sinking the U.S. Dollar."

Money Boom The Money Boom Is Already Here -Wall Street Journal

"Speculative manias are in the air, as evidenced by the recent price surges for bitcoin, a digital asset with a fundamental value of zero, and GameStop, a declining retailer. Along with the other economic trends - a strong recovery, surging commodity prices and an uptick in inflation - those asset bubbles have a clear cause: the massive expansion of money and credit.

Yet America's fiscal and monetary masters are turning a blind eye. They are focused solely on mending the labor market. With the fervor of messiahs, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen tell us the only way to save the labor market and reach full employment is to continue to pour fiscal and monetary fuel on the fire. But their prescriptions and prophecies, modeled on the playbook of the 2008 financial crisis, are not valid today....

While money on the Fed's books grew rapidly, money in the hands of the public grew slowly. Spending and inflation were restrained, and the post-crisis recovery was anemic with inflation persistently below the Fed's target....

Fast-forward to February 2020. Since then, the quantity of money in the U.S. economy, measured by M2, has increased by an astonishing $4 trillion. That's a one-year increase of 26% - the largest annual percentage increase since 1943.

The looming danger for the economy isn't only that the monetary printing presses have been in overdrive since the pandemic began, but also that they are already set for the same in 2021. A monetary surge for this year is locked in....

The first and largest source of M2 growth in 2020 was the Fed's purchases of Treasurys and mortgage-backed securities...The second largest source of M2 growth has been commercial bank purchases of short-term Treasurys and other debt securities, including mortgage-backed ones...A third source of the increase in M2 was the sudden drawdown of $800 billion in credit lines by U.S. companies from February through April 2020....

The U.S. money explosion isn't over. Bank reserves, currently $3.2 trillion, will increase by about $1.4 trillion this year simply from Fed purchases of Treasurys and mortgage-backed securities at a promised $120 billion a month...The money supply will likely increase by at least another $2.3 trillion over the current year. In other words, even without any new lending or further purchases of securities by banks, the M2 money supply will grow by nearly 12% this year. That's twice as fast as its average growth rate from 2000-19. It's a rate that spells trouble - inflation trouble."

When Bond Yields Go Negative -Dyson/Rogue Economics

"Our hypothesis is simple. The global financial system has reached the limits of indebtedness. And the U.S. government is going to begin quietly defaulting on its debt.

I've been calling this default a 'soft' default because there won't be any official announcement or public policy about it. They'll simply make real interest rates negative (even more than they already are) and let the debt load shrink by 3% a year or so. Over 20 years, they'll have paid half of it back without any big drama. That's the plan, at least. It worked after World War II. But we'll see if it works this time.

Either way, for now, the key financial metric to watch is the real interest rate on the U.S. government's debt load. We know it's about to go deeply negative as the U.S. government basically forces its creditors to take small, annual haircuts (-5% or more) on their Treasury bonds.

(A real interest rate is the nominal interest rate minus the inflation rate. Therefore, if the inflation rate is higher than the interest rate, the real interest rate is negative.)....

Real bond yields went negative in 2003 and have stayed modestly negative for most of the last 18 years. But if I'm right about all this, inflation is going to rise, the feds are going to cap interest rates, and real interest rates (as well as bond yields) will go far more negative than anything we've seen so far in this cycle.

It’ll lead to a bear market in the real value of stocks and bonds, a loss in the purchasing power of the U.S. dollar (and of all paper currencies) - what I've been calling a 'global synchronized currency devaluation.'....

Kate and I are protecting our savings the only way we know how… by ditching our dollars, pounds, euros, and any bonds, and sheltering in hard assets: gold, silver, and steel. There we'll stay until the Dow-to-Gold ratio has gone below 5, and it's safe to buy high-quality dividend-paying stocks again (because they'll be much cheaper than they are today)…This one 'big' trade should set us up financially for life."

Home Prices Soar At Over 5 Times The Fed's Inflation Target In All US Cities -Zero Hedge

"The Fed's most frequent lament is that no matter how many trillions in bonds (and stocks and ETFs) it buys or how much liquidity it firehoses into the market, it just can't push inflation higher.

Well, here's an idea: maybe all the central-planning megabrains can take a break from whatever circle jerk they are engaged in right now, and look at the latest Case Shiller numbers which showed not only that home prices surged at the fastest pace in seven years, rising at a double-digit pace for the first time since 2014.

For the first time since the financial crisis, the annual price increase in every major US MSA (according to Case Shiller there are 20 of them) rose by at least 7.7% Y/Y (in the case of Las Vegas) and as much as 14.4% in Phoenix, meaning that the average home prices across all of the US is now rising at over 5 times the Fed's stated inflation target, and even the cheapest US MSA is rising at nearly 4 times the Fed's inflation goal.

Why does this matter? Simple: Because if - as Joseph Carson mused last month - CPI measured actual house prices, inflation would be above 3% right now....If actual house prices were used in place of rents core CPI would have registered a 3% gain in the past year, nearly twice the reported gain of 1.6%....

Rising consumer price inflation is added to the list of unique features of the 2020 recession. Others include an increase in corporate debt levels instead of debt-liquidation and rising equity prices instead of share price declines.

If the 2020 recession has economic and financial features that normally appear during economic recovery what does that imply for the next growth cycle? The debt overhang at the corporate and federal debt should impede the next growth cycle. And if the cyclical rise in housing demand is occurring in recession it can't be repeated during recovery."

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Real Money Podcast

Feb 23, 2021


2.23.21 - The Next Commodity Super-Cycle Could Be Huge

Gold last traded at $1,807 an ounce. Silver at $27.62 an ounce.

NEWS SUMMARY: Precious metal prices steadied Tuesday as the Fed's "soft" inflation comments boosted the dollar. U.S. stocks fell, led by tech shares, in the face of higher interest rates and a rotation into stocks more linked to the economic comeback.

This Commodity Super-Cycle Could Be Unlike Anything We've Seen Before -Messler/Oil Price

"Commodity prices have been on the rise since late in the 3rd quarter of 2020. Signs that the global economy would rebound faster than anyone thought possible, in the early phase, has spurred purchases of critical components in the modern economy....

For example, precious and strategic metals have gone through the roof this year, figuratively speaking, and may have more room to run...Key metals have responded to the perception of a resurgent economy for 2021. You can't build the battery for a Tesla, or any other Electric Vehicle-EV without these metals....

Conspicuous also, has been oil’s rise over this time period...There are a multitude of reasons for the sharp turnaround in commodities and oil in particular...Supercycles can be defined by their relatively low frequency and long duration, once they begin....

Spurred on by its surging population - soon to surpass China's - its high literacy rate, and growing middle-class that will comprise 68% of the country by 2030, India’s economy is forecast to grow 11.5% in 2021. This growth will take energy in the form of oil....

Driven by government edict and popular demand more and more manufacturers of Internal Combustion Engine-ICE, vehicles are committing to EV only fleets in the next 10-15 years....

Capital is being diverted away from oil exploration projects to renewable energy projects. Both Shell and BP have told investors that they have reached peak oil as a portion of their portfolios. This is having the effect of stranding oil assets that might have been developed had capital been available.

As the majors daily production declines, the oil that is available will become more valuable, and drive prices higher. Capital is being diverted away from oil exploration projects to renewable energy projects. Both Shell and BP have told investors that they have reached peak oil as a portion of their portfolios. This is having the effect of stranding oil assets that might have been developed had capital been available....

Time will tell if the coming commodity boom in metals and oil turns into a genuine super-cycle, or just a temporary upturn as the world adjusts unevenly to the new green revolution.

One thing that is absolutely certain is that this transition to going to take a lot of energy, including energy from petroleum sources, just when they are starting to shrink. Relative scarcity will drive petroleum-based energy prices higher for the foreseeable future."

gold coin A $5 Gold Coin From 1822 Could Achieve $5 Million at Auction -Barrons

"A $5 gold coin, the finest of the only three such specimens known to exist, is expected to fetch more than $5 million at a March auction, one million times its face value. Known as the 1822 half eagle, the gold coin features a capped bust on the front, and an eagle on the back.

It's the only one held in private hands, the other two are in the National Numismatic Collection in the Smithsonian Institution, according to Stack’s Bowers Galleries, which will offer the coin at its live events in Las Vegas from March 23-26.

The coin was offered for sale from the collection of D. Brent Pogue, a famous coin collector who died in 2019 at age 54. He acquired the coin in 1982 when gold coins from the collection of Louis E. Eliasberg Sr. were auctioned, according to Stack's Bowers Galleries....

Opportunities to acquire an example are just as rare. There have been only two occasions in American numismatic history in which an 1822 half eagle has sold at auction, once in 1906 at the sale of H.P. Smith Collection, and the other in 1982 at the sale of Eliasberg's gold coins, according to Stack's Bowers Galleries.

The 1822 half eagle will be sold during the night session of Stack’s Bowers Galleries’ Rarities on March 25 at the Bellagio Hotel and Casino in Las Vegas."

Inflation Here, There and Everywhere -Knowledge Leaders Capital

"We have been writing about the possibility of higher inflation for months now. We have also highlighted the most likely assets to benefit from higher inflation like copper, oil and energy stocks...This week alone we were given price data from the New York Fed's Empire State survey, economy-wide producer price data from the Bureau of Labor Stats, and price data from the Markit PMIs. All of those data points recorded large gains and handily beat market expectations....

Producer prices rose significantly in January too. Core producer prices (prices ex food, energy, and trade), recorded a 2% year-over-year gain, which was fully double the 'Street's' estimates. The Empire State manufacturing survey recorded a 10-year high in Prices Paid and a 9-year high in Prices Received.

With these data all moving in one direction (up), it's only a matter of time before the Fed’s preferred measure of inflation – the core personal consumption expenditure (PCE) - catches up. The PCE is often the last inflation statistic to move, but movement in the upward direction is pretty much baked in the cake at this point....

Why does all this matter? Inflation impacts asset prices directly through the level of bond yields and indirectly through the increased volatility it brings to sales and earnings. The longer duration the asset, the more impact on that asset's price as a result of inflation."

Yellen Sets The Stage For Higher Corporate Taxes, Yield Curve Control And A Digital Dollar -Zero Hedge

"In comments made on Monday morning, Treasury Secretary Janet Yellen set the stage for several exciting new initiatives, including a higher corporate tax, potentially higher capital gains taxes, yield curve control... oh and a digital dollar.

Yellen came out in favor of boosting corporate taxes and said she was also open to raising capital gains taxes, during a Monday conference hosted by the New York Times. Yellen said that the Biden administration could boost the corporate tax rate to 28% to help pay for 'Biden’s planned longer-term economic reconstruction program'....

Yellen also talked about the idea of looking at new ultra-long duration debt such as a 100-year bond in order to 'take advantage' of low yields (her predecessor Steven Mnuchin did the same on several occasions before killing the idea), which Yellen doesn't seem to realize are low because the Fed has set them this low. Regardless, Yellen said she thinks a market for a 100 year bond would be 'very tiny' and 'very thin'.

Perhaps most notable was Yellen's reaffirmation that it 'makes sense' for the Fed to look into the idea of a digital dollar - comments that potentially played a role in bitcoin's early morning selloff which briefly saw the cryptocurrency crash 15% and fall under $50,000. The price has since risen back above $50,000 despite additional comments from Yellen that bitcoin was 'inefficient'.

Finally, in confirming that yield curve control is coming one way or another, the only question is whether before or after 2.0% on the 10%... Yellen offered up the amusing notion that debt interest payments are a better metric than debt to GDP. We wonder if this is because one metric is absolutely terrifying...while the other is directly controlled by the Fed and is currently at artificially all time lows."

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Real Money Podcast

Feb 22, 2021


2.22.21 - Gold Bulls, Now is the Time to Buy!

Gold last traded at $1,809 an ounce. Silver at $27.94 an ounce.

NEWS SUMMARY: Precious metal prices bounced higher Monday on technical support and bargain-hunting. U.S. stocks fell as a continuous rise in bond yields dented the appetite for risk assets, especially tech stocks.

Inflation Problems Depend on Where You Look for Them -Wall Street Journal

"Is the central bank thinking about inflation properly?

The Fed defines its inflation target in terms of consumer prices, such as those we pay for cars, toothpaste and haircuts. But in recent decades, prices have often climbed much faster for investment assets, such as homes and stocks, and twice led to booms and busts followed by recessions.

If the Fed does run into problems with the low interest rates it has helped to engineer, it might be because of asset prices and not consumer prices....

As society has become more affluent, more resources have gone into assets like stocks, bonds and second homes. Perhaps not coincidentally, two of the last three U.S. recessions were driven by asset price bubbles - a tech stock boom in the late 1990s and a housing price boom in the 2000s - that caused economic imbalances even though consumer prices made barely a peep.

It is easy to find reasons for discomfort. Tesla's stock price is up more than 300% in the past year. Copper prices are up 56%. The S&P Case-Shiller Home price index is up 9.5%. Freight prices are up 215%; soybeans, 54%, lumber, 117%.

Homes are particularly thorny. They provide a service - we live in them - that is measured in official consumer-price indexes. They are also the most valuable asset in the investment portfolios of many households. The investment part isn't measured in these inflation indexes."

gold bulls Gold Bulls, It's Time To Buy -Yates/Seeking Alpha

"Following this recent sell-off in gold amid its healthy consolidation period over the past six months, sentiment has once again turned extremely bearish. For those bullish precious metals and the miners, you would do well to snap up this opportunity in earnest.

Firstly, if we look at the gold miners bullish percent index, this has fallen to a level indicative of excellent buying opportunities over the past decade, particularly during the bull run of 2009-2012.

Turning to money manager positioning (i.e. hedge funds and CTAs) in the futures market, this too has dropped to its lowest point since early 2019. Money managers have an uncanny ability to be long at the tops and not-so-long at the bottoms. Again, this is very constructive from a sentiment perspective....

Given the huge push to fiscal support going forward and the ever expanding federal deficit, we all know the bullish case for precious metals. The upside for yields relative to the upside in inflation is now clearly skewed towards inflation.

The move to fiscal dominance likely means an eventual move toward outright yield curve control or some other form of financial repression in order to keep real yields negative to allow the government to fund said deficit. Negative real yields are gold's best friend and likely do not pose as much of a threat going forward as in the past 12 months....

So, if you are like me and bullish on precious metals, then this would be an excellent time to add to your core holdings, particularly so for the miners and for silver. Both ratios when compared to gold suggest plenty of upside is ahead."

Hurt by Lockdowns, California's Small Businesses Push to Recall Governor -DNyuz

"California was one of the earliest states to go into lockdown last spring, and it is now emerging from a second lockdown, which started in December. That stop-start-stop has created a groundswell of anger toward Mr. Newsom, a Democrat in the third year of his first term, that is increasingly fueling a movement to recall him from office in one of the bluest of blue states.

The recall threat to Mr. Newsom has considerable momentum. Since March, 1.5 million Californians have signed a petition to oust Mr. Newsom, enough to trigger an election for a new governor. If enough of the signatures are verified, it will be the fourth recall election of a governor in American history.

After they are verified and costs are estimated, the state has 60 to 80 days to schedule an election. Voters will be asked two questions on the ballot. The first is whether Mr. Newsom should be recalled. The second: Who should replace him? If the first question on the recall comes up short, the second becomes moot....

Small businesses across the country have suffered from shutdowns that sometimes seem to flare up as suddenly as surges in the coronavirus itself. Restaurants, gyms, corner stores and spas have closed, some after trying to hang in there for months.

The pain in California has been acute. Nearly 40,000 small businesses had closed in the state by September - more than in any other state since the pandemic began, according to a report compiled by Yelp. Half had shut permanently, according to the report, far more than the 6,400 that had closed permanently in New York....

Nick Rimedio, who serves on the West Hollywood Chamber of Commerce, said the lockdowns had widened a class divide. While quarantine has been almost relaxing for what he called the wealthy 'Zoom class,' it has been a nightmare for the poor and middle class who have storefronts or work service jobs in businesses in the area, he said."

We'll Have Herd Immunity by April -Dr. Makary/Wall Street Journal

"Amid the dire Covid warnings, one crucial fact has been largely ignored: Cases are down 77% over the past six weeks. If a medication slashed cases by 77%, we'd call it a miracle pill. Why is the number of cases plummeting much faster than experts predicted?

In large part because natural immunity from prior infection is far more common than can be measured by testing. Testing has been capturing only from 10% to 25% of infections, depending on when during the pandemic someone got the virus. Applying a time-weighted case capture average of 1 in 6.5 to the cumulative 28 million confirmed cases would mean about 55% of Americans have natural immunity.

Now add people getting vaccinated. As of this week, 15% of Americans have received the vaccine, and the figure is rising fast. Former Food and Drug Commissioner Scott Gottlieb estimates 250 million doses will have been delivered to some 150 million people by the end of March.

There is reason to think the country is racing toward an extremely low level of infection. As more people have been infected, most of whom have mild or no symptoms, there are fewer Americans left to be infected. At the current trajectory, I expect Covid will be mostly gone by April, allowing Americans to resume normal life.

Antibody studies almost certainly underestimate natural immunity. Antibody testing doesn't capture antigen-specific T-cells, which develop 'memory' once they are activated by the virus. Survivors of the 1918 Spanish flu were found in 2008 - 90 years later - to have memory cells still able to produce neutralizing antibodies....

Some medical experts privately agreed with my prediction that there may be very little Covid-19 by April but suggested that I not to talk publicly about herd immunity because people might become complacent and fail to take precautions or might decline the vaccine. But scientists shouldn't try to manipulate the public by hiding the truth. As we encourage everyone to get a vaccine, we also need to reopen schools and society to limit the damage of closures and prolonged isolation. Contingency planning for an open economy by April can deliver hope to those in despair and to those who have made large personal sacrifices."

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Feb 19, 2021


2.19.21 - Silver: Is Now The Time To 'Buy The Dip'?

Gold last traded at $1,778 an ounce. Silver at $27.24 an ounce.

NEWS SUMMARY: Precious metals see back-to-back gains on bargain hunting and continued weakness in the U.S. dollar. U.S. stocks get slight boost after Treasury Secretary Janet Yellen pushes for more stimulus.

Is Now The Time To 'Buy The Dip' In Silver? -FX Empire

"In February silver took center-stage, rallying over 13% to hit $30 an ounce for the first time since 2013. That’s silver's biggest one-day move since 2008.

Every explosive rally, is always followed by healthy profit-taking as seen towards mid-week. Silver was already traders' favorite last year as the precious metal rallied nearly 60%.

A combination of greater safe-haven demand, ultra-low real yields, as well as a stellar rebound in China's economic activity in 2020, boosted both investment and industrial demand for the precious metal.

Goldman Sachs see silver prices rising to $33 an ounce in 2021 as U.S. President Joe Biden moves forward with his ambitious renewable energy plan.

Silver is a key component in two major technologies, which form President Biden's renewable energy plan - Solar and 5G. Based on our proprietary research, photovoltaic demand for silver could exceed 3000 tonnes in 2021, while the 5G rollout - which is only just beginning - will be a major driver of demand for years to come.

Precious metals are starting to attract a lot of attention - on a scale not seen since the global financial crisis, but silver is the metal to watch closely."

inflation Will Inflation Make a Comeback? -Weber/Project Syndicate

"Economic forecasting models have long been notoriously inaccurate in predicting inflation, and COVID-19 has further complicated the challenge. Those who heed current consensus forecasts of persistently low price growth could be in for a rude awakening.

While economic forecasters calibrate their models using data from the last 50 years to explain and predict economic trends, today’s economic conditions have no precedent in that period. Today's low inflation forecasts are thus no guarantee that inflation will actually remain low. Even without additional inflationary pressure, reported inflation rates will rise significantly in the first five months of 2021. By May, UBS expects year-on-year inflation to rise above 3% in the United States and toward 2% in the eurozone, largely owing to the low base in the first half of 2020, when pandemic-related lockdowns began....

The pandemic has shifted demand from services to goods, some of which have become more expensive, owing to production and transport bottlenecks.In current consumer-price calculations, rising goods prices are partly offset by falling prices for services such as air travel. But in reality, pandemic-related restrictions mean that consumption of many services has fallen sharply; significantly fewer people are flying, for example. Many people's actual consumption baskets have thus become more expensive than the basket statistical authorities use to calculate inflation. So, true inflation rates are currently often higher than the official figures, as reports have confirmed.

The unprecedented fiscal and monetary expansion in response to COVID-19 may pose an even greater inflation risk. According to UBS estimates, aggregate government deficits amounted to 11% of global GDP in 2020, more than three times the average of the previous ten years. Central banks’ balance sheets increased even more last year, by 13% of global GDP....

Previous episodes of excessive government debt almost always ended with high inflation. Inflation caused by a loss of confidence can emerge quickly and in some cases at a time of underemployment, without a preceding wage-price spiral."

Global Oil Market Nightmare: 40% Of US Crude Production Offline -Zero Hedge

"The ripple effects of the freezing vortex-induced calamity, which led to near record-low temperatures across the plains states, have rippled far and wide sparking logistical and commodity shockwaves not only in Texas and the continental US, but also around the world....

Even though Texas is doing everything in its power to contain the fallout that, it appears that the crisis is now spreading, because as a result of the persistent freeze and rampant 'force majeueres' across the industry, more than 4 million barrels a day of output - almost 40% of the nation’s crude production - is now offline....

This is because not only has Texas - one of the world's biggest oil refining centers - seen output drastically cut back but the waterways that help U.S. oil flow to the rest of the world have been disrupted for much of the week. The country's largest refiner, Motiva in Port Arthur, has closed and at least 3 million barrels a day of processing got taken offline.

'The market is underestimating the amount of oil production lost in Texas due to the bad weather,' said Ben Luckock, co-head of oil trading at commodity giant Trafigura Group. As a result of the collapse in output, late on Thursday night Brent briefly surged above $65 a barrel, a level not seen since last January. Spreads indicating supply tightness also soared....

Of course, the great unknown remains how long output - and the rest of the region's oil infrastructure - will take to recover in full.

'Evidence from the last great Permian freeze off is that it can come back very quickly,' said Paul Horsnell, head of commodities research at Standard Chartered Plc. 'But refineries are more likely to be prone to prolonged damage.'"

It's all about reflation now -Grannis/Calafia Beach Pundit

"Just about the entire world economy is in the grips of reflation. What's reflation? My definition of reflation is when economic activity and prices are all moving higher. Economic growth is returning to almost every country in the world, and almost all commodity prices are rising. Reported inflation is still 'tame,' but inflation expectations are rising. The Fed has determined that they want inflation to be higher, and they are getting their wish.

This now poses an excruciating dilemma for most investors: while it is certainly nice for prices and economic growth to be increasing, this creates significant risks for fixed income investors, since eventually interest rates will have to rise as well. 10-yr Treasury yields have already risen from a low of 0.5% to now just over 1.3%, but they will have to go much higher still to be competitive with inflation, which will soon be running at a solid 2% per year, on the way to perhaps 3-4%....

The Fed's current monetary policy stance, in short, is not sustainable. Sooner or later they will be yanking the punchbowl. Many observers realize this, but no one knows how long the current situation can last. The Fed has convinced the bond market that short-term interest rates are going to be pegged at extraordinarily low levels for the next two years. I sincerely doubt the Fed will be able to stick to this promise.

And then there is the issue of fiscal policy, which seems almost like a runaway train under the leadership of President Biden (with an assist from not-so-conservative Republicans). Our national debt is now 100% of GDP and likely to rise further if Biden gets his wish....

The thing to worry about is the direction of fiscal policy, which will almost certainly bring us higher taxes, increased regulatory burdens, and more expensive energy.

It's like watching a train wreck in slow motion...It's never a good idea for the public sector to "steal" money from the private sector via an inflation tax. Argentina has been doing that for generations now, and the economy and its people are a wreck."

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