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9.22.21 - Will Beijing Have To Bail Out Evergrande?

Gold last traded at $1,783 an ounce. Silver at $2.05 an ounce.

NEWS SUMMARY: Precious metal prices inched higher on safe-haven buying ahead of the Fed statement. U.S. stocks attempted to snap out of their September slump.

Gold rises as Evergrande fears persist, market on standby for Fed -CNBC

"Gold gained on Tuesday as unease over China’s Evergrande insolvency spurred safe-haven buying, ahead of a Federal Reserve meeting that could provide clues on the central bank’s timeline for cutting its stimulus to the U.S. economy.

Safe-haven asset gold has gained on 'recent concerns about global economic growth, or more specifically, a Chinese economic slowdown,' which are enough to outweigh a recovery in equities, said David Meger, director of metals trading at High Ridge Futures....

Positive influences from a slip in the U.S. dollar and gains in crude prices were also lifting bullion, Wyckoff said.

The Federal Open Market Committee will release a policy statement and new economic projections at the end of its meeting on Wednesday. Some analysts believe it could announce the start of the tapering of its asset purchases in the fourth quarter."

too big How Evergrande Became Too Big To Fail And Why Beijing Will Have To Bail It Out -ZeroHedge

"While the world is obsessing with the fate of Evergrande, and more importantly when, or if, Beijing will bail it out, another just as interesting question is how did the company many call 'China's Lehman' get to the point of no return and become a global systematic risk...Beijing will have to, even if it is kicking and screaming, bail out Evergrande which, at its core, is just one giant shadow-banking black box whose time has finally run out.

For the past two months, hundreds of people have been gathering at the 43-floor Zhuoyue Houhai Center in Shenzhen, where China Evergrande Group’s headquarters occupy 20 floors. They held banners demanding repayment of overdue loans and financial products. Police with riot shields had to be on site to keep things under control.

The demonstrators are construction workers at the property developer’s housing projects, suppliers providing construction materials and investors in the company’s wealth management products (WMPs). From paint suppliers to decoration and construction companies, Evergrande owes more than 800 billion yuan ($124 billion) due within one year, while it has only a 10th of that amount of cash on hand.

As of the end of June, Evergrande had nearly 2 trillion yuan ($309 billion) of debts on its books, plus an unknown amount of off-books debt. The property giant is on the verge of a dramatic debt restructuring or even bankruptcy, many institutions believe.

A bankruptcy would amount to a financial tsunami, or as some analysts put it, 'China’s Lehman Brothers.' The venerable American investment bank’s 2008 collapse helped trigger a global financial crisis.

Certainly Evergrande, one of China’s three biggest developers, has a giant footprint in China.

Its liabilities are equivalent to about 2% of China’s GDP. It has more than 200,000 employees, who themselves and many of their families have invested billions of yuan in the company’s WMPs....

More than 500 of Evergrande’s 800-plus projects across the country are now halted. The company has at least several hundred thousand units that have been presold and not delivered. It needs at least 100 billion yuan to complete construction and deliver the units, Caixin learned."

Time For A Taper Tantrum? -Alhambra Investments

"The Fed meets this week and is widely expected to say that it is talking about maybe reducing bond purchases sometime later this year or maybe next year or at least, someday. Jerome Powell will hold a press conference at which he’ll tell us that markets have nothing to worry about because even if they taper QE, interest rates aren’t going up for a long, long time.

That statement might have more credibility if the Fed had been right about just about anything over the last decade. But they haven’t, and we are left to wonder how exactly Jerome Powell will be wrong this time.

Will the economy slow so quickly that he can’t even credibly start tapering? Or will the economy re-accelerate to such a degree that he has no choice but to stomp on the brakes? I’m not sure but I think there are reasons to lean towards the latter over the next few months.

We are about to run a real-world economic experiment in the US labor market. Expanded unemployment benefits have now expired and we are about to find out what impact that has on the jobs market. Certainly, there are plenty of jobs available if the JOLTS report is anywhere close to accurate. You don’t need a BLS report to confirm that; just talk to any business owner or see all the help wanted signs as you drive around your city.

The question is whether there really were a lot of people on the dole who would otherwise have taken those jobs. My guess is yes, but we’ll find out for sure over the next few months....

Regardless of what happens with the economy and bonds over the rest of the year, I do think we are nearing peak exuberance in stocks. The rotation out of cash and into stocks - and bonds for that matter - is at least a little alarming. Inflows to global stocks this year are over $1 trillion and more than the last twenty years combined.

What worries me about that is that fund flows are not predictive. Inflows tend to happen after stocks go up and outflows accelerate after they’ve gone down. Notice that the absence of inflows over the last twenty years didn’t prevent stocks from getting to all-time highs. I can’t help but wonder if the massive size of the recent inflows will be proportional to the selloff that seems likely to follow....

We’ve reduced our risk exposure over the last few months because falling growth/rising dollar is our most difficult investing environment. It was also because stock markets are as overbought as I’ve ever seen in 30+ years of investing and momentum appears to be peaking.

I fully expect stock averages to fall back to their long-term trend. It may be coincidence but a pullback to the long-term trend would correspond to just about a 20% correction and fit neatly into our narrative of correction but not bear market. Yeah, maybe too neatly."

Is the Treasury Bond Market About to Wake Up? -Charles Schwab

"The bond market went into hibernation over the summer, with yields holding steady despite surging inflation, a looming battle over the federal debt ceiling, and the prospect that the Federal Reserve will begin reducing the size of its monthly bond purchases later this year. We see the potential for the market to awaken this fall, with yields moving up.

Currently, 10-year Treasury yields - which move inversely to prices - are sitting below 1.5%. It appears that investors are pricing in a return to lackluster growth and low inflation. We believe the market is too complacent and investors should be prepared for higher yields.

Federal Reserve Chair Jerome Powell and other members of the monetary-policy-setting Federal Open Market Committee (FOMC) have clearly indicated over the past few months that they plan to begin reducing the size of the Fed’s bond purchases later this year.

The economy has recovered the output lost during the COVID-19 downturn, and inflation is well above the Fed’s 2% target level. Job growth hasn’t fully recovered, but enough steady progress is being made that the Fed is likely to pull back on some of the extraordinary stimulus measures it took in 2020. Consensus expectations are for the Fed to announce a plan to taper at the November meeting and begin the process soon afterward....

We see a greater likelihood that yields will rise because the economic growth and inflation will remain higher than expected.

Financial conditions, a measure of just how easy monetary policy is, are as loose as they have been in decades. This indicator bodes well for economic growth but could lead to excessive risk-taking and overheating. If the Fed tolerates too much inflation for too long, it could push yields higher....

In our view, the market may be too complacent about these risks over the next year. Ten-year Treasury yields below 1.5% don’t provide much room for potential upside surprises in the economy or inflation. We anticipate a move up to the 1.75% to 2.0% level over the next six to 12 months."

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9.21.21 - Stock Market Volatility Suddenly Soars

Gold last traded at $1,774 an ounce. Silver at $22.49 an ounce.

NEWS SUMMARY: Precious metal prices rose Tuesday on safe-haven buying, rising volatility and a flat dollar. U.S. stocks failed to rebound in a volatile trading session following the S&P 500′s worst day since May.

Industrial use of silver could increase in the next 5 years -Mark Cruise/Kitco

"The industrial use of silver will likely increase in the next five years, especially as we move toward a low carbon economy, said Dr. Mark Cruise, CEO of New Pacific Metals.

'Silver has got its usual store of value against inflation, and we certainly see a lot of global headwinds and inflationary pressures for gold and silver,' Cruise told David Lin, anchor and producer of Kitco News at the Denver Gold Forum.

'But what makes silver unique is its industrial end use as well. It's a critical commodity in basically moving to a low carbon economy, in particular solar and wind power.'

Cruise described the many uses of silver in the modern world. 'Silver has two main uses. Silver has very high conductivity, it is great for soldering electronics, and is used in solar power and wind generation.'

'Something people don't realize is that is has very strong antibacterial properties,' Cruise added. 'Silver is also impregnated in sports gear. And we see an increased use of silver in the medical field and in water filters. It's a bit of a unique metal, a store of wealth.'"

volatility Stock market volatility soars with VIX up 25%; Treasury yields slump (VIX) -Seeking Alpha

"Stocks are seeing volatile moves as investors pile out of risk and put cash to work in bonds.

The S&P VIX Index, often referred to as the fear gauge, is surging with the major averages tumbling on concerns about high commodity prices and contagion from China's Evergrande.

The gain of more than five points on the VIX would be the fourth-largest rise on record, according to Bespoke Investment Group. It was last this high during a spike in May.

'Prior pullbacks in February, March, and June also included brief periods of the index closing below the 50-day MA,' Craig W. Johnson, technical strategist at Piper Sandler, writes today.

'This week will be a key test for the buy the dip crowd as a failure to defend this area of support would suggest the broader market is at risk for a deeper pullback.'

'Momentum indicators have turned bearish amid the selling pressure. MACD remains in a sell position, while RSI has faded below the midline.'....Along with U.S. stocks, Evergrande is also taking its toll on the crypto space."

Stagflation rocked the economy before. Is it coming back? -CNN

"Mention the word 'stagflation' to someone who followed the economy in the 1970s, and you can expect a strong reaction.

The phenomenon - which describes a period of high inflation and stagnant economic growth - was a nightmare for policymakers, leaving them with few options to rein in runaway prices without damaging the economy. Federal Reserve Chair Paul Volcker was ultimately forced to jack up interest rates to unprecedented levels to get inflation under control.

Now for the bad news: Decades later, talk of stagflation is back.

'One can make a case that 'mild' stagflation is already underway,' the economist Nouriel Roubini wrote in a recent column. 'Inflation is rising in the United States and many advanced economies, and growth is slowing sharply, despite massive monetary, credit, and fiscal stimulus.'....

Economists closely watch inflation expectations because they could encourage workers to demand higher wages. If consumers are paid more, their purchasing power grows, and businesses may hike prices again - starting the entire cycle anew.

In a recent note to clients, Bank of America strategists Ohsung Kwon and Savita Subramanian also flagged concerns about energy prices. The 1973 oil crisis is widely seen as having exacerbated inflation problems.

'Stagflation has often been accompanied by oil shocks, and with crude prices recently jumping on supply chain disruptions, the risk of oil shocks has increased,' Kwon and Subramanian said."

Stop Vandalizing Reason: End The Worldwide Travel Bans -Forbes

"With a virus spreading, politicians and dictators the world over have literally ascribed to themselves the power to imprison their subjects in the countries they lead; that, or they’ve arrogated to themselves the power to limit the arrival of others into their respective countries. Their departure too.

Many countries have economies reliant on tourism, but it seems the businesses created to serve the tourists weren’t asked their opinions about this overreach. It’s worth adding that investment is the driver of all economic progress, but with travel limited, how many interesting concepts have been suffocated by a lack of exposure to the financiers whose allocations would, in normal times, propel them to greater heights.

The signs have seemingly come down for the most part, but growing up it wasn’t uncommon to enter businesses with signs saying 'No Shirts, No Shoes, No Service.' Yes, the right to choose whom to associate with, and whom to serve was long so basic. Sadly, the right to freely associate has been erased, only for government to enter a needlessly created vacuum.

This has been particularly evident during the lockdowns. Since they began, politicians have arrogated to themselves decision making power over the businesses we could patronize, how we could patronize them (limits on entry, limits on customers once inside), and perhaps worst of all, power to shutter businesses altogether. This is what you get when political correctness erases free association in favor of government force....

Freedom is never foolhardy, but the taking of it always is. Always.

A virus is spreading, so let’s limit the marketplace’s (humanity) production of knowledge; production that would unearth how a virus spreads, what behavior is most associated with sickness, but also the behavior most associated with healthy outcomes. Instead, politicians chose to blind us.

Freedom also applies to travel. About it, think back to 'No Shoes, No Shirt, No Service.' Couldn’t airlines have made provisions for letting on, or not letting on the sick?"

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9.20.21 - Why Gold Prices Could Double

Gold last traded at $1,761 an ounce. Silver at $22.18 an ounce.

NEWS SUMMARY: Precious metal prices rose Monday on bargain-hunting despite a firmer dollar. U.S. stocks began the week deeply in the red as investors continued to move to the sidelines in September amid several emerging risks for the market.

Gold price: Here's why the yellow metal could double and the best ways to buy it -Yahoo Finance

"For thousands of years, the most popular investment was gold: the prettiest metal you could bend, re-form, bury and reuse endlessly.

And even though investors have many more options nowadays, gold still has its champions.

One hedge fund manager, who predicted the metal’s rise to an all-time high of $2,000 per ounce last summer, is confident the price could climb to $3,000 to $5,000 an ounce in the next three to five years.

With the yellow metal sitting near $1,750 after a more than $40 drop on Thursday ⁠- its biggest fall in six weeks - now might be an opportune time to follow his lead.

Diego Parrilla, manager of the defensive and gold-heavy Quadriga Igneo fund, is undaunted by the metal's tumble...'I think the drivers for gold strength not only remain but actually have been strengthened,' he told Bloomberg News last month....

'Central bank money printing isn’t really solving problems, it’s delaying the problem,' Parrilla says. 'Gold will benefit purely from being a physical asset that you cannot print.'

If Parrilla's argument is making sense, or you've got your own reasons for investing in gold, you have a few options available to you.

The most straightforward way to put your money in gold is to buy and store gold bars, coins or jewelry.

If gold forms part of your retirement plan, you can actually buy it through a gold Individual Retirement Account (IRA)."

inflation Losing the inflation anchor -Brookings Institute

"Monetary policymakers trying to judge whether elevated inflation this year will persist should - heeding past lessons from the United States and abroad - carefully track inflation expectations, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on September 9.

The author - Ricardo Reis of the London School of Economics - examined the expectations of consumers, professional forecasters, and markets for inflation in the United States during the late 1960s and early 1970s (when inflation started climbing), during the early 1980s (when inflation stabilized), and during the COVID-19 pandemic. He also looked at episodes in Brazil and South Africa between 2010 and 2016, and in Turkey after 2017.

'If expectations of inflation rise, households will buy more goods today, savers will shift away from nominal assets [such as bonds], workers will demand higher wages, and firms will post higher prices, all of which lead inflation to rise,' he writes in 'Losing the inflation anchor'. And he warns, 'if expected inflation rises, then only a deep recession can keep inflation down.'

He compared trying to anticipate future inflation to sitting on a beach trying to figure out, before it is too late, if a boat is drifting away from shore, and likened inflation expectations gauges to 'a grainy picture of the boat’s anchor.'

After examining expectations data for last year and this year, he concludes 'the jury is out on whether inflation is going to drift away.'....

'Inflation is going to be quite high in 2021. Whether it is a short blip or whether inflation will get out of hand depends on expectations, and there are some worrying signs in the data right now,' he said in an interview with The Brookings Institution...Will the FOMC let the anchor drift or not?"

Inflation Is All Over the Place -Wall Street Journal

"Investors following inflation figures should accept that they can’t extract a reliable signal from the wild swings, and just hope they continue to get lucky.

The U.S. inflation rate reached a 13-year high recently, triggering a debate about whether the country is entering an inflationary period similar to the 1970s....

It is always better to be lucky than right, and for the Federal Reserve and its view that high inflation is transitory, inflation figures lately have brought a big element of luck.

Digging into the numbers shows how easily that luck could go away. If it does, the quiet in markets could be upended."

Do You Know These Three Crucial Social Security Numbers? -Motley Fool

"There are a lot of misunderstandings surrounding Social Security. Some of them could lead to big mistakes when planning for how your retirement benefits will help support you in your later years.

To make sure you make the right choices about your benefits, here are three numbers that you need to know.

1. 66 and 2 months to 67 - This number refers to your 'full retirement age', which is important because the age when you claim benefits in relation to your FRA will determine the amount you receive....

For each of the first 36 months you claim benefits before FRA, your check will be reduced by 5/9 of 1%. For each month prior to that, your benefits will be reduced by 5/12 of 1%.For each month after FRA that you wait to claim, benefits will be increased by 2/3 of 1%....

2. $1,544 - This number is the average monthly Social Security benefit. Knowing it is important to develop a realistic expectation of what your benefits will do for you.

They probably aren't going to be sufficient to support you, and they're not designed to be. They'll replace only around 40% of pre-retirement earnings, while you'll need around 80% to 90% (or more) to live on....

3. 2034 - Finally, 2034 is important because that's the year automatic benefit cuts might take effect. This could happen because Social Security has a trust fund that's in danger of running dry. If that happens, benefits can only be paid with current tax revenue coming in, which could lead to a 22% benefit cut....

Future retirees need to be prepared for the possibility they could get less retirement benefits than planned, so they can make sure they aren't overly reliant on Social Security."

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9.17.21 - Getting Rich While Producing Nothing

Gold last traded at $1,752 an ounce. Silver at $22.44 an ounce.

NEWS SUMMARY: Precious metal prices attempted a rebound Friday following Thursday's upbeat retail sales data which boosted the dollar and sparked a short-term sell-off. U.S. stocks traded lower as investors remain cautious of a resurgent Covid virus and the Fed's meeting next week.

Once $30 silver price barrier breaks, $50 is next; What's the catalyst? Jim McDonald -Kitco video

"'The stage is set' for silver to break out, it's just a matter of timing, said Jim McDonald, CEO of Kootenay Silver.

McDonald told David Lin, anchor for Kitco News, that 'silver is going to break through that $30 barrier, and it's going to break a lot higher than $50.'

He added that the gold/silver ratio, which is currently at 77, could come as low as 30, implying a major upside outperformance by silver relative to gold.

For the catalysts of higher a silver price, as well as the future of the exploration sector, watch the video above."

war on cash The War On Cash, Is It A Real Thing? The Answer Is Yes -Bruce Wilds/AdvancingTime Blog

"One thing we continue to hear is that a war is being waged to eliminate cash. Not only are most people going along with this but many have embraced the notion.

Some people view carrying cash as dangerous or burdensome. This also dovetails with their desire to spend more than they can afford, when using a credit card it is far easier to continue spending money you do not have.

All things considered, when asked, is the war on cash a real thing being directed from those on high, sadly we must answer yes. Cash reflects 'options for the people' and it appears those in charge of such things want in gone.

Currencies were developed to facilitate and ease transactions between individuals and businesses. The war on cash is simply another way Washington can continue to show its favoritism towards big business.

Small businesses often rely more on small cash transactions and often lack the ability to process other forms of payment. It is ironic that while big businesses and companies like Amazon flourish with each move government makes, the small businesses on Main Street are left worse off.

A cashless society where records are made and kept reflecting every transaction we make even down to buying a candy bar also allows the government to monitor our every move....

Another place this 'war on cash' is showing its head is that as of July 1st my bank started to charge a 'cash handling fee' of 13 cents per hundred dollars. Simply put, banks want and feel they are in a position to charge customers for the 'inconvenience' of having their employees handle cash.

Let me be clear, banks, saving accounts, and other vehicles designed to hold cash are paying little or nothing in the way of interest. With the numbers just out that the CPI is up for the 15th straight month, cash is under assault. this reflects the fourth straight month above 5% on a year-over-year basis....

As we stare into the face of rising inflation and possibly lower negative interest rates the reality that all fiat currencies are in trouble and this is just one big Ponzi scheme becomes very apparent.

How fast events unfold is impossible to predict. Just as important is the order in which the four major currencies fail. We have good reason to be concerned about this because it has the potential to strip us of our wealth and cause major disruptions throughout society. Until then, which may be years away, cash has value and plays a very important part in our lives."

The Illusion of Getting Rich While Producing Nothing -Charles Hugh Smith

"By incentivizing speculation and corruption, reducing the rewards for productive work and sucking wages dry with inflation, America has greased the skids to collapse.

Of all the mass delusions running rampant in the culture, none is more spectacularly delusional than the conviction that we can all get fabulously rich from speculation while producing nothing.

The key characteristic of speculation is that it produces nothing: it doesn't generate any new goods or services, boost productivity or increase the functionality of real-world essentials.

Like all mass delusions, the greater the disconnect from reality, the greater the appeal. Mass delusions gain their escape velocity by leaving any ties to real-world limitations behind, and by igniting the most powerful booster to human euphoric confidence known, greed.

Lost in the mania of easy wealth from speculative trading is the absence of any value creation in the rotation-churn of moving bets from one table to the latest hot game: in flipping houses sight unseen, no functionality was added to the house. In transferring bets on one cryptocurrency to another or from one meme stock to another, no value to the economy or society was created.

In the mass delusion that near-infinite wealth can be generated without producing anything, creating value has no value: the delusion is that I can get rich producing nothing but speculative gains, and then I can buy all the stuff somebody else is making....

The speculative gains to be made in the collapse of the mass delusion will be spectacular. There's nothing like the collapse of a hollowed out, completely corrupt economy to generate outsized profits for nimble speculators."

Book Review: Adam Brandon's 'A Republic, Not a Democracy' -RealClearMarkets

"The challenges Reagan faced came to mind while reading Adam Brandon’s excellent new book, A Republic, Not a Democracy: How to Restore Sanity In America....

Brandon’s understanding of the political mind is a function of his understanding of economics. He understands that all economics is microeconomics, at which point he recognizes that incentives drive political action in much the same way that they drive commercial activity.

With incentives top of mind, he repeats with needed regularity how it’s not enough for the politically focused to watch Fox News, or Newsmax where he hosts a show called Save the Nation, and just the same it’s not enough to vote. Brandon calls for individual action....

Brandon’s vision for more limited government is rooted in the belief that the latter is only possible insofar as the politically interested across the country are motivated, and willing to make calls, put on events, knock on doors, and yes, visit the offices of politicians. Brandon aims to change the way Washington works by changing the minds of voters. Politicians listen to voters far more attentively than they do to reason....

Brandon quotes the late Andrew Breitbart as saying that 'If you can’t sell freedom and liberty, you suck.' Absolutely. Anyone truly arguing for freedom (as Brandon is) must be an optimist simply because the freedom argument so easily beats the authoritarian one, plus the freedom path is logically optimistic simply because anyone who truly understands it knows the personal and economic abundance that flows to those who are free.

Indeed, freedom by its very name is brilliant for the individual. Which means it’s brilliant for the world. Read Adam Brandon’s excellent book to see why all of this is true, and how to better make a case for what never fails us."

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