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Sept 21, 2020

9.21.20 - Capitalism's Ten Commandments

Gold last traded at $1,909 an ounce. Silver at $24.42 an ounce.

NEWS SUMMARY: Precious metal prices traded sharply lower Monday as investors scrambled for liquidity to cover stock market margin calls. The September sell-off continues with U.S. stocks plunging another 2-3% on fears about the worsening coronavirus as well as uncertainty on further fiscal stimulus.

A lot of capital waiting to jump into the gold market -Incrementum/Kitco
"Gold's current consolidation period is helping to remove some froth from the market, letting sentiment catch from the strong momentum seen this past summer that push prices to $2,000 an ounce, according to one fund manager. Although gold is caught in a trading range between $1,900 and $2,000, Ronald-Peter Stoeferle, managing partner of Incrementum and an author of the annual In Gold We Trust report, said that it is only a matter of time before prices push higher because there is so much capital on the sidelines just waiting to jump into the gold market. According to Mr. Stoeferle, 'Gold is in a stealth bull market with prices rising in every currency. The gold-to-silver ratio falling is another bullish sign for gold.'"

snake Expect Persistent High Market Volatility -Merkel/Aleph Blog
"When valuations are high, volatility is typically high as well. When interest rates are low, volatility also is high. Why? A situation has been set up by the functional equivalent of the 'Wizard of Oz' where small changes to interest rates or economic activity will have big impact on stock prices. And so I am telling you, be ready for whippy markets. The sorcerer's apprentices at the Fed, gamely trying to cover for their bosses (Congress) who have no coherent idea of what to do, will keep short-term, high-quality interest rates low. And that's fine, not, as even the slightest variation in wording will make economic agents jumpy. When markets are priced to perfection, even the slightest breeze makes the branches at the top of the tree move hard. My advice to you is simple. Run a balanced portfolio, and resist the trends. Buy low, sell high. Sell to the greedy, and buy from those who panic....The purple party controls DC, and all they do is run huge deficits and ask the Fed to monetize them via expanding bank credit. Would that we could vote them all out of office, balance the budget on an accrual basis, and link the dollar to gold. We are going to have some significant disaster out of the current policy, but I can't tell what kind of disaster will come."

The Ten Commandments of Capitalism -Sass/The Economic Standard
"Those of us who are committed to a better world for all know that capitalism (i.e., a system of free enterprise based on private property and rule of law) is the only path forward. In The Ten Commandments of Capitalism: The Secret Recipe for Equitable Prosperity, Ralph Benko provides a concrete set of guidelines to preserve and enhance capitalism for the sake of equitable prosperity....Benko rightly argues that whether or not we choose to provide citizens with generous public services, we must first be committed to the ongoing benefits of wealth creation...Both the Nordic and Singaporean models of capitalism have been demonstrated, repeatedly, in practice to support the general welfare. Socialism, in the dozens of instances it has been tried, has degraded the general welfare. The rise of 'socialism' as a political identity is rightly horrifying to anyone who knows anything about the 20th century....If we follow Benko's advice, we can look forward to a U.S. in which our entire society is incredibly prosperous for all....In combination with entrepreneurial initiative in education and healthcare, Benko's Ten Commandments of Capitalism will allow all Americans to lead meaningful, productive lives. It will also allow the United States to remain the most important moral influence in the world....The two primary concerns of those who traditionally identify as 'left,' generous social benefits and environmental protections, are both fully supported by Benko's 'Ten Commandments.' Benko is focused on ensuring that we continue to have the prosperity needed to provide a generous social safety net and pristine environment....We are in the midst of a historical moment in which 'socialism' as a rallying cry is more prevalent than it has been since the fall of the Soviet Union. We should be focused on how to create equitable prosperity through free enterprise."

Get Ready for an Election Crisis -Noonan/Wall Street Journal
"Between bitter division and massive mail-in balloting, a normal vote would be a miracle. Let's talk about the terrible time America might be in for in the days and weeks, maybe months, after the election. It starts with what is known: On election night we probably won't know who won the presidency. The event we've been hoping would resolve things instead may leave them more mysterious....In 2016 about 25% of voters voted by mail. This year it may be more than twice that. Meaning more than half of all ballots. It may be days or weeks before we know the mail-in results....Another wrinkle. Republicans seem to prefer voting in person, and Democrats by mail...Because of this it's possible that on election night there could be what looks like a solid margin in favor of President Trump, especially in the states that will decide the election....The waiting will require patience and trust. That's not, as we know, the prevailing political mood. We are riven and polarized. 'It is my greatest concern,' Joe Biden has said. 'This president is going to try to steal this election.' Mr. Trump: 'They're trying to steal the election from the Republicans.'....'Postelection through to the inauguration, we have a real danger zone,' says Larry Sabato, the great veteran director of the University of Virginia's Center for Politics. There will be charges and countercharges, rumors, legal challenges. There will be stories - 'My cousin saw with her own eyes bags of votes being thrown in the Ohio River.' Most dangerously there will be conspiracy theories, fed by a frenzied internet....The Electoral College meets Dec. 14. There, Mr. Sabato notes, it's possible there could be a 269-269 tie. There is also the issue of so-called faithless electors, who could deny the winning candidate a majority....What a crisis - including a constitutional crisis - may be coming down the pike."

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Sept 18, 2020

9.18.20 - Gold Set to Soar on Dovish Fed

Gold last traded at $1,961 an ounce. Silver at $27.08 an ounce.

NEWS SUMMARY: Precious metal prices rose Friday amid growing stock market volatility and a weaker dollar. U.S. stocks traded mostly lower led by weakness in tech shares and investor option-contract expirations.

Gold prices set to soar as Fed signals years of low interest rates -Fox Business
"Gold prices are set to spring higher after more than a month of moving sideways, according to one analyst. Drivers include a positive technical backdrop and the likelihood of sustained low interest rates in the world's largest economies that may prompt investors to seek better returns in other 'safe haven' investments. Gold has 'worked off the momentum, sentiment and positioning extremes seen at the peak and looks set to resume its uptrend' wrote Laurence Balanco of Hong Kong-based capital markets and investment group CLSA Ltd....'Price action is now pricing the apex of this pattern, and something has to give,' Balanco wrote. He thinks a close above $1,966.60 would confirm a breakout to the upside that targets $2,185 to $2,200, up as much as 12% from the $1,960.20 where the precious metal settled on Wednesday....'We would look at adding new long gold positions,' Balanco said."

2021 Yes, 2021 Could Be Worse -Wright/AIER
"I notice lots of folks on social media pining for 2021. Don't kill the messenger, but 2021 could be much worse than 2020. But how? Covid-19 came close to causing a legitimate crisis only in the New York City area and there only with 'help' from Governor Cuomo's kill people in nursing homes policy...Moreover, death counts have been confusing, with documented instances of people dying in motorcycle accidents and from terminal cancer being counted as Covid-19 fatalities....In short, although the virus is less deadly than at first, and treatments have improved (for example by not putting people on those ventilators we so desperately thought we needed back in March with such alacrity), and the disease appears to have run its course in much of the country, politicians and the media continue to stir up uncertainty, which they use to stoke fear in the public, and continued compliance with government dictates, school closings, and such....America has a long history of riots that make even looted retail stores, torched buildings, and occupied police precincts appear like a walk in the park by comparison. With so much at stake in the Presidential election due to our inability and unwillingness to curb the federal government's power, both sides have incentives to rile up their bases when one or the other side loses this November. Where it ends, nobody knows, but the historical precedents are frightening....Imagine 2020's murder hornets, Covid-19 lockdowns, urban riotish uprisings, and such but with enemy aircraft overhead and missiles inbound because we are also at war with Iran. Or China. Or Russia. Or North Korea. Or all of them....Normally, countries do not want to throw down against the United States, which has proven its willingness and ability to invade, occupy, and generally ruin countries no matter how many trillions of dollars it takes. But it isn't clear that Uncle Sam has trillions to spare anymore...Moreover, America's rulers might be interested in fomenting a war about now to distract from domestic difficulties. They are likely under the silly misapprehension that war is 'good for the economy.'"

Dollar Weakness Or Dollar Crash? -Zero Hedge
"The Dollar has shown weakness during the second and third quarters, with the trade-weighted Dollar Index falling from a high of almost 103 in March to a low of 92 at the end of August...These moves correspond roughly to a 10% depreciation of the Dollar. With trade tensions looming in the background, any move in currency markets can quickly have political repercussions: the Treasury Department monitors exchange rates for evidence of manipulation by foreign governments. In 2019, it designated China a currency manipulator. As a direct result of the Dollar's weakness, the next report in October is likely to have to mute its criticism of foreign countries' policies designed to keep their own currencies weak. At the same time, the weak Dollar helps to boost U.S. exports and create jobs, just in time for the election. Effectively, the weak Dollar is a form of monetary stimulus. This is precisely the effect President Trump has repeatedly mentioned since taking office. No matter the outcome of the November election, the next administration will have no incentive to talk up the Dollar while the economy is still suffering from the Covid slump....Since the dollar started weakening, the Bank of China has allowed the Yuan to strengthen against the dollar, thereby reversing some of the tariff-offsetting exchange rate moves. This may be an early indication that degloblization is in full swing and that exports to the Dollar block are no longer a priority for China’s central planners."

The Real Cost of Biden's Plans -Mulligan/Wall Street Journal
"Presidential candidate Joe Biden has pledged that his administration will impose no new taxes on Americans making $400,000 or less and that there will be 'no raising taxes . . . on mom and pop businesses.' Both his policy platform and his record belie that promise. During their first campaign for the White House, the Obama-Biden ticket 'firmly' pledged that 'no family making less than $250,000 a year would see any form of a tax increase.' They soon pushed through the Affordable Care Act, which included a tax penalty for failing to purchase health insurance, paid primarily by people earning less than $50,000 annually....Today Mr. Biden takes a similarly veiled approach to advancing the 'clean energy revolution and environmental justice' outlined in his platform. Instead of using a carbon tax, which would use market forces to reduce the economic damage but also obviously violate his tax pledge, he would apply the force of regulation. He aims, for example, to eliminate emissions for passenger vehicles, which would make buying a new car thousands of dollars more expensive. As President Trump is apt to explain, regulations are 'stealth taxation, especially on the poor.' The poor would suffer most under Mr. Biden's platform...The biggest bite would come in diminished purchasing power due to higher prices for energy, cars and other consumer....Not only has Mr. Trump removed hundreds of regulations that Mr. Biden is inclined to resurrect; the president has also slowed the pace of new rules compared with prior administrations....None of this should be a surprise. An active regulatory state is a playground for the privileged class to indulge its own preferences at the expense of ordinary Americans."

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Sept 17, 2020

9.17.20- The Federal Reserve is "Dr. Evil"

Gold last traded at $1,944 an ounce. Silver at $26.92 an ounce.

NEWS SUMMARY: Precious metal prices eased back Thursday on mild profit-taking and a firmer dollar. U.S. stocks dropped as the technology sector declined amid conflicting reports of a coronavirus vaccine timeline.

Gold rises as investors bet on dovish U.S. Fed stance -Reuters/Yahoo Finance
"Gold prices rose on Wednesday, helped by a subdued dollar as investors bet on dovish monetary cues from the U.S Federal Reserve when it announces its policy decision later today. 'What we're probably seeing building in gold here is the expectation that the Fed is going to be more dovish than in the past, and the realization that we're seeing slightly more inflationary pressure than anticipated,' said OANDA analyst Craig Erlam. While the Fed does not need to announce stimulus measures now, it will have to lay the groundwork for potential stimulus later, he added. Making bullion more attractive for those buying the metal in other currencies, the dollar index fell in the run-up to the Fed decision....Lower U.S. interest rates tend to weigh on bond yields and the dollar, bolstering the appeal of non-yielding gold, which is also seen as hedge against inflation and currency debasement."

the fed The Fed is Dr. Evil -Grossman/Trish Intel
"The Fed has two primary jobs, a dual mandate, full employment, and price stability. The first they take really seriously. No one really wants to see people unemployed and, at least until Covid-19 and PPP, not too many people really wanted to be unemployed. Inflation, on the other hand, has been more of an annoyance, a whipping boy that has been used to justify any and all monetary policies designed to foster growth and employment....The Fed has favored excess monetary accommodation for over twenty-five years. It has been a progressive march to lower and lower interest rates and asset purchase policies that flood the banking system, the capital markets and the economy at-large with staggering amounts of liquidity....I have long argued with central banks and economists that their theory breaks down as rates drop towards zero and massive asset purchase programs are implemented....First, central banks bought government securities, then mortgages, then high-grade corporate bonds, and now even low investment-grade securities and equities are considered fair game. Our central banks, rather than being the lenders and liquidity providers of last resort, are now subprime lenders and hedge funds. They are now the casino telling the gamblers to throw caution to the wind and go all-in....The real beneficiary of this deluge of monetary accommodation has been to push asset prices to extraordinary levels. While this may feel good if you own a lot of stock, it comes with a lot of attendant baggage. As noted, it distorts virtually all aspects of financial and economic decision-making. It distorts and destabilizes....The Fed has used equities as a measure and tool of monetary policy, although they won't acknowledge it, believing that higher asset prices stimulate consumption and other economic variables...It is probably too late, but central banking needs to go back to its more traditional roots. Provide a framework that encourages the best long-term economic outcomes, tying return to risk, and staying out of the private sector."

Ray Dalio Warns of Threat to Dollar as Reserve Currency -Bloomberg
"The dollar's decades-long position as the global reserve currency is in jeopardy because of steps the U.S. has taken to support its economy during the Covid-19 pandemic, according to Ray Dalio, founder of hedge fund giant Bridgewater Associates. While equities and gold benefited from the trillions of dollars in fiscal spending and monetary injections, those efforts are debasing the currency and have raised the possibility that the U.S. will go too far in testing the limits of government stimulus, Dalio said Tuesday in an interview with Bloomberg Television. 'There is so much debt production and debt monetization,' Dalio said. The Bloomberg Dollar Spot Index has dropped 10% from its peak in late March as investors responded to the pandemic and efforts by central bank and government officials to contain the economic fallout. All of the world's major developed currencies have gained against the dollar as have precious metals such as gold, silver and platinum. Dalio said in July that investors should favor stocks and gold over bonds and cash because the latter offer a negative rate of return and central banks will print more money. Bridgewater has been moving into gold and inflation-linked bonds in its All Weather portfolio, diversifying the countries it invests in and finding more stocks with stable cash flow."

America's Wealth Gap Grows in the Post-COVID-19, K-Shaped Economic Recovery -Bonner/Rogue Economics
"Readers hoping for a V-shaped recovery, with a quick return to 'normal,' are already searching the alphabet for alternatives. 'K' is probably the best bet, with some doing better than ever, but the rest on a downward track. Which direction you go depends mostly on which economy you are in - the new one… or the one being left behind....For 'knowledge workers' - no matter how ignorant - the COVID lockdown posed little trouble. Lawyers, architects, accountants, analysts, bureaucrats, clerks, marketers, designers - millions of office rats were able to simply move their offices to their nests. There, with no need to commute, no gasoline to buy… no donuts and coffee to pick up on the way to work, and no lunches out… they found themselves better off. Savings rates tripled. Meanwhile, those whose work involved no internet terminal suddenly found themselves cut off from their work. And much of that work will never return....It's not the same world. The water is already under the bridge; there's no way to get it back. Between the fear of getting sick (stoked by the media and the feds) and the unappealing public 'health' measures to prevent it, people change their plans and their attitudes. They may even become conspicuous savers - flaunting their old cars and worn out sweaters as status symbols. Already, fewer want to take cruises… or dine out… or go to the theater. Or go to Europe for a summer vacation. Hotel occupancy rates in Paris are down 86% from last year. They are expected to come back - but probably never to where they once were. So, what about the hotel workers? The restaurant owners? The taxi drivers? The shopkeepers?....Millions of people are being left behind. What will they do? Live on welfare, like the people of West Baltimore or West Philadelphia? And what will happen to the economy itself? This new normal could cut GDP growth down to zero… and leave it there. Then what? Stay tuned."

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Sept 16, 2020

9.16.20 - Sound the Alarm Bells on Inflation

Gold last traded at $1,962 an ounce. Silver at $27.29 an ounce.

NEWS SUMMARY: Precious metal prices rose Wednesday on a weaker dollar and expected dovish comments from the Fed meeting. U.S. stocks rose on investor expectations that the Fed will keep rates unchanged far into the future.

Gold to outperform silver into year-end, $4K gold price not ruled out by 2023 -Bloomberg Intelligence/Kitco
"Gold is looking to outperform silver into year-end, according to Bloomberg Intelligence, which is not ruling out $4,000 gold by 2023, noting that the gold bull rally is just beginning. After breaking $2,000 an ounce level, gold has been stuck in a trading range between $1,930 and $1,980 an ounce. But despite the several-week hiatus from major price action, gold will still do better than silver in the second half of the year, said Bloomberg Intelligence senior commodity strategist Mike McGlone. 'The done-deal nature of continued central bank easing is a solid foundation for gold, but less so for silver and copper prices. Industrial metals are dependent on more fiscal stimulus and a global economic rebound, yet increasingly vulnerable to normal stock-market mean reversion,' wrote McGlone in the latest monthly commodity update. For silver to outperform gold on a continuous basis for the rest of the year, the market will have to see a combination of rising bond yields, a peak dollar, declining stock-market volatility and continued global economic expansion. In Bloomberg Intelligence's view, this scenario is unlikely....The gold's bull rally is just beginning, noted the report. 'Gold bottomed at about $700 in 2008 and peaked near $1,900 in 2011. A similar-velocity 2.7x advance from this year's low-close near $1,470 points toward $4,000 by 2023,' McGlone explained. The stock market will play a big role in gold's performance going forward, with fortunes turning towards the yellow metal."

inflation Sound the alarm bells on inflation -Mack/The Hill
"America is at a crucial crossroads. Our government is spending money like never before. We now have debt that is larger than gross domestic product for the first time since World War Two. There are warning signs the bill collector will be knocking at some point in the near future. As a real estate developer and investor, I have lived with several kinds of economic eras. I know that excessive spending could lead to dangerous inflation. How did our country get into this situation? It started in the last administration with $1 trillion stimulus plans to lift us out from the Great Recession, but it has continued under the current administration, and is now badly exacerbated by the world pandemic of the coronavirus. Republicans and Democrats in Congress have tried to outdo themselves with costly relief bills, and they are not done yet for the current crisis....Believe it or not, there are economists who believe that a government can spend its way out of debt. What is the wisdom of that? The reality may be that more inflation means paying back in dollars that would be worth less tomorrow, but countries continue to pursue the same strategy, as the world is awash with money. Gold is almost $2,000 an ounce, the price of silver has doubled from its low, the value of the dollar is falling, and housing prices are rising....My advice is 'gather your rosebuds while you may' and prepare for an inflation repeat. I believe it is inevitable that interest rates have to move much higher. The massive federal spending will inevitably lead to inflation. In fact, there are already signs it is coming close. With artificially low interest rates, people are creating a housing bubble, with few homes and many buyers....Meanwhile, just as we may be entering a period of higher prices, we are entering a period of changing work environments. Store sales have been declining and online sales are rocketing thanks to the lockdowns. There was once a salesman on television named Crazy Eddie who told us, 'Our prices are insane!' Those words are true today, but we have time to bring sanity back to our federal spending and our way of life."

The Four D's That Define the Future -Smith/Of Two Minds
"Four D's will define 2020-2025: derealization, denormalization, decomplexification and decoherence. That's a lot of D's. Let's take them one at a time. I use the word derealization to describe the inner disconnect between what we experience and what the propaganda / marketing complex we live in tells us we should be experiencing....The current state of the economy is a good example. We see the real-world economy declining yet the officially approved narrative is that there's a V-shaped recovery underway because Big Tech stocks are hitting new highs....Denormalization is an extinction event for much of our high-cost, high-complexity, heavily regulated economy. Subsidizing high costs doesn't stop the dominoes from falling, as subsidies are not a substitute for the virtuous cycle of re-investment. The Fed's project of lowering the cost of capital to zero doesn't generate this virtuous cycle; all it does is encourage socially useless speculative predation. Collapse isn't "impossible," it's unavoidable.....Decomplexification is a mouthful, and everyone inside the machine knows the impossibility of paring organizational complexity....When the money runs out or loses its purchasing power, all sorts of complexity that were previously viewed as essential crumble to dust....Decoherence refers to the loss of systemic coherence between narratives, values, processes and systems. Simply put, stuff no longer works right and it no longer makes sense....The four D's help us understand why the status quo is incapable of adapting / evolving fast enough and effectively enough to manage a controlled collapse to a much lower level of cost and complexity. The status quo can't even admit the need for a controlled collapse, much less manage it. We can add a fifth D: denial. The four D's are already in motion and denial is only accelerating systemic decoherence."

Pelosi Holds House Democrats Hostage As Party Revolts Over Stimulus Impasse -Zero Hedge
"After rejecting a $1.5 trillion bipartisan stimulus compromise supported by 50 House lawmakers, Speaker Nancy Pelosi (D-CA) vowed to hold the chamber hostage - announcing that the House will remain in session until the parties reach an agreement on the next round of coronavirus relief. During a conference call with the House Democratic Caucus, Pelosi said she wouldn't accept a 'skinny' deal - and would instead extend the chamber's calendar until a deal she approves of is struck, according to The Hill. 'We have to stay here until we have a bill,' she told lawmakers. Pelosi's intransigence has ruffled feathers within her own party, as Politico reports that her hardline approach to negotiations - demanding $2.2 trillion at latest count, has frustrated rank-and-file Democrats. 'Every member of the leadership team, Democrats and Republicans, have messed up. Everyone is accountable,' said Rep. Max Rose (D-NY). 'Get something done. Get something done'."

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