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8.16.19 - What's the Deal With Inverted Yield Curve?

Gold last traded at $1,523 an ounce. Silver at $17.12 an ounce.

NEWS SUMMARY: Precious metal prices eased back Friday on short-term profit-taking. U.S. stocks rose as a rebound in bond yields eased some recession fears. The gains closed out a wildly volatile week on Wall Street.

Why gold's 'strong undercurrent' has some analysts eyeing $2,000 an ounce -Yahoo Finance
"Gold has benefited from a spate of supportive factors over the past few months, and some bulls now see the precious metal making a climb to a record high of $2,000 an ounce....'There has been a strong undercurrent of demand for gold,' said Brien Lundin, editor of Gold Newsletter. 'Even as short term factors like the China trade dispute may come and go, longer-term investors are confident that the issues of monetary debasement and other geopolitical factors will continue to impact the market.'....Concerns over a possible recession, sparked by the recent inversion of the yield curve for the 2-year and 10-year Treasury yields, some weak global economic data, and the U.S. Federal Reserve's first interest-rate cut since 2008, have dressed up gold's appeal as a haven. But Stan Bharti, chief executive officer of private merchant bank Forbes & Manhattan, doesn't believe that gold is moving up because of short-term market fears. It's a move that's been a long time coming...He expects gold prices to top $2,000 by the end of next year...More near term, Bharti sees gold jumping from $1,480 to $1,600 in the next quarter."

What's the Deal With That Inverted Yield Curve? -Irwin/New York Times
"The financial world has been atwitter about the inversion of the yield curve. It is a phenomenon in the bond market in which longer-term interest rates fall below shorter-term interest rates, and has historically been a warning sign that a recession could be on the way....Bonds that mature at different times are always trading on global markets, and with some fairly simple math you can figure out what the price of different bonds implies about how interest rates are expected to change over the coming years....If you buy, say, a 90-day Treasury bill, you are likely to receive an interest rate that is closely tied to whatever the Federal Reserve has currently set as its main target for interest rates in the banking system and any changes the Fed might make in the near future. It's like betting on next week's football game: We know a lot about what opponent your team is facing, how well they've been playing, whether there are injuries likely to affect the outcome."

inverted yield curve

"But if you buy a 10-year Treasury note, you're making a bet on the more distant future. The economy will probably change a lot over the next decade. You can't predict exactly what will happen, but you are betting on the general direction of things: Do you expect the economy to heat up, creating inflation pressures and causing the Fed to raise rates? Or do you expect it cool down? So purchase of a longer-term Treasury bond is like making one of those long-term bets on how a team will perform for many years to come....Longer-term rates below shorter term rates are a clear signal from bond investors that they think the United States economy is on the downswing - that its future looks worse than its present."

Note: As the above chart illustrates, roughly every ten years an inverted yield curve often precedes a economic recession. As we discuss in our Crisis Timeline report, this once-a-decade correction/recession has been consistent over the last 100 years. This explains why every day more and more experts are warning investors to prepare for a major market correction - or even a cyclical market crash. Owning gold is part of that wise preparation.

The U.S. Treasury is about to flood the market with debt to fund a $1 trillion deficit. Here's why that is a worry - MarketWatch
"An anticipated surge of U.S. borrowing in the global debt markets in the second half of this year is starting to create concern as Treasury is expected to ramp up its issuance of bills, notes and bonds to fund a soaring $1 trillion budget deficit....Last month the U.S. Treasury laid out its plans to borrow $814 billion between July and December, after the Trump administration and Congress agreed to a two-year postponement of the U.S. debt ceiling, ensuring no government shutdown or a federal default. Not only does the Treasury needs to borrow to cover the fiscal deficit created by Trump's 2017 tax cuts and the inability of Congress to agree on spending cuts, but Treasury needs to rebuild its cash balance which was run down to pay the governments bills when the debt ceiling was hit in May. The coming deluge of Treasury issuance has stoked worries on Wall Street about whether there is enough liquidity in the system in the short term to meet the supply without pushing up short-term borrowing costs and inverting the yield curve even further. U.S. dollar liquidity is deteriorating and 'is reaching a point where it may require drastic action if measures aren't taken to address it soon,' warned Gaurav Saroliya, director of macro strategy at Oxford Economics, in a note on Wednesday....'We are concerned that the U.S. banking system is nearing reserve scarcity,' Bank of America Merrill Lynch analyst Mark Cabana wrote in a note to clients. Ultimately, he said opening the Treasury 'floodgates' would likely 'force the Fed to start expanding its balance sheet by year-end.'"

Time to review your portfolio -Moneyweek
"More global fund managers now expect a recession than at any time since 2011 (which you'll remember, was a tough year and a time when every other headline was fretting about the solvency of Greece). More global fund managers are bullish on bonds than at any time since 2008 - only 9% of them expect to see higher bond yields in the next 12 months which, given that bond yields are at record low levels in most parts of the world, is quite something. And an overall majority of fund managers expect value stocks to underperform growth over the next 12 months, the most bearish managers have been on value's relative prospects since the financial crisis. All of this data comes from the latest Bank of America Merrill Lynch monthly survey of global asset managers, and more than anything else, it shows one thing - investors are currently positioned for extremes. A key part of the US yield curve has finally inverted, a pretty reliable recession signal....Perhaps the best bet at extremes is to take a chance to review your portfolio (if you haven’t done so in a while). Are there any sectors where you've made a lot of money and feel you are now over-exposed? Do you have enough gold (for insurance) and cash (for quickly jumping on opportunities)? And most importantly - do you have a clear financial plan at all? Because if you don't, the midst of a market panic is not the time to be caught without one."

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8.15.19 - Why Gold Prices Are About To Skyrocket

Gold last traded at $1,531 an ounce. Silver at $17.21 an ounce.

NEWS SUMMARY: Precious metal prices rose Thursday on safe-haven buying despite a firmer dollar. U.S. stocks attempted a rebound from the worst sell-off of the year, as retail giant Walmart rose and positive economic data lifted downbeat investor sentiment.

Why Gold Prices Are About To Skyrocket Even Higher -Yahoo Finance
"The gold bears have finally caved under the deafening barrage of fiscal and geopolitical catalysts, from Fed hints to intensely brewing conflict with Iran. But there is one key trend that stands to push gold up beyond $1,700 - regardless of the day's news....In this perfect storm for gold prices, EuroSun Mining CEO Scott Moore says we're overlooking a significant trend that will outlast the current geopolitical meltdown and even the Fed's policies: It's a global push for de-dollarization. 'Government's around the world are becoming increasingly wary of the dollar's hegemony in international trade,' says Moore. 'And they're doing their best to distance themselves from it by using their gold reserves to buy more gold instead.' This process is already underway mainly in nations with strong anti-U.S. sentiment including Russia, China, Iran, Venezuela, Syria, Turkey, Qatar, India, Pakistan, Libya, Egypt and the Philippines among others....According to the World Gold Council, central banks purchased nearly 70 percent more gold during the first quarter of the year than they did during the previous year's corresponding period. Billionaire Paul Tudor Jones says that gold 'has everything going for it', and sees it pushing to $1,700 an ounce 'rather quickly', as he noted in an interview with Bloomberg."

yields Ex-Fed boss Greenspan says ‘there is no barrier’ to Treasury yields falling below zero -Marketwatch
"There is some $15 trillion in government debt that now yields less than zero, and former Federal Reserve Chairman Alan Greenspan believes there's no reason why U.S. government bond yields couldn't join much of the developed world in the subzero world. Greenspan, during a phone interview with Bloomberg News on Tuesday, said 'zero' has no real meaning for the U.S. bond market and that a slide below that psychological level, already traversed by many others countries, wouldn't be inconceivable for U.S. paper. The 93-year-old economist's comments come as more Wall Street participants contemplate the very real possibility of negative Treasury rates....Current estimates hold that some $15 trillion in debt bears a negative yield, which means that investors get back less than their original investments for the privilege and perceived safety of owning government-backed debt. The negative-yield dynamic in the market has proliferated after more than a decade of monetary-policy unorthodoxy intended to juice stubbornly low inflation and anemic growth in Europe and parts of Asia....As of late Tuesday, 10-year U.S. benchmark debt was yielding 1.678%, not far from its lowest levels since 2016, with Wall Street anticipating nearly a 100% chance of a 25-basis-point cut in September."

Craig Smith Comment: Zero interest rates means that a currency becomes worthless as an "investment", except to pay bills. Owning gold may be the only way to preserve wealth, maintain buying power and offset currency depreciation. Zero, or negative rates, essentially guarantee a loss - if you invest $100,000, you will get back only $99,000 at a 1% negative rate. Invest the same $100,000 in gold and it holds its value in all currencies. If the U.S. sinks underwater into zero interest rates, investors could find themselves in deep trouble. Now is the time to convert some of your zero-bound dollars into physical gold.

U.S. Mortgage Debt Hits Record, Eclipsing 2008 Peak -Wall Street Journal
"U.S. mortgage debt reached a record in the second quarter, exceeding its 2008 peak as the financial crisis unfolded. Mortgage balances rose by $162 billion in the second quarter to $9.406 trillion, surpassing the high of $9.294 trillion in the third quarter of 2008, the Federal Reserve Bank of New York said Tuesday. Mortgages are the largest component of household debt....Total household debt has been on the rise since mid-2013. It rose by 1.4% from the first quarter to $13.86 trillion, the 20th consecutive quarter of increase....Alongside higher home prices, a factor behind rising mortgage debt balances in the second quarter could be homeowners tapping into home equity for cash when they refinance. Refinancing accounted for about half of new mortgages in the second quarter, according to Guy Cecala, chief executive at Inside Mortgage Finance, an industry research group. That represents a 'mini refinancing boom.'"

Hong Kong Activist Leader Calls For A Run On Chinese Banks Tomorrow -Zero Hedge
"Prominent Hong Kong pro-independence political activist Chen Haotian has called for a run on Chinese banks, asking that everyone withdraw their money on the same day. Haotian is a founding member and the convenor of the Hong Kong National Party. Arguing that large scale protests have only led to injuries and escalating police brutality, Haotian believes another method could be used to severely undermine China's influence - a good old fashioned run on the bank. He suggested that another method could be used, namely, impacting the financial system,' reports China Press. 'He called on Friday (August 16) that Hong Kong citizens take out all bank deposits. The primary goal is Chinese banks, but he said other banks should also be targeted, otherwise Chinese banks can borrow money from other banks to solve problems.' Hong Kong has been rocked by weeks of violent protests by pro-independence campaigners. Earlier this week, riot police stormed Hong Kong International Airport to clear them out...While China is unlikely to invade using PLA troops, experts have suggested that soldiers could be disguised as Hong Kong police."

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8.14.19 - 311 Days: Recession Countdown Begins

Gold last traded at $1,527 an ounce. Silver at $17.28 an ounce.

NEWS SUMMARY: Precious metal prices shot up Wednesday on safe-haven buying and recession fears. U.S stocks fell sharply after the U.S. bond market flashed a troubling signal about the U.S. economy.

Gold could hit $2,000 in a world full of negative yields -CNBC
"In a world full of negative yielding debt, hard assets like gold could become even more attractive, and some strategists say a case could be made for a $2,000 per ounce price tag on the precious metal....'We have a long position trade on. We are targeting $1,585,' said Daniel Ghali, commodities strategist at TD Securities. 'We do think gold is on its way higher for the time being...Over the coming years as the likelihood of the unconventional policy becomes more of a reality, I could see a case for gold at $2,000.' Gold has also been firming as the world watches protests in Hong Kong and also the uncertainty around U.S., China trade relations. TD Securities strategists believe the many years of unconventional and easy monetary policy from the world's central banks has resulted in a shortage of 'safe assets'...'Negative yields are symptomatic for the search for safe assets. The reason they're trading at negative yields is because the demand for safe assets is bigger than the supply for them,' said Ghali. 'Gold stands to benefit quite a bit from that...I would argue we are likely on the cusp of a multi-year bull market for gold.'"

yields Recession Countdown Begins: Treasury Yield Curve Inverts For First Time In 12 Years; 30Y Yield Drops To All Time Low -Zero Hedge
"While many have noted the inversion of the 3m-10Y segment of the US Treasury curve, mainstream investors appear more focused on the spread between 2Y and 10Y yields... and that has just inverted for the first time since May 2007...The strongest recessionary signal yet, and equity markets appear to be waking up what this all means....As Jim Grant noted recently, the spread between the 10-year and three-month yields is an important indicator...On six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal....The biggest recession risk today centers around the trade dispute between the US and China. Trade disputes have the potential to be very disruptive and contractionary and can operate through a number of channels, such as trade volumes and production, currencies and prices and asset markets. The biggest vulnerability for the US is the equity channel since the market value of equities relative to income and GDP is at record highs, providing consumers with vast sums of liquidity and wealth. If the imposition of new tariffs and the uncertainty over what may follow triggers a de-risking and rush to exit, sparking a sustained 25% to 30% correction in the equity market, that by itself could trigger a recession as it would deal a substantial blow to consumer liquidity and wealth, and an abrupt and sharp decline in spending and confidence."

What Hong Kong unrest tells us about China's plans for the rest of the world -Carafano/Fox News
"The outside world can do little to assure the future of freedom in Hong Kong beyond making the case that preserving the principles of liberty are at stake. Nevertheless, the plight of that territory's more than 7 million souls can teach us an important lesson about what China has in mind for the rest of the world. It is not good. For starters, the continuing protests speak volumes about China's commitment to 'one country two systems.' When the British transferred sovereignty over Hong Kong to China in 1997, Beijing agreed to this arrangement. The Hong Kong system - one of great economic freedom - has produced tremendous economic success. But economic freedom is no more popular than political freedom among the Chinese Communist Party. And in recent years, Chinese authorities have been encroaching on the rights supposedly guaranteed to Hong Kongers...Matters came to a head this April, when the Hong Kong government, under heavy pressure from Beijing, introduced legislation that would allow people accused of crimes against mainland China to be extradited. The proposal set off alarms among residents who know well that the mainland's thoroughly politicized legal system is not to be trusted. Fear that Beijing would quickly weaponize the proposed law to target democracy activists and journalists sparked massive protests. Efforts to suppress the demonstrations have only ignited more public demonstrations....Nothing reflects the contemptuous attitude of the Chinese more than its prosperous propaganda claim that the Hong Kong demonstrations were engineered by the CIA. China is acting like a global bully. Like most bullies, it will continue to do so - until the world stops tolerating Beijing's intolerable behavior. Hong Kong is a warning to the world. The world ought to take notice."

Bankruptcy filings rising across the country and it could get worse -New York Post
"Bankruptcies are back - flashing warnings that more Americans are knee-deep in debt in big cities like New York....New York state's bankruptcy filings, for instance, have risen steadily the past three years, hitting 34,711 in 2018, up from 30,112 in 2016, according to the American Bankruptcy Institute (ABI), based on data from Epiq Systems. More consumers nationwide are falling behind on their payments and filing for bankruptcy to resolve overwhelming debt loads. And low unemployment, an uptick in average wages and the latest Fed interest rate cut have not restrained the debt monster. Some cash-strapped consumers are even finding relief at food pantries....And unmanageable debt is also forcing more companies to file for bankruptcy, triggering a wave of job cuts - with nearly 43,000 job losses announced in the first seven months of this year, according to a new report by Challenger, Gray & Christmas. It's almost 20 percent more than all bankruptcy-linked job cuts in 2018. In the latest example, last week Barneys New York said it had filed for Chapter 11 bankruptcy protection. Meanwhile, record American household debt, near $14 trillion including mortgages and student loans, is some $1 trillion higher than during the Great Recession of 2008. Credit card debt of $1 trillion also exceeds the 2008 peak. Americans are spending heavily, again - and often recklessly, say analysts. 'No question about the fact that credit quality is declining,' said Dick Bove, a financial strategist at Odeon Capital Group in New York."

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8.13.19- Hedge Funds Are "All-In" On Gold Rush

Gold last traded at $1,514 an ounce. Silver at $16.98 an ounce.

NEWS SUMMARY: Precious metal prices eased slightly on upbeat China news and a firmer dollar. U.S. stocks whipsawed higher, as a relief rally, after the U.S. said it was delaying China tariffs until December on items including cellphones and clothing.

Trump just blinked, giving China a possible edge in trade war -CNBC
"In backing off on tariffs Tuesday, President Donald Trump showed just how much pain the U.S. could tolerate, key voices on Wall Street say - and China may use that to its advantage. Markets rallied on the the U.S. announcement that certain items were being removed from the new China tariff list, while tariffs on others would be delayed until December....Some investors took Tuesday's announcement as a sign that the trade war was indeed hurting consumers. The products in the group exempt from tariffs include cell phones, some apparel, and video games - all of which are crucial to the U.S. consumer market. China meanwhile, has not publicly backed off. It announced last week that it would stop buying U.S. agricultural products as its latest weapon in the tariff battle and has retaliated with its own tariffs on U.S. goods. It also set off more worries about the trade war on Friday by letting its currency weaken....'The White House is now delaying the tariffs and removing some items. Did some acronym called the SPX cause someone to blink?,' David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, said in a tweet."

gold chart Gold Tells Us the Stock Market's True Condition -Bonner/Bonner And Partners
"Savvy traders are front-running the world's central banks. The gamblers know the score - Inflate or Die. They know central banks are preparing for more rate cuts. So they buy $15 trillion worth of bonds traded at negative yields… We reach for something more solid... something we can hold on to. Since January 2000, almost everything in the financial world has been queered by central bankers. The whole bull market - 2009-2019 - for example, was false… phony… a fake-out by central banks. Yes, stock prices rose impressively in dollar terms. But in real-money terms - gold - the bull market of the last 10 years looks like an average bear market bounce. In gold terms, the Dow merely retraced half of its losses. You could buy the Dow with 40 ounces of gold in January 2000. By January 2011, the Dow 30 stocks would cost you only 8 ounces. In other words, stock investors had lost 80% of their money. Then, in the following run-up - fueled by extravagant and nutty efforts to inflate asset prices - the Dow-to-Gold ratio rose to 22. At that point, stock market investors had recovered about half of what they lost – a classic bear market bounce. The feds can fool some of the people some of the time, and they can fool stock market investors almost all the time. But they can't fool gold. Gold is real money....Over time, it faithfully records what things are worth. And right now, it's telling us that the stock market is worth less than half of what it was worth 20 years ago. We will pause to let you absorb that info-grenade."

Hedge Funds "All-In" On Gold As Fiat 'Race To The Bottom' Accelerates -Zero Hedge
"Gold is having its best year since 2016, soaring over 17% year-to-date, outpacing stocks, bonds, and the dollar. And Gold is strong and getting stronger. 'We're now going from trade wars almost into currency wars,' said Whitney George, president of Sprott Inc., a precious metals-focused fund. 'Gold is a currency, but it's nobody's obligation, so it will stand tallest when everyone else is trying to debase their currency to be competitive globally.' Analysts are jumping on the bullion bull market bandwagon: Goldman has a six-month gold forecast of $1,600; Citi has said it will rise to the same $1600 level in 6 to 12 months; and, Bank of America Merrill Lynch sees prices climbing toward $2,000 within two years, topping the all-time record of $1,921.17 reached in the spot market in 2011....But its not just analysts that are piling in. Large speculators' net positioning in gold is near record highs and silver positioning is also soaring. In other words, specs are largely all-in, and as the world shifts to an easing cycle, this sets the scene for more bullish gold pressure as negative-yielding global debt levels will inevitably rise."

Right, left and 2 recent shooters -Ponte/WND
"Headline-seeking Democrat politicians and their comrades in the liberal-left media have unanimously and incessantly blamed President Donald Trump for recent shooter killings in El Paso, Texas, and Dayton, Ohio. The president, they claim, triggered both atrocities by being a 'racist', a 'white supremacist.' Political and media demagogues, however, give few details about the Dayton shooter, now-deceased 24-year-old Connor Betts. As investigators put together the puzzle pieces of his writings and statements, Betts appears to have been a far-left radical, some days calling himself a Socialist and others a Communist. The Dayton shooter was also an enthusiastic backer of both Socialist Senator Bernie Sanders (I-Vermont) and Senator Elizabeth Warren (D-Massachusetts). President Trump is being blamed for the 'right wing' shooter in El Paso. Why, asks American Thinker pundit Monica Showalter, do we not likewise blame Elizabeth Warren for the 'left wing' shooter in Dayton?....I believe...that the El Paso shooter was also a leftist, not a rightist. The shooter, Patrick Wood Crusius, 21, is certainly a racist who says that he concentrated his gunfire on 'Mexicans,' whom he saw as 'invaders.' But racism is not a 'right-wing' ideology. American conservatism believes in rugged individualism, in the unique worth of each person, regardless of race or other characteristics. Leftist ideology is collectivist, not individualist....Both racism and radical environmentalism are collectivist ideologies embraced by the left....Before the Enlightenment and American Revolution, feudal collectivist thinking ruled Europe and its colonies. As Nobel laureate economist Friedrich Hayek explains in 'The Road to Serfdom' the reactionary ideologies of Socialism, Marxism, Nazism, and Fascism are trying to return us to feudalism. The only truly 'progressive' idea remains free minds and free markets."

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