Weekend Wrap: Trump Tariffs, Fed Funds, Draghi and ECB Dominate Markets

The prior week was expected to produce shock waves in markets, but on the US stock exchanges, the reaction was rather muted.

While the Dow put in a loss for the week, the NASDAQ surged to new all-time highs and the S&P 500 finished the week nearly unchanged.

Most of the reactive trading happened elsewhere, in the forex, bond, and commodity markets, which witnessed major swings in the aftermath of a rate hike by the Federal Reserve and an announcement of the end of QE by Mario Draghi of the ECB. The latter seemed to cause more impact, as Draghi set a timetable for the end of monetary easing at the end of 2018.

All of the European bourses closed lower on Friday in response to Draghi's announcement.

The dual central bank announcements overshadowed President Trump's successful negotiation with North Korea. Trump's meeting with Kim Jong-un resulted in an agreement between the two countries for more normalized relations, setting a framework for denuclearization by the North Koreans and suspension of war games conducted jointly by South Korea and the US.

Also igniting markets was President Trump's refusal to sign off on the G7 memorandum, following a meeting with "friendly" nations in which Trump promised tariffs on all manner of imports from the likes of Italy, Germany, Japan, Canada, France and Great Britain. Before that news even died down, with the other G7 nations promising retaliatory tariffs, the President slapped another $50 billion in tariffs on China, with the Chinese responding with tariffs on US imports.

With so much news crowding into one week, it was not easy for investors to find a path of least resistance. Along with Europe, US stocks fell off sharply on Friday, but recovered most of the losses by the close of trading for the week.

After the Fed raised the federal funds rate by 25 basis points on Wednesday, the yield on the 10-year note briefly crossed the 3.00% line, closing at 2.98 on the 13th, but falling back to 2.93% by Friday, the 15th of June. More importantly, the spread between the five-year and the 10 dropped to just 12 basis points, as the five-year note finished the week at 2.81.

Spreads were compressed, with the 2s-10s at 38 basis points and 2s-30s at 50. The 5s-30s spread was 23 basis points. These are the lowest spreads recorded since 2007, just prior to the Great Financial Crisis.

The Euro got crushed in currency markets, while gold and silver - both of which had been rallying all week - were crushed during Friday's COMEX session, with silver taking the brunt of the selling, off four percent, from a high of 17.30 per troy ounce on Thursday to a low at 16.40 on Friday before recovering slightly to close at 16.54. Gold was over $1300 per ounce on Thursday, but was slammed to a six month low at $1275 on Friday.

For more detail on the explosive week in precious metals and beyond, Ed Steer's weekly commentary can be found at the GoldSeek site, here.

Doug Noland's weekly Credit Bubble Bulletin commentary, detailing the recent movements in credit and currencies is titled "The Great Fallacy".

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47
6/15/18	25,090.48	-84.83	+674.64

At the Close, Friday, June 15, 2018:
Dow Jones Industrial Average: 25,090.48, -84.83 (-0.34%)
NASDAQ: 7,746.38, -14.66 (-0.19%)
S&P 500: 2,779.42, -3.07 (-0.11%)
NYSE Composite: 12,734.63, -37.32 (-0.29%)

For the Week:
Dow: -226.05 (-0.89%)
NASDAQ: +100.87 (+1.32%)
S&P 500: +0.63 (+0.02%)
NYSE Composite: -97.43 (-0.76%)

Stocks Slump Late as Gold and Silver Rebound with Gusto

Stocks erased early gains in a somewhat odd selloff late in the session, but their thunder was surely stolen by action in the precious metals markets.

Gold, since the paper price smash-down of April 12 and 15, has regained half of its losses incurred during that spectacular waterfall event. Silver, also negatively affected during the same time period, had its best day in fifteen months, with outsize gains of nearly six percent.

Whatever the intent of the paper gold manipulators, it seems to have backfired. Instead of declaring the gold rally "over," coin and bullion shops from Hong Kong to Mumbai to Shanghai to New York have experienced the briskest business in many years, as individuals rushed to secure physical supplies of the precious metals during a time of increasingly short supply.

While the physical price of gold was roughly $40-60 higher - though some reports say bulk buyers were paying close to $2000 per ounce - silver never really skipped a beat from the $29-30 range, as that was the market price on exchanges such as eBay and also via high premiums from online and brick-and-mortar dealers who reported being out of stock for many popular items such as silver eagles and bars.

The frenzied buying of the past ten days finally has drifted back to the paper gold markets on the Comex and Globex, to a point at which supply shortages are easing a little and the price has risen to more respectable levels. What remains to be seen is how customers who thought they had claims on physical gold through the LMBE and Comex but are instead getting warehouse receipts and being forced to settle in cash will retaliate.

If the paper and physical prices continue to diverge, it spells trouble for the paper exchanges, who do not have sufficient quantity of metal to meet those who wish to stand for delivery.

What is significant is how buyers seemed to pop out of the proverbial woodwork to buy quantities of gold and silver in physical form, as opposed to the speculators who trade nothing but what seems to be worthless paper and empty promises. If just five percent of the people on the planet engage in spirited gold and silver purchasing as a hedge against the currency devaluation that continues to roil world markets, the precious metals will be in extreme short supply in just a few months, sending the price through the roof and forcing the paper exchanges into default for failure to deliver.

For stocks, the incessant ramping due to non-stop easing in the form of outright money printing and de facto devaluation of currencies - especially the US Dollar, Yen and Euro - is nothing more than a function of excess capital looking for a place to go. With hedge funds and the mega-banks leveraged to the hilt, a hiccup from the gold bugs or the bond markets could trigger a selloff, complete with margin calls and scrambles for cash.

The global economy is being tested for all its Keynesian worth, though it seems the Austrian economists may be gaining an upper hand. The failed policies of the Fed, the EU and the Bank of Japan demonstrate just how desperate the central bankers are to keep economies functioning despite sure signs of a slowdown.

While it is usually unwise to fight the Fed, they themselves should be reminded that markets matter and manipulated markets and fiat currencies have an inglorious history of abject failure.

Today's fall-off in stocks could have been due to a wide range of causes, though it may just have been a front-running of tomorrow's first look at first quarter US GDP. Estimates are as high as three percent, and missing that mark may be the one peice of economic data that the stock jockeys just cannot stomach. If GDP comes in quoted at under two percent, look for a rush out of stocks and into treasuries, which have been in a state of suspended animation between 1.68 and 1.72 percent for more than three weeks.

Then again, its hard to beat a size player who keeps flooding the market with $85 billion per month and the outsize easing from the BOJ.

Dow 14,700.80, +24.50 (0.17%)
NASDAQ 3,289.99, +20.34 (0.62%)
S&P 500 1,585.16, +6.37 (0.40%)
NYSE Composite 9,188.86, +42.40 (0.46%)
NASDAQ Volume 1,971,246,250
NYSE Volume 4,198,031,000
Combined NYSE & NASDAQ Advance - Decline: 4182-2226
Combined NYSE & NASDAQ New highs - New lows: 472-29 (extreme)
WTI crude oil: 93.64, 2.21
Gold: 1,462.00, +38.30
Silver: 24.14, +1.307

'A Little Off the Top, Please': Stocks Get Trimmed Again; Gold, Silver Shortages Occurring Worldwide

The weirdness engendered by the recent gold and silver smash-down will not relent. While the paper price represented by the gold and silver ETFs (GLD and SLV) is unrelenting. As soon as the central banks sent the paper prices of precious metals reeling, regular people (and reportedly some not-so-regular people) worldwide have headed to their coin shops and online outlets to purchase as much physical in coins and bars as possible, at prices 20-40% over the paper price.

For those not familiar with this kind of activity, it's known as decoupling, disintermediation or dislocation. The paper price, represented by the traded funds, has decoupled from the reality of the physical price, and, that's a very important, if not disruptive, development.

What it means is that buyers are now not satisfied with the published prices and the market will determine for what one buys or sells gold and silver. That's the premium, and stories are running rampant on the internet of buyers lined up in droves outside coin shops. On ebay, the current price for an ounce of silver is now closer to $30, rather than the smacked-down price of around $23. Gold, though dearer, is seeing similar premiums for physical delivery and shortages are developing worldwide.

What's at the bottom of all this - and the reason for the price smash-down in the first place - is liquidity, or, if you will, supply, and, money velocity.

Simply put, the COMEX and JP Morgan, were facing imminent supply issues, i.e., they could not stand for delivery on contracts which wished to be paid in physical metal. Rumor has it that the long-standing practice of these two titans of trade was to settle in cash, with a premium. Beyond their shortages, this is a central banking issue of liquidity and trust. In particular, the US central bank - the Federal Reserve - cannot allow the price of gold, in particular, and its cousin, silver to erode confidence in the dollar, thus the smack-down, using naked shorts, to the tune of 400 million tonnes.

A few things the Fed, the COMEX and JP Morgan did not anticipate - the unintended consequences - were a run on physical demand rather than panic selling, which actually was the first thing that happened in the paper markets, where the heavily-hedged big players were forced to cover margin calls, thus selling their shares (not their physical metals, of which they owned exactly zero) and forcing the price down further.

The rush to physical was completely unforeseen, obviously, since now, the price for paper assets are far less than that of the physical (the premium effect). So, anybody looking to settle contracts on the COMEX in physical assets will get far less, but the COMEX will have to pay more to purchase the physical asset to settle up, which, if the math is correct (and it always is), means that the COMEX will eventually default on obligations to settle in physical assets and instead pay in cash. Buyers will be quite unhappy to receive cash rather than metal, and, ka-boom, down goes the COMEX, maybe JP Morgan, and maybe even the Fed. We are witnessing the beginning of the end of the craven, evil, debt-is-money fiat system backed by nothing and the rise of real money, gold and silver.

Expect the paper price - the price quoted by the ETFs or the COMEX to become increasingly irrelevant and also expect the CFTC to do what they always do: nothing. Prices of the precious metals have been manipulated by the large players with the help of central banks for decades, and the jig is finally up. This drama will play out over the next three to nine months, but the fallout will be devastating to the global financial system, whose proponents only know how to print, print and print more to solve liquidity and solvency problems.

It can't work, won't work and has never worked, especially now that people have awakened to the rapacious ways of the money-lenders and bankers and are demanding honest currency with no counter-party risk: gold and silver and other hard assets. The global financial system is close to implosion.

This impending implosion is being reflected in stocks, which have taken it on the chin three of four days this week, and the direction of trade is beginning to seriously head in the other direction. Illiquid and insolvent banks backing companies with fudged balance sheets and earnings reports via cost-cutting, wage-shorting and stock repurchasing are beginning to appear unattractive in terms of risk. The reality is that equity investors hold nothing but paper and promises to be paid, nothing more, and those "assets" are looking shakier and shakier as the global economy grinds inexorably to a halt.

Dow 14,537.14, -81.45 (0.56%)
NASDAQ 3,166.36, -38.31 (1.20%)
S&P 500 1,541.61, -10.40 (0.67%)
NYSE Composite 8,921.18, -27.18 (0.30%)
NASDAQ Volume 1,771,593,625.00
NYSE Volume 4,382,134,000
Combined NYSE & NASDAQ Advance - Decline: 2662-3651
Combined NYSE & NASDAQ New highs - New lows: 103-128
WTI crude oil: 87.73, +1.05
Gold: 1,392.50, +9.80
Silver: 23.24, -0.062