Hop-scotching the financial and political universe:
While the news wants to focus on President Trump and the close proximity of coronavirus to President Trump and Vice President Pence, the figures coming back from states that have re-engaged their economies are intriguing, indicative of increased testing with precautions having been tossed to the roadside in many cases.
Possibly, some states jumped the gun in getting the people at least partially back to work and some stores may have opened prematurely, though it's too early to make a definitive judgement. In some cases, the general public wasn't ready to get back to and kind of routine, be it shopping and strolling, punching a clock or dinner at a restaurant. Elsewhere, people were eager to re-connect.
It's only natural and mathematically predictable that with increased virus testing, the numbers of infected will be rising and the media is poised to pounce all over states that were quick off the line. Thus far, there's no true trend detected. That will take a month or longer, as most states began partial re-openings May 1 and deaths from the virus take a month or longer from infection to expiration.
Look for the media to cherry-pick the state-by-state data and come up with the scariest "second wave" headlines possible within a few weeks, if not sooner. The mainstream is always over-eager when it comes to promoting the pornography of demise, aka, doom porn.
Bernie Sanders, Ed Markey, Kamala Harris put forward a bill Friday (May 8) that would provide $2000 a month to roughly 175 million American adults - and another $2000 for each family member under the age of 18 - for as long as the crisis exists.
In one form or another, the bill has support among Democrats while Republicans are holding their cards close to their chests, for now. With money out on the table, it's only a matter of time before congress approves a monthly stipend for Americans, especially if partial re-openings in states result in increased incidence of infection from COVID-19.
$2000 a month may seem a bit over the top, but there will be pressure on Republicans to not look like a modern-day Scrooge in the face of the pandemic. Millions are out of work, and the long lines at food banks will be a useful prop for Democrats to push their agenda. While the politicians work out their differences, expect to see some form of monthly universal basic income (UBI) agreed upon by the spendthrifts-at-large, likely in the range of $1200-1500 per adult per month, and $500 for dependent children.
The monthly tab for such a scheme would fall somewhere between $325 and $400 billion a month, and could last as long as six months (November elections), perhaps longer. A total of $2 trillion would be touted as "reasonable" considering the heft already thrown to Wall Street and small businesses. Besides, anything spent past September would be rolled into next year's budget. With the 2020 budget already $4 trillion in the red, anything under $5 trillion over budget in 2021 will be appealing to the vote-buyers in Washington.
It's coming. The political calculus favors the Democrat free-spending plan without much pushback from the opposition. Expect direct deposits or checks in the mail to begin arriving sometime in June at the earliest, July at the latest. The nation's political leaders just can't help themselves when it comes to over-spending and trying to appear meritorious and compassionate.
Many thanks to GATA for supplying a link to Nick Laird's fabulous charts and commentary detailing the recent volatility storm in gold and silver.
Scottsdale Mint continues to advise clients of shipment delays of 20+ days. Other dealers have similar warnings, some demanding minimum order sizes due to an ongoing supply shortage and massive uptick in demand.
Fearless Rick's Commentary
Everybody has some kind of normalcy bias that leads to hoping this corona-demic will subside sooner rather than later. We're all tired of it.
In February, I thought this would all be over in a month. Two weeks hence, I recalculated out to six weeks, which became two months, then three and now, careening into June, having tracked events since late January when the virus began ravaging China and then the world, the crisis appears to be an endless one.
Realistically, whether this event is staged or real doesn't matter. The media, governments, and medical community will lead the vast sheeple population into believing what they want and doing their bidding, right down to idiotic suggestions like baseball games with no fans in the stands (not profitable from an ownership perspective), wearing cloth masks (might as well just wear a Howdy Doody Halloween mask as it will have the same effect), keeping six feet apart from people you live with day-to-day, and other abstract restrictions and recommendations.
I'd like this all to be over and done with, but I know it won't be. I am trying hard to abandon my own normalcy bias and beginning to realize that this "new world dis-order" is going to be with us for a long time. The elites can't resolve anything themselves except to keep the stock market inflated, people distracted or starving or angry, and the planet teetering on self-destruction.
I'm resolved that it's all going to get worse. I'm focused on my garden, my personal well-being, stacking and prepping now for winter, which is inevitable.
A year from now, we'll all still be reading and fretting about the virus, lockdowns, death, etc. without an end date. Best to just carry on with life in as usual a manner as one can command. The government is only going to help for a while and in a limited capacity. Once the elections (which is all anybody in Washington DC cares about) are over and done, a cruel, harsh winter is the most likely outcome. Cold weather seems to bring out the worst in people, and if the federal and state governments don't have a handle on both the economy and the virus by then, they'll be facing an even angrier, colder, more determined populace seeking retribution for what they believe was avoidable.
Try to think at least six months ahead of the herd. That way, you'll be more likely to outrun the stampede.
At the Close, Monday, May 11, 2020:
Dow: 24,221.99, -109.33 (-0.45%)
NASDAQ: 9,192.34, +71.02 (+0.78%)
S&P 500: 2,930.32, +0.52 (+0.02%)
NYSE: 11,281.37, -72.98 (-0.64%)
Tuesday, May 12, 2020
Sunday, May 10, 2020
WEEKEND WRAP: Fed Fiat Funny Money Has Managed to Short-Circuit the Crisis, for Now
Against a backdrop of Great Depression-like numbers - 33 million Americans out of work and an "official" unemployment rate of 14.7% - equity investors enjoyed a remarkably positive week, with all major indices rising by at least 2.50%, with the NASDAQ leading the way with a six percent gain.
The NASDAQ's advance was not only remarkable, but it is also ludicrous. The tech-heavy index has advanced beyond both its 50 and 200-day moving averages and is within 720 points of its all-time high. Investors in the speculative sector of the market have either divorced themselves from reality or are seeing something the rest of the world is missing. Money has to go somewhere, even money from the Federal Reserve, released to companies across the investing spectrum, but most of it appears to be heading toward Silicon Valley.
No doubt, chasing momentum has amplified the absurd move to the NASDAQ, which is likely a dangerous precedent. Many of the companies moving higher sport P/E ratios well above the norm, even the norm in a major bull market, a position that was shattered eight weeks ago.
Some of the standouts in the nebulous NASDAQ unicorn universe include Alphabet, parent of Google (GOOG), bottomed out at 1056.62 on March 23, and closed Friday at 1388.37.
Netflix (NFLX) fell out at 298.84 on March 16, but has since rebounded to Friday's close of 435.55.
Amazon (AMZN) reached an all-time high of 2474.00 on April 16, after dropping to 1676.61 on March 12, an amazing gain of 47.6% in just over a month. Amazon may be a superb, dynamic company, but it's arguably extremely overvalued, with a P/E of 113.
Facebook (FB) finished at 146.01 on March 16 and closed at 212.35 on Friday.
Some investors have been getting fat while the larger economy has, for the most part, imploded.
As almost all states (47 of 50 as of Saturday, May 9) have at least partially reopened their businesses and relaxed stay-at-home and other restrictions on the populace, anecdotal reports show that business is still a long distance from anything approaching normal, i.e., prior to the COVID-19 pandemic.
Wall Street is pushing a narrative that the country and the economy is all well and good, the recovery - in terms of stock prices - well underway, even as cases of coronavirus are still prevalent and rising in some cases and deaths continue at a run rate of over 1,000 a day. How well that works out for investors won't likely be known for some time. For now, investors, and the companies getting the most attention, are sitting pretty.
Crude oil continued to be under pressure from both a supply glut and slack demand, hovering in the mid-20s throughout the week. The June contract on WTI crude rose from $19.78 last Friday (May 1) to $24.74 a barrel this Friday (May 8). The contract expires within two weeks and there hasn't really been much improvement on the supply side of the equation, though demand has improved as the United States and most other countries around the world have begun getting back to business.
The treasury curve steepened over the course of the week. The entire complex is covered by 129 basis points as of Friday, up from 117 the prior week. All of the yield gains were at the long end. As money rushed out of bonds and back into stocks on Friday, the 10-year note added six basis points, to 0.69. The 30-year bond yield gained from 1.31 to 1.39.
Precious metals continued to be among the most-desired asset class since the onset of the pandemic. Both gold and silver are selling at massive premiums (up to $200 for gold, 40-80% for silver) and dealers are still experiencing supply issues with many popular items out of stock, though available to order. Delivery times have come back a bit, with gold and silver in quantity available within two weeks of placing orders.
Here are representative recent prices (5/9-5/10) on eBay for standard gold and silver coins and bars (prices include shipping):
Item: Low / High / Average / Median
1 oz silver coin: 24.45 / 38.00 / 30.58 / 30.48
1 oz silver bar: 23.00 / 30.95 / 26.77 / 26.20
1 oz gold coin: 1,750.00 / 1,946.65 / 1,854.84 / 1,841.99
1 oz gold bar: 1,799.99 / 1,871.52 / 1,843.90 / 1,851.47
In cryptocurrency-land, the Bitcoin Halving approaches. Fr those unfamiliar with the concept, the "halving" is the predetermined moment when Bitcoin’s block subsidy gets cut in half. The halving of Bitcoin’s block subsidy occurs every 210,000 blocks (approximately every four years) and is a key feature of Bitcoin. It is because of the Halving that there is a capped supply of 21 million bitcoin that will ever exist. The halving is scheduled to take place Monday at approximately 6:49 pm ET.
Bitcoin surpassed the $10,000 mark in US dollars, but fell back to the $8850 range in anticipation of the event.
And, just to throw another spanner into the works, the government of Argentina failed to reach agreement with creditors by its self-imposed Friday deadline, essentially defaulting on $65 billion worth of bonds, though talks between the two sides are continuing. Argentina will formally default on May 22, as it missed a $503 million payment last month and the grace period is expiring.
Talks were extended through Monday in hopes that Argentina could avoid its ninth sovereign default.
At this juncture, everything is at risk. According to recent economic data, the global economy is flat on its back. Most developed countries are either in a recession or about to enter one. The response to the coronavirus has ramped up unemployment and knocked down GDP estimates.
Thanks to massive infusions of capital from the Fed and other central banks to both business and individuals, the crisis has been managed to a degree, but the future remains a guessing game. Whether or not QE to infinity will save the day - and the underlying currencies - is a real gamble.
At the close, Friday, May 8, 2020:
Dow: 24,331.32, +455.43 (+1.91%)
NASDAQ: 9,121.32, +141.66 (+1.58%)
S&P 500: 2,929.80, +48.61 (+1.69%)
NYSE: 11,354.34, +232.68 (+2.09%)
For the Week:
Dow: +607.63 (+2.56%)
NASDAQ: +516.37 (+6.00%)
S&P 500: +99.09 (+3.50%)
NYSE: +295.77 (+2.67%)
The NASDAQ's advance was not only remarkable, but it is also ludicrous. The tech-heavy index has advanced beyond both its 50 and 200-day moving averages and is within 720 points of its all-time high. Investors in the speculative sector of the market have either divorced themselves from reality or are seeing something the rest of the world is missing. Money has to go somewhere, even money from the Federal Reserve, released to companies across the investing spectrum, but most of it appears to be heading toward Silicon Valley.
No doubt, chasing momentum has amplified the absurd move to the NASDAQ, which is likely a dangerous precedent. Many of the companies moving higher sport P/E ratios well above the norm, even the norm in a major bull market, a position that was shattered eight weeks ago.
Some of the standouts in the nebulous NASDAQ unicorn universe include Alphabet, parent of Google (GOOG), bottomed out at 1056.62 on March 23, and closed Friday at 1388.37.
Netflix (NFLX) fell out at 298.84 on March 16, but has since rebounded to Friday's close of 435.55.
Amazon (AMZN) reached an all-time high of 2474.00 on April 16, after dropping to 1676.61 on March 12, an amazing gain of 47.6% in just over a month. Amazon may be a superb, dynamic company, but it's arguably extremely overvalued, with a P/E of 113.
Facebook (FB) finished at 146.01 on March 16 and closed at 212.35 on Friday.
Some investors have been getting fat while the larger economy has, for the most part, imploded.
As almost all states (47 of 50 as of Saturday, May 9) have at least partially reopened their businesses and relaxed stay-at-home and other restrictions on the populace, anecdotal reports show that business is still a long distance from anything approaching normal, i.e., prior to the COVID-19 pandemic.
Wall Street is pushing a narrative that the country and the economy is all well and good, the recovery - in terms of stock prices - well underway, even as cases of coronavirus are still prevalent and rising in some cases and deaths continue at a run rate of over 1,000 a day. How well that works out for investors won't likely be known for some time. For now, investors, and the companies getting the most attention, are sitting pretty.
Crude oil continued to be under pressure from both a supply glut and slack demand, hovering in the mid-20s throughout the week. The June contract on WTI crude rose from $19.78 last Friday (May 1) to $24.74 a barrel this Friday (May 8). The contract expires within two weeks and there hasn't really been much improvement on the supply side of the equation, though demand has improved as the United States and most other countries around the world have begun getting back to business.
The treasury curve steepened over the course of the week. The entire complex is covered by 129 basis points as of Friday, up from 117 the prior week. All of the yield gains were at the long end. As money rushed out of bonds and back into stocks on Friday, the 10-year note added six basis points, to 0.69. The 30-year bond yield gained from 1.31 to 1.39.
Precious metals continued to be among the most-desired asset class since the onset of the pandemic. Both gold and silver are selling at massive premiums (up to $200 for gold, 40-80% for silver) and dealers are still experiencing supply issues with many popular items out of stock, though available to order. Delivery times have come back a bit, with gold and silver in quantity available within two weeks of placing orders.
Here are representative recent prices (5/9-5/10) on eBay for standard gold and silver coins and bars (prices include shipping):
Item: Low / High / Average / Median
1 oz silver coin: 24.45 / 38.00 / 30.58 / 30.48
1 oz silver bar: 23.00 / 30.95 / 26.77 / 26.20
1 oz gold coin: 1,750.00 / 1,946.65 / 1,854.84 / 1,841.99
1 oz gold bar: 1,799.99 / 1,871.52 / 1,843.90 / 1,851.47
In cryptocurrency-land, the Bitcoin Halving approaches. Fr those unfamiliar with the concept, the "halving" is the predetermined moment when Bitcoin’s block subsidy gets cut in half. The halving of Bitcoin’s block subsidy occurs every 210,000 blocks (approximately every four years) and is a key feature of Bitcoin. It is because of the Halving that there is a capped supply of 21 million bitcoin that will ever exist. The halving is scheduled to take place Monday at approximately 6:49 pm ET.
Bitcoin surpassed the $10,000 mark in US dollars, but fell back to the $8850 range in anticipation of the event.
And, just to throw another spanner into the works, the government of Argentina failed to reach agreement with creditors by its self-imposed Friday deadline, essentially defaulting on $65 billion worth of bonds, though talks between the two sides are continuing. Argentina will formally default on May 22, as it missed a $503 million payment last month and the grace period is expiring.
Talks were extended through Monday in hopes that Argentina could avoid its ninth sovereign default.
At this juncture, everything is at risk. According to recent economic data, the global economy is flat on its back. Most developed countries are either in a recession or about to enter one. The response to the coronavirus has ramped up unemployment and knocked down GDP estimates.
Thanks to massive infusions of capital from the Fed and other central banks to both business and individuals, the crisis has been managed to a degree, but the future remains a guessing game. Whether or not QE to infinity will save the day - and the underlying currencies - is a real gamble.
At the close, Friday, May 8, 2020:
Dow: 24,331.32, +455.43 (+1.91%)
NASDAQ: 9,121.32, +141.66 (+1.58%)
S&P 500: 2,929.80, +48.61 (+1.69%)
NYSE: 11,354.34, +232.68 (+2.09%)
For the Week:
Dow: +607.63 (+2.56%)
NASDAQ: +516.37 (+6.00%)
S&P 500: +99.09 (+3.50%)
NYSE: +295.77 (+2.67%)
Friday, May 8, 2020
Are Markets Awakening to Reality? Gold, Silver, Bonds Higher; Stocks, Oil Lose Momentum As Argentina Approaches Default, US April Job Losses 20.5 Million
Stocks, bonds, oil and precious metals all had their ups and downs on Thursday, as the focus early was on stocks, which put on impressive gains, only to give half of them back in afternoon trading.
Oil was higher in early trading, spiking to $26.27 a barrel for WTI crude before collapsing all the way down to $23.13.
With a turn right after noon, money began to flow away from riskier assets and into safe havens, with bonds, gold, and silver all being bid as the day wore onward.
Silver started the day at $14.81, languished early, and finished sharply higher, at $15.36. Gold was also cold in the morning, but found its legs later, moving from Wednesday's NY close of $1684.10 to finish at $1718.00.
Treasuries were bought with unusual gusto on the long end. The yield on the 5-year note moved from 0.37% to 0.29% on the day, the 10-year yield went from 0.72% to 0.63%, and the 30-year dropped 10 basis points, from 1.41% to 1.31%. The curve flatted out by 10 basis points, 121 bips covering the entire complex.
All of this activity was against a backdrop of 3.2 million initial unemployment claims, bringing the recent total to 33 million over the past seven weeks.
April non-farm payrolls were also on the mind, with the number - expected to be a record for one month - due out Friday morning.
Argentina (silvery) is about to default on $65 billion of its foreign debt today, Friday, May 8, as bondholders and the government are at loggerheads over a restructuring, though the government appeared to be willing to make some concessions late Thursday. A harder deadline comes May 22, when the country could enter certain default, as a grace period for $500 million of interest payments comes to an end. The clock is ticking for the nation that has defaulted on debt eight times previously.
Argentina could be the doomsday clock the financial world is watching. Other nations are sure to be on the brink of debt default and currency crises after weeks and months of lockdowns, supply chain breakdowns, social unrest, and deaths caused by COVID-19.
Is this the beginning of the end of the stock market rally and a rush to the safety of hard assets? The Dow popped above 24,000 intraday, but it's been unable to surpass the seven-week high of 24,633.66, which is roughly a half retrace of the March pullback. Another failure at this level would signal a short-term selling condition.
Just moments ago, the BLS reported April non-farm payrolls, registering a loss of 20.5 million jobs, pushing the unemployment rate to 14.7%.
With COVID-19 continuing to cause dislocations in everything from meat distribution to pro sports to education, the debate over whether this economic maelstrom will eventually result in a sharp rebound or a long, drawn out recession or even a depression.
Siding with the sharp rebound are those who gave up the ghost back in March with lockdowns, the government, media, and most of the financial community following the lead of the Federal Reserve.
Naysayers, viewing the global economy at a severe breaking point with no good solutions, include James Rickards, Mike Maloney of goldsilver.com, Peak Prosperity's Chris Martenson, Peter Schiff (a fiat money perma-bear and gold perma-bull) and others.
Greg Mannarino, the Robin Hood of Wall Street adds some perspective:
At the Close, Thursday, May 7, 2020:
Dow: 23,875.89, +211.25 (+0.89%)
NASDAQ: 8,979.66, +125.27 (+1.41%)
S&P 500: 2,881.19, +32.77 (+1.15%)
NYSE: 11,121.67, +121.68 (+1.11%)
Oil was higher in early trading, spiking to $26.27 a barrel for WTI crude before collapsing all the way down to $23.13.
With a turn right after noon, money began to flow away from riskier assets and into safe havens, with bonds, gold, and silver all being bid as the day wore onward.
Silver started the day at $14.81, languished early, and finished sharply higher, at $15.36. Gold was also cold in the morning, but found its legs later, moving from Wednesday's NY close of $1684.10 to finish at $1718.00.
Treasuries were bought with unusual gusto on the long end. The yield on the 5-year note moved from 0.37% to 0.29% on the day, the 10-year yield went from 0.72% to 0.63%, and the 30-year dropped 10 basis points, from 1.41% to 1.31%. The curve flatted out by 10 basis points, 121 bips covering the entire complex.
All of this activity was against a backdrop of 3.2 million initial unemployment claims, bringing the recent total to 33 million over the past seven weeks.
April non-farm payrolls were also on the mind, with the number - expected to be a record for one month - due out Friday morning.
Argentina (silvery) is about to default on $65 billion of its foreign debt today, Friday, May 8, as bondholders and the government are at loggerheads over a restructuring, though the government appeared to be willing to make some concessions late Thursday. A harder deadline comes May 22, when the country could enter certain default, as a grace period for $500 million of interest payments comes to an end. The clock is ticking for the nation that has defaulted on debt eight times previously.
Argentina could be the doomsday clock the financial world is watching. Other nations are sure to be on the brink of debt default and currency crises after weeks and months of lockdowns, supply chain breakdowns, social unrest, and deaths caused by COVID-19.
Is this the beginning of the end of the stock market rally and a rush to the safety of hard assets? The Dow popped above 24,000 intraday, but it's been unable to surpass the seven-week high of 24,633.66, which is roughly a half retrace of the March pullback. Another failure at this level would signal a short-term selling condition.
Just moments ago, the BLS reported April non-farm payrolls, registering a loss of 20.5 million jobs, pushing the unemployment rate to 14.7%.
With COVID-19 continuing to cause dislocations in everything from meat distribution to pro sports to education, the debate over whether this economic maelstrom will eventually result in a sharp rebound or a long, drawn out recession or even a depression.
Siding with the sharp rebound are those who gave up the ghost back in March with lockdowns, the government, media, and most of the financial community following the lead of the Federal Reserve.
Naysayers, viewing the global economy at a severe breaking point with no good solutions, include James Rickards, Mike Maloney of goldsilver.com, Peak Prosperity's Chris Martenson, Peter Schiff (a fiat money perma-bear and gold perma-bull) and others.
Greg Mannarino, the Robin Hood of Wall Street adds some perspective:
At the Close, Thursday, May 7, 2020:
Dow: 23,875.89, +211.25 (+0.89%)
NASDAQ: 8,979.66, +125.27 (+1.41%)
S&P 500: 2,881.19, +32.77 (+1.15%)
NYSE: 11,121.67, +121.68 (+1.11%)
Thursday, May 7, 2020
Deflation, Inflation, Hyperinflation, Signal to Noise Ratio, Gold, Silver, and the End of the Dollar
Everything that has happened so far was predictable.
The worldwide government response to the COVID-19 pandemic was as easy to see for cynics and skeptics as the eventual lying that would take place. First, back in January and early February, the federal government told the public that the threat to Americans from the coronavirus that was ravishing China was minimal. Gradually, that advice was replaced by travel restrictions to and from mainland China, then to and from Europe, until finally, infections and deaths from the virus began to multiply in America.
By mid-March and into the first days of Spring, the veil had been lifted and the virus was spreading rapidly across the United States, thanks to millions of international travelers on ships and airplanes that had been allowed to come and go as they pleased through the winter. Individual cases turned into clusters and clusters to severe outbreaks, especially in New York City, not surprisingly a hub for international travel.
By the time congress got around to passing emergency legislation, lockdowns and shelter-in-place recommendations were put into play by governors of the individual states. The legislation contained the usual: massive injections of currency into Wall Street (because we can't have a stock market crash), a pittance for the public, and payments to hospitals for treating patients infected with COVID-19: $13,000 for each patient admitted; $39,000 for each patient put on a ventilator.
Anybody who has been following government and Federal Reserve policy knew that the response would be to throw massive amounts of currency at the problem because that's all they know about how to handle crises.
And here we are. The government is now readying a fourth "stimulus" bill, chock full of more handouts, bailouts, and currency drops. This time, the public gets nothing. States and municipalities are going to get tons of currency to bail out their broken, drained public coffers and keep millions of teachers, cops, firemen, and paper-pushers on the job and their pensions partially funded because having the Fed backstop municipal bonds simply wasn't enough. Hospitals will get more currency. Small businesses will get another tranche of loans, pressing cynics to respond that cities get grants, while businesses have to pay it back.
All of this currency printing and government deficits won't amount to a hill of beans because the transmission mechanism for the velocity of money is broken. Cops, teachers, and firemen will get paid, but they'll be scared to take on new debt and will spend much of their money paying down credit card bills and overpriced mortgages. After another crash to lower levels, the stock market will stabilize.
The US will have deflation, widely, in big-ticket assets like stocks (market crash), bonds (rolling defaults), real estate (forbearance today leads to foreclosure tomorrow), trickling down to things like furniture (no interest for 5, 6, 7 years), cars (rebates, cash back, 0% financing), and appliances (oversupply). Food, especially meat, which is getting a bit pricey right now due to chinks in the supply chain, will not be affected much. Food was the one thing that didn't go up or down much during the Great Depression of the 1930s. It was cheap enough so that people didn't starve, though meats were generally considered close to being luxuries, so no worries there, until hyperinflation. Besides, even if you have a tiny back yard, you can grow some vegetables of your own to offset any price rises in meats. Why do you think your mother was always telling you to eat your vegetables? Sometimes there just isn't enough meat.
After six to 18 months of deflation, all the while the Fed printing dollars like maniacs and the government running massive deficits (probably over $8 trillion this fiscal year alone (through September 30), prices will seem to stabilize. By this time next year (2021), many will think the crisis has passed, mostly because that's what they'll be telling you on TV. But, it's just a lull. Inflation will return as all that currency begins to be spent into the economy. As the velocity of money ramps up, the Fed will respond by raising interest rates, but it won't matter. The game is on, with hyperinflation underway, the currency will continue losing value and eventually, there will be a massive default on dollar debt.
Forget, for for a few weeks or a few months what's happening on a day-to-day basis. It's mostly noise. The signal to noise ratio (SNR or S/N), a measure used in science and engineering that compares the level of a desired signal to the level of background noise, in today's economy, politics, and society, is very low, meaning the signal is barely transmitting the message as it is being drowned out by the noise.
In terms of decibels, to hear what's really happening in the world, the signal has to be about 60, the level of sound as conversational speech. If the noise is that of a rocket launch (180), the SNR is 0.33 and the noise drowns out the signal. When the SNR gets to above one (1), the signal can be heard. Putting that in perspective, a signal sound of a balloon popping is 125, a toilet flushing is 75, producing a SNR of 1.67. Those are appropriate today, as the balloon popping can metaphorically represent the debt bubble bursting and the toilet flushing the sound of US dollars losing value, going down the drain. That hasn't happened yet, but, as time progresses, the SNR will rise, pass 1.00 and the signal will eventually be loud and clear, one that everybody can hear. That's when inflation proceeds to hyperinflation, with prices rising faster than the Fed can print new currency.
It is at that point that you'll want to have gold, but especially, silver, because it will outperform the currency, just by standing still. Truth of the matter is that gold and silver don't really rise in price. An ounce of silver or a gram of gold is still an ounce or a gram. But the purchasing power of the currency is falling because there's more money circulating. Thus, in a very natural correspondence, gold and silver rise in value as the currency falls, which is why three 1964 dimes (90% silver) can buy more gas at the pump today, in 2020, than in 1964.
In the year 1964, the average retail price of gas in the U.S. was $0.30. So, back then, you could put a gallon of gas in your car with three 1964 (or earlier) dimes. Today, three dimes from 1964 or earlier are worth a silver melt value of about $1.10 each, so, with gas prices currently deflating to around $1.50 a gallon, you could buy more than two gallons of gas, even with silver (and gold) prices being suppressed. That's deflation. One could buy just one gallon and use the other roughly dime-and-a-half to help pay for the increased price of pork or beef. That's inflation. Inflation and deflation can and will occur - in different products or services - simultaneously.
Silver, even under the severe constraints imposed by the futures, central banks, the BIS, and other manipulators, has increased in value 1100% since 1964, an annual, non-compounded return of 16.67%. Try getting that from stocks or bonds. And silver is going higher. Much higher. The price of an ounce of silver in dollars is likely to double in the next few years, then double again, and again, as the dollar is gradually debased, losing all that's left of its purchasing power. Your 1964 dime will buy at least a gallon of gas or the equivalent in bread or beef or whatever items you wish to purchase. It will have value, as precious metals have for more than 5000 years. The dollar, and with it, the pound, yen, euro, yuan, and any other currency not backed by or tethered to a tangible asset (it doesn't have to be gold; it can be anything) will revert to its intrinsic value of ZERO, or close to it because every other country will be going through similar scenarios as the United States.
That's where this is all headed. Price deflation with currency inflation through Spring or Summer 2021, relative calm from 2021 to maybe the beginning of 2023, but likely before then, with inflation ramping up; then hyperinflation for two years before a complete monetary system reset is the only solution. It's not the length of time for these varying processes to occur that's importance, it's the sequence (deflation, calm (some inflation), inflation, hyperinflation) and the ability to spot the subtle changes that matters most.
Completely wrecking a global economy takes time. The Fed's been at it since 1913, and in 107 years have reduced the purchasing power of the dollar by about 97%. The last three percent - and the sopping up of all the malinvestment and toxic assets will take time... about three to four years.
At the Close, Wednesday, May 6, 2020:
Dow: 23,664.64, -218.45 (-0.91%)
NASDAQ: 8,854.39, +45.27 (+0.51%)
S&P 500: 2,848.42, -20.02 (-0.70%)
NYSE: 10,999.99, -135.41 (-1.22%)
The worldwide government response to the COVID-19 pandemic was as easy to see for cynics and skeptics as the eventual lying that would take place. First, back in January and early February, the federal government told the public that the threat to Americans from the coronavirus that was ravishing China was minimal. Gradually, that advice was replaced by travel restrictions to and from mainland China, then to and from Europe, until finally, infections and deaths from the virus began to multiply in America.
By mid-March and into the first days of Spring, the veil had been lifted and the virus was spreading rapidly across the United States, thanks to millions of international travelers on ships and airplanes that had been allowed to come and go as they pleased through the winter. Individual cases turned into clusters and clusters to severe outbreaks, especially in New York City, not surprisingly a hub for international travel.
By the time congress got around to passing emergency legislation, lockdowns and shelter-in-place recommendations were put into play by governors of the individual states. The legislation contained the usual: massive injections of currency into Wall Street (because we can't have a stock market crash), a pittance for the public, and payments to hospitals for treating patients infected with COVID-19: $13,000 for each patient admitted; $39,000 for each patient put on a ventilator.
Anybody who has been following government and Federal Reserve policy knew that the response would be to throw massive amounts of currency at the problem because that's all they know about how to handle crises.
And here we are. The government is now readying a fourth "stimulus" bill, chock full of more handouts, bailouts, and currency drops. This time, the public gets nothing. States and municipalities are going to get tons of currency to bail out their broken, drained public coffers and keep millions of teachers, cops, firemen, and paper-pushers on the job and their pensions partially funded because having the Fed backstop municipal bonds simply wasn't enough. Hospitals will get more currency. Small businesses will get another tranche of loans, pressing cynics to respond that cities get grants, while businesses have to pay it back.
All of this currency printing and government deficits won't amount to a hill of beans because the transmission mechanism for the velocity of money is broken. Cops, teachers, and firemen will get paid, but they'll be scared to take on new debt and will spend much of their money paying down credit card bills and overpriced mortgages. After another crash to lower levels, the stock market will stabilize.
The US will have deflation, widely, in big-ticket assets like stocks (market crash), bonds (rolling defaults), real estate (forbearance today leads to foreclosure tomorrow), trickling down to things like furniture (no interest for 5, 6, 7 years), cars (rebates, cash back, 0% financing), and appliances (oversupply). Food, especially meat, which is getting a bit pricey right now due to chinks in the supply chain, will not be affected much. Food was the one thing that didn't go up or down much during the Great Depression of the 1930s. It was cheap enough so that people didn't starve, though meats were generally considered close to being luxuries, so no worries there, until hyperinflation. Besides, even if you have a tiny back yard, you can grow some vegetables of your own to offset any price rises in meats. Why do you think your mother was always telling you to eat your vegetables? Sometimes there just isn't enough meat.
After six to 18 months of deflation, all the while the Fed printing dollars like maniacs and the government running massive deficits (probably over $8 trillion this fiscal year alone (through September 30), prices will seem to stabilize. By this time next year (2021), many will think the crisis has passed, mostly because that's what they'll be telling you on TV. But, it's just a lull. Inflation will return as all that currency begins to be spent into the economy. As the velocity of money ramps up, the Fed will respond by raising interest rates, but it won't matter. The game is on, with hyperinflation underway, the currency will continue losing value and eventually, there will be a massive default on dollar debt.
Forget, for for a few weeks or a few months what's happening on a day-to-day basis. It's mostly noise. The signal to noise ratio (SNR or S/N), a measure used in science and engineering that compares the level of a desired signal to the level of background noise, in today's economy, politics, and society, is very low, meaning the signal is barely transmitting the message as it is being drowned out by the noise.
In terms of decibels, to hear what's really happening in the world, the signal has to be about 60, the level of sound as conversational speech. If the noise is that of a rocket launch (180), the SNR is 0.33 and the noise drowns out the signal. When the SNR gets to above one (1), the signal can be heard. Putting that in perspective, a signal sound of a balloon popping is 125, a toilet flushing is 75, producing a SNR of 1.67. Those are appropriate today, as the balloon popping can metaphorically represent the debt bubble bursting and the toilet flushing the sound of US dollars losing value, going down the drain. That hasn't happened yet, but, as time progresses, the SNR will rise, pass 1.00 and the signal will eventually be loud and clear, one that everybody can hear. That's when inflation proceeds to hyperinflation, with prices rising faster than the Fed can print new currency.
It is at that point that you'll want to have gold, but especially, silver, because it will outperform the currency, just by standing still. Truth of the matter is that gold and silver don't really rise in price. An ounce of silver or a gram of gold is still an ounce or a gram. But the purchasing power of the currency is falling because there's more money circulating. Thus, in a very natural correspondence, gold and silver rise in value as the currency falls, which is why three 1964 dimes (90% silver) can buy more gas at the pump today, in 2020, than in 1964.
In the year 1964, the average retail price of gas in the U.S. was $0.30. So, back then, you could put a gallon of gas in your car with three 1964 (or earlier) dimes. Today, three dimes from 1964 or earlier are worth a silver melt value of about $1.10 each, so, with gas prices currently deflating to around $1.50 a gallon, you could buy more than two gallons of gas, even with silver (and gold) prices being suppressed. That's deflation. One could buy just one gallon and use the other roughly dime-and-a-half to help pay for the increased price of pork or beef. That's inflation. Inflation and deflation can and will occur - in different products or services - simultaneously.
Silver, even under the severe constraints imposed by the futures, central banks, the BIS, and other manipulators, has increased in value 1100% since 1964, an annual, non-compounded return of 16.67%. Try getting that from stocks or bonds. And silver is going higher. Much higher. The price of an ounce of silver in dollars is likely to double in the next few years, then double again, and again, as the dollar is gradually debased, losing all that's left of its purchasing power. Your 1964 dime will buy at least a gallon of gas or the equivalent in bread or beef or whatever items you wish to purchase. It will have value, as precious metals have for more than 5000 years. The dollar, and with it, the pound, yen, euro, yuan, and any other currency not backed by or tethered to a tangible asset (it doesn't have to be gold; it can be anything) will revert to its intrinsic value of ZERO, or close to it because every other country will be going through similar scenarios as the United States.
That's where this is all headed. Price deflation with currency inflation through Spring or Summer 2021, relative calm from 2021 to maybe the beginning of 2023, but likely before then, with inflation ramping up; then hyperinflation for two years before a complete monetary system reset is the only solution. It's not the length of time for these varying processes to occur that's importance, it's the sequence (deflation, calm (some inflation), inflation, hyperinflation) and the ability to spot the subtle changes that matters most.
Completely wrecking a global economy takes time. The Fed's been at it since 1913, and in 107 years have reduced the purchasing power of the dollar by about 97%. The last three percent - and the sopping up of all the malinvestment and toxic assets will take time... about three to four years.
Anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.
We have been fragilizing the economy, our health, political life, education, almost everything… by suppressing randomness and volatility. Much of our modern, structured, world has been harming us with top-down policies and contraptions… which do precisely this: an insult to the antifragility of systems. This is the tragedy of modernity: As with neurotically overprotective parents, those trying to help are often hurting us the most.
-- Nasim Taleb
It would be nice if we started listening to the people who have been right rather than the people who have theories.
-- Mike Maloney, The Hidden Secrets of Money, Episode 7, Velocity & the Money Illusion
At the Close, Wednesday, May 6, 2020:
Dow: 23,664.64, -218.45 (-0.91%)
NASDAQ: 8,854.39, +45.27 (+0.51%)
S&P 500: 2,848.42, -20.02 (-0.70%)
NYSE: 10,999.99, -135.41 (-1.22%)
Wednesday, May 6, 2020
Crashing Companies Slash Dividends; ADP Finds 20 Million Jobs Lost in April; Mortgage Rates at All-Time Lows
Wednesday morning, ADP reported a loss of 20,236,000 US private sector jobs in April, a record likely never to be broken again (unless an asteroid hits somewhere along the East or West coast).
Job losses covered the entire spectrum, with 11,274,000 jobs lost by businesses with fewer than 500 employees, and 8,963,000 losses by businesses with over 500 employees. The numbers comfirm what everybody already knows, that the United States and the world at large are at the beginning of a Greater Depression, many metrics having already surpassed the Great Depression of the 1930s.
For the week ending May 1, US residential mortgage applications edged up 0.1% while the interest rate on a 30-year fixed loan fell to its lowest level ever, checking in at 3.4%, according to the Mortgage Bankers Association. Purchase activity remains almost 19 percent below year-ago levels.
Stocks gained on Tuesday, though the rally was shunted late in the day, shaving off roughly two-thirds of the gains in the final hour of trading.
While stocks seem to be always going up in recent days, all rallies have been capped by violent resurges of selling, as was the case on Friday, when the major indices gave back all the gains of the week in one session. Stocks have traded in a relatively stable, narrow range since April 6, after the markets had rebounded smartly off the March lows. The S&P 500, during that span, has fluctuated between a low of 2663 and a high of 2939, the all time high of 3386.15 (February 19, 2020) a fading memory.
COVID-19 and the government response to the outbreak has caused wild swings, anguish, and some recovery, after the Federal Reserve, in conjunction with the US Treasury Department has sought to stabilize equity markets, buying up every losing asset they could find, from junk bonds to munis.
Despite the gargantuan lifting by the Fed, stocks are still being stung by first quarter earnings releases showing how disruptive just two to three weeks of partial shutdown (late March) had on the bottom line of various companies.
One of the latest casualties is Disney (DIS), which posted first quarter earnings (fiscal second quarter) of 60 cents against expectations for 91 cents after the closing bell Tuesday. The company, which owns a variety of media and entertainment assets, including movies, ABC, ESPN, Disneyland, DisneyWorld, and other theme parks around the world, also found it necessary to eliminate its semiannual dividend of 88 cents per share for the first half of their fiscal year (October-March). Instead of paying out the $1.6 billion to shareholders, the company will keep the cash for itself, ostensibly to cover ongoing expenses.
Profits at the "magic kingdom" fell 90% year-over-year.
Putting it bluntly, the Mouse in the House just screwed over a large swath of investors expecting a payout on the dividend. Imagine the frustration and angst of not only seeing the stock fall from an all-time high of 161 (November, 2019) to as low as 85 in March, but now to have what was thought to be a guaranteed dividend denied. The stock is trading right around 100 per share as of Tuesday's close.
Also cutting its dividend, Wendy's Co. (WEN) reported Wednesday that its first-quarter net income declined 54.9 percent to $14.4 million from last year's $31.9 million.
Earnings per share were $0.06, down 57.1 percent from $0.14 a year ago. Adjusted earnings per share were $0.09, compared to prior year's $0.14. The company - which reported flat to declining same-store sales across all markets and a number of outlets running out of beef patties on Tuesday - lowered its dividend for the second quarter from 12 cents per share to 5 cents per share, payable on June 15, to shareholders of record as of June 1.
On Tuesday, shares of rental car company Hertz (HTZ) fell more than 14% after it disclosed that it received approval from its lenders to continue negotiations through May 22 to “develop a financing strategy and structure that better reflects the economic impact" of COVID-19. The company, which operates rental car business, many located at airports around the country, is on the ropes and close to filing Chapter 11 reorganization bankruptcy.
Shares of the company, which had reached a 52-week high of 20.29 on February 20, have slid to three dollars in May, closing at 3.01 on Tuesday.
Also on the ropes are retailers Nordstrom (JWN), closing 16 stores permanently, and J. Crew (private), which filed for chapter 11 on Tuesday. Neiman Marcus is reportedly close to chapter 11, and rumors that JC Penny's is in talks with lenders are circulating. An avalanche of store closings, restructurings, and bankruptcies are expected in the sector over the next few weeks and months.
Amid all the chaos, most analysts still insist that major banking firms, such as Bank of America (BAC), wells Fargo (WFC), Citi (C), and JP Morgan (JPM), are all well enough capitalized to survive cascading defaults in commercial real estate, residential real estate, consumer brands, lines of credit, credit cards, student loans and other funding vehicles.
Others are not so certain, expecting rather that the entire edifice of global debt is about to become torn down amid a worldwide pandemic and depression resulting in the collapse of fiat currencies, governments, and central banks.
Whatever your individual outlook, it may be wise to amplify that to the downside by orders of magnitude.
At the Close, Tuesday, May 5, 2020:
Dow: 23,883.09, +133.33 (+0.56%)
NASDAQ: 8,809.12, +98.41 (+1.13%)
S&P 500: 2,868.44, +25.70 (+0.90%)
NYSE: 11,135.40, +79.12 (+0.72%)
Job losses covered the entire spectrum, with 11,274,000 jobs lost by businesses with fewer than 500 employees, and 8,963,000 losses by businesses with over 500 employees. The numbers comfirm what everybody already knows, that the United States and the world at large are at the beginning of a Greater Depression, many metrics having already surpassed the Great Depression of the 1930s.
For the week ending May 1, US residential mortgage applications edged up 0.1% while the interest rate on a 30-year fixed loan fell to its lowest level ever, checking in at 3.4%, according to the Mortgage Bankers Association. Purchase activity remains almost 19 percent below year-ago levels.
Stocks gained on Tuesday, though the rally was shunted late in the day, shaving off roughly two-thirds of the gains in the final hour of trading.
While stocks seem to be always going up in recent days, all rallies have been capped by violent resurges of selling, as was the case on Friday, when the major indices gave back all the gains of the week in one session. Stocks have traded in a relatively stable, narrow range since April 6, after the markets had rebounded smartly off the March lows. The S&P 500, during that span, has fluctuated between a low of 2663 and a high of 2939, the all time high of 3386.15 (February 19, 2020) a fading memory.
COVID-19 and the government response to the outbreak has caused wild swings, anguish, and some recovery, after the Federal Reserve, in conjunction with the US Treasury Department has sought to stabilize equity markets, buying up every losing asset they could find, from junk bonds to munis.
Despite the gargantuan lifting by the Fed, stocks are still being stung by first quarter earnings releases showing how disruptive just two to three weeks of partial shutdown (late March) had on the bottom line of various companies.
One of the latest casualties is Disney (DIS), which posted first quarter earnings (fiscal second quarter) of 60 cents against expectations for 91 cents after the closing bell Tuesday. The company, which owns a variety of media and entertainment assets, including movies, ABC, ESPN, Disneyland, DisneyWorld, and other theme parks around the world, also found it necessary to eliminate its semiannual dividend of 88 cents per share for the first half of their fiscal year (October-March). Instead of paying out the $1.6 billion to shareholders, the company will keep the cash for itself, ostensibly to cover ongoing expenses.
Profits at the "magic kingdom" fell 90% year-over-year.
Putting it bluntly, the Mouse in the House just screwed over a large swath of investors expecting a payout on the dividend. Imagine the frustration and angst of not only seeing the stock fall from an all-time high of 161 (November, 2019) to as low as 85 in March, but now to have what was thought to be a guaranteed dividend denied. The stock is trading right around 100 per share as of Tuesday's close.
Also cutting its dividend, Wendy's Co. (WEN) reported Wednesday that its first-quarter net income declined 54.9 percent to $14.4 million from last year's $31.9 million.
Earnings per share were $0.06, down 57.1 percent from $0.14 a year ago. Adjusted earnings per share were $0.09, compared to prior year's $0.14. The company - which reported flat to declining same-store sales across all markets and a number of outlets running out of beef patties on Tuesday - lowered its dividend for the second quarter from 12 cents per share to 5 cents per share, payable on June 15, to shareholders of record as of June 1.
On Tuesday, shares of rental car company Hertz (HTZ) fell more than 14% after it disclosed that it received approval from its lenders to continue negotiations through May 22 to “develop a financing strategy and structure that better reflects the economic impact" of COVID-19. The company, which operates rental car business, many located at airports around the country, is on the ropes and close to filing Chapter 11 reorganization bankruptcy.
Shares of the company, which had reached a 52-week high of 20.29 on February 20, have slid to three dollars in May, closing at 3.01 on Tuesday.
Also on the ropes are retailers Nordstrom (JWN), closing 16 stores permanently, and J. Crew (private), which filed for chapter 11 on Tuesday. Neiman Marcus is reportedly close to chapter 11, and rumors that JC Penny's is in talks with lenders are circulating. An avalanche of store closings, restructurings, and bankruptcies are expected in the sector over the next few weeks and months.
Amid all the chaos, most analysts still insist that major banking firms, such as Bank of America (BAC), wells Fargo (WFC), Citi (C), and JP Morgan (JPM), are all well enough capitalized to survive cascading defaults in commercial real estate, residential real estate, consumer brands, lines of credit, credit cards, student loans and other funding vehicles.
Others are not so certain, expecting rather that the entire edifice of global debt is about to become torn down amid a worldwide pandemic and depression resulting in the collapse of fiat currencies, governments, and central banks.
Whatever your individual outlook, it may be wise to amplify that to the downside by orders of magnitude.
At the Close, Tuesday, May 5, 2020:
Dow: 23,883.09, +133.33 (+0.56%)
NASDAQ: 8,809.12, +98.41 (+1.13%)
S&P 500: 2,868.44, +25.70 (+0.90%)
NYSE: 11,135.40, +79.12 (+0.72%)
Subscribe to:
Posts (Atom)
Posts
