Max & Stacy discuss Obamacare death spirals and towns left to die post-trade deals. In the second half, Max continues his interview with Gerald Celente of TrendsResearch.com about paradigm shifts: from cryptocurrencies to electric cars.
While many of the largest cryptocurrencies are fading modestly this morning, Bitcoin is holding on to dramatic agains which saw the largest virtual currency spike to as high as $4190 as Yen, Yuan, and Won trading activity dominated volumes.
Bitcoin Cash remains in 4th place overall by market cap but Bitcoin is the only currency higher among the top 5 this morning.
Soaring past $4000…
As CoinTelegraph reports, the trading of Bitcoin in Japanese yen has accounted for almost 46 percent of total trade volume worldwide. The trading of Bitcoin in US dollar accounted for around 25 percent, while the trading of Bitcoin in South Korean won and Chinese yuan accounted for approximately 12 percent each.
Additionally, anticipated demand is being priced in after VanEck filed for an ‘active strategy’ Bitcoin ETF: The Fund seeks to achieve its investment objective by investing, under normal circumstances, in U.S. exchange-traded bitcoin-linked derivative instruments (“Bitcoin Instruments”) and pooled investment vehicles and exchange-traded products that provide exposure to bitcoin (together with Bitcoin Instruments, “Bitcoin Investments”).
The Fund is an actively managed exchange-traded fund (“ETF”) and should not be confused with one that is designed to track the performance of a specified index.
The Fund’s strategy seeks to provide total return by actively managing the Fund’s investments in Bitcoin Investments.
Bitcoin’s solid performance in early August reflected that of gold’s amidst the selloff in stocks and bonds around the world due to the growing apprehensions over North Korea’s nuclear threat.
And the latest moves this weekend in the crypto world suggest gold will open well north of $1300 tonight.
Our old friend Jeff Clark joined us today for a close look at the precious metals markets. Jeff, formerly of Casey Research, is now with GoldSilver.com, a place that suits him quite well. While the more things change, the more they stay the same, this time really is different. The political system has no ability to address and solve the current economic problems. In fact, the system is trying to do the opposite, by denying their existence and refusing to deal with existential issues. If that's not a reason to own gold and/or silver, then you need to rethink everything now.
Michael Pento interview John Tamny. John is the Political Economy editor at Forbes, senior economic adviser to Toreador Research & Trading, editor of RealClearMarkets.com (RCM) and regular on Forbes on Fox. He just wrote a book "Who Needs the Fed". In this interview John offers a unique and fresh perspective on why the Fed is un-necessary – the conclusion being something he and I both agree on.
It is clear that post-Fork fears have now been erased:
“The miner-orchestrated hard fork has had limited traction and will not impact the price or future development of bitcoin,” said Aurelien Menant, chief executive officer of Gatecoin Ltd., a cryptocurrency exchange in Hong Kong, referring to the split.
“The activation of SegWit is a significant milestone in bitcoin’s technological evolution.”
In his most recent interview with CNBC, he also claimed that rival currency Ethereum is also likely to increase by twofold to reach $400 during the year.
In his report published in late July 2017, Moas claimed that the cryptocurrencies will sustain their solid performance and steal some shares of other assets like stocks, bonds, fiat currencies and other precious metals in the market.
"I think investors should take a shot on this and hold for a few years. If you lose a few bucks, at least you took a shot," he said.
"In life, you miss every shot that you do not take. It will probably be more upsetting to watch it (from the sidelines) go up another 1,000 percent."
Aside from the two leading virtual currencies, Moas also forecast that the price of the digital currency Litecoin will increase by twofold to $80 per coin.
However, Bitcoin's teething troubles may not be over yet...
“The scaling debate is not over yet,” Menant added.
“The promised 2 MB block size increase due in November in accordance with the SegWit2x agreement may still be rejected by certain stakeholders.”
In this final episode of the Keiser Report from Freedom Fest in Las Vegas, Max and Stacy encounter Peter Schiff in the halls of the convention center and challenge him on bitcoin. Max continues his interview with bitcoin entrepreneur Charlie Shrem to discuss the latest drama and innovation in the cryptocurrency space.
What’s the last big toy you buy when things have been good for a really long time and you already have all the other toys? An RV, of course. A dubious thing to own if you already have a house, but when the good times seem likely to roll on forever, why the hell not?
And what’s the first thing you sell when you lose your job and your stocks are tanking? That very same RV. Which makes new RV sales a useful indicator of our place in the business cycle.
What does it say now? Here you go:
Notice the mini-spike in the late 1990s and the major spike in mid-2000s, both of which were followed by corrections. Now note the mega-spike from 2010 and 2016.
And how are things going so far this year? Well, the space is on fire:
Those shipments are accelerating, and should grow even more next year, the group said. Sales in the first quarter rose 11.7 percent from 2016.
Much of the growth can be attributed to strong sales of trailers, smaller units that can be towed behind an SUV or minivan, which dominate the RV market. The industry also is drawing in new customers.
As the economy has strengthened since the Great Recession, and consumer confidence improved, sales have picked up, said Kevin Broom, director of media relations for RVIA.
Two of the major players in the industry, Thor Industries and Winnebago Industries, both manufacturers of RVs, reported huge growth in their most recent earnings report. Thor saw sales skyrocket 56.9 percent to $2.02 billion fromlast year. Winnebago’s surged 75.1 percent last quarter to $476.4 million.
Gerrick Johnson, an analyst at BMO Capital Markets, attributed much of that growth to acquisitions. Thor bought Jayco, then the No. 3 player in the industry, last June; Winnebago bought Grand Design in October.
Thor stock has experienced strong growth over the past year of almost 40 percent. Winnebago tells an even better story: Its shares are up 56 percent over the past 12 months.
“They’ve done massively well because they’ve made massively creative acquisitions,” said Johnson. “Wall Street didn’t realize how creative those deals were. Each quarter they came through. The RV space is on fire, and the demand metrics are quite positive.”
What we have here is another classic short. During the past couple of recessions, RV stocks plunged as everyone came to their senses and stopped buying $60,000 motel rooms. Based on the above chart that’s a pretty good bet to repeat going forward. Let’s revisit this play in a couple of years.
After reviewing charts, discussing movement in charts and why they act the way they do I have been trying to bring some reason to the table for the past few days as it seems the “markets” may have reached a turning point. That is a dangerous statement because as most of you know and understand these “markets” are 100% rigged and the bullion banksters can move them around at will.
I wrote a couple of days ago that Thursday and Friday we needed to watch the action in several areas and pointing out several indicators that should be very positive for both gold and silver. Below is even more support for everything we have been saying since the first quarter of 2017. This should be a great year for the precious metals and now we are moving into the time of year when paper gold usually moves the most for the entire year!! Hold on tight as the next couple of months could be very exciting or they could be very ordinary. If history is any indicator we should be set up for a great autumn. Only time will tell.
The Federal Reserve Note (FRN) has been moving to the down side for several months and the past 24 hours is no different hitting a two year low...
In this episode of the Keiser Report’s annual Summer Solutions series, Max and Stacy talk to JP Sottile of Newsvandal.com about whether or not MAGAnomics will help make America Great Again. They discuss trade deals and automation: which has played more in making American jobs not so great.
They also look at the role of opioid addiction and whether or not a universal basic income might help the likes of Mark Zuckerberg maintain monopoly-style control over the internet.
In my lifetime, I’ve had the misfortune of being present in two major natural disasters and one violent social crisis. Each taught me valuable lessons.
In the aftermath of a natural disaster, there’s the danger of the loss of shelter, services and food. In most cases, people who experience the loss of shelter and services realise that “things are bad all around” and they tend to do the best they can, accepting that life will be hard for a period of time.
Food is a different matter. People, no matter how civilized, tend to panic if they become uncertain as to when they will next be able to eat. And, not surprisingly, this panic is exacerbated if they have dependents, particularly children who are saying, fearfully, “Daddy, I’m hungry.” As Henry Lewis said in 1906, “There are only nine meals between mankind and anarchy.” Quite so.
Intelligent, educated, otherwise-peaceful people can be driven to violence and even murder if the likelihood of future meals becomes uncertain. This has been the cause of spontaneous riots throughout history.
But this is not the only cause of riots. In the post 1960 period in the West, a new phenomenon has occurred that has steadily grown: governments and the halls of higher education have increasingly taught people that they are “entitled.” Governments have been guilty of this for millennia, beginning at least as early as the “bread and circuses” of ancient Rome. It’s a way for governments to get people to be dependent upon them and thereby to do their bidding. But, since the 1960’s, it’s become a systemic norm.
And it always ends in the same way. The false economy of “free stuff” eventually devolves into over-taxation and economic collapse. When it does, people are more likely to riot, as the entitlements are “owed” to them. In today’s world, however, this condition has peaked far beyond what the world has ever seen before.
Increasingly, those who are angry that the free stuff they are receiving is not enough to placate them, take to the streets. Typically, they throw rocks and Molotov cocktails, burn cars at random, destroy buildings and loot stores. All of this activity, of course, does not make it more likely that they will receive more free stuff from the authorities who presumably owe it to them. Instead, it victimizes those who have lived lawfully and with less dependence upon the state.
Riots occur for a great variety of reasons. The trigger can be something as absurd as in the 2011 Vancouver, Canada riot, in which locals became infuriated over the loss of a hockey game. Over 140 people were injured and over five million dollars in damage was done in a five–hour period. That last bit of information should be emphasized, as the fans had plenty of time to calm down after their team’s loss, but the rage, once ignited, became self-regenerating. This is one of the important dynamics of a riot that’s often overlooked. The riot, which may begin as a reaction to an event, becomes the event and is continued for its own sake.
In the same year, thousands of people rioted in London. The trigger was more serious this time – the shooting of a local man by a policeman. (Although the man had fired on police prior to being shot himself, this fact failed to deter rioters.) The riots, like most irrational retaliations, only served to cause more deaths and injuries. The riots lasted a full five days over a dozen London boroughs, then ignited further in a dozen other cities. Over £200 million in damages occurred and over 3400 crimes were logged.
There’s another dynamic that’s not revealed as it’s seen from the safety of our television screens and that is the spontaneity of a riot. For anyone who has lived through a riot, as I have, the lesson is an indelible one.
Riots, on occasion, are planned and, once they begin, there are occasions in which individuals capitalize on them (such as the riots in Ferguson Missouri, where hired rioters were bussed in). But, in most cases, they’re spontaneous. They begin as a reaction to pent-up anger. (In the Vancouver incident, the anger was building even before the hockey game had ended, but many riots, especially socially-related riots, are oftenthe result of many years of pent-up anger.)
The riot itself is generally a small spark that’s added to the existing anger and is often related to a specific event, such as the riots in US cities the night Martin Luther King was shot in 1968.
Once started, riots, for the most part, are entirely unplanned and rely on random acts of violence. Within minutes of the first violent act, entire neighbourhoods spontaneously ignite. As in the London riots, the same incident can spark off multiple riots, miles from each other.
A third often-misunderstood dynamic is uncontrolability. Police can race to the centre of a riot and, in some cases, quell the rioters, but, as the riot is not “organized,” the rioters have merely to stop whatever they’re doing and, for the moment, they cease to be participants. If police move on to other riot locations, the rioters who had been temporarily inactive could begin to riot again. Even if police are successful in quellingall violent activity in a neighbourhood, they could receive a radio call directing them to a new riot location, just blocks away.
In my own experience, new locations of violence erupting seemed to be going off all around the city, like popcorn. Before one could be quelled, others would pop up. The incidents were therefore, unstoppable by authorities.
Warfare has traditionally been approached from the standpoint that one army faces another and they fight until one surrenders. Guerilla warfare, however, has always proven unwinnable, as long as the guerillas are fighting on their home turf. Rioters have the same advantage as, say, an armed sheepherder in Afghanistan or a rice farmer in Viet Nam. The violence only ends when all rioters have decided they’ve had enough.
Of course we’d hope that rioters would learn from their crimes, but this is rarely the case. In the London riots of 2011, rioters burned down the local Sainsbury’s in their own neighbourhood. The next day, the same people were on the streets, in front of the television cameras, angrily stating that their grocery store was now gone and their children needed food. They demanded that the government truck in free food as an emergency measure and, not surprisingly, that’s what they got.
This is exemplary that, in every case, reason is abandoned and anger rules the day. No lessons are learned by the rioters. In fact, months later, rioters have often been quoted as saying, “We showed ‘em.”
So, what can we take away here? First, and most importantly, that riots are, by their very nature spontaneous, mindless and, for the most part, uncontrollable. Second, if an individual lives in or near a location where sociopolitical tension is on the increase, he is living in danger. The spontaneity of a riot means that he cannot prepare for it. If it arrives on his doorstep, or if he’s on the street at the time when it occurs, he may lose everything, including his life.
Since riots are mindless, rioters cannot be reasoned with. There’s no talking your way out of the danger, once it has reached you. Finally, as riots cannot effectively be controlled, the one and only defense against them is to conclude that, if one lives in an area where socioeconomic conditions indicate that the location (whether it be a neighbourhood or even an entire country) is an unsafe place in which to live, it may be time to move.
The key here is that the move occur before violence erupts. Once it has, it’s too late.
Just when you thought US politics couldn’t get any darker – what with the president openly musing about firing the attorney general who is investigating the president’s campaign – in comes new communications director Anthony Scaramucci, with a, ahem, unique critique of his new coworkers:
Scaramucci calls Priebus a ‘paranoid schizophrenic’(Fox News) – Anthony Scaramucci’s shocking, on-the-record tirade has blown the cover off long-simmering tensions between two of President Trump’s key men, prompting one White House worker to express safety concerns and triggering a countdown to the exit of either Scaramucci or his target, Trump Chief of Staff Reince Priebus.
Scaramucci, the newly minted White House communications director, set off a firestorm with a rambling rant loaded with expletives and threats that The New Yorker published. The coarse language directed at Priebus and White House Chief Strategist Steve Bannon, as well as blanket threats to fire people, left some inside the White House shaken.
“This is getting out of hand,” a White House staffer told Fox News. “I am honestly concerned for my safety in the office tomorrow. This type of behavior is unbelievable. Working in the White House, and something like that is said … it’s a disgrace.”
Former Republican National Committee boss Priebus was left seemingly even more isolated in the aftermath. Scaramucci all but accused Priebus of media leaks, a recurring problem that has vexed the Trump administration. Other RNC colleagues brought into the administration have been nudged out of the West Wing, and Scaramucci’s hiring came with the rider that he reports directly to Trump – not Priebus.
Priebus has not reacted publicly to the broadside from his West Wing adversary, but it is hard to imagine the two co-existing in the administration after the public eruption of animosity. Scaramucci said after his tirade but before it was made public that any chance their relationship could be repaired was in the hands of the president.
“Reince is a (expletive) paranoid schizophrenic, a paranoiac,” he told the New Yorker about the White House chief of staff.
Scaramucci also took a shot at Bannon.
“I’m not Steve Bannon, I’m not trying to suck my own (expletive),” Scaramucci said. “I’m not trying to build my own brand off the (expletive) strength of the president. I’m here to serve the country.”
At some point, these guys will find themselves sitting around the same conference table. If video of that meeting ever leaks it will break the Internet.
But why bother with tawdry political theater on a finance blog? Because you’d think the markets would be petrified by the prospect of a government paralyzed by this kind of infighting. Instead, stocks are at record levels and bonds are holding up nicely. What gives?
The Fed, that’s what. Under today’s New Age monetary regime, bad news anywhere is good news for financial asset prices because the world’s central banks, led by the Fed but abetted by the European Central Bank and Bank of Japan, stand ready to throw trillions of new dollars, euros and yen at whatever threatens to go wrong out there. And they’ll do it sooner rather than later. As ECB chair Mario Draghi put it recently they’re in “reactive” mode and won’t hesitate to hit “send” with cash infusions whenever the markets event hint at a downturn.
So by the dip and relax.
This is of course a recipe for disaster. But if you’re managing money and are being judged by quarterly results you don’t have the luxury of thinking long-term. The rest of us, though, should definitely be planning for the day the music ends and the big banks, index funds and hedgies try to leave the dance floor en masse.
What a difference a week makes. After struggling early on last week, after a hesitant Fed and a lip-sticky pig GDP estimate for the 2nd quarter, the silver price is breaking out here early Monday morning in the pre-market action. Rally possible as early as today. First there is this:
Silver solidly punched through and closed above the 50 day moving average on Friday. Today looks to be a gap-up at the open. Silver can break-out to the upside in a big way here!
Then, there’s the bullish performance and momentum since last Friday, as show in the 3 Minutre Chart:
Adding momentum to the rally could be the pandemonium and chaos caused by the Bitcoin hard fork tomorrow. Between suspended accounts and uncertainty, silver is set to shine brightly. Look to the price of gold for strong upside. On the 3 Minute chart, we can see gold’s gap up last week. The close was also solid last week, and, and gold has dutifully stepped up to the plate for its traditional “safe haven” role amidst all the uncertainty:
Last week most major market indexes hit new all-time highs last week. Seems harder and harder to go only up and up. Usually if someone keeps blowing air into a balloon, at a point it will pop. No graph needed, cause well, we have seen those new highs again and again and again.
Crude oil (WTI) is also on a strong, momentum filled rally since last Thursday. Oil is testing resistance at $50, so be looking for a move in black gold this week as well:
And finally, for the US dollar, things have not been looking good since last week, and with the strength in gold and silver, and the uncertainty in the cryptos, this is not looking good for the greenback. For now, it seems bullion is bid and the dollar is bust:
Looks like it is going to be a great week to be a silverbug!
Since our last note, the US dollar index has made its way down to the lows of last summer, currently hovering just above the Brexit upside pivot from June 24th, 2016.
Although asset trends can elicit major technical breaks from oversold conditions (i.e. crash), the more probable outcome from our perspective favors another retracement bounce, before traders can set their sights on breaking through long-term underlying support that’s confined all declines in the dollar index over the past 3 years.
Maintaining a KISS approach of lower highs and lows that has served traders well this year in the US dollar index, we would look for the highs from early July to contain a prospective bounce. This methodology also applies to the flipside of momentum for potential lows in the euro, yen and gold – with the two latter assets also likely influenced by the short-term respective trends in equities and yields. In this respect, over the near-term the Japanese yen and gold could hold up better than the euro, as we suspect the rally in equities gives back this months gains – largely supporting the uptrend in long-term Treasuries and buttressing safe haven assets like the yen and gold.
From a comparative perspective with the pattern breakdown in the dollar index that has closely resembled the complex and broad top carved in gold between 2011-2013, a near-term bounce in the dollar would develop before the index breaks through long-term underlying support later this year. Anecdotally, considering current pessimism towards the dollar, the pattern similarity should continue.
When we look back at the cyclical top in the US dollar index in 2002 that corresponded with a secular breakout in gold, the similarities extend with today in pattern and proportion, as well as from an intermarket perspective where long-term yields were at a positive correlation extreme with the dollar and turned down again with the dollar’s cyclical pivot. The net effect broke gold and the broader commodity complex out of a secular downturn, as declining real yields helped tilt the scales in commodities favor.
Although we are less inclined to presume long-term yields will materially break below the lows from last year as they did coming into 2003, we still believe there is much greater upside reach for the current inflationary trend – than the Fed’s capacity to raise rates. This is largely because we expect the current expansion will diminish the Fed’s appetite to tighten as it continues to mature. All things considered, real yields should continue to decline, even if the downside range of long-term Treasury yields is limited.
Looking back at our month-over-month comparative from the secular peak in the 10-year yield, the relative symmetry of the decline continues with yields basically at their respective mirror of the mid 1940’s. While the linear regression of the current retracement is tracking shallower than the secular build from the previous cycle low in the 1940’s, over the next year we see a declining dollar eventually capping the downside in nominal yields as realized inflation begins to surprise again to the upside.
This is a story of what is not happening in the economy. What's not happening is inflation. You would expect a little bit more than there is given that there have been low interest rates for years, and there's a bit of economic growth. This is of interest to David Wessel, who is director of the Hutchins Center at the Brookings Institution, contributing correspondent to The Wall Street Journal and a regular guest here. Hi, David.
DAVID WESSEL: Good morning.
INSKEEP: OK, so it's not that there's no inflation, right?
WESSEL: Right. Basically, the Fed's favorite inflation measure shows that prices of all sorts have risen by only 1.4 percent over the past year. That's shy of their 2 percent target. And they've been shy of that target for much of the past decade. Now, a few months ago, as unemployment came down, inflation seemed to be creeping up. But lately, it's been a surprise. We have unemployment at a 16-year low. And the inflation rate has actually been coming down, not up. So that's both a surprise, and it's become a worry at the Federal Reserve.
INSKEEP: Why worry? Isn't low inflation good?
WESSEL: Well, look, first of all, you have to remember that every price you pay is someone else's income. So what the Fed is talking about is not just getting the prices you pay up but getting incomes and wages up more rapidly. But secondly, there's some economic problems with too little inflation.
One of them is this. When there's very little expected inflation, interest rates are very low - the ones in the markets. And when interest rates are very low, the Fed doesn't have much maneuvering room. If a recession hits, and it wants to cut interest rates to give the economy a boost, they don't really have much cushion to get the economy going again if we hit hard times.
INSKEEP: Why would the Fed raise interest rates, which is something you do to fight inflation, if there's hardly any inflation?
WESSEL: Great question. Look, many - not all, but many Fed officials figured that the last few months are an aberration. With unemployment so low and the economy doing better, there's just some temporary factors that are distorting the numbers. And so they basically say inflation is around the corner. Here's how Janet Yellen explained it in a recent congressional hearing.
(SOUNDBITE OF ARCHIVED RECORDING)
JANET YELLEN: I do believe that part of the weakness is (ph) - inflation represents transitory factors, but we'll recognize inflation has been running under our 2 percent objective, that there could be more going on there.
INSKEEP: OK, what's the theory that there could be more going on there?
WESSEL: Well, one possibility is that the economy isn't nearly as close to full employment as the experts say - that there were enough people on the sidelines of the economy, who are now starting to look for work, that employers still don't have to give very many wage increases. Another one is that the economy has kind of changed some way. Maybe it's more competition from Amazon, weaker unions, the impact of globalization - something that just makes it harder to get wages and prices going up.
This is a global phenomenon. The European Central Bank has been frustrated that inflation there has been so stubbornly low. And the Bank of Japan has done everything that anybody could ever think of to get inflation up. It's managed to get prices rising at 0.5 percent a year. And it now says it doesn't expect to meet its 2 percent target until the year 2020.
INSKEEP: Well, David, now, we're getting to a subject that I know has been of great concern to you over the years - wage stagnation. I think what you're telling me is that it's possible that very low inflation, which sounds like a good thing, is just a symptom of stagnant wages continuing, which is a very bad thing.
WESSEL: Yes, when we talk about wage stagnation, we usually mean inflation-adjusted wages. But you're right. This is a symptom of an economy that just doesn't seem to have much zip.
INSKEEP: David Wessel nearly always has zip when he comes by. He's with the Hutchins Center at the Brookings Institution and The Wall Street Journal. David, thanks.
Elliott Management Founder and Co-CEO Paul Singer says he is "very concerned" about the financial system after nearly a decade of what he describes as "monetary extremism." He speaks to David Rubenstein on "The David Rubenstein Show: Peer-to-Peer Conversations."
"We believe the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system,"
- Fed Chairman, Ben Beranke - May 17, 2007.
"You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be."
The stars — in the form of smart and dumb money futures contract positions — have once again lined up favorably for precious metals. Here are those positions for gold and silver as of Tuesday the 4th. Notice that speculators (the dumb money) got a lot less optimistic — that is, less long and more short — while the commercials (the smart money) got much less pessimistic. The closer each group gets to neutral, where their longs and shorts are about equal, the greater the likelihood that metals prices will rise in the subsequent six or so months.
And here’s the same data for silver presented in graphical form. The top bars are speculator longs and the bottom are commercial shorts. When they approach the zero line that’s bullish.
So here we are once again, at the tail end of a grindingly-protracted precious metals correction that has led a lot of people to give up altogether and sell their mining stocks. The next few months should be much better, especially for holders of the junior miners that were caught in the GDXJ downdraft.
Playing this indicator — known as the Commitment of Traders Report, or COT — is of course just a way to pass the time while the real underlying forces affecting precious metals work themselves out. Those forces — rapidly accumulating debts which leave central banks no choice but to inflate away their currencies — are still accelerating in most places, and the inevitability of mass-devaluation will become clear when the central banks now talking about “interest rate normalization” and “balance sheet reduction” are forced to admit that those things are impossible, and all that’s left is debt monetization as far as the eye can see.
On that day it won’t matter what futures traders — or junior miner ETFs — are doing. The physical precious metals bid will go infinite — that is, big players holding useless cash will buy up all the gold and silver that’s available, at pretty much any price that’s demanded.
It should be well known by now that the Millennial generation was screwed over by factors outside of their control. They were raised by coddling parents, taught from a young age to take on crippling student loans for degrees that would never pay off, and they came of age during the worse financial crisis since the Great Depression. So it’s no surprise that this is the first generation that clearly isn’t as well off as the previous generation.
However, Millennials won’t be able to complain about their lot in life for much longer. They won’t have a right to, because they’re about to screw themselves over this time around, and they won’t have anyone else to blame for it. It turns out that they haven’t learned anything from their parent’s mistakes, as they dive into Wall Street and load up on tech stocks.
Young adult investors are buying shares in tech companies and avoiding dividend-yielding stocks favored by the general investing population, according to Steve Quirk, executive vice president of TD Ameritrade‘s Trader Group.
Quirk, citing a TD Ameritrade report, said millennials’ top stock is Apple, which in early May paid the world’s biggest dividend. But none of the rest of their favorite five stocks — Facebook, Amazon, Netflix and Tesla — pay dividends.
Tesla doesn’t crack the top 10 list for the general population, he said.
Quirk said these investing preferences make sense as long-term strategies for young adults with many years to invest ahead of them.
“Most of them are very interested in technology, but the biggest difference would be the dividend-yielding stocks,” Quirk said on CNBC’s “Closing Bell” Monday.
That should end well. They’re buying lots of stocks from Tesla, a company that can’t sell a single car when the government stops subsidizing them. They’re loading up Netflix stock, which despite costing over $150 per share, actually only earns about 40 cents per share. They’re betting their meager life savings on hideously overvalued social media stocks like Facebook, which has a market cap that is 225 times larger than its yearly cash flow. It turns out that when a bunch of barely-adults buy stocks on their smartphones, they don’t do their research. Surprised?
In any case they’d be naive to buy any stock, much less tech stocks, which are arguably the most overvalued on the market. However, the rest of the stock market doesn’t look much better. In fact, it appears to be primed for a serious collapse.
Since July 2012 – so over the past five years – the trailing 12-month earnings per share of all the companies in the S&P 500 index rose just 12% in total. Or just over 2% per year on average. Or barely at the rate of inflation – nothing more.
These are not earnings under the Generally Accepted Accounting Principles (GAAP) but “adjusted earnings” as reported by companies to make their earnings look better. Not all companies report “adjusted earnings.” Some just stick to GAAP earnings and live with the consequences. But many others also report “adjusted earnings,” and that’s what Wall Street propagates. “Adjusted earnings” are earnings with the bad stuff adjusted out of them, at the will of management. They generally display earnings in the most favorable light – hence significantly higher earnings than under GAAP.
This is the most optimistic earnings number. It’s the number that data provider FactSet uses for its analyses, and these adjusted earnings seen in the most favorable light grew only a little over 2% per year on average for the S&P 500 companies over the past five years, or 12% in total.
Yet, over the same period, the S&P 500 Index itself soared 80%.
It doesn’t take much research to realize that the stock market, and tech stocks in particular, are about to crash and burn. And yet members of the most research savvy generation failed to do their homework, and sunk their money into the most overvalued stocks. They fell for the same Wall Street hucksters that burned their parents in 2008. Now the poorest American generation; a generation that is still struggling to buy homes and start families, is about to lose what little they have.
In last week’s Insight, I analysed the current geopolitical situation and concluded that it was now in the interest of the Shanghai Cooperation Organisation to break from the US dollar completely, by establishing a new monetary and banking systemi. By linking the yuan and rouble to gold, the SCO’s principal currencies would be insulated from manipulation by means of dollar currency rates, and their use as a weapon to undermine the Sino-Russian partnership. This article addresses some of the practical difficulties of establishing such a sound monetary system.
A return to sound money will require a radical reform of financial markets, as well as the laws and regulations under which banks and investment houses work. The weaknesses of the current fiat-money system must be identified and understood by reforming governments. It also amounts to no less than discarding the entire evolution of mainstream economic thinking that has evolved in the welfare-states since the 1930s.
Revolutions of this sort normally occur after a major economic and financial failure, when the shortcomings of received wisdom are so glaringly obvious that it loses all credibility. Just occasionally, this can happen without the crisis occurring first. It appears, from what we can deduce as observers, that the assembly of the Asian and East European continent into a self-contained economic and financial unit presents such an opportunity. That was the thrust of last week’s article.
For those who have a thorough understanding of sound money and the benefits it brings to an economy, the opportunity presented by Asia rejecting the West’s unsound money system should be welcomed. The lunacy of expanding the quantity of money as a cure-all for every economic malaise, real and imagined, has led to the widespread expansion of debt to unsustainable levels. It is no exaggeration to say that the global financial system, being based on the dollar, is now exposed to a final collapse, worse than that of the financial crisis of 2008-09, and leading inevitably to the destruction of the fiat currencies we use today.
The destruction of unsound money will not happen overnight. It will come from the central banks’ response to the next global debt crisis. In such a crisis, the banking system, being geared through the fractional reserve system, will cease to exist without central banks bailing it out with unlimited quantities of raw money.
There is little point in trying to predict the timing of this increasingly certain event, or how the crisis will first manifest itself. We know that the credit cycle progresses remorselessly from rescue, to recovery, to bust. The bust is yet to come. The bust, thanks to the groupthink imposed by forums such as G20 meetings and central banks liaising through the Bank for International Settlements, is increasingly a global affair.
If China, Russia and the SCO can grasp the opportunity to escape the unsound money-system of the Western establishment, they will at least partially insulate three billion people from a global currency disaster. That will ultimately benefit the rest of humanity. We must applaud that, even though the introduction of sound money policies in Asia will almost certainly bring forward the crisis in the indebted welfare-states; that is going to happen anyway. For this reason, the change from unsound monetary policies to the rigid rules of sound money must be progressed in such a way that blame is not apportioned to China and Russia for the monetary disaster that will befall us. Instead, we should be grateful that a significant core of global economic activity will escape widespread monetary destruction. The return to a gold standard and the insulation from financial catastrophe that China and Russia will hopefully provide should guide us in our post-crisis monetary reform.
The effect on commodity prices
By remonetising gold into the monetary system of a large economic bloc, demand for gold will be increased. We saw the reverse of this effect on silver in the period 1875-1900. When most countries with a silver standard demonetised it in in favour of gold. In the late nineteenth century, its price relationship with gold moved from exchange ratios corresponding approximately to Sir Isaac Newton’s ratio of 15.5, to considerably higher levels through a collapse of the silver price. Today the ratio is over seventy. The reason for the relative collapse in silver was not hard to understand. The removal of its use as money (except as coin tokens) meant it was then priced for alternative uses. While industrial uses of silver over the years have changed, its value as an industrial metal was always considerably less than for its former use as money.
Thus, it is with gold, demonetised from the financial system, but with an added twist. Under the cover of limited convertibility with the dollar, the dollar was continually debased following the ban on public ownership of gold under the Gold Reserve Act of 1934. Since the official price was raised to $35, the quantity of dollars and dollar credit has increased at a monthly compounding annualised rate of about 5%, until the last financial crisis, when that rate sharply accelerated to 12%, measured by the fiat money quantity. The monetary arrangements were set by the Roosevelt administration and then by the Bretton Woods Agreement. The objective was to permit the expansion of the quantity of dollars, while retaining the pricing stability of gold. The removal of gold from the monetary system after the Nixon shock in 1971 was the inevitable conclusion of this dishonest arrangement, following which the gold price naturally rose, measured in dollars. Today, gold is approximately $1200 in its current demonetised form.
There can be little doubt that the remonetisation of gold for the currencies of a significant portion of the world’s population will drive up the price of gold against the other currencies. This is the reason I recommended that a period should be permitted for the gold price to adjust, before the rate of exchange with is set, first the yuan and then roubles.
It is also important that China, in the first instance, announces it has sufficient gold for the standard to stick, so that it has no need to acquire further bullion from the markets. It is likely, however, that other central banks, particularly the Reserve Bank of India, will want to build their own gold reserves, rather than accept a gold-backed yuan as backing for the rupee. These are political, rather than economic, judgements. India has for some time tried to acquire as a national asset the physical gold held by its citizens and the Hindu temples, with little success. India’s requirements for gold to back its own currency in the SCO is too great to be satisfied at current prices through market purchases. Furthermore, other Asian central banks will also want to add to their gold reserves.
We can conclude therefore that the remonetisation of gold will, with a high degree of certainty, lead to a substantial increase in the dollar price. On this basis alone, the dollar prices of energy and all industrial commodities will be heavily influenced by the decline of the dollar relative to gold. But there is a further consideration. The expansion of derivative markets since the 1980s has amounted to a synthetic supply of commodities generally, suppressing prices below where they would otherwise be without that synthetic supply. We are acutely aware of this effect in gold and silver, but it is not confined to these precious metals.
As the world’s largest importer of energy and industrial materials, this price suppression has been to China’s benefit, so far. Doubtless, China has been broadly content for dollar suppression of commodity prices to continue in the ordinary course of business. Maintaining a stable yuan/dollar rate has also allowed Chinese-based manufacturers to profit from export markets generally, setting in motion a wealth-transfer accumulation in favour of Chinese citizens. But things are changing. Most obviously, President Trump is determined to stop China from running an export surplus with the US, likely to lead to trade tariffs and barriers.
Fortunately for China, she is now almost ready to discard America as a strategic market, building on trade in Asia instead, and with Europe via the overland rail link. The days of exporting cheap goods are over, and the economy is being upgraded towards a greater content of technology, automation, and quality. The similarities with the development of the Japanese economy between 1950 and 1980 are striking. Additionally, China is causing an industrial revolution to occur throughout the Asian continent. In conjunction with Russia (which is along for the ride) Asia, through the SCO, is becoming an integral part of China for economic purposes.
It is now in China’s interest for imported commodities to be as cheap as possible, rather than the yuan being a held as a competitive currency to foster exports. Furthermore, the rapid expansion of bank credit since the great financial crisis has led to an accumulation of bank deposits that is likely in time to reduce the purchasing power of the yuan, unless this tendency is offset by a rise in the exchange rate.
This is the underlying logic for anchoring the yuan to gold. In doing so, the cost of imported commodities will fall at the same time as China faces price inflation pressures from earlier monetary expansion.
The economic effects
Preventing a fall in the purchasing power of the yuan will be a growing priority, as China’s middle classes increase in their numbers. Not only are factory workers and businesses accumulating wealth, but the Chinese authorities plan to redeploy yet more people from the land into the cities. This will add as many as 200 million people to the urban areas to alleviate a looming labour shortage.
The shortage of labour is bound to be reflected in higher wages for a population already holding in aggregate an uncomfortable quantity of cash deposits. The rate of increase in prices has so far been modest, with the CPI annual increase falling from 4.6% in 2010 to under 2% last year. It will be increasingly likely that prices will now rise at a faster pace, the consequence of a shift in preferences from holding excess money to owning goods. In short, the next phase of progress for China, in accordance with the current five-year plan, will require the purchasing power of the yuan to be stabilised.
This is the economic reason for the yuan to go onto a gold standard. It is likely to be a popular move with the people as well, who have been encouraged to accumulate gold in recent years. A golden yuan will reward savers, and it is savings that drive successful economies. Witness Germany and Japan in the post-war years, and compare them with the Keynesian failures of consumption-driven economies, notably that of the UK. Furthermore, the yuan will need enhanced credibility from gold, if it is to become the trade currency of choice throughout Asia, because gold is regarded as the saver’s money throughout the continent.
Modern economists will say that a sharply revalued yuan will undermine the terms of trade. This is to misunderstand the origins of trade imbalances, which arise principally from differentials in rates of growth of money supply and savings. So long as these are unaffected, a rising currency rate does not alter the balance of trade, only affecting the short-term profitability of exporting businesses. The response of an exporting business to a rising base currency is to invest in more efficient production to restore margins. Again, this is confirmed by the empirical evidence of Germany and Japan in the last century. China is already automating labour-intensive functions to a degree never seen before, rapidly improving output per worker.
The balance of trade will only deteriorate if the savings rate deteriorates, and if China’s savings rate remains significantly higher than those of her trading partners, she will continue to run a trade surplus, even on a stronger dollar/yuan rate. Furthermore, China, with the addition of the other SCO members, is due to become the largest internal market the world has seen since Roman times, marginalising the trade balance issue anyway.
We can therefore be sure China will continue to have a trade surplus, even with the yuan tied to gold. More worrying is the destabilising effect of introducing sound money on the other (unsound) currencies. If, as I suggested in my earlier article, China imparts a 4% yield to gold through the mechanism of an irredeemable bond yielding that rateon a currency-gold convertible basis, the effect on markets with gold lease rates of about 0.25% will be to drive the gold price sharply higher. This is another reason there must be a period between the announcement of the new gold standard and its implementation.
The effect on the dollar’s purchasing power would be to undermine it relative to that of gold. It will not take very long for this to be reflected in the dollar prices of other commodities, because commodity prices tend to be more stable expressed in gold than in fiat currencies. The undermining of the dollar’s purchasing power against commodities may not be immediate, but it is likely to accelerate as markets adjust to these new price relationships, making price inflation the dominant problem in America. The rise in interest rates that is bound to follow will certainly lead to systemic difficulties for the American banks.
The reintroduction of sound money will have a major impact on the way banks operate. Fortunately, the Chinese government owns the major banks, so it can dictate banking policy without the repercussions that the Americans would face in the same situation from a powerful banking lobby. This is the crux of the argument in favour of a monetary system based on sound money, because the state must restrict the growth of bank lending to supress the credit cycle.
The degree to which sound money can be mixed with unsound money banking practices is necessarily very limited. If China embarks on a gold-backed yuan, it cannot continue to use unbridled credit expansion as a monetary or economic tool.
The history of the gold standard in the nineteenth century clearly showed that the expansion of bank credit always ended in a credit crisis. To avoid the crisis, the solution is to do away with bank credit. It is an open question whether the Chinese would be bold enough in its banking reform to do this, and whether they understand that the business cycle is in fact no more than a credit cycle. On this point hangs the durability of a sound-money arrangement.
If China does grasp this nettle firmly, it will need to separate deposit-taking from loan business. For customers, there must be a separation of spending liquidity from their savings. Spending liquidity can be maintained in cash or electronically in a custody account at a state bank, for which there will necessarily be service charges and no interest paid. Savings are recycled to borrowers through lenders who are forbidden to lend money they do not possess, only lending money they have already had pre-committed for the purpose. In short, public savings do not become the property of a lending bank.
Insurance companies are already in this business, as are peer-to-peer lenders. There will be plenty of alternative sources of funds for borrowers in an economy without fractional reserve banking, and modern advances in financial technology make both deposit-taking and the loan business cost-effective.
The arrangements of a banking system based on sound money are relatively simple to understand. The restrictions to its introduction lie elsewhere, because the global banking system as currently constituted has too many vested interests for sound-money systems to be adopted by Western governments. Bank regulators and bank executives have no experience of how a sound-money system works, instead seeking to control lending risk in a highly-leveraged fiat-money system. The essential flaw in this approach is to assume a state regulator understands commercial risk. And because the regulator is out of his depth, the system is always open to being gamed by the banks, while regulators are under political pressure not to admit to the presence of systemic weaknesses.
It is not only the regulators and the bank executives who are locked into a banking system that must ultimately fail. The economists that advise them are firm believers in the expansion of bank credit as a means of encouraging business activity and consumer spending. Keynesians and monetarists alike view the support of sound money policies as a form of mental aberration. But this is more than anything else a reflection of how far state-driven thinking has become removed from the realities of the markets.
Concluding remarks It is one thing to advocate sound money policies to replace the unsound money we all use today, but it is another to implement them. It requires a new revolution in economic thinking, and an understanding of why sound money matters with respect to prices. Its introduction is likely to disrupt the currencies and economies of the countries that remain with unbacked fiat money systems. Furthermore, if a sound-money arrangement for a currency is to be long-lasting, it will require the end of fractional reserve banking.
The purpose of this article has been to draw attention to just a few of the practical difficulties in reintroducing sound money. Sound money is radically different from what we have today, and so the only chance it will be reintroduced for the Western currencies is in the wake of a financial crisis so great that these unsound currencies are destroyed.
While this outcome is increasingly likely, no government or central bank is likely to give up easily the power of creating money out of thin air. This is certainly true in the West’s welfare-states, where there are enormous future commitments, considerably greater than can be covered through taxation. It is less true in China, Russia, and the member-states of the SCO, who could relatively easily adopt gold backing for their currencies, for the long-term benefit of their economies.
However, it would be a stretch of imagination to assume that the Chinese and Russians, as leaders of the SCO, fully grasp the implications with respect to monetary reform of this nature. Instead, the move towards gold backing for the yuan and then the rouble, if it happens, is likely to be on strategic grounds, or politically motivated.
That was the assumption in my original Insight article, published last week. This is a move that, if it happens, will be driven by evolving geopolitical interests, which appear to have accelerated since President Trump came to office. That being the case, we can only assume that once introduced, a sound-money yuan, or a rouble backed by gold, will be just the start of a revolution in economic thinking, exposing Keynesian and monetarist myths that are now so obviously undermining the future of the welfare-states.
Cryptocurrencies are a threat to the U.S. dollar. Economist Jerry Robinson cautions investors the rules of the game can change. “Anything that challenges U.S. dollar dominance, is going to be heavily regulated.”
Cryptocurrencies are under-owned by investors, Robinson says. Only about three percent of U.S. retail investors have exposure to cryptocurrencies. Robinson predicts we’re still in “the early innings” of the boom/bust cycle in cryptocurrencies.
But remember: the rules of the game can change! Robinson says cryptocurrencies could be regulated and suppressed. Stay tuned to learn Robinson’s strategy to prepare for rule changes in the investing world…
Long time readers of The Daily Coin may remember we interviewed Peter Boehringer, the architect for the German Gold Repatriation Movement. Peter has been skeptical of the information provided by the Bundesbank since day one. Bundesbank, Germany’s Central Bank, has never once produced a gold bar serial number, an assay or any actual tangible proof that Germany has ever received any of the gold they requested from clutches of the Federal Reserve. This would have never been a question as Germany would have all their gold had World War II turned out different and the Germans feared the Russians would steal their gold. So, they allowed their gold to be moved to the New York Federal Reserve and France for “safe keeping”. I feel confident the Germans were strong-armed by the “allies” after WWII and forced to give up a portion of their gold. Even in the 1940’s, it seems, “Russia did it” was the meme of the day. – but I digress.
Any sense of prosperity in today's economy is based on a falsehood, claims Steve St. Angelo, proprietor of the SRSrocco Report website.
Like we here at PeakProsperity.com, Steve is a student of energy. He shares our worldview that net energy per capita has been in steady decline, and a result, future growth will be limited. Also like us, he notes that the "growth" seen over the past several decades hasn't been due to surplus net energy (which makes being able to do more possible). Instead, it has been fueled by debt -- which essentially steals prosperity from the future and consumes it today.
Any third-grader with a crayon can quickly tell you that kind of scam can't last forever. And it can't. Once the can can't be kicked any further and the next economic and/or financial crisis is upon us, Steve sees today's over-inflated asset prices quickly dropping by a gut-wrenching 50-75%.