Buy “Physical Gold” Coins and Bars – Bloomberg Interview GoldCore

Buy “Physical Gold” Coins and Bars – Bloomberg Interview GoldCore

  • Gold: the 3,000 year old “fashion” is back in favour
  • Rising interest rates – when happen – are positive for gold
  • This seen in data, charts – 2003 to 2006 period and 1970s
  • Given risks today – higher allocations of as much as 30% are merited
  • Important to own “physical gold” coins and bars in safest vaults in world
  • Important to own physical due to increasing likelihood of COMEX default

goldcore_bloomberg_January_2016

GoldCore discussed the outlook for gold on “Bloomberg Markets” yesterday with Matt Miller and Mark Barton and the interview can be watched here.

LBMA Gold Prices

27 Jan: USD 1,116.50, EUR 1,027.14 and GBP 781.04 per ounce
26 Jan: USD 1,114.70, EUR 1,028.42 and GBP 785.80 per ounce
25 Jan: USD 1,103.70, EUR 1,020.29 and GBP 773.96 per ounce
22 Jan: USD 1,097.65, EUR 1,012.55 and GBP 769.63 per ounce
21 Jan: USD 1,096.80, EUR 1,006.98 and GBP 774.99 per ounce

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The Illusion Of Safety: Index Funds Are Not Low-Risk

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If the risk-on euphoria of punters borrowing billions of dollars in margin debt doesn't materialize, stocks could languish for years after falling 50%.

The financial service industry's Prime Directive is to exploit humanity's core drives of Greed and Fear. Financial service companies promise high returns (fulfilling our greed) that are low-risk, i.e. "safe" (placating our fear of losing our nest-egg).

But the safety of many supposedly low-risk investments is illusory. The risk is not actually near-zero; rather, the risk has been buried, masked or obscured, for the obvious purpose of persuading the marks (i.e. the investing public, non-financial institutions, etc.) that the promised gains are essentially risk-free.

One example of selling the illusion of safety is the financial service industry's promotion of index funds–funds that mirror the return of the entire S&P 500 index (or other diverse index of stocks) as reliably low-risk investments.

In a narrow sense, an index fund that in effect owns 500 stocks is lower risk than a mutual fund that owns 15 stocks, as one stock blowing up in a portfolio of 500 stocks is going to do less damage than a stock blowing up in a portfolio of 15 stocks.

Index funds have very low administrative fees, reducing the drag on total returns created by high management fees, and this feature is also touted as lowering the risk to investors.

What is left unsaid is that if the broad market declines 50%, index funds also plummet 50%. The supposedly low-risk nature of index funds is completely illusory once the entire market tanks.

What's also left unsaid is the possibility that the market might not just drop 50%, but that it might not bounce back. Here is a chart (courtesy of mdbriefing.com) of the S&P 500 (SPX) and margin debt. Notice the tight correlation between margin debt (money borrowed against a portfolio of stocks to buy more stocks) and the S&P 500: once the risk-on euphoria of borrowing money to buy more stocks rolls over, stocks follow margin debt down.

The two are self-reinforcing: once stocks crater, those who have borrowed to the hilt on margin get the dreaded margin call–a demand to either add cash to the account or reduce the margin debt by selling stocks.

As those with margin calls sell, others decide to preserve their gains (or limit their losses) by selling their holdings. This pushes the market lower, which then triggers additional margin calls, which then forces more selling.

If the risk-on euphoria of punters borrowing billions of dollars in margin debt doesn't materialize, stocks could languish for years after falling 50%. Central banks have generated risk-on euphoria after every crash since 2000, but there is no guarantee the bloated balance sheets of central banks and plummeting profits of corporations can support a fourth expansion of manic risk-on borrowing to buy stocks.

Perhaps third time's the charm and the current bubble will be the last of its kind for a generation or three. If this is indeed the last bubble, all those holding onto index funds in the mistaken belief that these funds are low-risk will discover the illusion of safety via devastating losses that can never be recovered.


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Neocons Prefer Cruz to Trump

According to the reigning narrative in the political press right now, the Republican establishment would rather see Donald Trump get the GOP’s nomination than Ted Cruz. But as Rosie Gray reports, this opinion is not unanimous among the party elites:

A TIME FOR CHOOSINGSome of the hawkish figures who Ted Cruz recently dismissed as “crazy neo-con invade-every-country-on-earth and send our kids to die in the Middle East”…say they’d consider supporting Cruz anyway if he’s the last man between Donald Trump and the Republican presidential nomination….

The neocons’ willingness to consider Cruz stands in sharp contrast with a new line of current conventional wisdom in Washington that Cruz, who is the object of particularly intense personal dislike from establishment Republicans, is actually less acceptable to the establishment than Trump. The logic of many of the Republican interventionists: Cruz, according to this argument, doesn’t really mean his criticism, or at least might change his mind; Trump, by contrast, has longstanding, if sometimes incoherent, isolationist impulses. And campaigns don’t always determine foreign policy, they note: George W. Bush promised a “humble” foreign policy free of nation-building, and look what happened.

There are three reasons why Cruz is attracting some soft support from neoconservatives. To start, it’s Cruz’s pedigree. With degrees from Harvard and Princeton, some think he can’t possibly be serious about some of his more extreme statements. (During his first campaign, he launched a scathing attack on the Council on Foreign Relations as a “pit of vipers,” neglecting to note that his wife had been an active member of the group.)…

Cruz also has skillfully kept channels to key neoconservatives open throughout the campaign season. His top foreign policy adviser, Victoria Coates, is a former aide to Donald Rumsfeld and is respected inside the party.

And finally, when compared to Trump’s rhetoric about foreign affairs, Cruz is considered the lesser of two evils.

By “some of the hawkish figures,” Gray basically means Bill Kristol and Elliott Abrams—not exactly a big group, though it’s an influential one. I wouldn’t read this as a mass migration of neocons into the Cruz camp so much as a sign of how things could play out if this really does turn into a two-man Trump-Cruz race, a scenario that at this point is hardly certain.

But if we do get a long-term Trump-Cruz battle, I suspect that Gray’s piece will prove prescient. Cruz has spent a couple of years now trying to steer a middle path between the neocons and the relatively dovish Rand Paul faction. He also famously hopes to win the nomination by nailing down his base and then emerging as everyone else’s second choice. It would be pretty funny if both Paul and Kristol wind up backing him against Trump a couple months from now, each figuring for his own reasons that Cruz’s foreign policy views are the lesser of two evils.

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Goldman Trading Desk’s 4 Reasons For A Tactical Bounce Ahead Of Renewed Shorting Between 1925-1950

Some interesting observations by the Goldman sales and trading desk:

Every sector closed positive today with the biggest theme being the reversal in Momentum (SPX +1.4% vs our Momentum pair -2.3%) driven by outperformance of the Short Momentum basket (Long Momentum +99bps vs Short Momentum +3.3%). This is the momentum pair’s largest underperformance YTD and the 5th largest underperformance over the past  2 years. Below shows 1D, YTD and 12M performance of S&P Level 1 sectors.

 

S&P e-minis have now rallied 5% off the YTD low print (1804.25). As we see it, the argument for a continued short-term, tactical bounce in S&P is:

  1. month-end pension rebalancing (GS expects $14bn of equities to buy as of 22Jan );
  2. majority of corporates exiting their buyback blackout window next week;
  3. perceived reduction of CTA driven equity supply and
  4. oversold conditions (Kostin’s Sentiment Indicator was at 3 last Friday)

I still think the market is going to look to re-initiate shorts between 1925-1950.

Speaking of corporate buybacks….we’re already seeing a slight pick-up in activity. Corporates have comprised ~15% of our buyside flow over the past 2 sessions. This compares to an avg of ~5% YTD.


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US Crude Inventories Are The Highest Since The Great Depression

In case you were under the impression that oil was stabilizing, we thought this chart might help clarify just how “different” it is this time in the energy complex…

U.S. crude inventories are at levels last seen when President Herbert Hoover was battling the Great Depression.

 

After this week’s build – Crude stockpiles climbed 8.38 million barrels to 494.9 million in the week ended Jan. 22, the highest since November 1930, according to weekly and monthly data from the Energy Information Administration.

It did not end well last time…

 

Charts: Bloomberg


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Ted Cruz and Chuck Grassley Switch Places on Sentencing Reform

Yesterday Matt Welch noted that Ted Cruz, once a leading Republican advocate of sentencing reform, has repositioned himself as an opponent, warning that letting federal prisoners out early will lead to an increase in crime. This reversal is especially startling because the bill that Cruz opposes as dangerously soft on crime is less ambitious than the one he proudly cosponsored last spring.

In October the Senate Judiciary Committee approved the Sentencing Reform and Corrections Act by a vote of 15 to 5. Cruz was one of the five members, all Republicans, who voted no on the bill. The others were Orrin Hatch (Utah), Jeff Sessions (Ala.), David Vitter (La.), and David Perdue (Ga.)—all law-and-order types who have never been fans of sentencing reform. Cruz, by contrast, was an original cosponsor of the Smarter Sentencing Act, introduced last February by Sens. Mike Lee (R-Utah) and Richard Durbin (D-Ill.). 

Both bills would make the lighter crack penalties that Congress approved in 2010 retroactive, meaning that thousands of current prisoners could seek shorter sentences. Both bills would loosen the criteria for the “safety valve” that lets some nonviolent drug offenders escape mandatory minimums. Both bills would replace the mandatory life sentence for a third drug offense with a 25-year term. But the bill Cruz cosponsored goes further than the one he voted against. The Smarter Sentencing Act would cut the penalties for many drug offenses in half, reducing the 20-year, 10-year, and five-year mandatory minimums to 10 years, five years, and two years, respectively.

The penalty reductions in the Sentencing Reform and Corrections Act are more modest—for example, 10 years off the 25-year mandatory minimum for a second or subsequent use of a firearm in the course of a drug trafficking offense and five years off the 15-year mandatory minimum for someone who possesses a gun after three convictions for “a violent felony or a serious drug offense.” Furthermore, the bill creates two new mandatory minimums: five years for providing certain goods or services to terrorists and 10 years for “interstate domestic violence” resulting in death. It also increases, from 10 to 15 years, the maximum penalty for gun possession by various categories of people who are arbitrarily stripped of their Second Amendment rights under current law, including illegal drug users, undocumented immigrants, anyone who has ever been subjected to court-ordered psychiatric treatment, and anyone who has ever been convicted of a felony, violent or not. 

I am not alone in thinking the bill that Cruz considers recklessly lax is tougher than the one he cosponsored. Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa), who condemned the earlier bill (the one Cruz backed) as “lenient” and “dangerous,” is the lead sponsor of the Sentencing Reform and Corrections Act, which helps explain why the bill lengthens some sentences while shortening others.

What does Cruz know that Grassley doesn’t? Before he voted against Grassley’s bill on October 22, he said he objected to two aspects of it: “retroactivity” and reduced penalties for “criminals who have used a firearm in the commission of a crime.” Neither of those concerns makes much sense.

If Congress determines that certain sentences are unjust, it hardly seems fair that current prisoners should be forced to complete them. In any event, retroactivity did not seem to bother Cruz when it was included in the Smarter Sentencing Act, which like Grassley’s bill would allow currently imprisoned crack offenders to seek shorter terms under the rules enacted in 2010. According to Families Against Mandatory Minimums, that provision alone could affect up to 6,500 prisoners. Yet Cruz complains that “7,082 federal prisoners would be eligible for release” under Grassley’s bill. If so, a provision Cruz has already endorsed is responsible for something like 92 percent of those potential early releases, all of which would involve people convicted of noviolent drug offenses. Given this context, Cruz’s fear mongering is especially shameful:

None of us know what those 7,082 federal prisoners did; none of us know what the underlying conduct was that prosecutors may have plea-bargained down….At a time when police officers across this country are under assault right now, are being vilified right now, when we’re seeing violent crime spiking in our cities across the country, I think it would be a serious mistake for the Senate to pass legislation providing for 7,082 convicted criminals potentially to be released early….I cannot go along with legislation that could result in more violent criminals being released to the streets and potentially more lives being lost.

When Cruz talks about “criminals who have used a firearm in the commission of a crime,” he is referring to the aforementioned reductions in gun-related penalties, along with a provision clarifying that the enhanced mandatory minimums for repeat offenders require previous convictions, as opposed to, say, two drug sales in a single case. Contrary to Cruz’s spin, the people who receive these penalties are not necessarily violent criminals, since merely possessing a gun can be considered using it in the course of a drug trafficking offense.

A well-known example is Weldon Angelos, who never brandished a gun, let along fired one, but nevertheless got hit with a 55-year mandatory minimum because he allegedly possessed a firearm when he sold marijuana to a government informant on three occasions (half a pound each time). He got five years for the first sale and 25 years for each of the other two, and the law requires that the sentences be served consecutively. Under Grassley’s bill, Angelos would instead have received a five-year sentence, since he had no prior convictions.

Even if we pretend that everyone affected by these provisions is a violent criminal, Cruz’s position is that the difference between 25 years and 15 (for repeated “use” in the course of a crime), or between 15 years and 10 (for mere possession by a repeat felon, even if he commits no other offense), is worth scuttling the entire bill. “When a violent criminal uses a gun,” he says, “we should come down on that criminal like a ton of bricks.” Apparently two-thirds of a ton simply will not do.

Cruz insists he still wants to do something about “disproportionate sentences for nonviolent drug offenders.” Yet his tough talk is exactly the sort of demagoguery that mindlessly punitive politicians like Grassley have been spouting for years, to the dismay of reformers like Cruz. Now the two have switched places, to the dismay of those who once admired Cruz’s comparatively enlightened attitude.

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Oil Oscillates As Inventories Surge Most In 9 Months And Demand Plunges

Following last night's huge 11.4mm barrel inventory build forecast from API (the largest since 1996), DOE reports an 8.4mm build (against analysts estimates of +4mm). It seems the blowback from the huge gasoline and inventory builds is flowing back upstream to crude but there is some good news as Cushing saw a 771k draw after 11 weeks of builds (and production dropped very modestly). On the demand side, it's just as ugly with Gasoline demand -2.5% YoY and Distillate demand down a stunning 14.8% YoY. Having tested the API ledge in prices twice this morning, WTI is hovering between $30.50 and $31.

  • *CRUDE OIL INVENTORIES ROSE 8.38 MLN BARRELS, EIA SAYS
  • *GASOLINE INVENTORIES ROSE 3.46 MLN BARRELS, EIA SAYS
  • *DISTILLATE INVENTORIES FELL 4.06 MLN BARRELS, EIA SAYS

WTI Crude's trading machines has twice run stops back to the API ledge before this morning's inventory data…

 

Charts: Bloomberg


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Manufacturing Depression Enters Uncharted Territory: Caterpillar Retail Sales Have Never Been Worse

Moments ago Caterpillar reported its latest monthly retail sales statistics and the numbers have never been worse.

Not only is the fourth, feeble and final dead CAT bounce in US sales officially over, with December US retail sales tumbling -10% Y/Y, after “only” a -5% decline in November and hugging the flatline for the past few months, but sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -21%, EAME dropping -12%, and Latin America (i.e. Brazil) continuing its free fall dropping by -36%, but global retail sales just posted a massive -16% drop in the past month, tied for the worst annual decline since the financial crisis.

Putting the annual drop in context, CAT sales dropped 12% a year ago, another 9% in 2013, and -1% in 2012, or four consecutive years of declines!

But where the manufacturing depression as seen from the perspective of heavy indsutrial machinery operator has never been worse is shown in the chart below: CAT has now suffered a record 37 months, or over 3 years, of consecutive declining annual retail sales – something unprecedented in company history, and set to surpass the “only” 19 months of decling during the great financial crisis by a factor of two in January!

 

Perhaps while debating whether the US is or is not in a recession, one should also ask how much worse the global industrial depression will get?

Sourece: Caterpillar


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New Home Sales Spike To 8 Year Highs, Prices Tumble To 7-Month Lows

Following existing home sales post-regs change spike, new home sales (after 9 months of missed expectations) soared 10.8% in December to a seasonally-adjusted annualized rate of 544k (smashing expectations of just 500k). This is 1k short of the February 545k highs going back to Feb 2008. Median home prices dropped however (a good thing for affordability but not so much for The Fed's wealth illusion machine) to the lowest since May.

Home Sales (SAAR) soar..

 

And the good news (for affordability) is prices tumbled…

 

One wonders where these two lines will converge.

Charts: Bloomberg


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