Month: August 2024

Authored by Jonathan Turley,

Senate Majority Leader Chuck Schumer (D., N.Y.) has introduced the “No Kings Act” with great fanfare and the support of most of his Democratic colleagues. Liberal groups have heralded the measure to legislatively reverse the ruling in Trump v. United States. 

It is obviously popular with the press and pundits. It is also entirely unconstitutional in my view.

The “No Kings Act” is not just a cynical abdication of responsibility by Democrats, but would constitute the virtual decapitation of the Constitution.

I have previously written about the false claims made about the Supreme Court’s decision by President Joe Biden, Vice President Kamala Harris and other leading democrats. The press and pundits have reached a new level of sensationalism and hysteria in the coverage with MSNBC’s Rachel Maddow even claiming that it was a “death squad ruling.”

The Trump Decision

The Court actually rejected the most extreme positions of both the Trump team and the lower courts.

As it has in the past, the Court adopted a three-tiered approach to presidential powers based on the source of a presidential action. Chief Justice John Roberts cited Youngstown Sheet and Tube Co. v. Sawyer, in which the court ruled against President Harry Truman’s takeover of steel mills.

In his famous concurrence to Youngstown, Justice Robert Jackson broke down the balance of executive and legislative authority between three types of actions. In the first, a president acts with express or implied authority from Congress. In the second, he acts where Congress is silent (“the zone of twilight” area). In the third, the president acts in defiance of Congress.

In this decision, the court adopted a similar sliding scale. It held that presidents enjoy absolute immunity for actions that fall within their “exclusive sphere of constitutional authority” while they enjoy presumptive immunity for other official acts. They do not enjoy immunity for unofficial or private actions.

Where the coverage has been wildly inaccurate, the No Kings Act is cynically dishonest.

To his credit, President Joe Biden was at least honest in proposing a constitutional amendment to overturn the decision in Trump.  However, that was dead on arrival in Congress since under Article V it would require a two-thirds majority vote in both houses and then ratification by three-fourths of the states.

The Democrats are seeking to circumvent that process with simple majority votes with the No Kings Act.

The bill is being presented as a jurisdiction-stripping measure, not an effort to dictate outcomes.

Congress does have authority to change the jurisdiction of the federal courts.  That authority was recognized by the Court itself in Ex parte McCardle (1869). Chief Justice Salmon Chase ruled that it did have the authority “to make exceptions to the appellate jurisdiction of this court.”

However, Chase also emphasized that the law did “not affect the jurisdiction which was previously exercised” so that prior decisions would remain fully enforceable.

Moreover, shortly after McCardle, the Court ruled in United States v. Klein (1871), that Congress may not use its authority of court jurisdiction to lay out a “rule of decision” for the Supreme Court, or effectively dictate results in court cases.

The No Kings Act

The No Kings Act does more than just strip jurisdiction and makes no secret of its purpose in dictating the outcome of future cases.

It purports in Section 2 to “clarify that a President or Vice President is not entitled to any form of immunity from criminal prosecution for violations of the criminal laws of the United States unless specified by Congress.”

That is a rather Orwellian view of “clarification” since it directly contradicts the opinion in declaring in the very next section that “[a] President, former President, Vice President, or former Vice President shall not be entitled to any form of immunity (whether absolute, presumptive, or otherwise) from criminal laws of the United States unless specified by Congress.”

Schumer and most of the Democratic senators actually believe that they can simply instruct lower courts to ignore a Supreme Court ruling on the meaning of the Constitution. It would undermine the basis of  Marbury v. Madison after 221 years.

To be sure, it is stated in strictly jurisdictional terms. Yet, it crafts the jurisdictional changes to mirror the decision and future immunity claims.

The bill declares that federal courts “may not consider whether an alleged violation of any criminal laws of the United States committed by a President or Vice President was within the conclusive or preclusive constitutional authority of a President or Vice President or was related to the official duties of a President or Vice President unless directed by Congress.”

But the Democrats are not done yet. Section 4 actually removes the Supreme Court from such questions and makes appellate courts the effective highest courts of the land when it comes to presidential immunity:

“The Supreme Court of the United States shall have no appellate jurisdiction, on the basis that an alleged criminal act was within the conclusive or preclusive constitutional authority of a President or Vice President or on the basis that an alleged criminal act was related to the official duties of a President or Vice President.”

Notably, this is one of the wacky ideas put forward by the President’s Supreme Court Commission. After all, why pack the Court if you can just gut it?

Of course, some sponsors like Elizabeth Warren (D., Mass.) want to both pack the Court and strip it of authority. Presumably, once packed, the authority to act as a court would be at least restored with the liberal majority.

By making the D.C. Circuit (where most of these cases are likely to be litigated) the highest court of the land on the question, the Democrats are engaging in the rawest form of forum shopping. The D.C. Circuit is expected to remain in the control of Democratic appointees for years. (The Act expressly makes the D.C. courts the only place to bring a civil action in this area and states that “a decision of the United States Court of Appeals for the District of Columbia Circuit shall be final and not appealable to the Supreme Court of the United States.”)

The Supreme Court of the United States shall have no appellate jurisdiction to declare any provision of this Act (including this section) unconstitutional or to bar or restrain the enforcement or application of any provision of this Act (including this section) on the ground of its unconstitutionality.

But wait there is more.

The No Kings Act reads like a fairy tale read by Democratic senators to their grandchildren at night. Not only would the evil conservative justices be vanquished by a lower court controlled by Democratic appointees, but the bill is filled with other wish list items from the far left. It would strip the Court of the ability to take other cases, to dismiss a criminal proceeding, to suppress evidence, and to grant a writ of habeas corpus, or “the Great Writ” that is the foundation of Anglo-American law for centuries.

The Democrats even legislatively dictate that any review of the law must meet a standard of its choosing. They dictate that “[a] court of the United States shall presume that a provision of this Act (including this section) or the enforcement or application of any such provision is constitutional unless it is demonstrated by clear and convincing evidence that such provision or its enforcement or application is unconstitutional.”  Thus, even the clear and convincing provision of the Act must be subject to a clear and convincing evidence review.

The Death of Marbury?

Again, Democrats are insisting that they are merely changing the jurisdiction of the Court and not ordering outcomes. However, the sponsors make clear that this is meant to “reaffirm that the President is not immune to legal accountability.” Sponsors like Sen. Sheldon Whitehouse (D., R.I.) declared that “Congress has the power to undo the damage of this decision” by a “captured Court.”

The greatest irony is that the Democrats are practically reverting to the position of critics of Marbury v. Madison, who argued that the Framers never intended the Supreme Court to be the final arbiter of what the law means. That principle has been the touchstone of American law since 1803, but the Democrats would now effectively revert to the English approach under the guise of jurisdiction stripping legislation. Before the Revolution, the Parliament could dictate what the law meant on such cases, overriding the courts. On a practical level, the Democrats would regress to that pre-Marbury approach.

Marbury introduced a critical stabilizing element in our system that contributed greatly to the oldest and most successful constitutional system in history. Democrats would now toss much of that aside in a spasm of partisan anger. Calling the No Kings Act a jurisdiction stripping bill does not conceal its intent or its implications for our system.

It is all a rather curious position for the party that claims to be defending the rule of law. The No Kings Act would constitute a radical change in our constitutional system to allow popular justice to be meted out through legislative fiat.

Sponsors like Sen. Jeanne Shaheen, D-N.H., previously promised a “revolution” if the conservatives did not rule as the Democrats demanded. They have now fulfilled those threats, though few expected that they would undo the work following our own Revolution.

Just to be sure that the sponsorship of this infamous legislation is not soon forgotten, here are the senators willing to adopt this Constitution-destroying measure:

Chuck Schumer (D-NY), Mazie Hirono (D-HI), Brian Schatz (D-HI), Ben Ray Luján (D-NM), Jack Reed (D-RI), Richard Blumenthal (D-CT), Tom Carper (D-DE), Peter Welch (D-VT), John Hickenlooper (D-CO), Bob Casey (D-PA), Chris Coons (D-DE), Jeanne Shaheen (D-NH), Tammy Baldwin (D-WI), Jeff Merkley (D-OR), Ben Cardin (D-MD), Dick Durbin (D-IL), Elizabeth Warren (D-MA), Patty Murray (D-WA), Chris Van Hollen (D-MD), Ed Markey (D-MA), Tammy Duckworth (D-IL), Amy Klobuchar (D-MN), Laphonza Butler (D-CA), Sheldon Whitehouse (D-RI), Bernie Sanders (I-VT), Cory Booker (D-NJ), Kirsten Gillibrand (D-NY), Ron Wyden (D-OR), Angus King (I-ME), Martin Heinrich (D-NM), Debbie Stabenow (D-MI), Alex Padilla (D-CA), Gary Peters (D-MI), and Raphael Warnock (D-GA).

*  *  *

Jonathan Turley is the Shapiro Professor of Public Interest Law at George Washington University. He is the author of “The Indispensable Right: Free Speech in an Age of Rage” (Simon & Schuster).

For a few brief hours overnight, everything was awesome again after the BoJ folded like a broken lawnchair, dovishly backing away from any rate-hikes until market stability resumed.

USDJPY spiked, equity futures spiked higher, and da bullz jumped in with both hands and feet. All that lasted until the US cash equity market opened and the selling began… was escalated by an ugly 10Y auction, and increasing tensions in Ukraine/Russia and the MidEast.

By the close, all the majors were at the lows of the day with Small Caps and Nasdaq the biggest losers (swinging from +2% to -1%)…

…with US equities and USDJPY completely decoupling…

Source: Bloomberg

Nasdaq/Russell 2000 remains back in its recent range with the rebound stalling…

Source: Bloomberg

The S&P 500 tested up to its 100DMA this morning then plunged back lower…

The Dow actually tested above its 50DMA at the open today, but was them pummeled back below its 100DMA…

Mag7 and ‘Most Shorted’ stocks were both sold out of the gate after gapping higher at the open.

Goldman’s trading desk noted that volumes were muted (tracking -20% vs the trailing 5%) and S&P top of book (liquidity) continues to be extremely poor, sitting around to $4mm level -63% vs the 20dma.

Overall floor is flat, with HFs and LOs both skewing better for sale.

• LOs better to buy across Tech, Hcare, and Macro Products vs selling Consumer Discretionary and Fins.

• HFs are better sellers across Hcare, Fins, and Industrial, with short ratios extremely elevated within macro products. HFs buying tech and Comms Svcs.

VIX pushed back higher once again, testing up towards 30…

Source: Bloomberg

Treasury yields were higher across the board today with the long-end unperforming (30Y +8bps, 2Y +3bps), not helped by a very ugly tail at the 10Y auction. Since payrolls, yield have basically roundtripped to unchanged (aside from the 2Y)…

Source: Bloomberg

The 2Y yield was stuck at 4.00% once again…

Source: Bloomberg

Rate-cut expectations dropped for 2025 but were flat for 2024…

Source: Bloomberg

Crude oil pries rallied today with WTI testing up toward $76, well off the six-month lows set earlier in the week…

Source: Bloomberg

The dollar managed modest gains today thanks to the JPY weakness but there was no follow-through…

Source: Bloomberg

The small gain for the dollar meant a small loss for gold on the day (with the precious metal unable to hold above $2400)…

Source: Bloomberg

Bitcoin tested up to around $58,000 overnight but selling pressure hit during the US session…

Source: Bloomberg

Finally, the carnage in commodities continues to send warning messages…

Source: Bloomberg

…with spot commodity prices one-percent away from three year lows, it’s not a message of a ‘soft landing’.

On a day when an early attempt by the BOJ to kickstart the global carry trade by capitulating on Japan’s recent mistimed foray into rate hikes, has crashed and burned with stocks tumbling, amid renewed concerns that the US economy is slowing (at least until next week’s “surprising” CPI beat), moments ago the Fed poured gasoline on the rising flames when it reported June consumer credit data that was atrocious,  and confirmed our worst fears: the consumer has hit a brick wall.

According to the Federal Reserve’s monthly consumer credit report, in June total consumer credit rose just $8.9 billion, below the median estimate of $10 billion, and a material drop from the upward revised May print of $13.9 billion.

But while the total number was not shocking, if confirming the recent declining trend which always signals economic contraction (since without credit, US consumers simply can’t spend), it was the composition that was a big surprise.

On one hand, non-revolving credit – which consists of student and auto loans – rose by $10.6 billion, which was the biggest monthly increase since last June.

However, a closer look here reveals that the entire increase here was due entirely to student loans, which are once again being repaid after the Biden repayment moratorium ended in late 2023. Meanwhile, car loans which are critical to keep the US automotive industry in gear, has flatlined. As shown in the chart below, in Q2, student loans increased by $10.7 billion, the biggest quarterly increase since Q3 2023, while car loans actually declined by $9.0 billion, the biggest quarterly decline since Q3 2023.

But while non-revolving credit saw a sizable increase, if entirely due to student loans finally catching up to where they should have been 3 years ago, it was revolving credit (i.e., credit card debt) that was the real shocked, because in June, revolving credit unexpectedly tumbled by a whopping $1.7 billion, the biggest drop since the covid collapse…

… and more ominously, every time there is a sizable drop in this category, some economic calamity either follows or has already started.

To get a sense just how rare it is to get a negative credit card debt monthly change, consider that in the six years prior to the covid crash, the US had recorded just 5 months of negative prints, and all tended to precede major drawdowns in the economy. We expect no less this time.

Of course with the Fed refusing to cut rates – for good reason – the brutal slowdown in new credit card debt is hardly a surprise because in Q2 the average rate interest-bearing credit card accounts just hit a new record high of 22.76%, which is a vivid reminder that while banks are happy to hike credit card rates, they rarely if ever cut them.

Yet with consumers ever more strapped for actual cash and equity, as the personal savings rate in the US has collapsed from over 5% to 3.4% – the lowest since 2022 – in just a few months…

… there is only so much more credit card maxing out that can take place before reality finally sets in, as can be seen in the next and perhaps most striking chart yet: total credit card debt is at an all-time high while the personal savings rate is record low!

Then again, with an election on the horizon – one which ensures that any credit-card fueled spending must be encouraged – don’t be surprised if the White House directly orders banks to just ignore soaring delinquency and charge-off rates…

… only for the credit shock hammer to fall on the first day of Trump’s new presidency.

Authored by David Callahan via RealClearEnergy,

It often feels like common ground is a rare commodity in today’s highly charged political climate, where heated debate emphasizes our differences more often than our shared values. As policy solutions are advanced in the coming months of the election season on key issues related to the economy, national security and the environment, we are reminded that not everything has to be partisan or divisive.

Natural gas transcends political boundaries and arches political divides by providing economic growth, advancing U.S. energy security and making substantial environmental progress. By recognizing the many benefits of this critical energy source, we can forge a path forward that unites perspectives in pursuit of a stronger America.

Nowhere in the country is this partnership, and the opportunities it creates, more apparent than in Pennsylvania.

Producing nearly 20% of America’s natural gas, Pennsylvania exemplifies how embracing natural gas leads to generational economic, consumer and environmental progress. In the twenty years since the first horizontal well tapped into the Marcellus, our state’s natural gas resources have attracted new opportunities to our region and uplifted existing industries, all while reducing energy costs, emissions and reliability concerns.

Perhaps it’s the 123,000 high-paying Pennsylvania jobs, $40 billion in a year of economic activity and more than $6 billion paid to landowners in royalties that unites political polar opposites.

It could also be because natural gas drove the largest year-over-year decline in the state’s power sector emissions,  underscoring its importance to a lower carbon future.

As Pennsylvania Governor Josh Shapiro told POLITICO, “it is a false choice to say we have to choose between protecting our planet and protecting our jobs. We can have both.”

Similarly, Pennsylvania State Senator Gene Yaw, who chairs the Senate’s Environmental Resources & Energy Committee, says the state’s natural gas sector “has been a great partner in ensuring consumers have access to the affordable, reliable energy they depend on, along with creating new jobs and economic opportunities.”

Data proves natural gas is a “rare bipartisan issue” for the Keystone State, pollsters at Axis Research said, noting over 68% of Republicans and Democrats in Pennsylvania support continued investment in natural gas.

There’s strong support for the industry in the Commonwealth, because when Pennsylvania’s natural gas sector thrives, so do the people. A good example of the benefits is the more than $2.7 billion generated by the tax on natural gas development that has been distributed to communities in each county, regardless of industry activity.

Consider, for example, that Philadelphia is a direct beneficiary of  the energy produced in Washington, Lycoming or Susquehanna County, receiving approximately $18 million for infrastructure, community development and emergency preparedness yielded since 2012, not to mention the millions in annual home energy savings.

Southeastern Pennsylvania could further benefit from the energy abundance by serving as an LNG export hub, giving the world access to more reliable, low-cost and clean natural gas. After all, natural gas produced under Pennsylvania’s strong environmental regulations, coupled with operator best practices and continuous innovation, is poised to play an even greater role in the global call for low-emissions energy as international buyers seek a certifiably cleaner product.

The Appalachian Basin being the largest and cleanest source of natural gas in the country, if not the world, firmly positions us at the forefront of America’s clean energy advantage with significant job-creating and revenue-boosting potential, especially for workers in the building trades.

To further capitalize on this incredible asset, America elected officials must address stifling regulatory hurdles, tax inequalities and other challenges that hold back the expansion of natural gas development and usage.

And as world events in the past several years have shown, energy and national security are inextricably linked. It is imperative we develop a forward-thinking vision for America’s energy future that leverages our natural gas abundance to ensure our nation’s energy security, sustainability, and prosperity.

Of this, there should be no debate.

David Callahan is President of the Pittsburgh, Pennsylvania-based Marcellus Shale Coalition. Learn more at marcelluscoalition.org

Authroed by Jonathan Harman & Lillian Ellis via RealClearDefense,

The People’s Republic of China (PRC) has long sought to make geopolitical competitors dependent on it for materials necessary for national security by oversaturating the market with cheap Chinese products. Using that same strategy, the PRC is now looking to gain a monopoly on legacy chips—less advanced microchips required for both civilian and military technology. To combat this and future Chinese market threats to American national security, Congress should reinstate and modernize Section 421 of the 1974 Trade Act to allow the federal government to evaluate and recommend tariffs to the President for specific Chinese imports. 

The PRC has long achieved dominance in international markets by subsidizing strategic industries to overproduce and flood the market with cheap products. Take rare earths as an example. Beginning in the 1980s, cheap Chinese labor and production costs drove out nearly all competing rare earth mines in the United States and abroad. Chinese rare earths now comprise nearly 80 percent of U.S. rare earth imports. 

While China struggles to produce advanced chips that companies like TSMC in Taiwan manufactures, the Chinese Communist Party (CCP) hopes to eventually dominate low-end legacy chip production—chips that are used in everything from everyday appliances to military technology. 

The PRC’s “Made in China 2025” plan, created in 2015, continues to use government subsidies to fund production in strategic industries, like legacy chips, beyond market demand while exporting them at much cheaper prices—with hopes that these market distortions will help realize “the great rejuvenation of the Chinese nation.” 

With the world’s largest capacity for legacy chip production, China’s plan is on track to succeed. In the first quarter of 2024, Chinese legacy chip manufacturing increased by 40 percent and is set to account for 33 percent of the global market by 2027. That figure, according to U.S. Commerce Secretary Gina Raimondo, will likely grow to 60 percent over the next few years.

China gaining dominance in legacy chip manufacturing poses risks to U.S. national security as it creates critical vulnerabilities in U.S. defense industry supply chains. Legacy chips, while rudimentary, are necessary for everything from cars to F-35 fighter jets.

While the U.S. government has taken steps to prevent the PRC from obtaining the tools to produce more advanced chips through the CHIPS Act, it has not addressed Chinese legacy chip production. One way the federal government can curb China’s progress in this industry is by reinstating and modernizing Section 421.

Congress added Section 421 to the US-China Relations Act of 2000—the act that normalized trade with China as it entered the World Trade Organization (WTO)—to establish a “safeguard” against potential disruptions to U.S. producers. This safeguard, which expired in 2013, allowed the U.S. International Trade Commission (ITC) to determine whether specific imports from China posed a significant threat to U.S. domestic industry and recommend tariffs for the President to implement. 

Section 421’s definition of a “threat” is intentionally broad, stating that if a Chinese product is imported into the U.S. “under such conditions as to cause or threaten to cause market disruption to the domestic producers of a like or directly competitive product, the President shall … proclaim increased duties or other import restrictions.” The case for Chinese legacy chips easily satisfies these requirements.

Imposing sanctions does not come without costs. In 2009, President Obama implemented Section 421 on Chinese tire imports—the only time a President has implemented Section 421 recommendations. These tariffs, while successfully reducing Chinese tire imports by 30 percent, led to higher costs for U.S. consumers while companies sourced tires from other global suppliers. 

However, because microchips play such a critical role in U.S. national security, the benefits of Section 421 far outweigh the usual drawbacks of protectionist policy. Indeed, because China’s share of global microchip production is still in its infancy, it is in America’s interest to decouple sooner rather than later. As Liza Tobin, Senior Director for Economy at the Special Competitive Studies Project, noted at the Global Taiwan Institute’s 2023 Symposium: “We in the West have learned the hard way that efficiency maximization shouldn’t be the only criteria that determines our trade and investment decisions.” 

While testifying before Congress, Scott Paul, president of Alliance for American Manufacturing recommended reviving Section 421, saying “it would be a smart move by congress.”

Support for Section 421 is bipartisan. Last December, the Select Committee on the CCP released a joint report that recommended restoring Section 421 given its PRC-specific safeguards, explaining that the section does not require the explicit evidence of an unfair trade practice. As ranking member Representative Krishnamoorthi (D-IL) stated, in reference to Section 421: “It’s a trade tool that allows us to impose targeted, quicker counter measures against CCP market disruptions … it is time to revive and modernize Section 421.”

To ensure that a restored Section 421 is successful, it should be coupled with policies that promote domestic industry. As Riley Walters, a senior fellow at the Hudson Institute, said in an email on July 19th, tariffs are generally “a bit of a vicious cycle unless the root of the problem (Chinese overproduction) is addressed.” In the case of legacy chips, Section 421 tariffs could work in tandem with the $2 billion set aside in the CHIPS Act to build up domestic legacy chip manufacturing.

To get around Section 421 tariffs, the PRC could still produce Chinese-made chips elsewhere—a problem the Biden Administration had to resolve after implementing the CHIPS Act. To ensure tariffs are effective, a modernized Section 421 will likewise need to address these potential loopholes. 

While politicians and experts should cautiously proceed with implementing any sort of protectionist policy, a modernized Section 421 would present a unique mechanism for securing America’s supply chains while promoting U.S. producers. The federal government should take these steps now to prevent the U.S. from becoming dependent on its greatest geopolitical rival for legacy chips as well as other products necessary for national security in the future.

Jonathan Harman is a Summer Fellow at the Global Taiwan Institute and student at Brigham Young University. He was previously an intern at the Heritage Foundation’s Center for National Defense.

Lillian Ellis is an intern at the Global Taiwan Institute. She is a recent graduate from Scripps College, where she majored in Politics and minored in Chinese. She has previously worked as a campaign manager in Washington state and as an intern for The Borgen Project.

Authored by Mike Maharrey via Money Metals,

And in the blink of an eye, the expectation of a “soft” landing turned into worries about a crash landing!

It was a bloody Monday in the stock market as analysts digested the dreary jobs report released Friday and suddenly discovered the rot in the economy’s foundation.

They fretted that the Federal Reserve waited too long to cut interest rates and worried its lallygagging would tip the economy into a recession.

(I have argued for months that the problem started long before the first Fed rate hike. It began when the central bank decided to keep the easy money spigot wide open for more than a decade. You can read more about that HERE.)

The carnage in the U.S. stock market was widespread.

• Dow Jones: -1033.99/ -2.6 percent
• NASDAQ: -576.08/ -3.43 percent
• S&P 500: -160.23/ -3 percent
• Russell 2000: -70.15/ -3.33 percent

The selloff wasn’t limited to the U.S. Markets around the globe bled red ink. Some $6.4 trillion was wiped off global stock markets. For instance, Japan’s Nikkei 225 Index plunged 13.2 percent as investors absorbed the recent interest rate hike.

It just goes to show how quickly market sentiment can shift. 

The reasons for the global selloff went beyond worries about the U.S. economy. As a Bloomberg article put it, investors are coming to terms with the fact that they were operating under a lot of erroneous assumptions.

“One thing is clear: the pillars that had underpinned financial-market gains for years — a series of key assumptions that investors across the world were banking on — have been shaken.

They look, in hindsight, a bit naïve: the U.S. economy is unstoppable; artificial intelligence will quickly revolutionize business everywhere; Japan will never hike interest rates — or not enough to really matter.”

So, What Happened to Gold? 

Gold and silver didn’t escape the carnage. 

At its low, the price of gold was down 3.2 percent before rallying later in the day to recover the $2,400 an ounce level. Nevertheless, the yellow metal finished down 1.3 percent on the day.

Silver got pounded even harder, dropping as much as 7.2 percent at its intraday low. Worries about an economic slowdown and an ensuing decrease in silver demand hammered the silver price down.

You might be wondering why gold – supposedly a safe haven – dropped during the broader selloff. Shouldn’t a good haven do well amid market chaos?

In fact, the plunge in the price of gold was perfectly normal given the market conditions. Gold often sells off early in a bear market for stocks.

In 2020, gold had a 3 percent decline multiple times in the early days of the pandemic selloff. In October 2008, gold plunged by more than 7 percent in the early days of the financial crisis.

But why? 

Precisely because gold serves as a hedge.

Investors often liquidate winning gold positions during a sharp downturn to cover stock losses. But gold generally falls less sharply and recovers more quickly – exactly the scenario that played out on Monday.

Here’s how an analyst explained it to Bloomberg: 

“Virtually every time there is marked equities weakness, investors who hold gold as a risk hedge will liquidate part of their holdings to raise liquidity against any potential margin calls. When the dust settles, they almost invariably buy it back.”

Margin calls are a big problem for investors during a sharp stock market downturn.

When an account falls below a certain threshold, brokers demand additional deposits of money or securities to bring the account balance up to a required minimum level.

Given gold’s liquidity, investors can quickly sell to raise the cash necessary to cover margin calls.

It’s important to put Monday’s gold selloff into perspective. Even with the downturn, gold hit a record just a few weeks ago, and the yellow metal is still up well over 15 percent on the year with bullish factors firmly in place. 

A recession would likely mean deeper and quicker interest rate cuts. As a non-yielding asset, the mainstream tends to view lower interest rates as positive for gold.

And of course, a return to easy money is a surrender to inflation. In other words, the inflation dragon will likely be resurrected (if you actually believe he is dead).

As far as silver, an economic downturn would temper industrial demand, and the white metal is much more volatile than gold.

But silver is fundamentally a monetary metal, and it tends to track with gold over time. In fact, silver has historically outperformed gold in a gold bull market. For example, during the pandemic, gold increased by about 40 percent, while silver increased by 141 percent.

Whether Monday’s selloff was just a tremor before the earthquake, or the beginning of the great unwind, there are plenty of reasons to be bullish on both gold and silver.

These price dips could be viewed as a buying opportunity.

Amid all the chaos in markets over the past few days, it is perhaps no surprise that ‘demand’ for bonds would be somewhat weaker. However, today’s 10Y auction was very ugly.

The sale stopped at 3.96%, tailing by a little more than 3 bps…

…as bid/cover of 2.32 was the lowest since December of 2022.

In fairness, indirects took down 66.2%, a fairly standard ratio, so there wasn’t a total buyer’s strike from the investor class. With directs taking a somewhat below-average 16%, this left dealers with a higher-than-usual 17.9%.

The 10Y yield broke above its pre-payrolls levels…

…and the surge in yields sent stocks lower, erasing most (or all for The Dow and Small Caps) of the overnight dovish-BoJ gains…

Needless to say, as Bloomberg’s Cameron Crise noted, the apparent revulsion for paper below 4% is not bullish, and raises the question of whether bond operators will be happy digesting tomorrow’s $25 billion 30-year sale.

Not helping matters were comments from JPMorgan Chairman and CEO Jamie Dimon, who told CNBC that he was “skeptical that inflation will get back to 2%,” adding that a 50bps cut by The Fed “doesn’t matter as much as people think.”

Authored by Francisco Rodrigues via CoinTelegraph.com,

Mt. Gox was once a dominant cryptocurrency exchange, but a devastating security breach caused it to collapse and left approximately 127,000 creditors waiting to recover their funds. 

Those creditors have waited over a decade to get their hands on their Bitcoin, but surprisingly, many are still just holding onto it.

Data shows that nearly half of the Bitcoin owed to Mt. Gox creditors — 59,000 out of a total of 141,686 BTC — has already been distributed.

Despite the over $3.2 billion in Bitcoin appropriated to creditors, the market hasn’t seen a sell-off related to that distribution.

While Bitcoin’s price plunged nearly 20% over the past week, that sell-off was seemingly completely unrelated to the Mt. Gox distributions. Instead, it was the result of a perfect storm based on weaker economic data in the United States and the Bank of Japan raising interest rates, ending what’s known as the yen carry trade.

According to a Glassnode report, the Mt. Gox distribution “represents the final chapter in a major market overhang over the industry since 2013” from a psychological perspective.

Opting to receive claims in BTC rather than fiat currency and resisting attempts from several entities to acquire their claims throughout the legal process could mean creditors have a long-term hodler mentality.

Long-term Bitcoin hodlers

That long-term hodler mentality may be behind the lack of a creditor-related sell-off. Speaking to Cointelegraph, Bitpanda deputy CEO Lukas Enzersdorfer-Konrad said that while there are factors unique to each individual creditor, it’s worth remembering that Mt. Gox was one of the earliest exchanges around, so people using it “were early adoptions.”

“For them, Bitcoin isn’t just an asset, it’s a technology and an idea that they really believe in. That doesn’t mean they will never sell, but it will affect when they might sell and in what volumes.”

Maria Carola, CEO of cryptocurrency exchange StealthEX, told Cointelegraph that these creditors are opting to hold onto their coins “primarily due to expectations of future price appreciation, aiming for potentially higher returns.”

She added that liquidating their funds right away “could mean significant capital gains taxes,” while holding onto the funds could allow investors to “delay these taxes or await more favorable market conditions.”

StealthEX’s CEO also added that many creditors “view Bitcoin as a long-term asset with substantial value appreciation potential.”

One-month Bitcoin price chart. Source: CoinMarketCap

Glassnode’s report details that, given the extensive period between the Mt. Gox collapse and the current state of the market, various creditors likely remain “somewhat active” in the cryptocurrency space.

On social media, some investors have revealed themselves as Mt. Gox creditors who received some of their claims. One investor published a post accompanied by an email revealing their account was successfully credited, revealing that they got 20% of the funds they had on the exchange.

Nevertheless, they plan to keep holding onto their Bitcoin by moving it to a cold storage wallet, though in replies to other users, they suggest their Bitcoin Cash will be sold “soon.”

Other users on the platform also suggested they would be selling their Bitcoin Cash and converting it into Bitcoin. This conviction in Bitcoin could be a result of several factors supporting the cryptocurrency’s bullish narrative.

Mt. Gox creditors holding may not be that surprising

Mt. Gox collapsed in 2014 after the exchange lost 850,000 BTC in a massive security breach that sent the Bitcoin price plummeting.

Speaking to Cointelegraph, a Binance Research representative said that Mt. Gox creditors were forced to hold onto their coins as their price surged over 10,000% to over $65,000 before the recent correction. They added:

“Many investors, having been “forced holders” for a decade, have witnessed incredible price appreciation. Given this context, it’s not surprising that they continue to hold their Bitcoin.”

The spokesperson said the decision to hold onto BTC is further supported by Bitcoin’s strong performance year-to-date, “highlighted by the successful launch of spot Bitcoin ETFs [exchange-traded funds]” that attracted over $17 billion in net inflows so far.

Other Bitcoin tailwinds include its fourth halving, which reduced annual supply growth and reinforced its fixed supply, as well as its ecosystem expansion with developments in non-fungible tokens, decentralized finance and layer-2 solutions.

Bobby Zagotta, CEO of Bitstamp US, told Cointelegraph that to many, “Bitcoin is viewed and treated like an appreciating asset,” adding that Mt. Gox creditors “have seen their Bitcoin holdings appreciate by 89,000% since they lost access to them, so they may be even more inclined to continue to hold.”

To Binance Research, the “increasing legitimization of Bitcoin and crypto as significant technologies” is now evident, as exemplified by former US President Donald Trump’s speech at the Bitcoin 2024 conference in Nashville, which underscored “the importance of Bitcoin and crypto in major political discussions.”

They added that this level of recognition “would have been unimaginable for Mt. Gox investors in 2014,” stating:

“Now, seeing the continued growth and acceptance of their industry, many Mt. Gox creditors may have become even stronger believers in Bitcoin and its future potential, choosing to hodl further.”

To Bitstamp’s Zagotta, it’s also “important to recognize that the Mt. Gox distribution represents less than 1% of the total BTC market cap.” While sudden, the volume of the distribution could become irrelevant in the long term, even if creditors suddenly decide to sell en masse.

Just another minor blip?

Zagotta said that “save for a minor bump on July 27, exchange volumes are largely the same and have remained stable” through the distribution process.

This finding is similar to that of Glassnode, which measured spot cumulative volume delta — the difference between spot buying and selling trading volumes on exchanges — to find a “marginal uptick in sell-side pressure.”

That uptick, however, fell within “typical day-to-day ranges,” showing the distribution of Mt. Gox BTC to creditors barely affected the market, if at all. Volumes, it’s worth noting, jumped earlier this week after a massive equities market sell-off that affected the broader financial ecosystem.

The Binance Research spokesperson said that in the long-term, “this event is likely to be just a minor blip on the chart,” stating the market showed resilience during the German government’s $3.6 billion Bitcoin sell-off and continued to “experience positive price momentum” after the sale. They added:

“This resilience suggests that while short-term volatility is possible, the long-term impact on Bitcoin’s market dynamics will likely be minimal.”

Short-term volatility indeed came during the recent market rout, with Bitcoin plunging below the $50,000 mark before recovering. To Bitstamp US CEO Zagotta, however, the market absorption of the reintroduction of the Mt. Gox BTC demonstrates a “growing maturity” in the cryptocurrency ecosystem.

He said it could boost market confidence and “attract more retail and institutional investors looking for growth and diversification in digital assets.” The quick bounce from the $50,000 low seems to suggest institutional participation, along with the participation of high-conviction holders like the Mt. Gox creditors, has strengthened the market.

In the end, the Mt. Gox distribution appears to have been more of a stress test for the market than for the creditors themselves.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Ask economists how they forecast economic activity. It’s likely they will mention productivity, demographics, debt, the Fed, interest rates, and a litany of other elements. Economic confidence is probably not at the top of the list for most economists. It is tricky to gauge as it can be inconsistent. However, confidence can sometimes change quickly and often with significant economic impacts.

Look at the two pictures below. Can you spot a difference between them?

The difference is subtle. The restaurant on the left has 54 diners. While the one on the right is missing the three diners in the front.

What if the three missing diners decided to eat at home that day due to waning confidence in the economy and, ultimately, concerns about the safety of their jobs and investments? Could such an imperceptible difference matter to the restaurant? Now, imagine the restaurant represents the economy.

The “economy” on the left is operating at 100% of its capacity. Despite being packed, the “economy” on the right is only running at 94% capacity. A 6% decline in economic activity may not seem like a lot. However, since 1947, the nation’s annual real economic growth rate has declined by 6% or more only once.   

Confidence Is Tricky

While we follow many business and consumer confidence surveys released regularly, we don’t write nearly as much on them as other economic topics. Like many investors and economists, soft sentiment/confidence data can sometimes be tricky to make sense of.

For example, the well-followed University of Michigan Consumer Sentiment Index is near its lowest level in the last 45 years. Note that confidence and the unemployment rate tend to have an inverse relationship. Not surprisingly, people are more confident when the unemployment rate is low and vice versa.

Before the recent experience, the average unemployment rate when the Michigan sentiment reading was at or below current levels was nearly 8%. Today, it is roughly half of that figure, yet sentiment is lousy.

The takeaway is that there is not always a direct correlation between confidence and the economy. If all we had to assess the economy was the confidence reading above, we would presume the economy has been mired in a recession for the last four years.

Confidence can be impacted by many economic and non-economic factors, thus making it hard to draw direct conclusions about the economy and how confidence may affect it. We share three important factors to appreciate influences that can boost or weigh on confidence. 

Politics

Political views can sway confidence, especially during mid-term and Presidential elections. For instance, the graph below, courtesy of Reuters, shows the distinct changes in economic confidence as the political party of the President changes.

It’s important to note that both parties’ survey trends are highly similar. Thus, the broader trend is more important to follow than the absolute level.

Stock Market and Real Estate

The stock market and real estate valuations can significantly impact our economic confidence. Any wealth you have in the market, be it a brokerage, retirement account, or property, is unrealized. In other words, it’s paper wealth until you sell said assets. Regardless, changes in our wealth, realized or unrealized, have an outsized influence on confidence.

Consider a popular rule of thumb to appreciate better the interaction of the stock market with confidence and the economy. The stock market often leads the economy by six to nine months.

Such a theory is based on the widely held belief that investors are forward-looking. Therefore, when stock prices rise, it reflects forecasts for more robust economic growth and vice versa.

The logic sounds correct, but what if it’s backward? Could lower stock prices for reasons other than economic pessimism reduce confidence, resulting in even lower prices? Moreover, as we discussed, might weaker confidence be due to the stock market feeding into economic confidence and causing more people to tighten their purse strings?

The graph below shows that, at times, the stock market declines before recessions or weak economic activity. But is the market a good predictor, or is a weakening economy resulting from poor confidence induced by the market decline? Maybe it’s more of a chicken or the egg question than most economists think.

Common Knowledge

Ben Hunt recently wrote a very astute article, Joe Biden And The Common Knowledge Game. Despite being on politics, the article can be insightful for economic confidence. 

The gist of his article is that, individually, we harbor concerns, but until we sense that many people share those same concerns, our sentiments or economic actions may not change. For many people, the moment of truth for Joe Biden was his dreadful debate, in which millions of Biden supporters and the media acknowledged that Biden was not fit to be President for another term. In Hunt’s words:

That’s the moment where we all saw what we all saw that Joe Biden is not mentally competent to be President of the United States.

To better appreciate common knowledge, we share the excerpt below.

Pretty much everyone in Hollywood knew that Harvey Weinstein was a rapist and a really bad guy, including his wife and his business partners and all the actors who wanted a role in one of his movies. It was widespread private knowledge, verging on public knowledge. I mean, if you’re making jokes about it on 30 Rock, it’s out there.

But it didn’t matter that everyone in Hollywood knew that Harvey Weinstein was a rapist. No one’s behavior changed. No one shunned the guy. No actor turned down a role. No politician turned down a donation. His wife didn’t leave him, and his business partners just upped the D&O insurance and paid out settlements. They all knew, and I’m sure they cared a little and shook their heads in a tsk-tsk sort of way, but they didn’t care enough to change their transactional relationships with Harvey Weinstein. Because that’s the thing about private information, no matter how widespread. Even if everyone in the world believes a certain piece of private information, no one will alter their behavior. Behavior changes ONLY when we believe that everyone else believes the information. THAT’S what changes behavior.

Recent events, like significant stock market volatility and an unexpected jump in the unemployment rate, might be the moment common knowledge becomes evident to the masses. In an economic sense, it might occur when we realize that we are not alone in harboring concerns about the economy. When you confirm your fears are common, you are more likely to spend less, maybe opt for McDonald’s over a fancier restaurant.

As we led, it doesn’t take much of a change in confidence to tip an economy from running on all cylinders to a recession.

Summary

The market events of the last few days, coupled with a weak employment report, may weigh on confidence. But will it be enough to alter consumption habits? We will pay close attention to the next set of economic data to see if recent market events are changing consumption patterns.