Bloomberg Launching New Group To Support Democratic Nominee, Attack Trump
‘Mini’ Mike Bloomberg is forming a new organization which will support the Democratic nominee and attack President Trump, according to the Washington Post.
This type of stuttering, mental impairment and overall cognitive decline is frequently seen in patients who suffer from a neurological disease like dementia. pic.twitter.com/WpjErGaS96
To take on President Trump in November – in the midst of a potentially (some would say unavoidably) serious coronavirus outbreak blanketing the country.
Bloomber’s new group – which has yet to disclose its name while it’s in teh trademark application process – will absorb hundreds of the billionaire’s presidential campaign staffers in six swing states.
One major hurdle is the fact that Bloomberg’s ‘meme team’ is the best money can buy, and they’re still not funny.
Bloomberg’s meme team is sure to do wonders for Joe Biden.
“I’ve always believed that defeating Donald Trump starts with uniting behind the candidate with the best shot to do it,” Bloomberg said Wednesday after suffering a staggering defeat during Super Tuesday. “After yesterday’s vote, it is clear that candidate is my friend and a great American, Joe Biden.”
Bernie Sanders’s advisers, meanwhile, say they want no help from Bloomberg’s crack team of electioneers.
Bloomberg’s advisers have identified Wisconsin, Michigan, Pennsylvania, Arizona, Florida and North Carolina as the six states that will decide the electoral college winner this year. Staffers in each of those states have signed contracts through November to work on the effort.
The new group also could serve as a vehicle for Bloomberg to support Democratic candidates for the House and Senate. In 2018, Bloomberg gave $20 million to Senate Majority PAC to support Democratic senatorial candidates. A separate group he founded, Independence USA, spent $38 million to help Democrats retake the U.S. House. –Washington Post
In addition to Bloomberg’s new organization, he will continue to fund Hawkfish – a political data company which is supporting Democratic campaigns, according to a person familiar with the discussions. The company has signed a long-term lease in the same building in Times Square which has been home to Bloomberg’s presidential campaign.
A new study from the American Petroleum Institute (API), with modeling data provided by the consulting firm OnLocation, details how a nationwide ban on hydraulic fracturing (colloquially known as “fracking”) could trigger a recession, would seriously damage U.S. economic and industrial output, considerably increase household energy costs, and make life much harder and costlier for American farmers.
In America’s Progress at Risk: An Economic Analysis of a Ban on Fracking and Federal Leasing for Natural Gas and Oil Development, API argues that a fracking ban would lead to a cumulative loss in gross domestic product (GDP) of $7.1 trillion by 2030, including $1.2 trillion in 2022 alone. Per capita GDP would also decline by $3,500 in 2022, with an annual average decline of $1,950 through 2030. Annual household income would also decline by $5,040.
In 2022 alone, 7.5 million jobs would be lost (almost 5 percent of the U.S. total workforce), while annual job losses would average roughly 3.8 million through 2030. More than 3.6 million jobs would be lost in five states alone in 2022: 1.103 million in Texas, 765,000 in California, 711,000 in Florida, 551,000 in Pennsylvania, and 500,000 in Ohio. States with the highest job losses as a share of overall employment would be North Dakota (76,000), Oklahoma (319,000), New Mexico (149,000), Wyoming (48,000), Louisiana (321,000), West Virginia (109,000), Kansas (208,000), and Colorado (353,000).
Household energy costs would also increase significantly, 14 percent by 2030, even though household energy use is projected to decline by 12 percent. American families would see, on average, a $618 annual increase in their energy costs, as electricity prices would rise by, on average, 20 percent annually. Gasoline prices would also increase by 15 percent.
Farm incomes would decline by 43 percent, with a cumulative loss in farm income of $275 billion, or more than $25 billion on average annually. The costs of wheat farming would increase by 64 percent, while corn farming costs would increase by 54 percent and the costs of soybean farming would increase by 48 percent.
This is not the only recent study to highlight the immense economic costs of a ban on hydraulic fracturing. A report released in November 2019 by the U.S. Chamber of Commerce’s Global Energy Institute concludes a ban would eliminate 19 million jobs through 2025 and reduce GDP by $7.1 trillion. The report also estimates household incomes would be reduced by $3.7 trillion by 2025. Consumers would be paying $5,661 more per capita for energy and goods and services thanks to a doubling of gasoline prices and a 324 percent increase in the price of natural gas over that same time period.
The fracking revolution of the past dozen years has considerably spurred economic development throughout the United States. According to the Federal Reserve Bank of Dallas, the shale industry alone drove 10 percent of U.S. GDP from 2010 to 2015. In 2018, according to the National Bureau of Economic Research, oil and gas extraction accounted for $218 billion of U.S. economic output.
A September 2019 report conducted by Kleinhenz & Associates for the Ohio Oil and Gas Energy Education Program shows increased oil and natural gas production from fracking has saved American consumers $1.1 trillion in the decade from 2008 to 2018. This breaks down to more than $900 in annual savings to each American family, or $9,000 in cumulative savings.
Meanwhile, the White House Council of Economic Advisors estimated in October 2019 that fracking saves American families $203 billion annually on gasoline and electricity bills, roughly $2,500 per family. For low-income families, who spend the largest share of their income on energy costs, these savings are very significant. For those families in the lowest income quintile, it represents a savings of 6.8 percent of their total income.
Hydraulic fracturing activity delivers $1,300 to $1,900 in annual benefits to local households, including “a 7 percent increase in average income, driven by rises in wages and royalty payments, a 10 percent increase in employment, and a 6 percent increase in housing prices,” according to a December 2016 study conducted by researchers at the University of Chicago, Princeton University, and the Massachusetts Institute of Technology.
Another study published in the American Economic Review in April 2017 found “each million dollars of new [oil and gas] production produces $80,000 in wage income and $132,000 in royalty and business income within a county. Within 100 miles, one million dollars of new production generates $257,000 in wages and $286,000 in royalty and business income.”
Hydraulic fracturing enables the cost-effective extraction of once-inaccessible oil and natural gas deposits. These energy sources are abundant, inexpensive, environmentally safe, and can ensure the United States remains a leading energy producer for years to come. Therefore, policymakers across the country should refrain from considering any sort of fracking ban or moratorium, while also making sure not to place unnecessary burdens on the natural gas and oil industries, which are safe and positively impact their states’ economies.
Lebanon Prosecutor Freezes Assets Of 20 Banks After $2.3BN In ‘Illegal’ Transfers
Lebanon’s state news agency NNA said on Thursday the country’s top financial prosecutor has moved to freeze the assets of 20 Lebanese banks, including the property of the bank chiefs and boards.
Heightened security outside the entrance of the Association of Banks in downtown Beirut. File image via Reuters.
“Judge Ali Ibrahim decided to freeze the assets of twenty Lebanese banks. He also imposed a freeze on the assets of the heads and members of boards of directors of these banks,” state-run NNA said.
It comes amid a broader ongoing probe into the alleged illegal transfer of some $2.4 billion overseas and the recent sale of Eurobonds to foreign funds. Fourteen bankers are reportedly under scrutiny as the Lebanese economy teeters on the brink of collapse, and crucially with a March 9 deadline looming for repayment of $1.2 billion in Eurobonds.
Bloomberg lists some among Lebanon’s biggest lenders including “Bank Audi, Fransabank, Blom Bank and the Lebanese unit of Societe General” under investigation.
And further “The prosecutor also questioned the head of the Association of Banks in Lebanon, Salim Sfeir, who is also chairman of Bank of Beirut,” according to the report.
Chart: In Billions$. Source: Lebanon’s Ministry of Finance (MoF)/Blominvest, Blom Bank Group Research
The government charges that bankers are actively thwarting attempts to restructure the country’s debt, while the banks say they needed cash to meet demand of patrons for basic staples including wheat, fuel and medicines amid the ongoing liquidity crisis.
The Institute of International Finance (IIF) now lists Lebanon as having among the highest debt-to-gross domestic product ratios in the world at 166%.
Chart via Bloomberg: “Relative to the economy, Lebanon’s banking system is the Middle East’s biggest — and one of the biggest in the world.”
This after its public debt increased by an annual 7.6% to $91.64 billion at the close of 2019.
Over the past number of months the country has seen repeat intermittent bank closures, also as banks have blocked most transfers abroad for their clients, and maintained tight controls over hard-currency withdrawals, policies which have in many instances led to riots and reports of threats against bank staff.
Taking another look at what I wrote about repo and the latest developments yesterday, it may be worthwhile to spend some additional time on the “why” as it pertains to so much determined official blindness, an unshakeable devotion to otherwise easily explained lunar events.
The short version: monetary authorities as well as the “experts” describe almost perfectly risk averse behavior among the central money dealing system in outbreaks like September’s repo – but then bend over backward trying to come up with any other kind of explanation for it. The problem must be some complicated stew of otherwise benign technical issues because there’s no possible way, they tell themselves, it can be anything else. Not with bank reserves abundantly over a trillion (now rising again) and Jay Powell pleasantly whispering in their ears about the unemployment rate every other day.
It takes on religious, cult-like properties to try so hard to prove (to themselves) what has already been so thoroughly disproven.
Start with the bond market and interest rates. Over the last half decade or so, ever since Janet Yellen’s ill-advised first rate hike in December 2015 amidst a near recession, a move she immediately regretted, central bankers and Bond Kings have been on a mission to convince the world monetary policy was a tremendous success. It had to have been because it was the biggest thing ever devised and those devising it had promised it was so big the flood of “easing” couldn’t possibly fail.
Something about a printing press.
Anyway, that’s not logic so much as self-delusion and rationalizing; the fallacy of sunk costs. Rather than recognize all the warning signs that it all had indeed failed, policymakers and Economists instead convinced themselves it just needed more time.
Except, by 2015 and 2016 time was running out (see: Trump, Donald, and Britain, exit). People were growing anxious as even politicians like President Obama had exhausted what had been a deep reservoir of patience (thus, his June 2016 comment about a manufacturing “magic wand”).
Along came 2017 and Reflation #3 – just in time to be hyped into that very mode of success all officialdom had been waiting on. President Trump was only too happy to take credit. It was given a catchy name, globally synchronized growth, and described in the most emphatic of terms. The game changer had arrived, the final end to what had by then been far too many years of lethargy and uncertainty.
What that would’ve meant for the bond market was clear: an explosion in yields. The combination of risky opportunities (recovery), the end of macro slack (inflation), and a resolute central bank aggressively trying to keep it all within bounds (hawkishness) would lead to the BOND ROUT!!!!
It never happened. Nope. Not even when yields were rising, as I wrote in March 2018 amidst what had been true hysteria:
No, when they call for an end to the 30-year bond bull market (though there is no such thing as a bond bull market) they are claiming the reverse to March 2008; a paradigm shift of near or equal potency. An end to the crisis at long last.
The problem with such an idea is that it just doesn’t appear anywhere. Markets have been trading on mild “reflation” sentiment, that’s it. And there really isn’t much conviction behind it, either.
The curves uniformly said that the game changer scenario just wasn’t playing out. By flattening where they did, around 3% nominal, it was a very clear signal that something was still wrong. The same thing that had been wrong the entire time since August 2007.
But, since central bankers had so much riding on a positive outcome, they reversed engineered persistently low bond yields into something they could spin as consistent with globally synchronized growth and the tremendously optimistic factors behind the BOND ROUT!!!!
According to the conventional theory, since yields weren’t actually rising in the manner they “should” have been the only way to decompose them without disproving the whole game was to claim, without outside corroboration, by subjective statistical modeling only, inflation expectations really were rising, that the bond market really was figuring on much higher short-term money rates due to rate hikes, but that it was also experiencing some revelation of past forward guidance (mostly Delphic, but maybe some Odyessean, too) which only in an Economist’s mind can be priced out as a negative term premium.
Common sense dictated that low and, since November 2018, falling yields would have been the product of persistently low and falling inflation expectations plus persistently low and falling future short-term rates. Term premiums simply wouldn’t factor – unless you are desperately trying to accomplish some other goal than honest analysis.
The thing is, as I pointed out last August as the shockingly “unexpected” drop in yields was happening, we have markets for both of those yield components. They tell us within all reasonable standards what yields are made of. And it wasn’t falling term premiums.
The reason it has to be term premiums is because Bernanke, Janet Yellen, or Jay Powell all say inflation is going to rise and so will short-term interest rates. Guaranteed. Take it to the bank. The Fed will therefore be hiking short-term rates and since they don’t believe the bond market would ever, ever disagree with them, process of elimination, it therefore must be term premiums that are causing yields to fall (when these same people say they should be rising).
Even last August, when the yield curve was at its most public (other than now), these people continued to talk about negative term premiums (related, of course, to R*) seriously. No matter how much and many events go against them, they never, ever change their view. Again going back to what I wrote in March 2018:
March 2008 was a very long time ago, and the technocrats have been repeatedly predicting its mirror positive image almost every year since. Having surpassed a decade now, there is religious fervor about it. It doesn’t matter how much the yield curve collapses on the narrative (the long end, even as it rises somewhat in nominal terms, continues its stubborn and obvious resistance against the idea), the BOND ROUT!!! like actual inflation is certain for tomorrow.
Interest rates have nowhere to go but up no matter how low they keep going. The bond market, like repo problems, are all dissected from this other, deeply unscientific perspective. Central bankers start, not end, with the premise that the world is fixed and awesome – and then seek to validate this predetermined conclusion.
But, because it is a faulty and ultimately incorrect conclusion, it takes some real mental gymnastics and tortured logic to get back to it. Repo is nothing more than technical factors. Falling bond yields are really a good sign, even more negative term premiums. The BOND ROUT!!!! is still penciled in for tomorrow.
A growing chorus of strategists and money managers is voicing concern as investors charge into government debt at seemingly any price.
The fear is they’re exposing themselves to interest rate risk like never before, risking a precipitous slump on even a modest bump in yields. One breakthrough in the fight against the illness, or a sign the global economy is recovering faster-than-expected, might be all it takes.
That wasn’t written in March 2018 nor March 2019. It was published yesterday, of all days. And here’s the kicker, “The moves highlight belief in some corners that policy action will stoke growth, creating upward pressure for stocks and bond yields.”
Even now, after the clunker that was Powell’s unscheduled fifty, after last year’s three rate cuts that no one bothers to remember, the myth of monetary potency remains imagined as the godhead of the maestro’s legacy. No matter how many times all its central tenets disproven, the cult remains stocked with true believers.
These people – central bankers, Bond Kings, Economists, repo experts – they all claim that because the moon is an ages-old symbol of the nighttime that when it suddenly appears in the sky during the day, as happens, that when it does daytime is actually night. The fact that no one has any lights on is explained by technical factors like some imagined, regression-deduced shortage of light bulbs rather than the obviousness of the real time of day. The Fed moves to renew its abundant light bulb policy rather than recognize and adjust its clock.
Moon = night. QE = success.
So steadfastly convinced that the moon must only be a nighttime phenomenon, repo has to be technical factors rather than the more obvious risk aversion behavior. Low interest rates have to be negative term premiums (how negative will term premiums have to be if, really when, nominal yields are themselves?) instead of the deepest, most sophisticated combination of markets in human history describing, point blank, rapidly rising liquidity risks and the long run consequences of them.
Thus, nothing changes. Nothing did in 2017, that’s for sure. It’s all just the same broken system. That alone is why there was never a BOND ROUT!!! as well as why there won’t be. All these things go hand in hand; broken repo and low yields, risk aversion and the lack of inflationary acceleration.
If it wasn’t for this Greenspan Moon Cult these problems might’ve been solved, at least properly recognized, a long time ago.
Pompeo Blasts “Renegade” & “Reckless” ICC Investigation Into US War Crimes In Afghanistan
Secretary of State Mike Pompeo lashed out in an official statement Thursday in response to the International Criminal Court (ICC) announcing it has begun an investigation into alleged US war crimes during the eighteen-year long war. The ICC said it will also probe allegations against all parties in the conflict, including the Taliban and Afghan military.
“This is a truly breathtaking action by an unaccountable political institution, masquerading as a legal body,”the statement reads. “It is all the more reckless for this ruling to come just days after the United States signed a historic peace deal on Afghanistan – the best chance for peace in a generation,” Pompeo added in reference to the historic US-Taliban peace deal which already appears to have unraveled.
The Thursday decision overturns a lower court ruling and marks the first time the ICC has opened a formal investigation focused on American forces. ICC cheif prosecutor Fatou Bensouda will launch a full investigation springing from evidence allegedly showing Americans had“committed acts of torture, cruel treatment, outrages upon personal dignity, rape and sexual violence”in Afghanistan during the early years of the occupation.
ICC trial chamber, via Justice Hub, file image.
“The Appeals chamber considers it appropriate to… authorize the investigation,” ruled presiding Judge Piotr Hofmanski on Thursday. Pompeo’s swift and scathing response promised to protect all American citizens from what he implied is but a “political vendetta” from a “renegade” court.
The United States is not a party to the ICC, and we will take all necessary measures to protect our citizens from this renegade, so-called court.
This is yet another reminder of what happens when multilateral bodies lack oversight and responsible leadership, and become instead a vehicle for political vendettas. The ICC has today stumbled into a sorry affirmation of every denunciation made by its harshest critics over the past three decades.
🎥 #ICC Appeals Chamber authorises the opening of an investigation into alleged crimes in relation to the situation in #Afghanistan. ➡Find out more in our press release shortly pic.twitter.com/H7r37XlbEL
— Int’l Criminal Court (@IntlCrimCourt) March 5, 2020
Last year it looked as if the Hague-based international court was ready to give way to US and UK pressures to not pursue the case, in part citing “a poor outlook for state cooperation”.
The ICC had previously vowed to continue to operate “undeterred” by any US threat of punitive action against it when it first considered examining allegations that US personnel committed war crimes, including instances of unlawful detention and torture of Afghans, as well as killing of civilians.
Also in 2019 the US threatened to revoke visas for members of the ICC at The Hague should they so much as investigate any criminal actions of American military personnel. The United States has never been a member of the ICC and considers it without authority over matters related to Americans or allies conducting joint operations.
Jamie Dimon Has Emergency Surgery Over ‘Heart Tear’
JPMorgan CEO Jamie Dimon had emergency heart surgery Thursday morning, according to a statement by the bank which said Wall Street’s highest-paid CEO experienced an “acute aortic dissection.”
Dimon is said to be awake, alert and recovering well, according to Bloomberg.
Aortic dissection is described by the Mayo Clinic as a “serious condition in which the inner layer of the aorta, the large blood vessel branching off the heart, tears. Blood surges through the tear, causing the inner and middle layers of the aorta to separate (dissect).”
“If the blood-filled channel ruptures through the outside aortic wall, aortic dissection is often fatal.”
The condition is relatively uncommon – most frequently occurring in men in their 60s and 70s.
JPM co-presidents Daniel Pinto and Gordon Smith will run the bank as Dimon recovers, in addition to their current roles as leading its investment bank and retail bank. In the statement, the two said the bank would continue to pursue the goals and plans laid out in its latest investor day last week. The statement didn’t say how long Dimon’s convalescence is expected to last, but given that Dimon at least seems relatively healthy (he’s not obviously overweight), we suspect it won’t be too long.
JPMorgan stock was down 1% after hours on the news.
But investors should look on the bright side: At least it proves Dimon – Wall Street’s biggest champion of ‘reforming’ capitalism, and its longest-serving CEO, with nearly 15 years on the job – does have a heart.
The World Health Organization has announced that the death rate for those who contract the coronavirus is higher than originally thought. Even though getting the coronavirus only comes with a 3.4% mortality rate, the virus’ rapid spread could bump that number even higher.
Originally, WHO assumed the death rate from those who get infected with the COVID-19 virus, was only 2%. That has been revised upwards to 3.4%.
“Globally, about 3.4% of reported COVID-19 cases have died,” WHO Director-General Tedros Adhanom Ghebreyesus said during a press briefing at the agency’s headquarters in Geneva.
In comparison, the seasonal flu generally kills far fewer than 1% of those infected, he said.
Again, it’s not like this is a huge jump considering the number of people who have been infected, yet as this virus lingers, it has the unintended consequence of killing more than previously thought.
All joking aside, this could end up being a pretty serious debacle. Prepping supplies are selling out, face masks that will actually help are selling out, and people are panicking over the stock market. Unless you’ve prepared in advance, you are also likely feeling some anxiety.
World “authorities” admit they don’t know much about this virus, yet are hopeful it can be contained. Dr. Mike Ryan, executive director of WHO’s health emergencies program, said Monday that the coronavirus isn’t transmitting the same exact way as the flu and health officials have been given a “glimmer, a chink of light” that the virus could be contained.
“Here we have a disease for which we have no vaccine, no treatment, we don’t fully understand transmission, we don’t fully understand case mortality, but what we have been genuinely heartened by is that unlike influenza, where countries have fought back, where they’ve put in place strong measures, we’ve remarkably seen that the virus is suppressed,” Ryan said, according to CNBC.
In other words: “no, it’s not ‘just like the flu, bro!”
DoD Linguist Arrested, Charged With Espionage For Sharing Identities Of US Spies With Hezbollah
A US department of defense employee has been arrested and charged with transmitting “highly sensitive classified” information to a foreign national with ties to the Lebanese Islamist militant group Hezbollah.
According to US federal prosecutors, 61-year-old Mariam Taha Thompson told a Lebanese man the names of foreign informants, as well as details of the information they provided to the United States – revealing some of the government’s most closely held secrets, according to the New York Times. Officials say Ms. Thompson endangered the lives of both sources and military personnel.
She was arrested at an overseas US base on February 27.
Investigators searched Ms. Thompson’s living quarters on Feb. 19 and discovered a handwritten note under her mattress listing the names of informants. The note, written in Arabic, also included a warning to a military target affiliated with Hezbollah whom prosecutors did not name and a request for the informants’ phones to be monitored.
Ms. Thompson told investigators that she provided classified information by memorizing it, writing it down, then showing the note to the Lebanese man when they spoke by video chat on her mobile phone.
The man took a screenshot of their video chat that showed her displaying a handwritten note with the name of two informants, court papers showed. Investigators also found pictures of the Lebanese Hezbollah leader, Hassan Nasrallah, on the man’s phone.
***
The officials suggested that the potential loss of classified information was grave and that the prosecution was one of the most serious recent counterintelligence cases they had seen. Several top national security prosecutors as well as the U.S. attorney for the District of Columbia, Timothy Shea, appeared in court on Wednesday as Ms. Thompson made an initial appearance before a judge, demonstrating the importance of the case. –New York Times
“If true, this conduct is a disgrace, especially for someone serving as a contractor with the United States military,” said John C. Demers, assistant attorney general for national security. “This betrayal of country and colleagues will be punished.”
The Times suggests that the recruitment of a military contractor with such high-level access “shows the strength of the intelligence operations of Iran and its proxy forces,” and that “American officials have long warned that Tehran’s intelligence work should not be underestimated.”
In interviews with the F.B.I., Ms. Thompson admitted to investigators that she illegally shared classified information with the Lebanese official, according to court papers. Ms. Thompson appeared in court dressed in a red cardigan, her gray-streaked hair in a bun, but was not shackled. The judge ordered her held until a detention hearing on March 11.
She faces three charges of violating espionage laws. Under the statute, she could face up to life in prison and possibly the death penalty if the information she revealed led to the death of any of the informants. –New York Times
Thompson was working in Erbil, Iraq as a linguist when her betrayal began in the last few days of December, investigators discovered. For the next six weeks she obtained secret government files which contained the real names and photographs of American intelligence sources, as well as government cables which revealed what they provided to their handlers.
Not long ago, the idea of gold and silver market manipulation was considered the realm of “conspiracy theory”. Alternative economists and precious metals investors were often accused of “wild imagination” or bitterness when it came to long periods of stagnation in the market. Despite a considerable amount of evidence to the contrary, our suspicions were not being taken seriously.
Fast forward to 2019, which was the year of vindication for all gold bugs. Multiple banking entities had been implicated in gold and silver market manipulation, including JP Morgan. It was no longer a “theory”; now it was fact. The problem is, whenever these institutions get caught illegally undercutting the market, they get a fine, at most. Essentially, they receive a slap on the wrist and then go right back to strongarming metals.
I think it’s important to note that when manipulation does occur, it is almost always to suppress prices, not to rally them. Why is that? Well, this is where we can only speculate, but there are a number of reasons why international banks and central banks would want to keep metals prices under control.
For example, precious metals act as investment competition against equities as well as currencies. Suppressed metals prices push investors into other assets like stocks or the dollar, giving a temporary boost to flailing markets.
In my article ‘The Eternal Relationship Between Gold And Global Crisis’, I outlined the long history of gold price spikes following international disaster events. But I also pointed out that metals manipulation by banks is almost always a factor before prices rise. In 1962, when the Cuban Missile Crisis triggered record demand for gold on the London market, central banks utilized price suppression through selling of reserves in a policy called “The Gold Pool”. This was intended to force investment back into the U.S. dollar.
The agenda against gold might not always be designed to boost stocks or the dollar, however. I suspect that in some cases, the goal of the banking establishment is to increase pain by suppressing safe haven assets, cornering investors into stocks and weak currencies and then crashing markets on their heads.
I’m sure most metals enthusiasts have been watching closely in recent weeks as gold and silver prices exploded while the coronavirus pandemic spread. This drove up demand for safe haven assets, only to have them suddenly plunge last week in a violent downturn. Some will argue that this is a natural consequence of a deflationary environment, but the price drop was actually triggered by a $3 billion dump of gold futures timed perfectly to undercut momentum.
This aggressive price sabotage is made possible by the paper ETF market, in which paper assets representing gold are traded rather than physical metals. The problem is that there is far more paper gold and silver being traded than actual physical metals in existence. This allows banks to manipulate prices at will by using fake gold and silver certificates, but it also represents an Achilles heel for those same institutions.
There is always initial suppression of prices, but prices eventually rise regardless of bank manipulation during crisis because investors start to convert their paper holdings and take delivery on physical metals. This is where the relationship between the paper and physical markets decouples, with the physical or “street price” of gold dominating over the paper price.
If the pandemic situation becomes chaotic enough, we may even see physical metals trade take over completely while paper markets disappear. No one wants to have money tied up in an asset they can’t touch during a crisis event. If you don’t hold it in your hand, you don’t really own it.
The timing of this decoupling is hard to predict. During the credit crash of 2008, gold had a dramatic run up until autumn, after which prices dropped dramatically. This was then followed by a steady rally from 2009 through 2011. I believe we are currently at the stage of price suppression which may cause weak hands to sell. I recommend not only holding fast to your metals but also using price drops as an opportunity to buy physical while you can.
The pandemic is likely to accelerate the flow from suppression to physical decoupling. What took a couple of years to develop into a massive gold rally after the crash of 2008 may only take a couple of months today with rapid changes to geopolitical and economic conditions. Watching how central banks behave can help give us a sense of timing.
This week, the Bank of Japan (BOJ) was the first central bank to offer an open “promise” of intervention in markets should the asset crash continue. This was enough to stall the 8-day crash in stocks, but the BOJ is not offering anything except a psychological placebo for the investment world. It is a placebo that will wear off within a week or two as investors realize central banks have no power to reverse the disruption of the global supply chain and the eventual collapse of retail. Fiat stimulus does not cure viral outbreaks.
The stance of the BOJ will probably become standard among most central banks as well as the IMF and World Bank. There will be constant promises of “intervention” and support for markets, but I suspect the banking establishment will do very little until the system is utterly broken. In the meantime, the concept of “intervention” will conjure images of “helicopter money” in the investment world, and thus precious metals will eventually break out once again despite suppression measures.
The Federal Reserve was decidedly quiet on the issue of the coronavirus until Tuesday morning, when it made a surprise announcement of a 0.5% interest rate cut. So far, this cut has failed to inspire much confidence in markets. Why? Because it is nothing more than a stop-gap. The markets want to hear declarations of massive QE on the level of TARP, and the Fed just won’t give it to them. I have long said that I believe the Fed will only intervene enough to make it appear as though they care about propping up the system, but at bottom they do not want to stop the crash.
The purpose behind allowing crash conditions to accelerate is twofold.
First, as asset prices collapse, the banking establishment can snatch them up for pennies on the dollar – and this includes property, businesses, mortgages, and numerous other tangibles. This is exactly what banks did during the Great Depression as they devoured the property and mortgage markets and erased thousands of small banks, focusing all finance into the hands of a select few institutions.
Second, crash events allow the elites to exploit public desperation and influence the masses to accept even more centralization of power. Economic disaster is a means to an end. The banks aren’t hurt by it; in fact, they benefit from it.
Crash conditions will likely inspire more and more people to demand physical delivery on precious metals over the course of 2020, as fears of paper market shutdowns due to the pandemic grow. Do not be surprised if demand for coins and bars spikes within the next six months while interest in the ETF market declines. Also, do not be surprised if certain banks start refusing to honor paper certificates and refusing to deliver physical gold to investors.
This will cause some confusion in terms of “real” price. Ultimately, real price will be determined by street price and physical supply. If you can’t find physical for sale easily, then the street price will be very high when you do find it.
The CME Group and the Comex will assert that they are the arbiters of metals prices, but if the trend of crisis continues they will become irrelevant. This might sound like an outlandish proposal but consider the state of the world; what we are witnessing is something that has not been seen in several generations. It is an event far more destructive than the Great Depression with market implications beyond what happened in 2008. This is the collapse of the Everything Bubble, and one of the only investment assets that will weather the storm is physical gold.
* * *
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“We Don’t Know What’s Going On”: Wall Street Admits It Is Clueless
When the stock market was melting up virtually every day from the launch of QE4 until the end of January, Wall Street’s “expert” strategists always had a ready explanation “why”: solid earnings, strong fundamentals, traders climbing a wall of worry, a global economic rebound, inflation picking up, blah blah blah (just not the Fed, never the Fed as that would mean Wall Street professionals as a group are now worthless in a world where only the Fed matters if stocks go up or down). In short, there was always a reason to keep buying the dip, even when there was no dip to buy.
Then everything changed, and starting in late February, the meltup, which until that point even ignored the second guidance cut by AAPL in 13 months ended with a bang, and volatility exploded. Here too, the experts were ready to “explain” what’s gong on: traders are jittery, they are overreacting to the coronavirus, it’s all the algos’ fault, traders are tumbling down the wall of worry, oh and once Powell eases, everything will be back to normal.
Only, Powell did ease and suddenly the narrative broke down completely when the S&P suffered not one but two 3% drops after the emergency 50bps cut, sparking speculation that the Fed’s bazooka is now a water pistol and the US central bank has been rendered powerless to restore the rally in the face of a microscopic, viral nemesis, one most likely created in a Chinese P-4 bioweapons lab.
And so, suddenly the goalseeking narrative that was meant to “explain” not only what just happened but what will happen, broke down as every explanation failed. Bloomberg put it best:
Pessimism over Fed policy. Optimism over the government’s response. Pessimism over the government’s response. The Beige Book. Joe Biden.
The ink’s barely dry on one view, and the market goes careening the other way. It’s a futile, and infuriating, situation for investors and analysts. Forget about trying to predict where stocks will be in six months or a year. These guys can’t even figure out where they’ll be tomorrow. Everything depends on how the virus outbreak will play out. And nobody has a clue.
Too lazy to read the quote above? Then look at the chart below showing the market’s harrowing moves in just the past 10 days. It hardly needs an explanation, especially since one doesn’t exist for what is clearly a regime change in market sentiment, one which has resulted in four 1,000 point Dow Jones closing moves in the past ten days (today we were just 31 points away from a 5th)…
… and one where nobody really knows what’s going on any more. But don’t take our word for it.
“When you have a 4.5% up day in the market and a 2% down day – what does that mean?” Kathryn Kaminski of AlphaSimplex Group told Bloomberg. “It just means we don’t know what’s going on.”
That may be the first honest analyst assessment we have read in the past week – one which admits nobody has a clue. Indeed, anyone who has pretended to have an idea of what the market will do next, has been humiliated: as Bloomberg notes, the past ten days has seen a burst of historical turbulence, with swings that rank with those observed during the financial crisis. The VIX, has remained above 30 for six consecutive sessions, the longest streak since 2011, and is poised to close above its EM counterpart by the most on record, based on data going back to 2011.
Yet this is hardly the first time when markets have seen an explosion of volatility after a volumeless meltup – surely the old faithful maxim will work now as it did every time before. We are talking of course about “Buy the dip?“
Or maybe not: “This time, it’s a little harder to say whether that’s the right thing to do,” said Chris Zaccarelli, CIO at Independent Advisor Alliance. “Until you have better clarity on whether or not it could cause a recession or a dramatic slowdown, the likes of which the bond market is indicating, it may be a little premature.”
Some are actually doing the opposite, and selling the rip:
Cantor Fitzgerald says use any rally based on central bank actions to sell equities. JPMorgan Chase & Co. says the responses will succeed: time to wade in. Bloomberg Intelligence’s Gina Martin Adams points to a spike in high-yield spreads — bad for shares. Deutsche Bank Securities Inc. strategists see the sell-off continuing.
So with everyone clueless, perhaps the history books have some insight? As Bloomberg notes, citing Deutsche Bank analysts, in times when volatility increased relative to historical levels, it’s taken an average of six to seven weeks for it to subside, with the S&P taking another four to five months to recoup losses after that. A 30% drop from recent peaks, their most severe scenario, corresponds to an average recession sell-off.
Elsewhere, Citigroup said it’s unwise to do anything before data catches up with the virus, including earnings revisions. “We admit that we cannot fully capture what are fluid developments,” the group led by Tobias Levkovich wrote in a note.
Perhaps it’s already too late, as suggested by the Fed’s emergency rate cut – something that has historically happened just ahead of recessions, and which as we showed last night, has resulted in a down market 1 year out on 5 out of 7 times after an emergency cut.
For some the recession is already here: on Monday SocGen’s Andrew Lapthrone showed that the average stock is already in a bear market, down 20% from its all time highs if still 15% above their one-year lows, .
Other companies will soon follow: a string of corporations have warned of hits to profits but few have said how big. Goldman Sachs and JPMorgan have cut their earnings forecasts in recent days. Cumberland Advisors, a money management firm with over $3 billion in assets, has taken down its projections three times, according to David Kotok, the firm’s chief investment officer.
“We aren’t getting guidance from companies because companies don’t know what to give,” Kotok told Bloomberg TV this week. “But we do know pain is coming on the earnings front.” The firm projects earnings of $160 for 2020, but may lower them again, he said. “We don’t know what the final numbers will be.”
That said, we do know know that virtually every firm with direct exposure to China expects a collapse in revenue as supply chains implode.
We also know that Wall Street’s traditional ability to come up with any ridiculous story to explain what has happened, and to predict what will happen, is now crushed: “It’s definitely volatile. Once things get to this point, it normally takes a few weeks for things to settle down,” Michael Shaoul, chief executive officer at Marketfield Asset Management LLC, told Bloomberg TV. “All we know now is that we don’t really understand what’s going to happen next. It’s probably 4, 6, 8 weeks before we’re going to have any useful information as to what the trajectory of the virus is or what the actual economic fallout looks like.”
In conclusion, we will note that this is the perfect environment for talented if unknown traders to emerge from the crowd of mediocrity and to impress with their returns. Unfortunately, few if any such cases have emerged, and we can only assume that that is due to more than one generation of trader having been so habituated to getting bailed out by the Fed every time the market drops, that virtually nobody has any clue what to do when the market finally does crash.
