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While paper gold traders can't seem to dump the precious metal fast enough, physical gold demand is soaring around the world. India retail premiums are spiking (amid demonetization), local China premiums soar to a 3-year-high (as capital controls loom), and coin sales from the US Mint have risen for the 4th straight month, accelerating post-election to the highest since July 2015 since Trump's victory at the election.

Following the initial panic-buying across India after Modi's demonetization effort shook the nation's faith in fiat currency (sending local gold premiums soaring), news of reported gold import curbs in China (and looming capital controls) has sent gold premiums in China near three-year highs amid limited supply of the precious metal (as Reuters reports)…

The import curbs may be part of China's efforts to limit outflows of the yuan after the currency's slide to its weakest in more than eight years, traders say. China allows only 15 banks to import gold, including three foreign lenders.

 

"There is severe restriction on the banks' quota to import gold into China. Each one of them have to justify their need," a Hong Kong-based banker said.

 

Gold was sold in China at about $24 an ounce above the international spot benchmark this week. Premiums went as high as $30 last week, the most since January 2014, according to Thomson Reuters data.

 

 

"Supply has been limited and so the premiums have held firm," said Cameron Alexander, analyst with Thomson Reuters-owned metals consultancy GFMS.

And as Jesse's Cafe Americain notes, yesterday saw over 28 tonnes of physical gold taken off the Shanghai Gold Exchange (in one day), easily the biggest day this year for physical gold withdrawals in Shanghai...

 

But it't not just Asia.

In the US, physical gold demand has soared post-election in The United States as the paper prices was pummeled…

 

This is the 4th month in a row of rising physical gold demand, to the highest level since July 2015 (as China turmoil began to ripple through the world)…

 

So unlike with stocks where higher prices create higher demand, some level of economic rationality remains in precious metals as physical bullion demand reacts to take advantage of low prices to buy more.

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The Fed has a very serious problem on its hands.

That problem concerns the fact that for seven years the Fed has spread the myth of a “recovery.”

I say “myth” because the reality is that when you remove accounting gimmicks, the US has been a “hair’s breadth” away from a recession since 2010.

The most obvious gimmick being employed is the phony “deflator” used to understate inflation and overstate growth.

Everyone knows that the official CPI measure for inflation is bogus. But the Fed routinely uses a deflator that is even lower that CPI when calculating GDP.

This sounds rather technical, so let’s run through this one step at a time.

Consider this simple example. Let’s say that the US GDP grew by 10% last year. Now let’s say that inflation also grew by 10%. In this scenario, real inflation adjusted GDP growth was ZERO.

However, announcing ZERO GDP growth is a major problem politically. So what do the Feds do? They claim that inflation was just 8%, and BOOM you’ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.

This is one of the biggest games being played by the Fed post-2008. By using a deflator metric that is way below even the bogus CPI measure, the Fed is dramatically understating inflation and overstating GDP growth.

By using nominal GDP measures, you remove the Feds’ phony deflator metric. With that in mind, consider the year over year change in nominal GDP that has occurred in the US since 2011.

As you can see, since 2011, the nominal GDP has at levels that have signaled RECESSIONS at any other point in the last 30 years.

Now… what happens when even this feeble recovery actually rolls into a REAL-recession? What happens when the cycle turns… as it always does… and the Fed has already spent over $3.5 TRILLION pushing the markets into believing that economically the US is sound?

The market knows… but virtually no one is listening…

Another Crisis is brewing… the time to prepare is now.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

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Submitted by Lance Roberts via RealInvestmentAdvice.com,

What a change a couple of weeks can make. As my colleague, Michael Lebowitz, wrote this past week:

“Following Donald Trump’s surprise victory and the violent market reactions, many investors are left scratching their heads. As shown above, the consensus narrative warned that a Trump victory would spell doom for the markets. Days later, the narrative flipped and Trump’s economic policies, all of which were known prior to the election, are deemed beneficial for share prices.”

The question which remains, however, is whether tax reform and infrastructure spending will have the impact the markets are currently betting on?

As I penned in yesterday’s missive:

“The problem for Trump is that we no longer reside in the 80’s where a large group of ‘baby boomers’ were entering the workforce and driving a massive wave of innovation and productivity changes.  Today, we are on the wrong side of the demographic trends combined with falling productivity and labor force growth.”

As Dr. Ed Yardeni noted:

“In any event, the horses may already be out of the barn. Only 8.5% of payroll employment is now attributable to manufacturing, down from 10.3% 10 years ago, 14.3% 20 years ago, and 17.5% 30 years ago. Bringing factory jobs back to the US may bring them back to automated factories loaded with robots. Even Chinese factories are using more robots.”

And from Harvard Business Review:

“Slow productivity growth is the main cause of slow economic growth, and slow economic growth makes it all but impossible for everyone’s boat to rise. No wonder angry citizens want dramatic change. But while voters may see the problem in a political establishment that is out of touch, the populist politicians who are challenging that establishment are unlikely to fare better.

 

In the short term, they may be able to medicate the economy with a big tax cut or a dose of deficit spending. When the effects of that treatment wear off, though, the effects of slow productivity growth will linger.”

But beyond the productivity problem is simply debt.

While Trumponomics has fostered a furious rally in asset prices, the impacts of rising interest rates, inflation, and a surging dollar may provide headwinds of the wrong type. In fact, the current combination of events is similar to what we saw previously – in 1999. (yellow highlights)

Also, notice there have only been three sell signals since 1999 as well which have coincided with major market peaks. If you look closely there is a high degree of similarity in the markets actions between today and the “exuberance” in 1999.

While I am not suggesting the market is about to “crash” in a fiery mass, I am suggesting the “ebullience” of the markets over the last 8-years has likely priced in any real net effects of fiscal policy changes at this point.

In other words, changes to fiscal policy will likely only offset retractions of monetary policy. 

Just a thought.

In the meantime, here is what I am reading this weekend.

---

Trumponomics

• The Revolution That Failed by David Stockman via Daily Reckoning
• Sustaining The Trump Rally by Mohamed El-Erian via Project Syndicate
• Trumponomics Vs. Reality by Martin Feldstein via WSJ
• Can Trump Really Rebuild America by David Millward via The Telegraph
• Better Come To Terms With Growth Expectations by Eric Bush via GaveKal
• Trumpflation Is Coming! Really! by Kenneth Rapoza via Forbes
• Trumponics Gets Wall St Thumbs Up by Heather Long via CNN Money
• Lessons For Trump From JFK by Ray Keating via Real Clear Markets
• The Trouble With Trump’s Infrastructure Plan by Tyler Cowen via Bloomberg
• Trump May Have Trouble With Jobs Promise by Ana Swanson via WashPo
• Trump Can’t Fix The Economic Problem by Marc Levinson via Harvard Business Review
• Donald Trump & The New Economic Order by Michael Spence via Project Syndicate
• We’re All Populists Now by Dr. Ed Yardeni via Yardeni Research
• Q3 GDP Got Lots Of Temporary Help by Richard Moody via Regions
• The Big Infrastructure Myth by Marc Scribner via Foundation For Economic Freedom

---

 

Markets

• The “Ideal Buy High/Sell Low” Situation by Shawn Langlois via MarketWatch
• Market Could Soar 400-Points & Be A Bad Thing by Business Insider
• Buffett Indicator Says Stocks Overvalued by John Reese via CNBC
• Why The Bulls Will Stay In Charge by Howard Gold via MarketWatch
• Trump Will Benefit Almost All Stocks by Julie Verhage via Bloomberg
• Are The Markets All Wrong About Trump? by James Mackintosh via WSJ
• 3 Tailwinds To Buoy Global Stocks by Sid Verma & Blaise Robinson via Bloomberg
• Don’t Believe The Great Great Bond Fake-Out by Jeff Reeves via MarketWatch
• Global Bond Yields At A Glance by Peter Tchir via Forbes
• No Long-Term Issues For Bonds…YET by Michael Kahn via Barron’s
• Bond Market Trumpdado by Ivan Martchev via MarketWatch
• Inside Markets Love Affair With Trump by Charles Gasparino via New York Post
• 5% Yearly Returns Wishful Thinking by John Coumarianos via MarketWatch
• Just How Bullish IS The Market Right Now via Avi Gilburt via MarketWatch
• In Defense Of Fed’s Rate Hike Campaign by Edward Harrison via Credit Writedowns

---

 

Interesting Reads

• The Italian Connection by Danielle DiMartino-Booth via Money Strong
• 3-Signs Black Friday Was A Bust by Craig Wilson via Daily Reckoning
• The Best Credit Cards For 2016 by Brendan Harkness via Credit Card Insider
• Boomers & Gen-X’rs Are Worried by Rodney Brooks via WashPo
• Krugman On The Working Class by Tim Duy via Fed Watch
• Rates Will Remain Low by David Trainer via Forbes
• From Peak Oil To Peak Demand by Justin Fox via Bloomberg
• If You Build It (Infrastructure), They Won’t Come by Stephen Entin via IBD
• House Price Increases Less Than You Think by Keith Jurow via Advisor Perspectives
• Home Prices Reach New Highs, Houston Falls by Aaron Layman via AaronLayman.com
• Missing The Big Economic Picture by J Bradford Delong via Project Syndicate
• More Blowoff Than Breakout by John Hussman via Hussman Funds
• Are Industrial Metals Pointing To Economic Growth? by Dana Lyons via Tumblr
• Bonds Haven’t Priced In Trumpflation Yet by Jesse Felder via The Felder Report

---

“I am altering the deal. Pray I don’t alter it any further.” — Darth Vadar

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Over this weekend, Italy will vote on a referendum that, if passed, will give the government sweeping powers to enact radical change. According to the latest polls, the referendum is expected to fail — which might then pave the way for the nationalist Five Star Movement party to form a government — who literally hate the EU. Similar to what we experienced here with Trump v Clinton, Italian liberals are out in force — demonizing the right wingers who will vote against the referendum, calling them ‘Trumpistis” — accusing them of spreading pro-Russian fake news. Sound familiar? source: NY Times/Fortune

“A protracted period of political uncertainty after a ‘No’ vote could exacerbate the Italian banking issues, unsettle the Italian bond market, and weigh on business and consumer confidence,” says Holger Schmieding, chief economist with Behrenberg Bank in Berlin.

The populist and unpredictable ‘5 Stars Movement,’ as well as the anti-euro Lega Norde of Matteo Salvini, are waiting to exploit any failure of Renzi. As such, says Schmieding, “a political crisis could open up a bigger can of worms in Italy than it would elsewhere.” And that is never good for economic growth.

Some argue this vote could be even bigger than the BREXIT vote, because of the fact that Italy has so much debt and is wholly dependent upon Germany and the ECB to keep them afloat. If the referendum fails and Italy moves to exit the EU, it’s widely expected that the entirety of the Italian banking system, with some of the worst performing stocks in the world in 2016, will collapse amidst a gigantic plume of clown dust — tossing the Germans off the side of the boat to figure out all of their losses in solitude — entirely bedraggled with ruinous losses strewn out across their overleveraged banking system.

Ciao.

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Everyone's doing it, just follow them…

 

An interesting week:

• Nasdaq's worst week since Feb 2016
• Small Caps worst week since Feb 2016
• Bank stocks up 4 weeks in a row to highest since Jan 2008
• FANG Stocks down 4 of the last 6 weeks
• Treasuries down 4 weeks in a row, TLT lowest close in a year
• USD Index down first time in 4 weeks
• Oil's best week since Feb 2011 (at highest since July 2015)
• Gold down 4 weeks in a row to 10 month lows

Stocks on the week stunned investors, with Small Caps and Nasdaq suffering their worst weeks since Feb 2016 (and Dow and Trannies clung to unch)

NOTE: The Dow gained 10 points on the week – just 3 stocks – GS, UNH, and JPM added over 150 points alone.

Since the election, Nasdaq is now red…

 

But futures show the real action…

 

Financials (and Energy) remain the biggest post-Election winners (with Utilities and Staples worst) but both banks and energy stocks faded today… (banks worst day in over 2 months)

 

Just two charts to consider…

 

Notably VIX flash-crashed on payrolls… but look at Dow Futures swings – desperate to keep green for the week…

 

Post-payrolls, oil was best but bonds and bullion beat stocks

 

FANG (Diamondback) outperformed FANG Stocks on the week…

 

The yield curve steepened on the week (after 2 weeks of flattening), leaving 2Y yields lower on the week and the long-end underperforming…

 

So bonds and stocks down on the week – as Risk-Parity funds suffer the 7th week of losses in the last 9 weeks…

 

FX markets were volatile this week withthe USD index ending lower for the first time in 4 weeks led by cable strength…

 

Crude soared on the week – best week since Feb 2011 (to July 2015 highs) and silver gained as gold and copper slipped lower

 

Finally we leave you with this – here is your market America…

h/t @Not_Jim_Cramer

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Coming off the the “Thank Your Tour” that got started yesterday with stops in Indiana and Ohio, Vice President-Elect Mike Pence sat down with the Wall  Street Journal to discuss the new administration’s aggressive plans for the first 100 days in office.  Pence said the new team plans for a “burst of activity” right out of the gate and said “the only thing that will surprise them is that Washington, D.C., is going to get an awful lot done in a short period of time.”

Vice President-elect Mike Pence said Thursday that the incoming Trump administration is planning a burst of activity that would take aim at the gridlock in Washington, pressing forward with its goals to overhaul the tax code, health care and immigration laws.

 

In an interview with The Wall Street Journal, Mr. Pence said President-elect Donald Trump is preparing ambitious 100-day and 200-day plans aimed at fulfilling core campaign promises and jump-starting economic growth.

 

Asked what might surprise voters about the Trump White House, Mr. Pence said: “I think the only thing that will surprise them is that Washington, D.C., is going to get an awful lot done in a short period of time.”

The priorities of the first 100 days laid out by Pence are not terribly surprising and include reforming immigration, repealing and replacing Obamacare, filling the vacant Supreme Court seat and overhauling the tax code.  While several reforms can be accomplished by simply undoing Obama’s many executive orders, others, like tax reform, will require Congressional approval and will stretch into the spring.

The new administration’s first priorities would include curbing illegal immigration, abolishing and then replacing Mr. Obama’s signature health-care system, nominating a justice to fill a vacancy on the Supreme Court, and strengthening the military, said Mr. Pence, whose wife, Karen Pence, sat nearby during the interview.

 

By springtime, the Trump administration would work with congressional leaders “to move fundamental tax reform” meant to “free up the pent-up energy in the American economy,” he said.

 

Pillars of the tax overhaul would include lowering marginal tax rates, reducing the corporate tax rate “from some of the highest in the industrialized world” to 15%, and repatriating corporate cash held overseas, he said.

 

Such measures would “benefit American workers and strengthen American incomes,” said Mr. Pence, who will soon relinquish his post as governor of Indiana.

 

Of course, as Trump has already proven with his Carrier deal, Pence pointed out that the new administration will not conform to traditional Republican molds and will look to engage with individual companies to keep jobs in the United States.

His comments also suggest that a Trump White House would eschew many of the free-market principles that have guided prior Republican administrations, including injecting itself into the personnel and long-term operating decisions of individual companies.

 

He described Mr. Trump as a hands-on executive. The pair had come from Indiana, where they celebrated the decision by Carrier Corp., an air conditioning and furnace maker, to retain some jobs in the U.S. rather than relocate them to Mexico.

 

He said he was in the room when Mr. Trump made phone calls to company officials, describing his plans to make the economy friendlier to business, an argument he said proved persuasive.

 

Mr. Pence, in a private meeting with Greg Hayes, chief executive of United Technologies Corp., the owner of Carrier, also offered the company $7 million in state tax incentives over the next 10 years to keep about a third of the 2,100 Indiana workers in the U.S.

Embarrassingly, Obama recently mocked Trump for saying that he could keep Carrier in the United States, saying:

“When somebody says, like you person you just mentioned that I’m not going to advertise for, that he’s going to bring all these jobs back.  Well how exactly are you going to do that?  What are you going to do?  There’s no answer to it.” 

 

He just says, well I’m going to negotiate a better deal.  How exactly are you going to negotiate that?  What magic wand do you have?”

 

Any questions, Obama?  We think all of your questions above have been sufficiently answered but just want to make sure.  It’s pretty simple actually, you actually engage with corporate executives and negotiate incentives that make it beneficial to actually stay in the United States.

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Via SchiffGold.com,

A man from the French region of Normandy recently inherited a house from a deceased relative, only to discover his newly acquired home was actually a secret gold depository. Throughout the house, the man found a total of 220 lbs (3208.33 Troy oz.) of gold coins and bars totaling $3.7 million.

The man’s identity has yet to be released, but reports indicate he was in the process of preparing furniture for sale when he stumbled upon part of the horde.

Local auctioneer, Nicolas Fierfort, who had visited the home in order to appraise the furniture confirmed “5,000 gold pieces, two bars of 12 kilos and 37 ingots of 1 kilo” were found in total.

 

Fierfort also said the golden contents were “extremely well hidden” and scattered throughout the rest of the residence.

The first stash was a tin box of coins, which had been screwed to the underside of a piece of furniture. Like breadcrumbs leading the way home, the man continued finding gold coins in places like boxes to hold whiskey bottles, “under piles of linen, in the bathroom … everywhere,” according to Fierfort. Eventually, the two modern day Conquistadors stumbled upon the mother lode: 2 – 12 kilo gold bars. That’s 386 Troy ounces each.

A little detective work dated the gold’s purchase to sometime in the 1950s and 1960s. After the gold dust settled, the newly minted millionaire was able to locate the certificates of authenticity within the dead relative’s estate papers and eventually sell it to various buyers.

However, this story of good fortune doesn’t end as happily as we would like. Along with death comes taxes. It seems the French government will be hitting the man for a 45% inheritance tax along with charging him 3 years of back taxes because his deceased relative failed to declare the gold.

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