MULTIPLE EVENTS TO PONDER IN THE COMING WEEKS AND MONTHS

Here's some news to ponder on:

1) Gold withdrawal from the NY Fed vault has hit 388 tonnes since 2014. Chief among those who withdrew - Germany and the Netherlands for a total of 242 tonnes. Incidentally, Austria too has withdrew its gold held in London's depository. A clear sign that global financial system is entering a breaking point or a monetary reset where gold would play a crucial role? The coming months could shed some light; ie: The coming G-20 meeting in Beijing, the popularity of the adoption of SDR bonds, the change in the LIBOR rate which could raise the borrowing costs between banks.

2) Consumer confidence rose above 100 points which caused the Dollar to spike, hitting gold and silver. More jawboning by the Fed continue to suppress the price of gold and silver.

On top of the Fed comments we have the options expiry on the COMEX last week and today the options expiry for the LBMA. Most of the shorts were in the US$1,320 - US$1,340 per oz range (Source: King World News), therefore it is of the interest of the shorts to bring it below US$13,20 per oz.

I would expect the data manipulation to continue, including this week's Jobs Report. So we could likely see gold and silver pushing below US$1,300 per oz going into the Fed meeting in September which the outcome would be:

Interest rate hike - Dollar up, stock markets fall, demand for precious metals up (During the hyperinflation period of 1970s - 1980, gold went up 325% when interest rate was 15%).

No interest rate hike - Dollar down, stock markets up, and demand for precious metals up.

So it is my opinion that the next few weeks the Fed and bullion banks could work in unison to manage the fall in the price of gold and silver so that whatever the outcome, the rebound in price would put us where we were some weeks ago instead of shooting past US$1,400 per oz. However, this could change if the coming G-20 meeting alters the narrative for gold or the Dollar.

Any pullback in gold and silver will be an opportune time to buy the precious metals and miners shares.

3) Interestingly, Germans are buying safety boxes to put their money instead of putting it in the banks (source: Zerohedge). Will this cause a bank run as the global economy picture worsens with deeper interest rate cuts?

4) In the political front the US is increasingly worried of a Turkey-Iran-Russia coalition in the Middle East, Turkey signaling to the EU that it could not hold back the refugees and migrants if the EU cannot honour its end of the bargain. Meanwhile, Hungary will be having a referendum on immigrants which could see Hungary closing its doors on migrants. In Austria, the right wing, anti-migrant party is gaining momentum in the election after the earlier election was declared a fraud. Italy too would be having its own referendum. Also on the top of the list is the standoff between Ukraine and Russia. All these could damage the Euro further so it is best to avoid holding this currency. Any further deterioration should boost the price of gold and silver.

5) And finally there are now more calls from Goldman Sachs, JP Morgan, Morgan Stanley, Citibank, UBS and Deutsche bank that market risks have increased to dangerous levels. Here's a chart from Deutsche bank which shows why the Fed may not increase interest rate at all.

Normally it is the Earnings Growth (blue) which drives stock market prices (see the period from 2003 - 2007). In the period from 2012 - 2016, 92% of the increase in the S&P was driven by compression of Equity Risk Premium (low interest rates) which is equivalent to approximately 800 points.Now imagine what would happen should interest rate increase and the compressed ERP is decompressed. We could see a huge correction in the S&P.

Would the Fed risks markets turmoil which could see the S&P and global indices tumble with a rate hike? Only the Fed has the answer, but we at least know that the safest assets to own irregardless of the outcome are still the precious metals and miners shares.

PENSION FUNDS AND INSURERS' EARNINGS ARE COLLAPSING

With more than US$13T bonds with negative yield and NIRP, major pension funds and insurers' earnings are collapsing. This is because these entities often rely on fixed income investment rather than trading, but with bond yields and interest rates in negative territory, many have to push their investment into riskier assets.

Here are some examples of pension funds which have performed badly:

1) Japanese Government pension fund squanders US$130B in stock losses in the past year. And this is how badly it looks in a chart (Source Zerohedge)

2) CALPERS which is one of the larges state pension funds announced earnings of 0.61% over a 12 month period vs the 7.5% target (Source: www.ocregister.com)

3) Central  States Pension is in a deep mess and have enough funds to last just another 10 years (Source: www.ft.com). What happens to those who are now contributing? Will they ever be paid in the future when they retire?

The money printing with negative interest rates and quantity easing is causing huge gaps in funding and will certainly reel its ugly head in the near future.

Then we have the US Social Security and Medicare, both of which have liabilities to the tune of US$43T. Don't talk about the US$66T in Total Debt, including US$19T in Government Debt The last time I checked, US GDP is only US$18.5T.

How did the insurers perform? Here are some of results for the month ending June, 2016 to ponder upon.

1) Metlife Revenue fell 6.0% y-o-y. Profit fell 48.0% y-o-y

2) Allianz Revenue fell 2.5% y-o-y. Net Profit fell 46.0% y-o-y

3) Prudential Revenue fell 42.6% y-o-y. Net Profit fell 34.5% y-o-y

4) Zurich Revenue grew 17.0% y-o-y. Net Profit fell 12.0% y--o-y

5) Tokio Marine Revenue fell 8.7% y-o-y. Net profit Fell 15.5% y-o-y

Some like Aetna, AIG and Manulife did report better Q2 2016 results vs a year ago, but the likes of Metlife, Prudential and Allianz are a sight to be concerned because these are big players in the insurance market.

It comes at no surprise therefore that insurers are raising premium charges to offset the loss in Revenue and Net Profit.

Increasingly, insurers who have relied on fixed income assets have to partake in risky investment to address the shortfall in Revenue and Net Profit. But asset bubbles will burst and when that happens it will be 2008 all over again.

IT'S ALL DOWN TO YELLEN'S SPEECH ON FRIDAY

It's now the options expiry period for gold and silver and the usual suspects come into full play to hammer both the precious metals. Pressure will last till this Friday until Yellen speaks.

Miners have fallen about 20% from their peak in this week alone so any further pull back would be ideal to enter.

If Yellen hinted that the Fed will pull the trigger to raise interest rate in September then gold and silver could fall further as an immediate reaction. But like what happened in December 2015, gold and silver recovered to post some of the best gains in the first 6 months of 2016. This is because any increase in interest rate will destroy the highly indebted shale oil companies, as well as other companies which have borrowed excessively to buy back shares. On top of that, funding the US government will become even more expensive and we can expect more US Treasuries to be sold. While US$ might strengthen immediately, in the long run higher the debt, weaker the US$.

In the 1970s to 1980 when interest rates were hovering at 15% gold went up by 325%. So gold is an excellent hedge against inflation and hyperinflation.

If Yellen is dovish then expect US$ to weaken and gold and silver will rise. This will be the strongest indicator that all is not well with the US economy.

Next week China will host the G20 meeting. There is an indication that there will be some discussions on the SDR and how to widen its adoption in the global market. Any positive development on the SDR could be bearish on the US$ as this would translate as a curb against US$ domination in world trade.

WHERE FUNDAMENTALS CEASE TO EXIST

The markets have become places where fundamentals and logic cease to exist.

We have Japan's exports and imports falling 14% and 25% respectively in the month of July and yet the Nikkei hardly fell in tandem, once again boosted by the BOJ's buying spree in support of the index. It comes as no surprise that the BOJ has become the top shareholder in 55 companies and the top ten shareholder in 90% of the listed companies on the Nikkei.

Yet, the more the BOJ reacts, the higher the Yen goes. which signals a complete failure in the actions of the BOJ to improve Japan's exports.

And once again despite increase in production, rigs count, and Saudi Arabia production reaching its highest, we have crude oil trending higher. But the autumn months are just around the corner when most refiners will go into maintenance mode. It will be interesting to see if crude oil can continue its upward momentum.

Global stock markets are still lofty in value even as the earnings expectations continue to fall. So who have been buying up the stocks? The chart below may explain.

Source: Washington Post



You can that the ECB, SNB and BOJ  have been actively buying up stocks. The SNB especially, has been actively buying up US companies.

Meanwhile, Lord Rothchild has allocated 8% of his funds into buying gold, stressing on the experimental money printing by the central banks as an unknown risk. Among others who have been bearish on stocks and bonds and bullish on gold are Stan Druckenmiller, Bill Gross, Kyle Bass, Paul Singer, George Soros and Jeff Gunlach - the A-Class hedge fund managers. So do you follow the smart money or the panicky central banks who seem to have lost all credibility?

And in the midst of all these, gold and silver were hammered again on Friday and early Monday morning. One can only surmise that the central and bullion banks are getting ever the more desperate to suppress the price of precious metals.

As momentum becomes bearish on precious metals in the short term, it may be worthwhile to take some profit off the table in the case of miners and related ETFs and await an opportune time re-enter again.

The above is just my opinion. You are encouraged to do your own research and analysis.

FOMC MEETING: MORE TALK OR FINALLY SOME SUBSTANCE?

It's like an old record that doesn't know when to stop. Just yesterday we have several Fed speakers talking about rate hike and pushing the dollar up when the dollar fell through the 100 Yen handle. The result of it? A US$16 per oz take down on gold. Gold is down again as I write. Perhaps the take down by the BIS did not help the distressed financial institution in covering its massive short positions so there is need to rely on some Fed speaks tonic.

Today, the FOMC meeting minutes will be out and I am almost certain we can expect more Fed speaks that a rate hike is still on the table and that they will be watching the volatility in the market for signs of weakness.

What if the Fed decides to raise rate? Well the likely consequences will be:

1) Raising interest rate when the GDP is low, Productivity is low, Retail Sales is low, is a nightmare scenario. But hey, the Fed has the "awesome" jobs report to rely on. I can only expect further decline in economic activities which will cause more companies to lay off employees.

2) US companies have to wake up to the fact that they need to allocate larger sums  to service their debts which have skyrocketed to trillions of dollars in all forms of financial engineering to boost the share price

3) The above will impact on corporate earnings which are already in consecutive quarters of decline.

4) Any hint of rate hike will boost the value of the dollar which will result in US made goods and services much more expensive, therefore impacting the export market. For multinationals, the conversion of foreign earned currencies into the dollar will result in a reduction in earnings.

5) With 2) and 3) above, does it warrant a re-rating of the S&P companies which are already at multi-years high in terms of PE ratio? Will the S&P collapse under the weight of overvaluation?

6) A rise in interest rate will also result in the US government needing to borrow more money at a higher interest in order to pay for debts which were borrowed at lower interest (make any sense to you?). The US government has US$19.5T in debt with tax collection that has been falling due to lower corporate earnings and lower paying jobs on top of having a budget and trade deficit of more than US$1T each year.

7) The BOJ and ECB will be cheering of course as this will boost their exports. The PBOC on the other hand will devalue the Yuan further in response to the rate hike. So any devaluation of the Yuan will impact upon the US$ as the Yuan is closely peg to the US$. So US$ could fall if China devalues, and then the ECB and BOJ will have more QE and NIRP to weaken their respective currencies. See why this is a vicious cyrcle which will never end?

Incidentally, reports have surfaced that the ECB is running out of bonds to buy. The BOJ meanwhile is the top shareholder in 55 companies and is the top 10 shareholder in 90% of the companies listed on the Nikkei. The balance sheet of the BOJ has reached 250% the country's GDP. How on earth is the BOJ going to unwind its positions without causing a market collapse? But for the BOJ, "the market is down down, let's buy some more" policy will one day reared its ugly head and cause mayhem in the market.

What happens if the Fed decides not to raise rate?

1) US$ will fall and the Japan market could tank the next day. Gold and silver could recoup some of the early losses.

2) Oil could spike, and cause inflationary pressure further down the road.

3) The stock market will respond with a spike, pushing the PE ratio to even higher levels. But hey, aren't the central banks now supporting the global markets?

4) More borrowing binge by companies eager to refinance their debts.

5) Growing monstrosity in asset bubbles, pushing global risks to unimaginable levels.

There you have it. Just my opinion of course. Perhaps that is why being bullish in precious metals, miners and related ETFs is still not a bad thing.

GOLD AND SILVER HAMMERED DESPITE DELUGE OF POOR DATA

Despite the poor productivity and retail sales report, gold and silver were hammered at the end of the European close. News came out from King World News that it was the BIS (Bank of International Settlement) which bailed out a heavy short position by a major financial institution which increased their short positions shortly after the "awesome" jobs report on Friday,

But the short position soon turned into a nightmare as gold spiked after the productivity report and spiked again after the retails sales report. We can assume it was an attempt to bail out a troubled financial institution.

Looking back we had a similar action in April where a financial institution(s) dumped more than US$2.0B worth of paper gold. The interesting twist is that this time it required US$5.0B to effect a similar downward movement in price.

If anything, it showed that the central bankers are getting more and more desperate in their attempt to suppress the price of gold and silver.

Zerohedge had two very interesting reports. The first report concerns the income tax receipts which fell from a 13.4% y-o-y growth in June 2013 to 1.2% growth y-o-y in June 2016 (see chart by Zerohedge).

    






As can be seen, the chart is showing a very precarious trend. If the trend continues into negative territory - and that is a strong possibility given the continual weak earnings and growth in minimum wage jobs  - we could likely see a recession in the coming months.

The other is a report where Turkey's President threatened to abandon the US$ on its trade with Russia. The lean towards Russia by Turkey could result in a major black swan event.

Meanwhile, I continue to be bullish on precious metals, miners and related ETFs.

US PRODUCTIVITY DISAPPOINTS WHILE INVENTORIES TO SALES RATIO REMAINS HIGH

After last week's hammering of gold and silver due to the "awesome" jobs report, this week saw precious metals and miners bounced off their lows to resume their upward momentum, driven in particular by a poor productivity report and an inventories to sales ratio that remains high.

US Nonfarm Productivity came in at -0.5% vs +0.5% expected, off by a wide margin of -1%. This followed a previous month's productivity of -0.6% in June.

The Inventories to Sales ratio remain high which in previous periods have been a recessionary period. 

Source: Zerohedge

The US could possibly be in a recession despite the continual denial by the Fed and government and that everything was "awesome".

The auto inventories is cresting upwards as car sales continue to slow down. Even Ford is warning that Q3 results may disappoint.

Source:; Zerohedge

As I mentioned last week, consumer spending is being threatened by low paying jobs. Most of the spending so far is driven by subprime auto loans and consumer credit. Amount of consumer credit and auto loans outstanding is more than a trillion dollars each. And this is a dangerous sign.

ANOTHER "AWESOME" JOBS REPORT DUE TO ADJUSTMENTS BUT RATE HIKE IS STILL A CHALLENGE

After June's "awesome" jobs report, July's report extended the "awesomeness" by another staggering 255,000 jobs, despite the sluggish GDP growth in Q1 and Q2, and against the backdrop of declining earnings in the S&P, the index crested to yet another record.

Economic fundamentals are thrown out of the door as important indicators are ignored as traders and investors cheered the "adjusted" jobs report very much like the cheering of adjusted non-GAAP earnings.

Now, here's an interesting twist to July's jbs report. As reported by Zerohedge, Mitsubishi UFJ strategist John Hermann wrote that the "jobs headline overstates"the strength of the payrolls. he adds that unadjusted data show a "middling report that is nowhere as strong as the headline". He adds that the unadjusted private payrolls was +87,000 in July vs the seasonally adjusted figure of +217,000.

So did the BLS overstate the jobs report in support of the government, precisely during this election year?

Recent reports which seem to indicate the opposite. For example the amount of withholding tax in personal income has dropped 1% in July. This could be explained by :

1) A drop in actual jobs number or

2) A drop in high income jobs, and replacement in numbers are insignificant to raise the withholding tax.

Which brings us to the issue of consumer spending. If the personal withholding tax has dropped it means that the personal income earned has dropped as well. So how can a drop in personal income be positive for consumer spending. Consumer spending seems to be driven by debt as student loans, auto loans and consumer credit reached historic highs (See usdebtclock.org).

It the same report, corporate income tax has declined more than 10% as companies' earnings fell. You can bet on it that it will just be a matter of time before US companies begin another massive layoff.

Also, with the revenue from taxes falling, the US would have to rely on more debt to finance the government. Looking at usdebtclock.org, the amount of trade deficit has hit more than US$700B YTD. Coupled with the deficit spending by the government which number about US$500B a year, the US looks on track to deliver yet another US1T in total deficit by end of the year, which will result in another US$1T being added to the national debt.

Incidentally, the jobs headline obscured the trade report which showed the US had a trade deficit in July which was worse than expected.

So will the "awesome' report push the Fed to decide on a rate hike? I think NOT by a long shot. The ECB, BOJ, BOE are all having QE on steroids, with the PBOC pushing for even more easing to reboot China's economy. Having a rate hike risk pushing the US economy into severe recession (but it will come eventually despite what the Fed is attempting to prevent) as the US$ strengthens, thus affecting the profitability o f US companies further, on top of having the need to service the incredulous debts accrued n the last few years.

An interest rate hike will result in many of the over leveraged companies having liquidity problems as will the US government which needs to pay interests on its US$19T debt.

Given sch a scenario, I think there is unlikely to be any rate hike.

The jobs report changes nothing. EU banks remain in crisis, China and Japan continue to see some severe economic fallout, and the geopolitical crisis in the Mideast, EU and South China Seas look set to deteriorate further.

I still believe the only safe trade or investment is still in precious metals, miners and related ETFs.

The above is entirely my opinion.

PRECIOUS METALS HAMMERED AHEAD F THE JOB REPORT ON FRIDAY

I see increasing desperation among the bullion banks which have built a huge position to short gold and silver just before BREXIT and the US GDP report only to see gold and silver increased in price. 
Now, at every small opportunity to short the precious metals they are at it everytime such as a positive S&P, Nikkei and Dax reading and the recent ADP report which can diverge from the Non Farm Payroll due this Friday. 
So expect to see some pressure on precious metals going into the Friday jobs report. 
I think it will not be spectacular with a lower revision for June report. This is because the recent Manufacturing and Services reports are showing reduced jobs for construction and services.
Still, the headwinds are just short term and we should see the larger picture; ie: EU'S banking crisis, the US Presidential Elections and the geopolitical and economic crises worldwide.

SIGNS THAT A FINANCIAL CRISIS IS JUST AROUND A CORNER?

The EU stress test was supposed to soothe investors' worries.

Then again... what stress test if these are the aftermath of it?

Charts are from Zerohedge.

An imminent crisis around the corner? You bet!



Will the Italian banks be the trigger? French banks have the most exposure.



Then of course there's Deutsche Bank which is mirroring Lehman's trajectory.