Monday, September 26, 2016

TURBULENCE IN THE FINANCIAL LANDSCAPE

Gold and silver will be under pressure in these few days due to the options expiry period until Thursday. The bullion banks are working hard to push the prices down in order to profit.
However, looks like there are more bad new sin the horizon as Deutsche Bank capital falls to US$17B (US fine was US$14B), and Germany has ruled bailing out the bank. Meanwhile another large German bank, Commerzbank will fire 9,000 workers which is about 18% of its total employees.
These are signs of trouble brewing in the financial landscape.
In a big embarrassment to the ECB, the EU generated only 1 Euro growth for every 18 Euros of debt.
That is why a debt driven economy will ultimately failed and if continued will bring baout hyperinflation.
In a proposed revamp in a new Fed test, US banks would need to raise billions in new capital.
Meanwhile, on Monday we could see some volatility in the US$ as the Yuan officially enters into the IMF basket of currencies.

Saturday, September 24, 2016

POTENTIAL UPHEAVALS GOING INTO FINAL QUARTER OF 2016

As we enter into the final quarter of 2016, here are all the things which could cause tectonic shift in the global markets:
1) China's Yuan admission into the IMF SDR currencies. Will it impact on the US$ as China readies itself for more use of the Yuan in global trade? China has several Yuan swap facilities in US and EU and has developed a CIPS code similar to the SWIFT code. To that extend, China has also developed 168 super computers. China has also one of the largest group of miners of bitcoin. Is China's Yuan ready to take on the US$ as an alternate trade settlement?
2) November. This is case of a double witching. November will be the US presidential election. But lately Hilary's emails scandal and poor health has put Trump in the lead. Between now and then, a pullout by Hilary could cause a tremor in the US market. There are talks that the election may be postponed, which could be disastrous for the US. Either party wins will be terrible for the US$. Trumps wants to increase debt to spend more to make America great again, while cutting taxes (so who's going to pay the difference?) while Hilary will hike taxes for the rich which could impact the economy and more welfare which means more spending. Hilary's win could also mean greater world tension as she has Russia in her sight.
Meanwhile Italy could have have a referendum in the same month as the people vote whether they want to remain in the EU. If Italy votes to leave, then that's another nail to the Euro's coffin
3) Deutsche bank and Monte dei Paschi, both of which are major banks in the EU, are in dire straits. DB share price is in historic lows after being slapped with a US$14B fine by the US while MP is having severe liquidity problems. In fact many EU banks are saddled with tremendous amount NPLs. A banking crisis in EU is in the horizon. Stay away form banks and the Euro.
It will be interesting to see how these events unwind in the coming months. I will stay long in gold, silver, miners and related ETFs.

Thursday, September 22, 2016

FED SPEAKS MORE THAN ACTS

Once again we have the Fed talking up the US$ with possible rate hikes only to chicken out in the last minute.

Perhaps the Fed is fearful that a rate hike could tank the stock market? Or is it because of the recent deluge of poor data which stays the Fed hands? I am incline to believe that the Fed themselves know that the economy is weak but continue to talk up the economy because to say otherwise means to acknowledge that the US economy is in a recession.

The stock market needs to tank so that all the malinvestments fail to enable the economy to grow again.

Right now all the cheap money is going to share buybacks instead of going into plant and equipment investments, training and hiring of employees. The Fed is just kicking the can down the road until the next President resides in the White House. But eventually the deluge of bad earnings and economic data will force the stock market to tank.

The we have ridiculous recommendations coming from an ex-Fed president and Ben Benanke to go into negative interest rate should a recession occurs with the ex-Fed president recommending a -2% rate cut.

This is forcing savers to take risks. Without savings how can an economy be prosperous? Savings create wealth, and then with the wealth, people will spend. You cannot force a person to spend if he has no intention to. The person will likely withdraw cash and hoard cash because there is no incentive to spend in a negative interest rate environment! So these wise men then call for the banning of cash.

Well if that happens, people will just convert cash into precious metals.

The above is just my opinion.
 

Wednesday, September 21, 2016

THE BOJ FIRES ANOTHER PEA SHOT

Well contrary to what most economists expected from the BOJ, instead of a shock and awe to arrest Japan's continual deflation and weak economy, the BOJ today fires a pea shot that initially pushed the Yen lower vs the US$ and the Nikkei up more than 300 points, but as the day wears on, economists are less than impressed with the BOJ's action.

Perhaps the BOJ is still in a fantasy land believing that they could still target an inflation that is more than 2%. But one thing is clear their balance sheet will continue to expand as the BOJ signals it will increase ETFs purchases. Looks like the Japanese companies are being nationalised.

After tumbling by more than US$4 per oz after the the BOJ's announcement, gold rebounded to more than US$9 per oz at the time of writing. The Yen to has gained vs the US$.

Should the Fed decides not to raise interest rate today, the US$ will fall and Yen would gain further as well. This could cause the Nikkei to tank to morrow morning.

All arguments are against the Fed raising interest rate as the economic data that comes in in the last few weeks have been bad.

Still, it will be interesting to see what excuse the Fed will use this time in not hiking the interest rate after all the jawboning in the month of August.

If the Fed does hike, then the stock market will sell off, including miners, as an initial reaction, and money will move into gold, which the miners will then recover very fast. Pretty much like what happened in December 2015.

A hike will likely push the US economy into recession.

The above is entirely my opinion.



Thursday, September 15, 2016

NEXT WEEK IN FOCUS

Next week will be a very interesting week as we have the Fed and BO meeting. But it is the BO's actions that will likely cause a major shift in global markets.
The BOJ has come under fire for the NIRP and bonds and ETFs buying spree which has resulted in a bloated balance sheet which nothing much to show. Japan's economy and inflation remain weak. Just as recently the Government Pension Fund loss more than US$100B in 12 months. So even the BOJ has admitted they may need to tweak their plans.
Many economists are of the opinion that the BOJ will do the following:
1) Cut the short term interest rate deeper into negative territory 
2) Buying short term (<5 years) bonds
3) Selling long term bonds (>10 years)
1) and 2) will be a stimulus while ensuring the yield for long term bonds increase so that pension funds and savers could benefit.
However, the flip side is that any heavy selling of long term bonds could cause wide spread selling in long term bonds and thus investors who bought the long term bonds could likely suffer heavy losses. This too may spread to other bond markets.
The Fed has been jawboning about interest rate hike, claiming that all is well with the economy, but data in the last two weeks point to the contrary. Manufacturing is in contraction, Services is below expectations and lower than the prior month and retails sales have fallen more than expected. On top of that, the August jobs number came below expectations. Zerohedge also reported that the BLS has slashed 150,000 jobs 'created' in the past 12 months in their annual adjustment.
So despite the deluge of bad data the bullion banks continue to hammer gold and silver. As I mentioned in one of my previous posts, the central banks are managing the price of gold and silver lower because the Fed is unlikely to raise interest rate, and that uplift will put us back where gold and silver was a few weeks ago,
If the Fed does raise interest rate it will bring calamity to global markets, much so to the heavily indebted US economy. Economists predicted that were the interest rates normalise at just 5%, the US would need to pay US$1T in interest payment alone in a year. So normalisation is a myth - at least in the next few years.
Either way, gold and silver are the only wealth protection and miners would be the best hedge for multiple gains when the asset bubbles burst. 2008 was the housing bubble. But what we have in our horizon are bonds, stocks, housing and derivatives bubbles.And when they burst, it could be worse than the Great Depression.

Wednesday, September 7, 2016

HERE WE GO AGAIN. iT'S AUTO LOANS THIS TIME

Forget about the mortgage subprime crisis. Next crisis to erupt could be the auto loans crisis.
To date, auto loan has surpassed US$1T. Below are some important points taken from Zerohedge:
In July, 60 day subprime loan delinquencies were up 13 percent on a month-over-month basis and were up 17 percent compared to the same month last year.
Prime delinquencies were up 12 percent on a month-over-month basis and were up 21 percent compared to the same month last year.
The following comes from USA Today…
In a quarterly filing with the Securities and Exchange Commission, Ford reported in the first half of this year it allowed $449 million for credit losses, a 34% increase from the first half of 2015.
General Motors reported in a similar filing that it set aside $864 million for credit losses in that same period of 2016, up 14% from a year earlier.
Between Ford and GM they have set aside a whopping US$1.3B for credit losses.
This is pure insanity. It goes to show that the consumer spending, especially in the autos are driven by reckless lending.
I will stay away from the auto stocks as the data seems to suggest that a bubble could burst in the coming months. Why? Because auto sales are dropping and inventories are rising. Even Ford acknowledged that the sales have reached a plateau. Can't remember which news website I read it from, but the author nailed it when he said "A plateau is a cliff on one side and another cliff on the other side."

Saturday, September 3, 2016

THE CORRELATION BETWEEN JOBS REPORT, GDP AND WITHHOLDING TAX

This is from a very interesting article in Zerohedge which correlates the Jobs Report, GDP and Withholding Tax. I have added my own input based on the charts.

















In the chart above we can see that the employment continues to hold steady but the taxes withheld are falling. The Fed has time and again been jawboning about the excellent growth in jobs. If the jobs are so awesome why are the withholding taxes falling? The reason is because high and good paying jobs have been lost and are replaced by low paying minimum and part time wage jobs.

On top of that, the recent Jobs Report has shown that the number of hours worked have actually fallen from the month prior.

These can have far reaching effects such as:

1) Lower tax receipt means more government debt
2) More low paying jobs means lower consumer consumption. So is it any surprise that retailers are see falling revenues? Not only that, recent report on motor vehicle sales have also entered into negative territory. Ford too announced that sales have reached a plateau

However, if we correlate the Taxes Wthheld with GDP, the chart seems to make more sense.

Falling GDP = Falling Tax Receipt

So all the talks about the awesome jobs remain just that: Talk. Underlying all the "awesome goodness" is a far more disturbing trend.

Thursday, September 1, 2016

NOT SO AWESOME IT SEEMS

Breaking news. US ISM Manufacturing fell to 49.4 in August from 52.6 in July. A reading below 50 indicates contraction.
Construction spending also fell to 0% growth vs 0.9% growth in the month prior.
Guess the US economy is not as awesome as the Fed thinks. Now the big question is: Will the Fed be data dependent?