Author Archives: Pater Tenebrarum

     

 

 

Printing Until the Cows Come Home…

It started out with Jay Powell planting a happy little money tree in 2019 to keep the repo market from suffering a terminal seizure. This essentially led to a restoration of the status quo ante “QT” (the mythical beast known as “quantitative tightening” that was briefly glimpsed in 2018/19). Thus the roach motel theory of QE was confirmed: once a central bank resorts to QE, a return to “standard monetary policy” becomes impossible. You can check in, but you can never leave.

 

Phase 1: Jay Powell plants a happy little money tree to rescue the repo market from itself (from: “The Joy of Printing”).

 

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The New In Gold We Trust Report is Here!

The In Gold We Trust 2020 report by our good friends Ronald Stoeferle and Mark Valek was released last week. It is the biggest and most comprehensive gold research report in the world. As always it contains a wealth of new material, as well as the traditional wide-ranging collection of charts and data that makes it such a valuable reference work for everything of interest to gold investors or indeed for anyone interested in precious metals (a download link to the report is provided below).

 

Left: casting gold bars. Right: using gold as a shield against assorted slings and arrows.

 

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Incrementum Advisory Board Discussion of April 8, 2020 with Special Guest Rick Rule

The Incrementum Fund’s Advisory Board held its quarterly meeting on April 8. This time renowned resource stock investor Rick Rule, the President and CEO of Sprott US Holdings Inc., joined the discussion as a special guest. As always, there is a download link to a transcript of the conference call in PDF format at the end of this post.

 

Rick Rule, CEO of Sprott US Holdings Inc., and renowned investor in the commodities sector.

 

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Gold Sector Outperforms Broad Market

The gold sector is in an uptrend since September 2018. The initially rather labored move accelerated after a secondary low was established in May 2019 and the 50-day and 200-day moving averages were breached for the second time. Last week the two moving averages were once again overcome in the course of the post-crash rebound. Here is a chart showing the entire move since 2018:

 

After a rather harrowing decline in sympathy with the February-March stock market crash, the HUI has swiftly moved back to its previous high for the move and is now trading above its 50- and 200-day moving averages again.

 

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Everything and the Kitchen Sink

After the first inter-meeting rate cut in early March, we opined that further rate cuts were a near certainty and that “not-QE” would swiftly morph into “QE, next iteration” (see Rate Cutters Unanimous for the details). As it turned out, the monetary mandarins did not even wait for the official FOMC meeting before deciding to throw everything and the kitchen sink at the markets. Not only were rates insta-ZIRPed, but “not-QE” became “QE on steroids, plus”.

 

The federal debt monetization machinery goes into orbit. Moon landing next?

 

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Easy Money Becomes Even Easier

Last week the FOMC surprised the markets with a rare inter-meeting rate cut. As the FOMC statement released on the occasion reveals, the decision to cut the  federal funds rate by a hefty 50 basis points was unanimous. The much-lamented “zero bound” is coming closer rather quickly.

 

A happy little money tree… from “The Joy of Printing”

 

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Containment Fail

We want to share a few observations about the growing COVID-19 epidemic, based on what we have seen so far. It has been obvious for a while now that the attempt to contain the spread of the virus has essentially failed. Ever since case numbers started to soar in South Korea, Italy and Iran, it was clear that hopes that the outbreak would remain confined to China were misplaced.

 

Doubleplus-ungood micro-organism COVID-19 looking for cells to infect

 

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Market Drivers

The recent outbreak of a dangerous respiratory illness caused by a new Corona virus in China was widely blamed for the stock market sell-off on Monday last week. It is undoubtedly true that the epidemic has the potential to severely disrupt economic activity, although it is too early to come to a definitive conclusion about that. Be that as it may, the event actually serves as an excellent example illustrating that the news of the day are incidental to market action rather than causing it.

 

S&P 500 Index, 10-minute chart. A fairly strong sell-off on Monday last week, a vigorous rebound on Tuesday.

 

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An Unloved Sector

We rarely discuss individual stocks in these pages, but we make an exception now and then when we spot exceptional opportunities. This time the reason is actually more mundane: the vast majority of gold exploration stocks failed to benefit from the rally in precious metals prices last year. As a result many of them came under even greater pressure in the tax loss selling season at the end of the year. We made a list of such stocks late last year – a download link to the PDF document is provided below this post. Here is an example of such a stock:

 

ATAC (ATADF), one of many exploration stocks that came under selling pressure in last year’s tax loss selling period.

 

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Disrupted Disruptor – Legal Setback Sweepstakes

It seems Uber just can’t catch a break these days. First its license to operate in London was revoked. At issue was apparently that 43 unlicensed drivers were able to take an estimated 14,000 “unauthorized trips” due to a flaw in the Uber app (note that 45,000 licensed Uber drivers are working in London) .

 

Uber’s service has become an important part of London’s transport infrastructure – and a thorn in the side of established taxi services. [PT]

Photo credit: uber.com

 

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Credit Market Bifurcation

By all accounts, credit markets remain on fire. 2019 is already a record year for corporate bond issuance, beating the previous record set in 2017 by a sizable margin. Demand for the debt of governments and government-related issuers remains extremely strong as well, despite non-existent and often even negative issuance yields. Even now, with economic activity clearly slowing and numerous  threats to the post-GFC recovery looming on the horizon, the occasional rise in credit spreads is routinely reversed. And yet, under the placid surface problems are beginning to percolate. Consider exhibit A:

 

The chart shows option-adjusted credit spreads on three rating categories – while spreads on ‘BB’ rated (best junk bond grade) and ‘BBB’ rated (weakest investment grade) bonds remain close to their lows, spreads on ‘CCC’ rated bonds continue to break higher – considerably so. An increase by 473 basis points from their late 2018 low indicates there is quite a bit of concern.

 

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Incrementum Advisory Board Discussion of 23 Oct 2019

In late October the Advisory Board of the Incrementum Fund held its quarterly meeting (a transcript is available for download at the end of this post). This time the board was joined by special guest Dan Oliver, the manager of Myrmikan Capital and president of the Committee for Monetary Research & Education.  Myrmikan inter alia publishes excellent and quite original research on gold which we hereby highly recommend.

 

Dan Oliver of Myrmikan Capital

 

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