Chart Update
I write this with sadness, still, at the news of the death of my friend Heinz Blasnik. He is better known by his nom de plume, Pater Tenebrarum, who published the economics blog Acting Man and wrote for many other financial sites.
I met Heinz twice, at his home in Vienna. He was a kind and gracious host, sending his driver to pick me up and serving Austrian delicacies for lunch. When I met him, he was struggling near the end of a long illness which was the result of a youthful adventure. Even so, he retained a benevolent sense of life, and a positive spirit.
But this is not why I wanted to write this. We were friends because we shared some ideas. Important ideas. Ideas about the nature of the world, and mankind, and how man can work together and coordinate their productive activities. Economics and business are my life, and Heinz was the same way.
What better basis for a friendship than sharing important values?
Heinz was deeply, passionately interested in helping people understand economics. I know not how much time he gave to this cause—unpaid, as blogs do not make money—but it was surely more than I spend. He engaged with those who were interested. Sadly, Austrian economics is not mainstream, though there are more than enough people to keep a teacher—or sensei—busy. He was willing to correspond with me, and I credit his articles and emails for helping shape my own views.
We did not always agree. If you put 3 economists in a room then you have at least 4 opinions. But even when not, he listened with benevolent intention and did not make it personal. It was always about the ideas. I think this is an important and uncommon virtue.
On one of my visits, we discussed life, the universe, and everything. And he told me a bit about the Austrian welfare state. Which led me to write The Service Economy. I have traveled around the world, and I have shared food and drink with friends in many countries. Yet that one conversation with Heinz stands out as interesting and important. I can only recall one other discussion with one other friend that led directly to me writing an essay.
I don’t think Heinz believed in Heaven, but I hope everyone will understand when I say this. I would look forward to a day—many years in the future, I hope—when I could meet Heinz for beers in Heaven, and continue our conversation where it left off in 2021.
Adieu Heinz.
Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.
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”).
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.
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?
Big Moves, Widening Spreads
The big news this week was the drop in the prices of the metals (though we believe that it is the dollar which is going up), $57 and $1.81 respectively.
Despair at the Unjustly Injured Gold Bugs Anonymous meeting… [PT]
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.
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.
GDP – A Poor Measure of “Growth”
Last week the prices of the metals rose $35 and $0.82. But, then, the price of a basket of the 500 biggest stocks rose 62. The price of a barrel of oil rose $1.63. Even the euro went up a smidgen. One thing that did not go up was bitcoin. Another was the much-hated asset in the longest bull market. We refer to the US Treasury.
BofA Merrill Lynch high yield master II option-adjusted spread: on Dec. 23 it tightened to the lowest level of 2019, fairly close to its post-crisis low established in 2018. This seemingly signals that risk is very small – in reality, risk is probably extremely high. [PT]
Plans and Consequences
You are probably already getting into the holiday spirit, perhaps you are even under a little stress. But the turn of the year will soon be here – an occasion to review the past year and make plans for the new one. Many people are doing just that – and their behavior is creating the strongest seasonal rally in the precious metals markets.
Anonymous industrial stackers showing off their freshly purchased silver hoard. [PT]
A Critical Appraisal of a Hero of Central Monetary Planning
We apologize for publishing this Report late. We have been very busy developing the business. Last week the price of gold moved up $16, and that of silver $0.39. Almost two groceries leaked out of that store of value par excellence, bitcoin. But hey, stocks are up!
We admit to having a soft spot for the politically incorrect Paul Volcker. He frequently expressed bemusement at the newfangled obsessions of his successors at the Fed (as an example, at a conference in 2006 he remarked on the increasing emphasis on “core” inflation: “A great mantra of central bankers these days is ‘inflation targeting.’ I don’t understand that nomenclature. I didn’t think central bankers were in the business of targeting inflation. I thought we were supposed to be targeting stability.” h/t Grant’s). Nevertheless, we are on board with the criticism voiced below. Volcker was indeed instrumental (along with Milton Friedman, otherwise a champion of free markets, but oddly blind to the insidious nature of a monetary central planning agency) in persuading Nixon to abandon the last remnant of the gold standard, the Bretton Woods “gold exchange standard” that permitted foreign central banks to exchange their US dollar reserves for gold at a fixed exchange rate. Not only did this decision unleash a decade of economic and currency market chaos, it ultimately paved the way for the unbridled expansion in money and credit in train since the early 1980s. In the meantime we have arrived at a juncture where central banks are “forced” to adopt ever more insane policies as they rush from trying to prevent one potential systemic collapse after another. [PT]
Re-Purposing of Tractor Parts in South Dakota
The price of gold was all but unchanged, but the price of silver dropped another 46 copper pennies last week.
We came across an article showing pictures of something we have previously described: sculptures made from parts taken from farm tractors.
Here is a picture I took:
The good old Predator made of tractor parts – looks almost like the real thing! Here is background information on the artist and more pictures of his work. [PT]
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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Austrian Theory and Investment
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