Central Banks

     

 

 

Numbers from Bizarro-World

The past few months have been really challenging for anyone invested in gold or silver; for me personally as well. Despite serious warning signs in the economy, staggering debt levels and a multitude of significant geopolitical threats at play, the rally in risk assets seemed to continue unabated.

 

Bizarro-World intrudes into our reality, courtesy of central banks. [PT]

 

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Worldwide Liquidity Drought – Money Supply Growth Slows Everywhere

This is a brief update on money supply growth trends in the most important currency areas outside the US (namely the euro area, Japan and China)  as announced in in our recent update on US money supply growth (see “Federal Punch Bowl Removal Agency” for the details).

 

Nobody likes a drought. This collage illustrates why.

 

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US Money Supply and Credit Growth Continue to Slow Down

Not to belabor the obvious too much, but in light of the recent sharp rebound, the stock market “panic window” is almost certainly closed for this year.* It was interesting that an admission by Mr. Powell that the central planners have not the foggiest idea about the future which their policy is aiming to influence was taken as an “excuse” to drive up stock prices. Powell’s speech was regarded as dovish. If it actually was, then it was a really bad idea to buy stocks because of it.

 

Jerome Powell: a new species of US central banker – a seemingly normal human being in public that transforms into the dollar-dissolving vampire bat Ptenochirus Iagori Powelli when it believes it is unobserved.

 

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Investment Grade Junk

All is now bustle and hubbub in the late months of the year.  This goes for the stock market too. If you recall, on September 22nd the S&P 500 hit an all-time high of 2,940.  This was nearly 100 points above the prior high of 2,847, which was notched on January 26th.  For a brief moment, it appeared the stock market had resumed its near decade long upward trend.

 

We actually did not believe in the validity of the September breakout attempt: the extremely large divergence between the broad market and the narrow big cap leadership was one of many signs that an internal breakdown in the stock market was well underway. It is probably legitimate to refer to the January 2018 high as the “orthodox” stock market peak – the point at which most stocks topped out. [PT]

 

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Remaining Focused

A rousing display of diversions this week assured the American populace was looking every which way but right under its collective nose.  Midterm elections.  White House spats with purveyors of fake news.  The forced resignation of Attorney General Sessions…

 

Old drug warrior (otherwise recused) on his way home to Alabama…

 

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Aiming for Knowledge and Better Decision-Making

The price of yellow metal went up nine bucks last week. And the price of silver three rose cents, which is back to where it was two weeks earlier. We need to rant, and promise to tie it back to the prices of the metals. We have written these past several weeks about the fact that the franc has been rendered useless. Owning a franc does nothing for you, other than to trade to the next person at hopefully a higher price.

 

When the money of the realm becomes literally useless as money – the charts and data example above shows excerpts of what happened in Germany from WW1 to the hyperinflation blow-out of 1923. In the end, one simply could no longer use the Reichsmark as a medium of exchange. [PT]

 

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A Piece of Paper Alone Cannot Secure Liberty

The idea of a constitution and/or written legislation to secure individual rights so beloved by conservatives and among many libertarians has proven to be a myth. The US Constitution and all those that have been written and ratified in its wake throughout the world have done little to protect individual liberties or keep a check on State largesse.

 

Sound money vs. a piece of paper – which is the better guarantor of liberty? [PT]

 

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Federal Reserve Credit Contracts Further

We last wrote in July about the beginning contraction in outstanding Fed credit, repatriation inflows, reverse repos, and commercial and industrial lending growth, and how the interplay between these drivers has affected the growth rate of the true broad US money supply TMS-2 (the details can be seen here: “The Liquidity Drain Becomes Serious” and “A Scramble for Capital”).

 

The Fed has clearly changed course under Jerome Powell – for now, anyway.

 

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Orchestrated Larceny

The government continues its approach towards full meltdown. The stock market does too. But when it comes down to it, these are mere distractions from the bigger breakdown that is bearing down upon us.

 

Prosperity imbalance illustrated. The hoi-polloi may be getting restless. [PT]

 

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Conditioned to Absurdity

The unpleasant sight of a physical absurdity is both grotesque and interesting.  Only the most disciplined individual can resist an extra peek at a three-legged hunch back with face tattoos.  The disfigurement has the odd effect of turning the stomach and twisting the mind in unison.

 

Francesco Lentini, the three-legged man. Born in Sicily in 1881 with “three legs, four feet, sixteen toes and two pair of functioning genitals” he made a career of his disfigurement and worked for circus sideshows until his death at age 78. [PT]

 

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Capital Flight vs. The Effect of QE

Mish recently discussed the ever increasing imbalances of the euro zone’s TARGET-2 payment system again in response to a few articles which played down  their significance. He followed this up with a nice plug for us by posting a comment we made on the subject. Here is a chart of the most recent data on TARGET-2 available from the ECB; we included the four largest balances, namely those of  Germany, Italy, Spain and the ECB itself.

 

The most prominent (largest) TARGET-2 imbalances in the euro area have reached new record highs this year. Is or isn’t this a reason for concern?

 

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A Spike in Bank Lending to Corporations – Sign of a Dying Boom?

As we have mentioned on several occasions in these pages, when a boom nears its end, one often sees a sudden scramble for capital. This happens when investors and companies that have invested in large-scale long-term projects in the higher stages of the production structure suddenly realize that capital may not be as plentiful as they have previously assumed. The wake-up call usually involves a surge in market interest rates and subtle shifts in relative prices in  the economy (consider for instance the recent decline in new home prices amid declining sales). Interest rates have certainly provided a signal lately:

 

Short term USD interest rates: 2-year treasury note yield, 3-month t-bill discount rate and LIBOR (USD interbank lending rate in London, used as a benchmark for rate adjustments of countless bonds, loans, swaps, derivatives, etc.).

 

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

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