On Economy

     

 

 

Involuntary Early Retirement of a Middle Eastern General

The procession of news through the week – namely that chronicling the aftermath of the targeted drone strike and killing of Iranian General Qasem Soleimani – advanced with an agreeable flow.  The reports at the start of the week were that Orange Man Bad had spun up a Middle Eastern mob of whirling dervishes beyond recall. World War III was imminent.

 

The recently expired general, when he was still among the quick – and seemingly in a good mood.  [PT]

Photo via harpy.ir

 

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Fiat Currency Rankings – From Bad to Worse

Today, as we step into the New Year, we reach down to turn over a new leaf.  We want to make a fresh start.  We want to leave 2019’s bugaboos behind. But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money.  We can’t escape it.  But we refuse to believe in its permanence.

 

This is what “monetary stability in the Fed-administered fiat money regime looks like: in the year the Fed was established it took $3.80 to buy what $100 buy today – provided the government’s CPI data are actually a valid gauge of the dollar’s purchasing power. [PT]

 

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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]

 

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World Class Entertainer in the Cross-Hairs

Christmas is no time to be given the old heave-ho.  This is a time of celebration, redemption, and excess libation.  A time to shop ‘til you drop; the economy depends on it. Don’t get us wrong.  There really is no best time to receive the dreaded pink slip.  But Christmas is the absolute worst.  Has this ever happened to you?

 

The verdict: Orange man bad! [PT]

 

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Addicted to Spending

There are many falsehoods being perpetuated these days when it comes to money, financial markets, and the economy. But when you cut the chaff, three related facts remain: Uncle Sam needs your money. He needs a lot of your money. And he needs it bad!

 

The inescapable logic of tax & spend: empty vault… empty pockets… gimme more! [PT]

 

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Panem et Circenses

The transfer of wealth from workers and savers to governments and big banks continued this week with Swiss-like precision. The process is both mechanical and subtle. Here in the USA the automated elegance of this ongoing operation receives little attention.

 

Give them bread and circuses and they will never revolt… so said Juvenal, reportedly [PT]

 

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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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Poland’s Gold and the Conspiracy Theorists

The price of gold was up enough to buy a bottle of Two Buck Chuck wine, and the price of silver was up enough to buy a wooden nickel (well, not enough to buy a real nickel nickel).

 

Poland’s gold bars are packaged by employees of G4S International Logistics to be transported from London to Poland. Poland’s gold was originally transferred to London at the beginning of WW II, when Stalin and Hitler invaded and partitioned the country in the late 1930s. For some reason Poland’s post-war communist government left it there – presumably because it was easier to sell in London. [PT]

Photo credit: G4SI

 

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The Bubble Machine

The launch angle of the U.S. stock market over the past decade has been steep and relentless. The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent. New highs continue to be reached practically every day.

 

S&P 500 weekly, since the low of 2009. A party of roaring 20s proportion in terms of duration, extent and end point valuations (a post-war inflation episode triggered a devastating bear market from November 1919 to August 1921, in which the DJIA fell from ~120 to ~64 points. It then rose until early September 1929, topping at ~380 points. By the time it peaked, Wall Street had created all sorts of new-fangled instruments such as the then highly popular investment trusts, everybody was speculating on margin and the equivalent of today’s FANGs such as RCA (“Radio”) traded at previously unheard of multiples – as did the rest of the market. Numerous sharp corrections along the way had eradicated the perception of risk in investors’ minds. We have discussed the parallels between the two eras before, and in the meantime another parallel can be discerned in the charts. In late 1928 the market suffered a sharp sell-off in the normally seasonally strong period, very similar to what occurred in 2018. It was the biggest correction of the entire bull market, but the market swiftly rallied again and by February 1929 it made new highs. It then proceeded to build a chart formation known as “three peaks and a domed house”. The three peaks of 2019 are not a perfect replica of the basic schematic of the formation, but the timing is in line with it (they are supposed to be established within 6-10 months). George Lindsay’s original schematic is very detailed, it is therefore unlikely that the pattern will repeat perfectly every time. The so-called domed house can take up to 7 months to form, but we would focus on the shape rather than the precise duration. Whether the formation does indeed form remains to be seen. It is definitely something worth keeping an eye on. [PT]

 

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Monetary Lunacy, Nipponese Version

Earlier this month, Bank of Japan (BOJ) Governor Haruhiko Kuroda commented that Japan’s central planners are considering a 50-year government bond issue as a long-term means of putting a floor under super-long interest rates.  How this floor would be placed is extremely suspect; we will have more on this in a moment.  But first, the dual benefits – according to Japan’s central planners…

 

Kuroda-san: the man with a plan, or rather, a plethora of plans (過剰な計画). [PT]

 

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Prettifying Toxic Waste

The promise of something for nothing is always an enticing proposition. Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?

 

The yield-chasing hamster wheel… [PT]

 

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Two Interesting Recent P&P Interviews

Our friend Maurice Jackson of Proven and Probable has recently conducted two interviews which we believe will be of interest to our readers. The first interview  is with Brien Lundin, the president of Jefferson Financial, host of the famed New Orleans Investment Conference and publisher & editor of the Gold Newsletter – an investment newsletter that has been around for almost five decades, which actually makes it the longest-running US-based investment newsletter focused on precious metals. Its staying power speaks for itself.

 

Brien Lundin speaking at the 2012 New Orleans Investment Conference.

 

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Most read in the last 20 days:

  • How the Fed Robs You of Your Life
      Fiat Currency Rankings - From Bad to Worse Today, as we step into the New Year, we reach down to turn over a new leaf.  We want to make a fresh start.  We want to leave 2019’s bugaboos behind. But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money.  We can’t escape it.  But we refuse to believe in its permanence.   This is what “monetary stability in the Fed-administered fiat money regime looks like: in the year the Fed was...
  • Wealth Consumption vs. Growth - Precious Metals Supply and Demand
      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...
  • Geopolitical Shocks and Financial Markets
      Involuntary Early Retirement of a Middle Eastern General The procession of news through the week – namely that chronicling the aftermath of the targeted drone strike and killing of Iranian General Qasem Soleimani – advanced with an agreeable flow.  The reports at the start of the week were that Orange Man Bad had spun up a Middle Eastern mob of whirling dervishes beyond recall. World War III was imminent.   The recently expired general, when he was still among the quick...

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