Category Archives: Financial markets

Bonds Die, CPI’s Lie, & Gold Flies, by Matthew Piepenburg

Even bonds have declined in price somewhat, they’re still a terrible investment. From Matthew Piepenburg at goldswitzerland.com:

Below we look at Gold’s rise in a backdrop of more bond destruction in the public markets and more truth destruction in the war on inflation.

No Recession Yet?

As I argued in 2022, the much-debated and pending recession was in many ways already here, despite official attempts to re-define the same.

The thousands being laid off at Google, Amazon and even Goldman Sachs in 2023, for example, can likely attest to that.

Speaking of recession, last week’s embarrassing Empire Manufacturing report of -32.9 adds more confirmation that productivity and growth are not going to save our increasingly knee-capped economy.

In fact, the manufacturing figures have not been this bad since 2008 and 2020, which, if I recall, were pretty bad vintage years for markets—”saved” only by money printing at warp speed.

This, of course, raises the ever-charged question of whether Powell will be forced to return to more desperate mouse-click money creation—i.e., “quantitative easing.”

For now, of course, the current Fed is going the other direction, “tightening” rather than “easing” reserve assets to the tune of -$95B per month into a perfect debt storm.

As we’ll see below, this lose-lose option is just one of many hidden mines lying just beneath the surface of an already limping US Treasury market.

In the meantime, the dumb just keeps getting dumber.

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Seven Points on Investing in Treacherous Waters, by Charles Hugh Smith

There are very few good investors. From Charles Hugh Smith at oftwominds.com:

What’s truly valuable has no price and cannot be bought.

If all investments are being cast into Treacherous Waters, our investment strategy must adapt accordingly. Once we set aside denial and magical thinking as strategies and accept that we’re in treacherous waters, a prudent starting point is to discern the most consequential contexts of all decisions about where and how we invest our time, energy and capital.

The most consequential global context is to first and foremost “invest in yourself”: invest in forms of capital that cannot lose value (for example, integrity, skills and experience) and assets that are not dependent on fluctuations in valuations for their utility. This is the essence of Self-Reliance.

For example, tools retain their utility regardless of their current market value, and so does a house as shelter and yard to grow food. Whether the value drops to $1,000 or soars to $1 million, the property provides the same utility of shelter and sustenance.

In other words, the mindset of speculation–buy low and sell high to accumulate as much money as possible–is not the only context to consider.

A second global context is that speculative winners–assets that rise sharply in value–will increasingly be targets for “windfall” and/or wealth taxes, as well as capital controls, such as limits on selling. If you log a 500% gain, then paying a wealth tax is a small price to pay for such a handsome gain. But such enormous gains will very likely be far more scarce going forward as speculative bets become net drains on capital and speculators exit because their gambling chips are gone or they realize they better conserve what capital is still left.

Meanwhile, back on the Government Ranch, the crying need for more tax revenues will become increasingly dire. As speculative bubbles pop, capital gains will dry up and blow away, and this rich source of tax revenues will have to be replaced with higher taxes and junk fees on whatever income and assets are available for “revenue enhancement,” ahem.

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Gold And The Shrinking Trust Horizon, by John Rubino

Gold has never told a lie. From John Rubino at rubino.substack.com:

Last week I posted an article on the implosion of the official vaccine narrative. That’s a controversial topic so not surprisingly it generated some heat on both sides. And a few readers expressed the wish that I’d stay in my lane (precious metals investing) and avoid venturing into unrelated and less well understood territory.

But believe it or not, the public health establishment losing its credibility is related to precious metals, via something called the trust horizon. It works like this: When things are good and the people in charge of big systems seem to be running them well, we’re content to trust the experts. We keep most of our money in banks, brokerage houses, and crypto wallets that exist for us only as websites. We buy produce that’s grown in a different hemisphere and shipped via boats, trains, and trucks to corporate chain grocery stores. We vaccinate ourselves and our kids according to the schedules set by the NIH or the CDC. We pop pills on our doctor’s orders without doing any research. We eat processed foods on the assumption that the FDA keeps them free of dangerous additives. And we believe what we see on cable news.

In other words, our trust horizon, defined as the distance from ourselves at which we’ll believe what we’re told, is global. We assume everything everywhere is working for our benefit and we’re thus willing to put our welfare in those distant hands.

But let some big systems fail to take proper care of us and we pull back, finding people and institutions closer to home that we can see and judge first-hand. We move our money out of distant banks and brokers and into local credit unions whose managers live down the street. We start buying groceries from farmers markets or directly from local farmers. Instead of popping whatever pill is standard for our ailments we look into “food as medicine” and other lifestyle remedies like exercise, supplements, and meditation. We homeschool our kids and join gun clubs. We buy homesteads and start raising chickens.

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What Goes Up Also Comes Down: The Heavy Hand of Bubble Symmetry, by Charles Hugh Smith

Many financial bubbles end up from where they started. From Charles Hugh Smith at oftwominds.com:

Should bubble symmetry play out in the S&P 500, we can anticipate a steep 45% drop to pre-bubble levels, followed by another leg down as the speculative frenzy is slowly extinguished.

Bubble symmetry is, well, interesting. The dot-com stock market bubble circa 1995-2003 offers a classic example of bubble symmetry, though there are many others as well. The key feature of bubble symmetry is the entire bubble retraces in roughly the same time frame as it took to soar to absurd heights.

Nobody could see bubble symmetry coming, of course. At the peak and for some time after, bubbles are viewed as the natural order of markets and so they should continue expanding forever.

Alas, the natural order of markets is mean reversion and the collapse of whatever is unsustainable. This includes speculative manias, credit bubbles, asset bubbles and projections of endless expansion of margins, profits, sales, consumption, tax revenues and everything else under the sun.

There’s a well-worn psychological path in the collapse of bubbles. This path more or less tracks the Kubler-Ross phases of denial, anger, bargaining, depression and acceptance, though the momentum of speculative frenzy demands extended displays of hubris and over-confidence, i.e. the first wobble “must be the bottom.”

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Heretical Thoughts on Orthodoxies, by Charles Hugh Smith

Orthodoxy cannot be challenged, which means that can’t adapt to present realities or change in response to new ones. From Charles Hugh Smith at oftwominds.com:

Heresy evolves, orthodoxy cannot. Plan accordingly. Orthodoxies offer the comforting illusion of solidarity. But in what lies ahead, we’re on our own.

In today’s world, the key orthodoxies are secular rather than religious: they are economic, ideological, political. Religious orthodoxy is in the spiritual realm. It may have secular ramifications (for example, Galileo being forced to renounce his scientific advances) but it doesn’t deal with forecasts of real-world systems.

Economic, ideological and geopolitical orthodoxies are different. They make forecasts about the real world, and they will be right or wrong.

The orthodoxies are roughly divided into two camps: the Establishment/Status Quo orthodoxies and the alternative orthodoxies.

Both are fiercely defended by True Believers, as the orthodoxy is the foundation of the True Believers’ identity and worldview.

The two orthodoxies aren’t necessarily diametrically opposed. Sometimes they overlap.

Much of what passes for “informed commentary” now is nothing more than True Believers cherry-picking whatever supports their orthodoxy. In this mindset, what’s important is that everyone agrees with the orthodoxy. Public fealty to the orthodoxy is all that matters.

In this climate, projecting an outcome that doesn’t fit an orthodoxy is heresy and must be suppressed.

I don’t see any value in trying to persuade others to agree with me. The analysis goes where it goes, and it doesn’t really matter if we like the conclusion or no

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Open Madness in Global Bond Markets: Got Gold? by Matthew Piepenburg

It’s inevitable that sovereign bond markets of bankrupt sovereigns will fall apart. From Matthew Piepenburg at goldswitzerland.com:

The slow but steady implosion of global bond markets is no longer a debate but fact. Knowing this, investors can better brace themselves for the policy and market reactions to come.

Below, we once again follow the patterns of math and cycles (as well as the open failure of policy makers) to foresee the direction of risk assets, currencies and gold.

The End of Negative Yields: Anything but a Good Sign

Recently, Bloomberg happily announced that the era of “negative yielding” (which technically means “defaulting”) USD bonds is over as yields are now “nominally positive.”

Global bond markets

“Great news!” they tell the huddling masses.

Nothing, however, could be further from the truth.

Let me repeat that: Nothing could be further from the truth.

Yields are only outpacing already embarrassing inflation metrics because bond prices, which move inversely to yields, are tanking in a world which no longer wants or trust USD-based IOUs.

In other words: All this means is that bonds are tanking and inflation is roaring at the same time.

Great news?

Furthermore, this so-called “return to normalcy” in positive nominal yields is in fact a neon-flashing sign (or needle) pointing toward the end (and bursting) of a global debt bubble in government bonds.

What’s worse, and as the following graph makes objectively clear, is that it’s not just sovereign bonds that are tanking, but the entire credit asset class, from CMBS to Investment Grade.

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Banking Institutions Quietly Admit To Inevitable Recession Implosion In 2023, by Brandon Smith

Is the Fed deliberately causing a financial and economic crisis? From Brandon Smith at alt-market.com:

 

As the Federal Reserve continues its fastest rate hike cycle since the stagflation crisis of 1980, a couple vital questions linger in the minds of economists everywhere – When is recession going to strike and when will the Fed reverse course on tightening?

The answers to these queries are at the same time simple and complex: First, the recession has already arrived. Second, the Fed is NOT going to reverse course, though they will probably stop tightening for a time.

The technical definition of a recession in the US is two consecutive quarters of negative GDP growth. We already experienced that in 2022, which led the Biden White House and puppet economists within the mainstream media to change the definition. The Federal Reserve also ignored deflationary signals throughout the last year and evidence suggests the central bank along with the Biden Administration even tried to hide the downturn with false employment numbers.

For a few years I have predicted that the establishment would shift into a monetary tightening phase and they would continue with interest rate hikes and balance sheet reductions until markets break and the system destabilizes. That prediction has proven accurate so far, and the evidence shows that elements of a financial black hole have already been created.

The St. Louis Fed has quietly published data indicating that the US is now entering a recession. This admission was posted right before the new year, clearly as a means to avoid wider media attention. The news also comes not long after the Philadelphia Fed revised their 2nd Quarter labor growth numbers, erasing a whopping 1 million jobs from their original estimates.

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Japan Is Perhaps the Most Important Risk in the World, an Interview with Jim Grant and Christoph Gisiger

The Japanese bond market is a financial time bomb whose fuse has been lit. From Christoph Gisiger and Jim Grant at themarket.ch:

Speculation is mounting that the Bank of Japan is losing control of the bond market. Jim Grant, editor of «Grant’s Interest Rate Observer», believes this could trigger a shock to the global financial system. He also explains why he expects further surges in inflation and why gold should be part of your portfolio.

The news caught markets off guard: On December 20th, the Bank of Japan surprisingly extended the target range for the yield on ten-year government bonds to plus/minus 0.5%. A move that not a single economist had expected.

This week, the Bank of Japan could announce a major policy shift amid rising government bond yields and a strengthening yen. Although barely a month has passed since the BoJ’s last meeting, the bond market is already testing the new upper limit of the yield curve control regime.

«To us, Japanese interest rate policy resembles the Berlin Wall of the late Cold War era, a stale anachronism that must sooner or later fall,» says Jim Grant. For the editor of the iconic investment bulletin «Grants’ Interest Rate Observer,» recent developments in Japan pose an underestimated risk to global financial markets. Not least because virtually no one is talking about it.

In an in-depth interview with The Market NZZ, which has been slightly edited for clarity, Mr. Grant explains what it means for financial markets if the Bank of Japan is forced to scrap its yield curve control policy. But first, he says why he doesn’t believe inflation will end soon, why bonds may be at the start of a long bear market, and why he believes gold is the best choice as a store of value.

«If the past is prologue and if the great bond bull market is over, then on form, we are looking at what could be a very prolonged and perhaps gradual move higher in interest rates»: Jim Grant.

«If the past is prologue and if the great bond bull market is over, then on form, we are looking at what could be a very prolonged and perhaps gradual move higher in interest rates»: Jim Grant.

What do you observe when you look at the financial world today?

Well, it’s always the same, and – here’s the catch – it’s always a little different. The trick is to identify the unique or unusual feature of a familiar cycle. In this regard, it helps to know a little bit of financial history, and to just that extent it helps to be a little old. But what is not helpful is to mistake the past for a certain roadmap to the future.

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The Great Decentralization, Part II, by Joel Bowman

A centuries-long trend towards ever-greater centralization has run its course. From Joel Bowman at bonnerprivateresearch.com:

Joel Bowman, appraising the situation from Buenos Aires, Argentina…

Welcome to another Sunday Session, dear reader… that time of the week when we step away from the Monday-Friday war of attrition and take a moment to contemplate the bigger picture, such as we can… all with the animating assistance of a glass of two of high-altitude Malbec

When we left you this time last week, we were ruminating over a theory of cycles, large and small. This is not a novel musing. In fact, greater thinkers have been puzzling over the subject for millennia, at least as far back as the ancient Greeks.

It was that clever ol’ Ephesian, Heraclitus, who believed in the universal concept of enantiodromia (later taken up by Nietzsche and Jung) – the idea that everything is at all times in the process of becoming its opposite; hot things cool, wet things dry, etc. One might consider this with regards to centralization vs. decentralization, top down control by the few vs. bottom up “spontaneous order” of the many, growth vs. value, life giving way to death…

The pendulum swings from one extreme to another, the emergent membrane between the two akin to that undefinable moment where one thing morphs into the other, when an edgy band becomes mainstream, when the politics of liberation becomes the politics of oppression, or when a young man looks in the mirror one day and sees an old man staring back at him.

In political terms, we think of peace giving way to war… then, once the parched earth is soaked in the blood of young men, yielding to peace once again.

“Great armies rise,” as Bill observed during the week, “and then – under the weight of their own booty, bureaucracy and brass – they fall.”

Today we continue our series on the nature of cycles with a look at how we view history itself. Please enjoy…

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It’s the Fed, Stupid! By Bill Bonner and Joel Bowman

Oligopolies don’t have printing presses. From Bill Bonner and Joel Bowman at bonnerprivateresearch.com:

Plus, a year of “I told you so’s” and plenty more to come…

Bill Bonner, reckoning today from Normandy, France…

Last year was such a hoot we are reluctant to say goodbye to it. It was one ‘I-told-you-so’ moment after another.

The Fed raised rates…trying to recover from the embarrassment of failing to see the approaching inflation.  The higher rates caused stocks to go down. The biggest losers were those that had just made the biggest gains – especially the big techs and cryptos.

It all happened pretty much as it should have happened. See, ‘I told you so.’

People try to complicate it. Disguise it. They aim to distract your attention from what is right before your eyes. They claim ‘capitalism failed’ or ‘corporate greed’ suddenly imposed itself or, for those with no ax to grind, simply that there were ‘supply chain interruptions.’ Here’s the hopeless Robert Reich, former US Labor Secretary, in The Guardian. He says corporate monopolies are to blame:

Worried about sky-high airline fares and lousy service? That’s largely because airlines have merged from 12 carriers in 1980 to four today.

Concerned about drug prices? A handful of drug companies control the pharmaceutical industry.

Upset about food costs? Four giants now control over 80% of meat processing, 66% of the pork market, and 54% of the poultry market.

Worried about grocery prices? Albertsons bought Safeway and now Kroger is buying Albertsons. Combined, they would control almost 22% of the US grocery market. Add in Walmart, and the three brands would control 70% of the grocery market in 167 cities across the country.

And so on. The evidence of corporate concentration is everywhere.

Put the responsibility where it belongs – on big corporations with power to raise their prices.

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