Category Archives: Investing

Digital Money Is Coming to America, by Bill Bonner

Inflationary regimes have often swapped the old, depreciated-to-next-to-nothing currency for a brand new, nominally revalued and reset currency that soon sinks to next to nothing. Right now the world’s inflationary regimes are scheming to replace currencies, especially that hard to track paper money, with digital, easy to monitor, currencies. From Bill Bonner at rogueeconomics.com:

Week 28 of the Quarantine

SAN MARTIN, ARGENTINA – For half a century, America’s greatest export has been the dollar. So much so that there are now more physical dollars outside the U.S. than in it.

Overseas, people use dollars as an alternative to their own money. Foreigners are more familiar with Ben Franklin than Americans. In many places, people cling to U.S. dollars like a drowning man to driftwood.

Here in Argentina, for example, inflation is already running at about 50% per year. People think it will get a lot worse. So they prepare by trading their pesos for dollars – now at a rate of 150-to-1.

Sinking Dollar

But what happens when the dollar sinks?

The question is premature. Almost naïve.

For the present, the dollar is as buoyant as an empty plastic bottle. The velocity of money – a key component of consumer price inflation – is actually going down.

Americans are happy to get dollars from the government. And foreigners are happy to get them any way they can.

But soon, everyone will see that the U.S. feds are acting like the people who run sh*thole countries. They stifle the economy with laws and regulations – shutdowns, moratoria on evictions, $1,200 checks for everyone – and try to finance it with printing-press money.

We have no superpowers here at the Diary. We cannot climb walls, fly through the air, or see through concrete walls. So we cannot tell you when or how the dollar fails.

But today, we will explore the question of what you should do about it.

Continue reading

Wall Street is firmly in Wonderland, by Edward Chancellor

Anything resembling fiscal rectitude and propriety on Wall Street are things of the past. From Edward Chancellor at reuters.com:

LONDON (Reuters Breakingviews) – Alice was tired of studying for the CFA exams, the figures in the spreadsheet were blurry, she laid her head on the desk…

Her first day at Tweedle Asset Management was going to be a busy one. She was escorted around the offices by a young staffer named Otto. Their first visit was to the bond team. Fixed income was Alice’s keenest interest.

“Do you hold bonds for income?” she eagerly asked. Everyone laughed. “Are you dreaming?” the desk head replied rudely. “The coupon is subtracted from the principal, not paid out. If it’s income you want, you should take out a Danish mortgage, they pay very well. Or sell short Swissies.”

“But why own a bond, if it doesn’t pay interest?” replied Alice, who’d read her Homer and Sylla assiduously.

“As long as yields continue declining, even at negative rates we hold bonds for capital gains. If you want dividends, go ask the equity folks.”

“I see,” said Alice doubtfully, hoping that stock market investors would prove more sensible. At least they valued investments by discounting future income streams. But on opening a door marked “Fundamental Active Equity”, she came across an empty trading floor.

“Oh, we closed down that team last month – they’d been underperforming for decades,” said Otto.

“What was their problem – did they buy overpriced stocks?” Alice asked, keen to show off her knowledge of Fama and French.

“That’s exactly what they didn’t do!” replied Otto scornfully. “They stuck with value, and as everybody knows value sucks. If you want to outperform, you’ve got to show your FANGs.”

Continue reading→

Could Wall Street Lose the Election? by Charles Hugh Smith

Popular anger with Wall Street is rising, perhaps because Wall Street is filled with grifters and crooks. From Charles Hugh Smith at oftwominds.com:

Two simple regulations would drive a stake through Wall Street’s corrupt, evil heart.

While the corporate media is focused on the presidential election, perhaps the more interesting question is: could Wall Street Lose the election? That is, could Wall Street face potentially fatal restrictions regardless of who wins?

If this seems farfetched, consider the history of abrupt social-political-financial turn-arounds that surprised the mainstream. Off the top of my head I would point to Big Tobacco and environmental controls on Big Industry.

For decades, Big Tobacco was politically invulnerable. Big Tobacco greased the political machinery with huge contributions to politicos and massive lobbying campaigns to deny the self-evident reality that smoking was hazardous to human health.

Every effort to change this political dominance was thwarted with ease–and then suddenly, Big Tobacco fell out of favor. Politicians who had collected millions of dollars in Big Tobacco bribes–oops, I mean campaign contributions–without any blowback were suddenly in the spotlight as enablers of an industry that had remorselessly killed millions of its customers while claiming that tobacco’s health effects were still a matter of debate and/or choice.

Practically overnight the political walls protecting Big Tobacco crumbled as all the lies and political complicity that had long been accepted as “normal” were denormalized.

Big Industry encountered little political resistance to its decades-long dumping of industrial waste into the nation’s waterways and air until 1970. Images of American rivers catching fire changed public perceptions and eventually even Big-Business-friendly Republicans supported environmental regulations that cost Big Industry tens of billions of dollars in new costs.

Continue reading

Central Banks Bailed Out Markets To Avoid Trillions In Pension Losses, by Tyler Durden

The last thing that the world’s many underfunded pensions need is bear markets in either stocks or bonds. Can central banks save their bacon? From Tyler Durden at zerohedge.com:

The Organization for Economic Co-operation and Development (OECD) recently published a report showing how pension funds in OECD countries recorded a massive loss of approximately $2.5 trillion during the stock market meltdown in February through late March. Shortly, after that, central banks intervened with monetary cannons to rescue stock markets and other financial assets to avoid pension returns from going negative.

The spread of COVID-19 worldwide and its knock-on effects on financial markets during the first quarter of 2020 are likely to have reversed some of these gains. Early estimates suggest that pension fund assets at the end of Q1 2020 could have dropped to USD 29.8 trillion, down 8% compared to end-2019 [or about a $2.5 trillion loss].

The drop in pension fund assets is forecast to stem from the decline in equity markets in the first quarter of 2020. Returns, inclusive of dividends and price appreciation, were negative on the MSCI World Index in the first quarter of 2020 (-20%), and between -11% and -24% on the MSCI Index for Australia, Canada, Japan, the Netherlands, Switzerland, the United Kingdom, the United States.

An increase in the price of government bonds that pension funds own could partly offset some of the losses that pension funds experienced on equity markets in Q1 2020. Some Central Banks, such as the Federal Reserve in the United States, cut interest rates in 2020 to support the economy. The fall in interest rates may lead to an increase in the price of government bonds in the portfolios of pension funds as the yields of newly issued bonds decline. – OECD

Bloomberg’s Lisa Abramowicz pointed out in a tweet, “this report [referring to the OECD report] shows the massiveness of pension assets & points to why central banks are tethered to bailing out markets: social infrastructures depend on their not going down too much.”

Continue reading→

Deep State to Powell: Stop Goosing Stocks Higher Or You’ll Re-Elect Trump, by Charles Hugh Smith

Traditionally there’s been a strong correlation between the stock market and the electoral fortunes of presidents and their challengers. From Charles Hugh Smith at oftwominds.com:

Come on, Jay, you can always goose stocks back to new highs after the election.

Indulge me for a moment in some backroom speculation. It’s absurdly obvious that the unelected, permanent, ever-expanding National Security State, a.k.a the Deep State, and its Democratic Party allies have been attempting to torpedo Donald Trump since the 2016 election took them by surprise. (Imagine doing everything that worked so well in the past and failing at the last minute. Ouch. Revenge is best served cold, n’est pas?)

The comedy-of-errors RussiaGate collapsed in a foul heap, the impeachment backfired, and so what’s left in the Deep State quiver other than its usual bag of, ahem, accidents?

Some might argue that urban riots and civil unrest might be enough to cause Trump to lose the election in November, but this strategy can backfire just as easily as the previous Deep State strategies.

Assuming Americans will ultimately vote their pocketbook as in the past, the only sure way to sink Trump is to crash the stock market, the jewel in Trump’s crown. This is blinding obvious, but the Deep State’s political allies have been wary of shrinking the bloated wealth of their donors, and wary of a backlash from the wealthy who want to see Trump lose but not if it requires the personal sacrifice of surrendering any of the $548 billion they’ve gained in the recent stock market melt-up.

But with the election just months away, the pressure is now so intense that the Deep State is demanding Powell and the Fed stop the money-printing that’s goosing stocks higher. Hints have been elevated to suggestions which are about to become demands.

Continue reading

Doug Casey on the Coming Bond and Real Estate Collapse and Where the Next Bubble Will Be

The bond market isn’t an accident waiting to happen, it’s a cataclysmic disaster waiting to happen. From Doug Casey at internationalman.com:

International Man: The bond super bubble continues to get bigger. Interest rates seem to be headed even lower from here. Is this the blow-off top in the bond market?

What do you think will cause central banks to lose control and for interest rates to head higher?

Doug Casey: Even with the Fed bailing out major institutions—which it will continue to do, just like back in 2008–2009—the fundamentals underlying many businesses are so bad that a lot of them are going to collapse. I’m not just talking about the obvious candidates—retail, restaurants, airlines—but across the board.

As that starts happening, people will realize that the cat’s really out of the bag, that this isn’t just another cyclical downturn—it’s genuine depression. And almost everything the government is doing is not only the wrong thing but the exact opposite of the right thing.

The worst possible place for money today may not even be the stock market, as dangerous as it is. It’s the bond market. Bonds aren’t just in a bubble. They’re in a hyper-bubble.

The bond hyper-bubble is serious because there’s so much debt in the world at such low interest rates. When reality reasserts itself, interest rates start heading up—not just to levels that show a real yield after inflation but levels from the early ’80s, which ranged from 10% to 20%. The bond market is heading toward its long-overdue collapse.

Continue reading

Doug Casey: Four Steps to Generate – and Preserve – Cash

If you’d like to augment your wealth, it doesn’t hurt to listen to a rich guy. From Doug Casey at caseyresearch.com:

Even if you are already wealthy, some thought on this topic is worthwhile. What would you do if some act of God or of government, a catastrophic lawsuit, or a really serious misjudgment took you back to square one? One thing about a real depression is that everybody loses. As Richard Russell has quipped, the winners are those who lose the least.

As far as I’m concerned, the Greater Depression is looming, not just another cyclical downturn. You may find that although you’re far ahead of your neighbors (you own precious metals, you’ve diversified internationally, and you don’t believe much of what you hear from official sources), you’re still not as prepared as you’d like.

I think a good plan would be to approach the problem in four steps: Liquidate, Consolidate, Create, and Speculate.

Step 1: Liquidate

Chances are high that you have too much “stuff.” Your garage, basement, and attic are so full of possessions that you may be renting a storage unit for the overflow. That stuff is costing you money in storage fees, in depreciation, and in the weight of psychological baggage. It’s limiting your options… It’s weighing you down. Get rid of it.

Continue reading

What Unicorn Money-Sinkholes Actually Disrupt, by Wolf Richter

The American start-up finance industry has some serious flaws. From Wolf Richter at wolfstreet.com:

They have accomplished an amazing feat: losing tons of money year after year during the Good Times in what were profitable industries.

What do the companies Wayfair, Zillow, Uber, Lyft, WeWork, Carvana, Tesla, Airbnb, Casper Sleep, Zume, and many others have in common in addition to their current or former status as unicorns with huge valuations?

There is one fundamental thing they all have in common: Supported by what seemed to be an endless flow of investor money, they barged into profitable industries, such as retailing furniture, house flipping, real estate brokerage, taxi operations, serviced temporary offices, selling used cars, manufacturing new cars, retailing mattresses, pizza delivery, and the like, and they disrupted them by throwing around often billions of dollars that they obtained in wave after wave from investors.

And in these profitable industries, they accomplished an amazing feat: they managed very successfully to lose a running ton of money, not just the first year or two while getting their feet on the ground, but year after year, in many cases for over a decade, without hopes of ever making a profit as defined, not by their own home-made metrics, but by Generally Accepted Accounting Principles, or GAAP.

Continue reading

David Stockman on Inflation, Gold, and Personal Freedom in the Post COVID-19 World

There will be inflation; buy gold, and there will be little personal freedom. From David Stockman at internationalman.com:

International Man: Do you think there will be retail inflation in the months ahead?

David Stockman: I think it’s hard to say because there are opposite forces at work.

On the one hand, if you look at something like oil and commodities, generally, we’re in a territory we’ve never been in before. The current demand for oil dropped by 30 million barrels a day, where they used to focus on blips of 400,000 a day, plus or minus.

This last effort to prop up the OPEC cartel is failing very fast. That side of the price index of the market basket is likely to head south very strongly.

On the other hand, supply chains are being disrupted with increasing intensity.

We’re looking at these meat processing plants that are being shut down. We’re looking at farmers who can’t get their products to market, and we’ll see more of that as we get into the production season this year. That’s just in the food area.

If we look at manufactured goods, China seems to be coming back to life a little bit, but the supply chains between here and there have been disrupted. There are big questions about what—in terms of both necessities and discretionary goods—will be available.

Continue reading

Gundlach Warns Stay Away From Gold ETFs: “What Happens If Everyone Wants Delivery”, by Tyler Durden

People who buy gold often distrust pieces of paper called currencies. If you buy gold, by the actual yellow shiny stuff, not pieces of paper called ETFs. From Tyler Durden at zerohedge.com:

The internal mechanics of the gold market are again showing strains under this rally. The gap between New York futures and spot prices in London is still elevated, a sign of lingering concern over future supply of the physical form of the metal.

While investors continue to seek gold as a haven, it’s still difficult to ship bullion around the world due to coronavirus-related restrictions, sending futures prices even higher.

As Bloomberg reports, until recently, that was unheard of in a metal that’s so utterly fungible, so easy to transport and where trade channels are so deeply established. But with planes grounded and refining capacity severely restricted, don’t expect the arbitrage to break down immediately.

“People are paying the premiums over in the physical market and I think it’s rolling into the futures,” said Peter Thomas, a senior vice president at Chicago-based broker Zaner Group.

“It’s safe-haven buying. People are scared.”

Continue reading→