5 Big Drivers of Higher Inflation Rates Ahead

Investors got lulled into a state of inflation complacency.  Persistently low official inflation rates in recent years depressed bond yields along with risk premiums on all financial assets.

That’s changing in 2018. Five drivers of higher inflation rates are now starting to kick in.

Inflation Driver #1: Rising CPI

The Consumer Price Index (CPI) is a notoriously flawed measure of inflation.  It tends to understate real-world price increases. Nevertheless, CPI is the most widely followed measure of inflation.  When it moves up, so do inflation expectations by investors.

Insert Junk silver tile – verify the premiums displayed.

On February 13th, the Labor Department released stronger than expected CPI numbers.  Prices rose a robust 0.5% in January, with headline CPI coming in at 2.1% annualized (against expectations of 1.9%).

In response to the inflationary tailwinds, precious metals and natural resource stocks rallied strongly, while the struggling U.S. bond market took another hit.

Inflation Driver #2: Rising Interest Rates

Since peaking in mid-2016, the bond market has been stair-stepping lower (meaning yields are moving higher). In February, key technical levels were breached as 30-year Treasury yields surged above 3%. Some analysts are now calling a new secular rise in interest rates to be underway after more than three decades of generally falling rates.

The last big surge in interest rates started in the mid 1970s and coincided with relentless “stagflation” and soaring precious metals prices. It wasn’t until interest rates hit double digit levels in the early 1980s that inflation was finally quelled and gold and silver markets tamed.

Rising nominal interest rates are bullish for inflationary assets such as precious metals so long as interest rates are following the lead of inflation rates.  Only when interest rates get out ahead of inflation and turn positive in real terms are rising rates bearish. 

The Federal Reserve will face tremendous political pressure to keep its benchmark rate accommodative and also keep boatloads of bonds on its balance sheet in order to suppress long-term rates.

Inflation Driver #3: Trumpian Politics

Donald Trump has tied the success of his presidency to the level of the stock market like no other president has before.  It started the very day after election night 2016, when markets experienced a dramatic reversal higher…and never looked back. 

Tax cuts, de-regulation, and plans for big infrastructure spending have helped stimulate the economy and equity markets. President Trump touted the stock market during his 2018 State of the Union address. But shortly thereafter the market got hit with heavy selling as Trump’s new handpicked Fed chairman took over at the central bank. 

You can bet Jerome Powell will feel the heat from the White House if his policies hurt the stock market. The path of least political resistance is keep inflating – especially given the government’s enormous and growing debt load.

Inflation Driver #4: Rising Deficits

Trumponomics means greater economic stimulus….and larger budget deficits.  The fiscal year ahead is now projected to deliver a funding gap of nearly $ 1 trillion (with future deficits expected to exceed $ 1 trillion).  

These new trillions in spending will just get charged to the national credit card. It currently has a balance of $ 21 trillion (not including tens of trillions of dollars more in off the book unfunded liabilities).

All this new debt in a period of relative economic strength is setting up for a disaster when the economy eventually turns down and the deficits spike to unimaginable new highs.  The Fed can keep printing the dollars needed to keep the government solvent. But at some point, the world may lose confidence in the devaluing currency in which all these federal IOUs are denominated. 

The gathering debt crisis virtually ensures there will be a dollar crisis – which means there will be a massive inflation spike to “pay” for the government’s otherwise unpayable debts.

Inflation Driver #5: Rising Commodity Cycle

Commodity markets are cyclical in nature.  When prices for a commodity are low, production falls.  As new supplies diminish, the market tightens and prices move higher.  The higher prices incentivize producers to invest in production capacity and increase output.  Eventually, the market becomes oversupplied, prices fall, and the cycle starts all over again. 

Where are we in the commodity cycle now? Most likely in the early stages of a major upswing. Precious metals, base metals, and crude oil have all moved up off their most recent respective cycle lows. Agricultural commodities have lagged but are gaining some upside momentum so far in 2018.

The commodity markets slump from 2011-2016 caused investment in mining, drilling, and exploration to dry up. According to the International Energy Agency, new oil discoveries by 2016 sunk to their lowest number in decades. Meanwhile, gold, silver, and copper mines got “high graded” – leaving the most difficult and most expensive to process ore for future mining efforts that will only be viable with much higher prices. 

A position in physical gold and silver should be viewed as a core long-term holding.  However, there are some times in the commodity cycle that are more favorable than others for buying. 

Right now the cycle appears set to pressure metals prices higher. How much higher is unknowable.  If renewed inflation fears drive investors into gold and silver markets for safety and later, speculation, prices could easily exceed the 2011 cycle highs by significant margins.

Precious Metals News & Analysis – Gold News, Silver News

Inflation Flaring Up, Dollar Resuming Decline; Powell: Governments Are LYING about Their Gold Activities

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear a tremendous interview with Chris Powell of the Gold Anti-Trust Action Committee. Chris gives perhaps the most thorough explanation of why governments are so intent on manipulating the precious metals markets and reveals some very interesting recent data about what they’ve quietly been doing. Don’t miss conversation with Chris Powell of GATA, coming up after this week’s market update.

Metals markets rallied strongly this week across the board, with copper surging 7% higher and gold rallying back up toward key levels on the charts.

As of this Friday recording, gold prices come in at $ 1,355 an ounce on the heels of a 2.8% weekly advance. The gold market finds itself in that major $ 1,350 to $ 1,400 resistance zone once again. It will face selling pressure from bears who want to defend what they see as their territory. But once gold finally breaks through $ 1,375 and then $ 1,400, we could see a lot of short covering resulting in price gains like we haven’t seen in years. We’ll see if that finally materializes in the days ahead or if we’ll continue to be stuck in the current range.

Turning to silver, the white metal has lagged behind gold in recent months but is showing some relative strength this week. Silver spot prices are up 2.5% on the week to $ 16.82 per ounce.

On Thursday, platinum and palladium each regained the $ 1,000 level. Platinum now trades at $ 1,011 after rising 4.2% this week. Palladium’s 5.9% advance, meanwhile, puts it at $ 1,038 an ounce.

Precious metals and other hard asset markets got a boost on Wednesday after the government’s inflation data came in higher than expected.

CNBC Report: The CPI numbers just came out and it was higher than expected. CPI month-over-month is +.5 and we were expecting +.3. Last month was revised a little higher as well. This is very important, because remember, the stock market hated a little bit of inflation a week and a half ago when we saw it when it came with employment data.

The rest of that, a CPI ex(cluding) food and energy +.3, again higher than expected. Year-over-year 2.1, expected 1.9. All the data in CPI is significantly higher than expected.

With the headline Consumer Price Index at 2.1% annualized, it’s now running slightly above the Federal Reserve’s inflation target of 2%. While 2.1% may not sound like a huge number, there are forces in play that could put additional upward pressure on the CPI in months ahead – and remember, this government statistic deliberately under-reports the true inflation rate.

The U.S. Dollar Index appears headed lower. It fell 2% this week to negate the attempted rally from the previous week. Larger than expected federal budget deficits are weighing on the dollar, and investors appear unconvinced that new Fed chair Jay Powell will restore dollar strength.

The Fed is still expected to hike rates by a quarter point in March. But it will merely be playing catch-up to long-term rates. Since the beginning of the year, long-term rates have jumped sharply, causing the yield curve to steepen. That suggests bondholders are more concerned about rising rates of inflation than the prospects of an economic contraction.

The last big surge in interest rates started in the mid 1970s and coincided with relentless “stagflation” and soaring precious metals prices. It wasn’t until interest rates hit double digit levels in the early 1980s that inflation was finally quelled and gold and silver markets tamed.

Rising nominal interest rates are bullish for inflationary assets such as precious metals so long as interest rates are following the lead of inflation rates. Only when interest rates get out ahead of inflation and turn positive in real terms are rising rates bearish.

The Federal Reserve will face tremendous political pressure to keep its benchmark rate accommodative and also keep boatloads of bonds on its balance sheet in order to suppress long-term rates.

Bonds are a poor choice for preserving purchasing power during a period of rising inflation. It’s the type of environment in which precious metals can really shine.

Gold and silver aren’t guaranteed to keep up with inflation in any given year, but when they are in a bull market, they have the potential to vastly outpace inflation. Unfortunately, taxes can eat into any realized nominal gains on precious metals. The Constitution says gold and silver are money, but federal law unfairly treats them as “collectibles” for tax purposes.

A taxpayer who sells precious metals may end up with a capital “gain” in terms of Federal Reserve Note “dollars.” It is not necessarily a real gain. It’s often a nominal gain that simply results from the decline in the dollar’s purchasing power.

Thanks to the efforts of sound money advocates including the Sound Money Defense League, taxes on constitutional money are being rolled back at the state level.

On Monday, the Idaho State House overwhelmingly approved a bill which excludes gains and losses on the sale of precious metals coins and bullion from an Idaho taxpayer’s taxable income. This legislation will help Idaho citizens protect themselves from the ongoing devaluation of America’s currency. Next week, the bill will be considered by the State Senate and hopefully make it to the governor’s desk from there.

Utah and Arizona have already enacted similar measures to remove income taxes from the monetary metals. Legislators and sound money activists in other states such as Wyoming, Kansas, Tennessee, and Alabama are working to exempt precious metals from sales and use taxes – just like Idaho and over 35 other states have already done.

Long-term holders of bullion need not worry about capital gains taxes on any level until they actually sell. Bonds that pay interest and stocks that throw off dividends generate ongoing tax liabilities. With gold and silver, you control when you book your profits.

You can even book them inside an IRA and avoid taking an immediate tax hit. If you are interested in this tax-advantaged way to own gold, silver, platinum, or palladium, Money Metals specialists can help you set up a self-directed precious metals IRA. For more information you can go online to our website, MoneyMetals.com, or give us a call during normal business hours at 1-800-800-1865.

Well now, without further delay, let’s get right to this week’s exclusive interview.

Chris Powell

Mike Gleason: It is my privilege now to welcome in Chris Powell, Secretary-Treasurer at the Gold Anti-Trust Action Committee, also known as GATA. Chris is a long time journalist and a hard money advocate and through his tireless efforts at GATA he is working to expose the manipulation of the gold and silver markets. Through GATA’s work over the years some important revelations have come to light, which quite honestly should concern everyone.

It’s great to have him back with us. Chris, good to have you on again and how are you?

Chris Powell: Oh, very good, Mike. Glad to be here.

Mike Gleason: Well, Chris, before we get into other things please start by giving our audience a bit of background on your organization as some may not be familiar. What is GATA? How did you get started? And where do you focus your efforts?

Chris Powell: GATA is the Gold Anti-Trust Action Committee. We got started in January 1999 to expose and complain about and, if we could, stop the manipulation of the gold market, which is done largely surreptitiously by central banks and their agents. Certain investment banks.

We originally thought that the suppression in the monetary metals prices was an ordinary market rigging scheme run by the largest participants in the markets, the banks. After we did a year or two of research we realized that gold price suppression is longstanding Western government and central bank policy going back many decades. It used to be implemented in the open through the gold standard and the London gold pool and mechanisms like that. Now it is implemented largely through the rigging of the futures and derivatives markets. The major participants in this rigging are the Federal Reserve, the Treasury Department, the Bank of England, the Bank for International Settlements.

If you look closely through the government archives, the policy records, you can see this policy of gold price suppression is very plainly articulated. There’s really nothing secret about it if you’re ready to look for the documents. The problem is there’re very few people who want to get into this issue because it would show that our market system is an illusion. That governments and central banks are really rigging not only the monetary metals markets, but they’re rigging all markets and that in fact, we have a very elaborate government system of control of the prices of all capital labor goods and services in the world. It’s really a totalitarian system and we just try to show people the documentation of it, urge them to raise questions about it and slowly push the world toward a free market system.

Mike Gleason: On that note, you guys have been at this a long time and the evidence just keeps piling up as to pervasive price manipulation in the metals markets. And to be fair, banks have now been caught cheating in a variety of markets – LIBOR, currency markets, mortgage back securities – you name it, they’ve rigged it. It seems like your job should be getting easier, but it isn’t. Why is that? Why is it so difficult to get reform given the markets so clearly need fixing?

Chris Powell: Well I think there’s two reasons, Mike. First is the cowardice and corruption of the mainstream financial news organizations. In fairness to them, this market rigging is considered a national security issue by most major governments. If we ever had free markets, governments would lose much of their control over society. Mainstream financial news organizations, for the most part, do not want to pick up this issue. They will never put a critical question to a central bank. That is really the most aversive thing that journalism could do, and it would never do it.

The second reason is that the industry that is most devastated by this longstanding policy, the mining industry, is too cowardly as well because the industry is completely vulnerable to governments and completely vulnerable to the biggest banks that are the government agents. There’s a couple of reasons for that. Mining requires government approval for access to minerals. I mean, minerals are the product of land rights and governments are sovereign over land rights. Any mining company can lose its mining rights, its favorable royalty arrangements with governments very quickly if a government is alienated by the political activism of a mining company.

Further, of course, mining’s a very environmentally sensitive business and any government can shut down any mining company really on any environmental pretext at any time. So, the mining companies are terrified of the government and don’t want to alienate the government further. Mining is also the most capital intensive business in the world. It can take billions of dollars and many, many years before a mine can be opened and since so much capital is involved, it’s required by the mining industry, the biggest investment banks in the world dominate the industry’s financing globally. The biggest investment banks in the world are also formally agents of governments.

In the United States, most of the big banks are primary dealers in U.S. government securities. They’re very intimately connected to the U.S. Treasury Department. Mining industry looks at this scheme and says, “Gee, if we complain about the suppression of the price of monetary metals by the government, not only is the government going to try to cut us off, well our own banks will cut us off.” So, the mining industry is helplessly, cowardly here. There’s some exceptions. There’s a few very brave exceptions, but on the whole the industry is absolutely useless for the cause of free markets and sound money.

Mike Gleason: Yeah, that’s a real shame. One of those few guys sticking his neck out there, Keith Neumeyer, First Majestic Silver, we both know. We’ve had Keith on our program several times and he’s doing the work that should be done by all of his colleagues.

Chris Powell: Well, there are few other mining entrepreneurs. Eric Sprott being one very-

Mike Gleason: That’s true.

Chris Powell: -very prominently. And there are, you know, a few companies that have helped us consistently over the years. I’m not sure if I should mention them, to praise them or that would just get them in trouble, but there are some. But, on the whole, the industry is useless and its trade organization, the World Gold Council, is essentially a functionary of the government and distracting the world from the gold price suppression issue.

Mike Gleason: What about the potential for civil courts to hold crooked bankers to account. Plaintiffs have brought a high profile civil case for metals price rigging against Deustche Bank and a number of other bullion banks more than a year and a half ago. Deustche settled and provided mounds of documents and recordings to assist in the suit against the remaining banks. The lawsuit made some headlines and gave some reason for hope. It was a way of end running regulators who seem to be totally inept. But the news around that case has dried up. We know these things do take time, but since GATA is well connected in these sorts of matters I wanted to ask if you might be able to update our listeners about the status of this civil suit and what are your thoughts generally about whether the civil courts might be able to hold banks to account for their frauds?

Chris Powell: Well, yes, there is an anti-trust lawsuit in New York against some of the major banks, including Deustche, and Deustche has confessed to rigging the market and offered a financial settlement there. That lawsuit is essentially on hold right now because the Justice Department intervened in the middle of it, claiming that it wanted to begin investigating the gold and silver market rigging issue and it thought that the lawsuit proceeding to discovery and deposition would interfere with the Justice Department’s own investigation.

Well, just a couple of weeks ago, the Justice Department did bring criminal charges against a bunch of investment bank traders in the gold and silver markets. Traders for three European banks and those three banks, completely separate from this lawsuit in New York, they agreed to pay fines to the U.S. Commodity Futures Trading Commission for manipulating the gold and silver markets through spoofing. These were European banks, and the most recent action, HSBC, Deustche Bank, and UBS. There were no U.S. based banks involved in that criminal action and that regulatory enforcement action.

I have to believe no action has been brought against U.S. banks by the Justice Department or the CFTC because U.S. banks that are involved in the gold price suppression scheme are almost certainly acting in the markets as the formal agents of the Fed and the Treasury Department. In fact, in the United States, under the Gold Reserve Act of 1934, as amended in 1970’s, the U.S. government has been given power by Congress and the President, as a matter of law, to secretly rig any market in the world. I know that sounds like an astounding assertion, but anybody can look it up. You can go to the Treasury Department’s internet site and look up the Exchange Stabilization Fund, which is an agency of the Treasury, and you’ll see that the Exchange Stabilization Fund has the power under the Gold Reserve Act to intervene secretly in any market and rig any market.

I infer from that, and I don’t think very wildly, that any bank broker who assists the U.S. government, functions as an intermediary for the U.S. government in rigging markets, shares the sovereign immunity of the U.S. government and can’t be prosecuted or sued civilly for it. And I imagine that is why no U.S. banks were charged in the CFTC and Justice Department’s enforcement action that was brought a couple of weeks ago because when it is done in the United States by U.S. banks and brokers acting for the Treasury Department or the Federal Reserve, market rigging is completely legal.

Among the documents that we have and can show to anybody are filing by CME Group, the operator of all the major futures exchanges in the United States. Filings with the Commodity Futures Trading Commission and the Securities and Exchange Commission acknowledging that the CME Group gives trading discounts to governments of central banks for trading secretly all futures contracts in the United States and that’s, I think, pretty much in documentation that governments are secretly trading off futures contracts in the United States. I’m not making this up. These are filings with the CFTC and the Securities and Exchange Commission where the exchange operator admits that not only are governments and central banks secretly trading all futures contracts, all major futures contracts in the United States, but they’re getting trading discounts from the Exchange for doing so. And while these documents are on our internet site and on the CFTC’s internet site, on the SEC’s internet site, these cannot be acknowledged and examined by the mainstream financial news media. It’s just too sensitive. Too much of a national security issue.

Mike Gleason: Chris, you sent out an alert to your email list earlier this week about some very substantial gold market activity by the Bank of International Settlements. Apparently, the BIS has engaged in gold related derivatives and swap transactions in January involving some 580 tonnes of gold. First, why is the BIS even involved in the gold market in the first place, and does this increase in activity have any significance?

Chris Powell: The Bank for International Settlements is kind of a central bank association of all the major central banks in the world. It is the gold broker for many of the major central banks. A primary purpose of the Bank for International Settlements is to facilitate interventions in the currency markets by its member central banks. Among the documents we have on our internet site is the PowerPoint presentation that was given by the BIS, I think about eight or nine years ago, to prospective central bank members in a meeting at BIS headquarters in Basel, Switzerland.

Among the services of the BIS that were advertised in the PowerPoint presentation are secret intervention in the gold and currency markets. I mean, that’s just another document that’s out there. That’s what the BIS does. It intervenes secretly in the gold and currency markets on behalf of its central bank members. The BIS is a major player in the gold market. It’s the gold broker for central banks. It puts out a monthly statement of account, which our consultant Robert Lambourne monitors very closely. I think he’s the only person in the world, at least in the public arena, who monitors the BIS activity in the gold market. As signified by the monthly reports by the BIS, over the last year, he has tracked very substantial increases in the BIS’s activity in the gold market. The growth of its gold derivatives.

The BIS seems to have gotten out of the gold derivatives business until about a year ago and then it got back in, in a huge way. And I guess in December, I think, the BIS monthly report showed that its involvement in gold swaps and gold derivatives had gone down slightly, but then in the January report, which we publicized this week, the BIS’s involvement in gold swaps and derivatives increased substantially. So the BIS is undertaking gold trades and gold derivative trades for its central bank members virtually every day. It has been for a long time. The BIS is moving gold around among central banks and among their bullion bank agents to apply metal and derivatives in markets where gold is most threatening to explode. That is the primary mechanism now of managing the gold price. Central banks cooperating through the BIS and moving gold and gold derivatives around to tamp the price down.

Again, these are public documents. Anybody can find these documents on the internet site of the BIS. You won’t find the PowerPoint presentation there that advertises secret interventions in the gold market, but we have that on our internet site. All you got to do is question the central banks about this. I did this a couple of months ago. I sent the BIS press office Rob Lambourne’s most recent report asking, “Does he construe your data correctly about your gold and gold derivatives and could you please tell me the purpose of your intervention in the gold market this way,” and I got a very quick response from the press office saying, “No, we don’t talk about this stuff and you can get more information about gold from other central banks.” Well of course the other central banks don’t talk about it either.

Mike Gleason: Is there any legitimate reason for governments to be trading gold? I mean, it’s no secret that central banks hold gold because, despite what they say, they do recognize it as money. Is there any legitimate reason for them to be doing this?

Chris Powell: Well, sure. Some central banks could be wanting to purchase gold because they could see it as the ultimate money. They could see it as being very undervalued. They could look at it as an asset they’d do well to have more of. But, that’s not the explanation that central banks give if you really press them. In recent years they’ve said, for example, that they have been leasing gold to earn a little interest on a dead asset. It’s kind of a ridiculous explanation because central banks don’t have to earn any money. Central banks create money. Central banks create money to infinity. They don’t have to lease gold to make money.

In fact, the secret March 1999 report of the staff of the International Monetary Fund, which is posted on their internet site, confirms that central banks conceal their gold swaps and leases precisely to facilitate their secret interventions in the gold and currency markets. Actually, central banks, many of them, still own gold because you need to own some gold if you’re going to control the currency markets. You can’t control the currency markets unless you can intervene in the gold market, gold being the ultimate currency. Even now, central banks recognize it as such. That is primarily why central banks own gold. In fact, a few years ago, the annual report of the Reserve Bank of Australia was candid enough to acknowledge this. It said that central banks own gold for currency market intervention.

Mike Gleason: Well eventually maybe the whole system breaks and they lose control, they lose the confidence in the system and then finally they won’t have an opportunity to continue to suppress pricing. Maybe that will come at some point in the future.

Well, excellent stuff, Chris. I really want to thank you for your insights today and for the work you’re doing there at GATA. Somebody’s got to do it and we’re very thankful that your organization is. And before we let you go, give our listeners more information on how they can learn more about this and follow what you’re doing there at GATA, and then also, how they can get involved and donate if they wish to see your organization continue to do this important work.

Chris Powell: Thanks, Mike. Well, our internet site is gata.org. We put out daily dispatches of news interests to gold investors and people who believe in free markets. You can enroll in our internet site to get on our free dispatch list. We are also recognized as a 501(c)(3) charitable organization under the U.S. Internal Revenue Code. We’re an educational and civil rights organization and if people would like to make donations to us, those donations are federally tax exempt in the United States and there’s a mechanism on our internet site for donating to us and we do welcome donations maintaining the site and really supporting the research of our consultants and undertaking our travel to conferences. These things do run into a little money anyway. We’re not a very big, rich non-profit. We’re usually running from hand to mouth, so if anybody wants to help us out we much appreciate it. We’re certainly not really getting much help from the mining industry, so if you want to send us t$ 10 by check or credit card, it’ll be $ 10 more than we’ll ever be getting from Newmont Mining.

Mike Gleason: Well we appreciate you coming on as always and spending some time with us here today, Chris. Look forward to catching up with you again down the road as this continues to develop, and I hope you enjoy your weekend. Take care, my friend.

Chris Powell: Thanks, Mike.

Mike Gleason: Thanks again to Chris Powell at the Gold Antitrust Action Committee. Again, check out gata.org for more information. They publish a lot of great content there at GATA, and we highly recommend everyone check that out. And I also want to urge folks to consider making a tax-deductible donation to ensure GATA has the resources to continue this important work. Again, gata.org is where you can do that.

That will do it for this week. Be sure to check back next week for our next Friday for our next weekly Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange, thanks for listening, and have a great weekend everybody.

Precious Metals News & Analysis – Gold News, Silver News

U.S. Public Debt Surges By $175 Billion In One Day

After the U.S. Government passed the new budget and debt increase, with the President’s signature and blessing, happy days are here again. Or are they? As long as the U.S. Government can add debt, then the Global Financial and Economic Ponzi Scheme can continue a bit longer. However, the days of adding one Dollar of debt to increase the GDP by two-three Dollars are gone forever. Now, we are adding three-four Dollars of debt to create an additional Dollar in GDP. This monetary hocus-pocus isn’t sustainable.

Well, it didn’t take long for the U.S. Government to increase the total debt once the debt ceiling limit was lifted. As we can see in the table below from the treasurydirect.gov site, the U.S. public debt increased by a whopping $ 175 billion in just one day:

U.S. Debt Increased 175 Billion Feb 2018

I gather it’s true that Americans like to do everything… BIG. In the highlighted yellow part of the table, it shows that the total U.S. public debt outstanding increased from $ 20.49 trillion on Feb 8th to $ 20.69 trillion on Feb 9th. Again, that was a cool $ 175 billion increase in one day. Not bad. If the U.S. Government took that $ 175 billion and purchased the average median home price of roughly $ 250,000, they could have purchased nearly three-quarter of a million homes. Yes, in just one day. The actual figure would be 700,000 homes.

Regardless, we are now off to the races when it comes to adding GOBS of DEBT to continue a Ponzi Scheme that would make Bernie Madoff jealous.

There is so much that I want to write about and put into videos, but there is only so much time in the day. I saw Andy Hoffman’s newest video where he let his followers know that he sold the rest of his Gold and was totally out of precious metals and fully invested in Bitcoin and Cryptos. Good for Andy. Unfortunately for Andy, like many who rely on SUPERFICIAL ANALYSIS forgets there is this thing called “ENERGY” that makes everything work. Without energy, the entire SYSTEM comes crashing down. And the most fragile part of the system is HIGH-TECH and especially Bitcoin that consumes a disgusting amount of energy to provide no real productive use. More on that later.

However, if you haven’t watched my newest video on the Huge Market Correction Update & Silver Price Trend, I suggest that you do:

The idea that precious metals are a Barbarous Relic and are no longer useful because High-Tech Cryptos will be the new currency, totally disregards the dire energy predicament we are facing. Andy Hoffman got out of gold and silver and into Cryptos because he, like many, are guilty of SUPERFICIAL THINKING & ANALYSIS. I don’t mean to be harsh here, but when Andy mentions in his video that when the OLD FARTS who believe in precious metals finally die off, then the younger folks will have totally forgotten about gold and silver, get’s my creative juices flowing.

If you do not incorporate the ENERGY DYNAMIC into your analysis or forecasts, you will be totally unprepared for what is coming.

Thus, the BLIND continues to lead the BLIND. So be it.

Anyhow… I will be putting out more work on how the Falling EROI of Energy is destroying everything in its path. Individuals who don’t think the $ 175 billion increase in U.S. Public Debt has anything to do with the Falling EROI of energy, makes perfect sense why they would follow someone like Andy Hoffman or the other Crypto Aficionados into an even Greater Bubble & Ponzi Scheme than the Fiat Monetary System.

Precious Metals News & Analysis – Gold News, Silver News

Market Correction Update & Silver Price Trend

Dow Jones Index vs. Silver Price

While the Dow Jones Index and broader markets are recovering from their lows set on Friday, the worst is still yet to come. Investors need to realize that stock market indexes don’t fall in a straight line. Also, there is also the possibility that the Dow Jones Index could surpass its previous high of 26,600 points. Only time will tell.

However, the leverage, margin and insane valuations in the markets are still in way out of whack. Just because the Dow Jones Index has added 1,200 points from its lows in early Friday trading, it is still 2,000 points below its peak of 26,600. Furthermore, when the Dow Jones peak at 14,100 points in 2007, it took six months and three different peaks before the index started to fall off a cliff in 2008.

For example, the Dow Jones Index hit three peaks in 2007:

  1. July 2007 = 13,900
  2. Oct 2007 = 14,100
  3. Dec 2007 13,600

Over that six month period in 2007, the Dow Jones Index rose and fell three different times. The biggest percentage drop was between July 2007 and Oct 2007, at nearly 10%. However, the Dow Jones index peaks were at the most, 3.5% from their high of 14,100. Moreover, it took six months for the Dow Jones Index to finally head lower on a sustained basis and it wasn’t until nearly a year later in Oct 2008 did the market finally crash.

So, if you think the Dow Jones correction is over, then you are going to be in for a rude awakening.

I put together my analysis of the Dow Jones Index and the Silver Price Trend in my newest YouTube video:

Not only do I discuss the Dow Jones Index and the Silver Price, but I also explain what is going on in the oil and housing market. Unfortunately, I believe we are sitting on top of the biggest bubble economy in history. While it is impossible to know when the EXACT TOP will be in, the higher we go from here, the bigger the bubble becomes.

To tell you the truth, I would be amazed to see the Dow Jones Index surpass its previous high of 26,600. But, there is a chance that it COULD HAPPEN. But again, the higher the Dow Jones Index goes…, the bigger the inevitable fall.

In the video, I also discuss the delusionary and superficial analysis that the U.S. Housing Market is not in a Bubble. In this chart below, it explains that if the Housing Boom and Bust were removed from the equation and we used a 3.6% annual historical appreciation rate, the median home price would be about the same:

U.S. Existing Home Median Sales Price

Of course, this is pure BOLLOCKS because compound interest over a long period of time is impossible. Furthermore, you can’t enjoy rising appreciation if oil production growth slows or declines. For some strange reason, the analysts don’t factor that important TIDBIT into their forecasts.

I want to take this time to thank those followers who have supported my work by becoming MEMBERS on my site or PATREON. Your support is greatly appreciated so I can continue to put out the information, data, and analysis for the public benefit.

Precious Metals News & Analysis – Gold News, Silver News

What is Bitcoin & What it May Become (Nope, It’s NOT Digital Gold)

The meteoric rise of crypto-currencies, including Bitcoin, captured the attention of many precious metals investors last year. Crypto’s potential to serve as private and decentralized currency – beyond the reach of bankers (central and otherwise) to corrupt and control – is an alluring combination for some speculative members of “honest money” crowd.

Investors are currently trying to determine what Bitcoin represents and what role it will play relative to precious metals. With that in mind let’s have a look at what Bitcoin is now, what it might become later, and also point out what it will never be.

Here Is What Bitcoin Is Now

Bitcoin is a disruptive new idea. It let the genie out of the bottle by introducing the world to decentralized (read “unstoppable”) networks which can be used to send and store value by anyone, from anywhere without central authorities and big institutions mucking around in the middle.

Banks and governments may be in the early stages of losing their monopoly on money as a means of profit and control. That would be a major leap for the cause of liberty.


But this vision has not yet been fulfilled. Crypto investors need to understand the Bitcoin tokens they buy are merely one attempt to deliver on the idea of free-market money.

The idea is a sure winner. The tokens, unfortunately, are far from it.

Bitcoin is a medium of exchange, albeit with limited use currently. It is great for sending value across borders without permission and for making payments to the very small number of merchants who currently accept it.

Finally, it is a highly speculative asset. Bitcoin can produce dazzling returns, such as we saw in 2017, as well as devastating losses, like we have seen over the past month. This volatility will likely remain until the basic problems of adoption and scaling are resolved and it achieves widespread utility. Absent that, hope and fear will be primary drivers and Bitcoin will be a roller coaster ride.

Here Is What Bitcoin (Or One of the Alt-Coins) May Become

Cryptocurrencies may someday be a medium of exchange with widespread or universal application. But developers in this space must finally figure out how to scale and meet other challenges.

If Bitcoin or other cryptos succeed as both a medium of exchange and as a store of value while remaining beyond the reach of governments to regulate, monitor and control, we win. Imagine a world where people are free to transact using means that nobody can control. Bankers and politicians would lose their stranglehold on money and be forced to work for people’s support.

Here Is What Bitcoin Is Not

Bitcoin is not “digital gold” as some in the crypto community claim. The term is intended to convey that Bitcoin is a store of value with some features in common with gold – such as privacy and limited supply. But the comparison is misguided.

Bitcoin Vs. Gold

Bitcoin is not beautiful and it is not tangible. It will never offer utility in industry. It relies on electricity and the internet for its existence. It’s place in the market is vulnerable to developers building software which becomes a “better mousetrap” and renders Bitcoin obsolete.

In short, bitcoin tokens can never offer total assurance their value will be greater than zero.

Therefore Bitcoin should not be represented or considered as gold. It is a very different animal indeed.

All that said, Money Metals Exchange is leading the precious metals industry in accepting and making payment in various cryptos when customers buy and sell physical precious metals. Customers may use up to $ 100,000 in bitcoin to purchase metals through Bitpay in our online shopping cart. And larger buy or sell transactions using bitcoin, or any-sized transactions using other major alt-coins, can be conducted directly with Money Metals by calling 1-800-800-1865. More details appear here.

Precious Metals News & Analysis – Gold News, Silver News

Stock Market Dangers, Stress Test Your Portfolio; Axel Merk: Lot of Damage to Be Caused

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Later in today’s program we’ll hear from Axel Merk of Merk Investments. Axel gives a wonderful explanation of what’s behind this week’s wild market action, weighs in on gold’s role as a safe haven in the midst of potential chaos and tells us why he believes volatility his here to stay. Don’t miss a fantastic interview with Axel Merk, coming up after this week’s market update.

Well, there were few places for investors to hide this week. Stocks, bonds, and to a lesser extent precious metals all got hit with selling.

On Monday, the stock market had one of its biggest volatility spikes and worst point drops in years. Gold prices held firm on Monday but succumbed to selling later in the week.

As of this Friday recording, the yellow metal comes in at $ 1,314 an ounce, down $ 19 or 1.4% for the week. Although down in terms dollars, gold prices are higher in terms of the Dow Jones Industrials. The Dow to gold ratio is lower by about 4% this week and now trades around 18 to 1.

It’s too early to call a major trend change in the ratio, but it certainly has the potential to fall a lot further. The Dow/gold ratio bottomed at 6 to 1 in 2011 when gold prices peaked at $ 1,900 an ounce. And the ratio hit rock bottom at 1 to 1 way back in 1980. Gold prices had hit a secular high on stagflation fears as silver prices touched nearly $ 50 an ounce.

Silver can now be had for an incredible bargain at just $ 16.28 per ounce spot price. The white metal is down 35 cents or 2.1% this week and is attracting more bargain hunters. Money Metals Exchange has seen an increase in gold and silver buying in recent days amidst the flight from equities as well as crypto-currencies.

In previous podcasts, we noted that margin debt was at all-time highs and stock valuations were at bubble levels. Yet markets kept moving modestly higher week after week, with the mainstream financial media and the White House celebrating each new milestone. Investors got complacent and became oblivious to the risks inherent in the stock market.

This week has certainly served as a reality check.

It’s an interesting coincidence that Monday’s selling occurred just as new Federal Reserve Chairman Jerome Powell officially took over from Janet Yellen. If Powell had hoped markets would greet him with a rally of approval, he certainly got a reality check of his own!

Now the question is whether Powell will continue with Yellen’s gradual interest rate hikes. The next one had been due in March. Just a week ago, futures markets were pricing in a March rate hike at a near certainty. Now suddenly there is a 30% chance the Fed won’t hike in March and a 50% chance they won’t hike this summer, according to prognosticators.

But what precipitated the heavy selling in the stock market over the past few days was the steady rise in long-term interest rates. Rates reached a tipping point for some traders, and that’s all it took to spark a bout of deleveraging.

Of course, the Fed doesn’t directly control long-term rates, but it can certainly influence them with bond purchases or sales.

Long-term interest rates have been rising in part due to concerns over inflation and also because of Uncle Sam’s deteriorating fiscal outlook. The expected jump in economic growth this fiscal year from tax cuts is being financed by new debt creation. The U.S. Treasury Department announced it expects to borrow an additional $ 955 billion this fiscal year. That’s a HUGE jump from the $ 519 billion deficit the government ran last year.

We’re facing trillion dollar deficits even in the context of a rosy economic outlook. It’s difficult to imagine what will happen when the next recession hits… or if the current correction in equity markets accelerates into a full blown financial crisis.

For now, it’s just a correction. When the selling abates and the volatility dampens down, investors will have to re-assess where they want to deploy capital. Will they plough it right back into the stock market? Put it into bonds? Or diversify into precious metals?

Gold and silver tend to exhibit near zero correlation to conventional financial assets. That makes them ideal for portfolio diversification in turbulent times like these. You may even want to increase your position in case these market tremors mean we’re headed for disaster.

Except from the song: “Headed for Disaster” by Store Dore

We’re headed for disaster… faster and faster.
Government is liable and out of control, for millions and billions and trillions and more.
The rich get richer. The rest don’t know. Their standard of livin’s gonna fall through the floor.
You better be ready, by making a plan, than trusting what you’re told with your head in the sand.
And grow your food, get ready, get some gold. Build up your bunker before ya get too old.
We’re headed for disaster… faster and faster.
We’re headed for disaster…. faster and faster.

Whether the chorus of the preceding song by Steve Dore rings true or if markets stabilize from here, investors should definitely stand up and take notice about the warning signs we’ve been seeing in the financial world this week. Having some financial insurance in the form of physical gold and silver just makes plain sense at all times, but especially now.

Well now, for more on the risks ahead and the likelihood of ongoing market volatility, let’s get right to this week’s exclusive interview.

Axel Merk

Mike Gleason: It is my privilege now to welcome in Axel Merk, President and Chief Investment Officer of Merk Investments and author of the book Sustainable Wealth. Axel is a highly sought-after guest at financial conferences and on news outlets throughout the world, and it’s great to have him back on with us.

Axel, it’s a real pleasure to speak with you again, and thanks for joining us.

Axel Merk: Oh, it’s good to be with you.

Mike Gleason: Axel, I’d like to jump right in here and get your thoughts on the health of the markets in general, because I think it’s an appropriate place to start in light of the whipsaw action we’ve seen of late. Now to us, the behavior is becoming more and more strange and artificial. We had an 1,100 point drop in the Dow on Monday, and it recovered nearly 600 points on Tuesday, almost right on cue. We know algorithmic trading is a big deal these days. We also know that price rigging and manipulation is real. There were six traders arrested a couple of weeks ago for cheating in a variety of markets including gold futures. Those were just the most recent examples of arrests and criminal charges.

So, on the one hand we have machines doing lots of trading and they don’t respond to cues as humans might, and they are designed to front run anybody using traditional low speed connections. And on the other hand, we know at least sometimes the cues are phony – just order spoofing and other tricks employed by crooked traders. So, before we dive deeper into some of the specifics about what we’re seeing, from an overall perspective what do you make of these markets here, Axel?

Axel Merk: Sure, let me first address maybe what you just said about conspiracies and manipulation. While I don’t necessarily disagree with what you say, the one challenge with that viewpoint is that it assumes that if you just get rid of a few bad apples everything is going to be fine. My view is actually far more negative. I happen to believe that most people in the markets are actually trying to do the right thing, trying to be honest, it’s just the dynamics of the system. Similarly, with policy makers, drives them in a certain direction. Let me just put that out there, and we can touch on that in different ways, but let me kind of address the broader point here.

Since early December, I’ve referred to this market a little bit like a washing machine. And what I mean with that is, that correlations have been breaking down. For years, everybody knew exactly what was supposed to be happening and one of the most noble thing, was during the financial crisis, stocks went down and the Fed went in to buy bonds. And the sort of thing that happened as a result is, one is, we had this immense inverse relationship between stocks and bonds and the other one is, because of the Fed and so forth, volatility came down. And, so I don’t think it’s just a few bad apples, it’s kind of the bigger policy of Federal Reserve stepping in, compressing volatility.

And so, fast forward to what happened just recently and volatility suddenly surged. And part of it is, when volatility has been so low, people have been trying to buy protection, it’s costing an arm and a leg. They want to kind of have their cake and eat it, want to, buy the stock market and be protect on downside. If you want to bet on volatility rising, which is a form of buying protection, it would cost you over 10% a month.

Now there are some folks on the other side of the trade that were making over 10% a month, they were making over 100% a year, and guess what? That lunch was a little too good to be true and that blew up in their face and part of the trigger that blew it up was the other thing that didn’t work anymore, this correlation of stocks and bonds.

On Friday the second of February, we had both stocks and bonds sell off; and that was just too much. Those folks who thought they’re diversified and many of those folks that used the so-called risk parity trades, they said, ‘Oh my God, we’re losing on everything that we have, we’ve got to sell.’ And you call it the machines, well, yeah, it’s called rebalancing. I don’t know whether it’s the machines or the people. We just a little faster when the machines do it. But yes, they needed to get out of these trades, and on top of that, those folks who’ve been making 10% a month, or they lost over 90% in a day. And of you make, for those who don’t know the math, if you make 100% in one day and lose 90% the next, net you’re down 80%, so, those guys have lost big.

Mike Gleason: Fears over interest rates with the Feds potentially hiking rates several times this year and continuing to shrink its balance sheet, was the explanation given for the most recent stock market losses. Is that really what’s driving this long overdue stock market correction? And even if it is the reason, doesn’t carnage in the stock market make it likely the Fed will pause its rate hikes here, Axel?

Axel Merk: Well, couple of things. One is, there are various ways of describing, and I just gave a technical explanation with kind of short volatility folks, but yes, volatility has been compressed. The reason volatility has been compressed, the primary driver, in my view, has been QE, has been low interest rates. And the Fed is stepping away from that rising risk premia. Top of that, on February 2nd with the Non-Farm Payroll report, inflation is a real thing now, wage pressure is moving higher. Another reason why volatility should move higher. We got these extreme speculators out of the way that were on the short-volatility trade, and by the way, I don’t think that we’ve seen the last of that unwind yet. But that means, I think that volatility in the VIX below ten for an extended period is a thing of the past. And so, yes from that sort of view, turmoil is going to be here to stay.

To your other question, whether the Fed is going to pause, the Fed will tell you they will not react to a declining stock market, but they will react to deteriorating financial conditions. Now I tweeted the Bloomberg Financial Conditions Index and sure enough, it plunged on Monday. Now, the Bloomberg Financial Conditions Index is a little different from the other ones because it has a very heavy weighting on volatility itself, and so, yes that clearly reflects it.

I don’t think the Fed is going to stop at this stage and there are several reasons for that. One is just reading it from the market. If you look at what is priced in as far as how people assess the Fed, that hasn’t budged much. Importantly, inflation expectations haven’t plunged. The inflation expectations are for real and that kind of makes the Fed to move slower. And then, most importantly, we got a new chief. We got Mr. Powell and I think we’ve talked about Powell a little bit, but Powell, he is a bank regulator.

When he was asked a question about monetary policy, he was stuttering, he had to kind of look up what he had to say. He doesn’t really have an interest in that. I’m not questioning his intellect, I’m not questioning his integrity, but I would think that, what he will do is, well he’ll call his committee. He will take a while to make a decision. He is not going to be the one who’s going to be there with a fire hose the moment that the markets go off the rails. He’s going to be taking his time and saying, ‘Oh we have some inflation and so let me look up in page 576 of the Bernanke manual what we have to do and so, oh yes, maybe we’ll have to watch this and this indicator.’ That means he’s going to be very slow to react and I’ve argued for some time and continue to believe that there’s going to be a lot of damage that’s going to be caused to the market before the Fed is going to do a U-turn.

Mike Gleason: Yeah, the last time we had you on, we did talk about the potential Trump pick to replace Janet Yellen as Fed chair. We didn’t get Warsh, we didn’t get Taylor, we got Jerome Powell who appears to be a more-of-the-same type of pick. So now that we know what this new Fed is going to look like, comment if you would, and expand the point on how you’re approaching your investing philosophy under this new regime now that it’s mostly taken full effect under Trump here with the appointment of Powell as a key player when it comes to the near term monetary policy that we’re going to get from our central planning overlords.

Axel Merk: So, with the caveat, of course, that I’m not allowed to give specific investment advice to a general audience, but let’s just put the stakes out here where we are. We’ve had years of a bull market, everything has been going great if you invested in the stock market. I allege that a lot of investors have not rebalanced their portfolios, meaning taking chips off the table when times were good and then, put them into something ‘safe’. And even to the extent that they have put them into something safer, well two problems with that. One is, they have been chasing yield, which means they’re not really in anything safe. They’re still correlated with equities, and secondly, I indicated earlier, this washing machine effect.

Correlations are breaking down and that means you’re not going to get the sort of diversification out of the things that you thought you would. And so, a lot of people, as volatility is going to be higher for longer, and I gave several arguments as to why that’s going be the case, people are going to realize, ‘Oh my God, I have too much in risk assets. Too much in equities, my alternative market isn’t performing as it should be.’ And so, people will take more chips off the table and will rebalance, will scramble what to do. And not just retail investors. Institutions that have their rigorous investment programs, those won’t be working anymore, because the traditional 60/40 allocation putting 60% in stocks, 40% in bonds, or it could be more sophisticated. But whatever they might have done, those models are breaking down. And so, there’s going to be a lot of uncertainty, scrambling as to what the right thing to do is.

Now, my take is, that investors should be stress testing their portfolios. They should look at what happened on February 5th in my portfolio, obviously that’s not going to happen every day, but ‘Is there anything that went up that day in my portfolio?’ That’s the sort of stuff you might want to look at whether you want to have more of, ‘Is there anything else that I can do?’ And it isn’t easy to diversify in this environment.

I mean, one of the reasons why the short volatility trade was so profitable, is because anybody who was skeptical of these markets, had to pay an arm and a leg to do anything else. And so, one of the kind of the technical terms is that when your long carry, that means you’re gathering money as you do something, in order to do that you got to have some sort of risk investment, such as selling volatility. Whereas if you’re short carry, meaning you pay up, that would be anything from buying a put option the market, but also even buying gold. If you buy gold you actually have to pay every year to hold the gold, so that’s a negative carry idea. You’re not getting rewarded other than potential price appreciation.

And so, all these conservative ideas tend to cost you money. And so there are many, buying gold is an easy one, not always the best one, but it’s one of the easier ones. But anything beyond that really goes into the short and long kind of things. Your hedged equities… we do long/short currencies. Complex stuff that most people don’t understand and frankly many don’t want to touch. And so then, the alternative is cash, well, cash, especially if you are professional investors, you have clients are going to run away and, if you’re an individual investor, it may be the right thing to do but it’s tough to be holding cash. And so in that process, a lot of people, I think, in the period to come, it may even be years to come, might be losing significant amount of money in the markets.

Mike Gleason: Let’s talk a little bit more about precious metals here. Gold and silver have been trading opposite the U.S. dollar in recent weeks. The recent turmoil in the equities markets has not translated to safe haven buying necessarily, at least not on the futures markets. We have seen some in the physical markets. So, what are you expecting to drive the metals markets over the near term, Axel? Do you think we will get more volatility in the equities? And if we do, will metals futures ultimately get a bid from investors looking for safety?

Axel Merk: Well, it’s the washing machine again. Things haven’t worked the way they should’ve, might’ve, would’ve, whatever it may be. That said, take gold, year to date it has gone quite nicely. Indeed, we had this period where the dollar was plunging and gold was doing reasonably well. And then, sure enough, the day, on Friday the 2nd, gold went down. On the 5th, when we had this big plunge, well gold was up a few bucks.

Well I’ll take up a few bucks for gold over down a thousand for the DOW any day. The way I look at it is that in the context of volatility what everybody seems to be talking about right now, when volatility goes up, future cash flows get discounted more. So, if you buy equities that have cash flow, those are worth less. Not worthless, but worth less. Meaning as volatility goes up, valuations go down, everything else equal.

Well, gold doesn’t have cash flow and as such, as volatility goes up, gold tends to shine relative to other risk assets, other relative equities and that’s why gold is up, even if it’s only five bucks, compared to equities that is down substantially. So gold has done what it should do. Some people say, ‘Oh my God, gold didn’t go through the roof.’

In this sort of environment, gold has done reasonably well year to date, has outperformed equities year to date, and don’t get greedy. I mean, this doesn’t happen overnight. And obviously interest rates have been moving higher, and so higher interest rates are a big competitor to gold and the fact that gold has been doing so well in this environment, suggests that people are scrambling to find diversifiers and gold again is just the easiest one of them. I call it the easiest rather than necessarily the best because it obviously doesn’t always go up when the markets go down. But it something where people can wrap their head around it. People aren’t invested in gold and such investors, in my view, should consider it. And importantly they should consider how much they want to have in the context of everything else they have in the portfolio.

Mike Gleason: How ’bout the U.S. dollar? It’s been rallying in recent days, which has hurt metals prices. Is this rally more of a dead cat bounce or is the bottom in for the dollar, at least for now?

Axel Merk: Well, depends on who you talk to. And none of us have a crystal ball. There’s one thing I can tell you, that anybody’s investments, any view that you have, will be challenged in the coming months. And that’s again this washing machine idea.

These markets do not walk in lockstep anymore. Sometimes the dollar goes up with gold, sometimes it goes down with gold of late. These things don’t move in tandem anymore. So, no matter if you love equities you’ll have days when you say, ‘Oh my God, how can I love equities.’ If you love gold, there will be days when gold is down significantly. And so, similarly, rates have been moving higher and usually, that’s a good thing for the dollar. That said, we had four years when the dollar was moving higher and higher and higher and in the last year and a bit, that’s been unwinding despite moving rates higher and that’s very consistent with the history. The dollar historically goes up in anticipation of a rate hike, but then when the rate hikes actually start happening, it doesn’t move anymore.

Now, if you look at Europe, we now have talk about the European Central Bank tapering and stopping QE. It’s not going to happen for a while, but it’s that talk that keeps that bid on the euro and as has been moving in high end as you may recall, we’ve had the euro in the kind of mid-one teens and it was going up to 1.25/1.26. So, yeah, it had this huge run up. Now everybody says, ‘When the plunge happened, the dollar was surging.’

I had argued last year that in a risk-off environment, the euro can do quite well because the euro has become a funding currency meaning people sell it when times are good and then have to buy it when they go back. But again, the correlation broke down now a few weeks ago, and people say the dollar is stronger but what the heck… the dollar, as we are talking, is at 1.2260. That’s much higher than it was just recently, yet it’s down in recent days. And so, I think being married to these short-term correlations, everybody is going to be called into question what it is.

My view is that in Europe, rates are way too low for the economic activity, for the level of activity so the Europeans, the European Central Bank, in particular, has to be tighter on monetary policy than what is currently priced in. At the Federal Reserve, I happen to think they’ll probably go along the path that’s currently priced in. Maybe a little bit less with more turmoil in the markets but that sort of change relative to what is expected, in my view, should be a bad thing for the dollar and a good thing for the euro. And I mention the euro because that’s just the biggest driver here in the dollar index that’s usually referred to.

Mike Gleason: Well, as begin to wrap up here, Axel, maybe talk about the environment you see ahead for safe haven assets like gold and other precious metals. And are you expecting more volatility in equities and bonds? Should investors brace for more rough riding and what are you watching most closely here in the near term.

Axel Merk: Well sure, I do believe volatility is going to move higher compared to what it was last year. I think we’re not going to go back to those levels so anybody that said, ‘Oh the Brexit selloff and the Trump election selloff was just brief and we going to recover.’ And sure, we may reach new highs before we plunge much further potentially but, the reason why these volatilities are going to go higher is because of all the things I said including the short vol(atility) craziness where people were selling volatility and making 100% a year.

Those days are over. The derivatives were driving the spot market. During the introduction talked about manipulation, that is a form of manipulation of the markets. It’s probably not illegal, but it certainly impacted the market and it was absolutely insane and the problem is you couldn’t bet against those folks because it cost you an arm and a leg to bet against them. And so, you just had to kind of wait it out on the sidelines and now we’re dealing with it.

But yes, how the ‘safe havens’ will do that? They’re not safe either right? I mean, they do move quite a bit. Anybody who’s been in gold, silver for an extended period knows the volatility can be high. So we have to make sure that anybody who has these is comfortable with the risk profile.

These days, I happen to be more concerned with the equity portion and the fixed income portion of many portfolios. The equity portion because I happen to think that equities are too expensive and going to be more volatile; and the fixed income side is because they’re not going to serve the role that many people think that they have served. And so from that point of view, yes they should look beyond.

Cash is not a bad option and then gold and precious metals again, I can’t make a specific investment recommendation, but I think yes, investors should have that as a core position or I have to say they should consider having it at a core position of their portfolio. I certainly do. Beyond that, one has to get into more sophisticated instruments that are unfortunately, probably not suitable for many investors that don’t understand them. And I’m not trying to belittle them but, for example, we do long-short currencies. I happen to think it’s the best thing since sliced bread but I spend day and night looking at these sort of things. I try to use things like a currency strategy because that’s where I can generate uncorrelated returns, but that’s just one piece in a portfolio.

I just happen to think that the quote ‘traditional’ piece people have in a portfolio, the equity portion, is going to continue to be in for quite a rough ride.

Mike Gleason: Well, on that note, for folks that want to learn more about you and your firm before we let you go, tell them how they can do that. Tell them how they can follow you more so they can trust the professionals when it comes to their investments.

Axel Merk: Sure, well, don’t have a crystal ball. We do have lots of opinions, but come to MerkInvestments.com, follow me on Twitter, follow me on Linkedin. We have a variety of ways. We even have a Patrium site now, I don’t know whether you’re familiar with that service, where we publish a research service. So, we have lots of ways to connect but MerkInvestments.com is probably a starting point. Where you can sign up for a newsletter and then you can also, of course, look at the sort of products we have. But follow me on Twitter, follow me on Linkedin, Facebook, anywhere there. We try to be expressing our views, and part of that is because we appreciate the feedback. Because that helps us to kind of brainstorm as well and to consider viewpoints that we might not consider. So, we very much appreciate the feedback that we’re getting and you can do that through social media if you wish.

Mike Gleason: Well, we’ve been following you for a long time. A lot longer than we’ve had you on the podcast here these last 6 or 8 months, which we’ve certainly appreciated and it’s a very studied view that you bring to the table and we love having you on. Appreciate your insights. Thanks very much, I hope that we can catch up with you again before long. Appreciate it, Axel.

Axel Merk: My pleasure.

Mike Gleason: Well that will do it for this week. Thanks again to Axel Merk, President and Chief Investment Officer of Merk Investments, manager of the Merk Funds. For more information, be sure to check out MerkInvestments.com.

And check back here next Friday for our next weekly Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

Precious Metals News & Analysis – Gold News, Silver News

Ripple’s Tulip Bubble

Unfortunately for crypto investors “HODLING” onto Ripple, their huge gains have been wiped out in just the past few weeks. While Ripple’s price surged to massive percentage gains in a short period, it came down just as fast. Unbelievably, Ripple’s price surged from less than a penny in March 2017 to a peak of $ 2.81 on Jan 1st, 2018.

Ripple’s stunning price increase would have made investors during Holland’s 17th Century Tulip Bubble, quite envious. Ripple’s price increased a staggering 46,700% in a mere nine months:

Ripple: The Tulip Bubble (Chart)

Ripple was trading at $ 0.006 at the beginning of March 2017 and then shot up to a peak of $ 2.81 on Jan 1st. An investor who placed a $ 100 bet on Ripple at that time, would have earned $ 47,000 if they were able to cash out at the top. Not bad. However, I doubt most individuals cashed out near the top… maybe a few.

Unfortunately, there is this idea put forth by many Crypto Aficionados that holding, or “HODLING” onto Bitcoin and the Cryptos for a long period is the way to go. I have even seen some of these crypto aficionados record videos of themselves, wearing hats that say, “HODL,” telling their followers to hold onto their cryptos for much more significant gains in the future.

One of the more highly touted crypto aficionados in the alternative media is claiming that the new target price for Bitcoin is $ 13,888. While anything is possible in the future, as Bitcoin’s price continues to head lower, down to its next stop at $ 6,500, the $ 13,888 Bitcoin price target by the end of February seems less and less likely.

Okay… now that I said that I want to make something perfectly clear. I had a much different opinion of Bitcoin and the Crypto markets last year. It wasn’t until I began to witness the tremendous amount of fraud, corruption, and leverage in the crypto market did I change my mind. Regardless, I believe the SELLOFF in the Crypto Market will continue until the Bubble has popped for good.

Today, Ripple’s price was down another 20% at the lows:

Ripple Price Chart | Feb. 5 (Chart)

While it may be unpleasant for crypto investors to read my negative opinion about the market, I have to provide the information as I see it. Even though there is a chance Bitcoin and the Crypto prices will move higher and see some nice percentage gains for a while, if I were holding onto Bitcoin, I would certainly CONSIDER cashing out on price gains, rather than waiting for Bitcoin to reach $ 100,000. Please understand, I am not giving out any investment advice, just sharing what I would do.

Currently, Ripple is trading at $ .70, down 75% from its high of $ 2.81. While investors who purchased Ripple for a few pennies are still sitting on nice gains… they are still SITTING on gains. You don’t enjoy profits until you cash out.

I will end this brief post by stating the following: When the CryptoMarket finally capitulates, the alternative media community can finally get back to focusing on GOLD & SILVER… the true stores of wealth.

Precious Metals News & Analysis – Gold News, Silver News

Crypto Currencies Crash, Dollar Slides, Gold & Silver Slips; Greg Weldon: Platinum Poised for Gains

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up Greg Weldon of Weldon Financial joins me to talk about precious metals and other commodities. Greg has some interesting things to share about inflation taking hold in 2018, what kind of year he thinks it’ll be for gold and silver. Plus, you’ll find out which precious metal this veteran commodities trader is most excited about. Don’t’ miss my interview with Greg Weldon, coming up after this week’s market update.

Well, the big mover in alternative asset markets this week has been Bitcoin. On Thursday, the crypto-currency plunged to $ 9,000 and has continued lower today. Bitcoin has now lost more than half its value since peaking at just over $ 19,000 last December.

The wild price swings make it difficult for Bitcoin to function as a true alternative currency. Merchants are wary of holding bitcoins for any length of time, and few dare sign any contracts that require payment in bitcoin. No one knows what the upside potential or downside risk is for a Bitcoin. It could just as easily double or lose another 50% of its value in the next month. While there is some reason to be optimistic about the sector over the long term, there’s no guarantee that Bitcoin or any given cryptocurrency will retain any value at all.

By contrast, the alternative currencies gold and silver have already stood the test of time. They will always retain significant value. Though sometimes prone to speculation and manipulation, undervaluation and overvaluation, precious metals markets are quite stable compared to crypto coin markets.

Both gold and silver are up in value since mid-December when Bitcoin peaked and proceeded to fall more than 50%. The U.S. Dollar Index is also down, and down significantly since mid-December. In fact, it’s fallen 7 weeks in a row.

Curiously the weak dollar hasn’t helped Bitcoin. The leading crypto-coin has traded less like a currency counterpart to the dollar and more like a pure speculation – one that got extremely overheated in a buying frenzy that abruptly reversed.

Here at Money Metals Exchange, we’re happy to have helped a number of clients convert their bitcoins into physical precious metals over the past couple months, ahead of the big selling this week. We continue to accept bitcoin payments for those who want to swap their crypto coins for physical coins, and we continue to pay some investors in crypto coins when they sell us precious metals.

We don’t make price forecasts for crypto-currencies, but there’s a real possibility that just as buying Bitcoin in its infancy was the greatest trade of a lifetime… switching from Bitcoin to precious metals in 2018 could be the second greatest trade of a lifetime.

Checking in with metals markets this week, gold prices – which were nearly flat through Thursday’s close – are selling off along with all of the other PMs today. The yellow metal currently checks in at $ 1,330 an ounce, down 1.5% for the week. Silver is getting punished today and is now down 4.2% since Friday’s close to trade at $ 16.72. Platinum is off 2.1% to $ 995 per ounce, while palladium is this week’s big loser – down 5.0% to bring spot prices to $ 1,040.

Metals markets are struggling to process the twin threats of rising inflationary pressures and more rate hikes from the Federal Reserve. On Wednesday, the Fed left its benchmark interest rate unchanged as expected. However, policymakers sounded a hawkish tone on inflation. The recent decline in the U.S. dollar combined with stimulus from tax cuts, lower unemployment rates, and rising wages could deliver a significant lift to consumer prices before the end the year.

The Fed is now widely expected to raise rates at its March meeting, when incoming Fed Chairman Jerome Powell will be at the helm. It remains to be seen how markets will react to Powell and whether he will acquire a reputation for dovishness like his predecessors. But he was appointed by President Donald Trump for a reason – and that reason is Trump fully expects him to be accommodative of the administration’s economic agenda.

At his State of the Union Address this week, the President touted great progress on a number of economic fronts. The economy has certainly gotten a boost from some of his policies. However, left unmentioned was the ever-expanding national debt, the declining dollar, rising long-term interest rates, and the risk of rising inflation.

The bond market is telling us that we should pay attention to inflation risk. Yields on the 30-year Treasury rose back above 3% this week as selling in the bond market took bond prices down to levels not seen since 2014. Interest rate sectors of the stock market also sold off hard. The broader stock indexes including the S&P 500 are finally experiencing some selling pressure as well. A flight from paper assets should stimulate safe haven buying in precious metals.

Well now, for more on inflation, metals, and what’s ahead for the various markets in 2018, let’s get right to this week’s exclusive interview.

Greg Weldon

Mike Gleason: It is my privilege now to welcome in Greg Weldon, CEO and president of Weldon Financial. Greg has over three decades of market research and trading experience, specializing in the metals and commodity markets, and even authored a book in 2006 titled Gold Trading Boot Camp, where he accurately predicted the implosion of the U.S. credit market, and urged people to buy gold when it was only $ 550 an ounce. He is a highly sought after presenter at financial conferences throughout the country, and is a regular guest on financial shows around the world, and it’s great to have him back here on the Money Metals Podcast.

Greg, it’s nice to talk to you again, and thanks for coming on.

Greg Weldon: It’s my pleasure, Mike. Thank you for the invite.

Mike Gleason: Well before we get into other stuff here, Greg, one of the big stories early this year has been the plunge we’re seeing in the U.S. dollar. Precious metals and commodities have been getting a boost, but it doesn’t look to us like metals have fully priced in all of the weakness we’ve seen in the greenback, which lost 10 percent in 2017, and is off to its worst start in decades so far this year. Meanwhile, metals are still trying to retake their highs from last September. What are your thoughts on gold and silver prices relative to what we’ve seen in the currency markets, Greg?

Greg Weldon: Well, I think the first part of the question is important to answer first, in terms of the dollar, because it’s important to kind of note the evolution that’s taken place in the dollar. And like you accurately stated, it was down all of 2017. It was under pressure. So, while this latest slide has caught the attention of the markets, it’s been in depreciation mode for 14 months. I think that the reason that the most recent move has caught the attention of the media, particularly, is the fact that you have a secular breakdown.

When you took out 9100 in the dollar index, you really have kind of completed a rally phase that was predicated upon … at first, you kind of saw that real acceleration here in the dollar and the upside off of the gains in this recent move to its highs, 2016-2017, was predicated upon the Fed dot plot. Which, when they went from taper to tap out, in August of 2014, meaning, that they stopped buying bonds, fresh bonds completely. In other words, not printing new money, not buying fresh bonds, only reinvesting the proceeds from maturing bonds, which they’re not doing anymore.

What happened was that they were projecting a three and a half to three seventy-five Fed funds rate, by now. And that dynamic really boosted the dollar, thinking you were going to have a huge interest rate differential going out in the future. More recently, as the Fed kind of doved down their dot plot over time, you had the dollar start to track U.S.-German long bond yield differentials more tightly than anything else.

And what we have seen really, since November, is a shift away from that now. And the newest evolution is for the dollar to kind of… and I don’t hear much talk about this, which is interesting… if you listen to the pop media at CNBC and so on and so forth, you hear kind of, some mystery around why is the dollar declining here. Because, the economy’s strong and interest rates are going up and the dollar should be rising, right? Well the dollar is also tied to the U.S. budget deficit. If you track this out over the last 15 years, you could see a direct correlation.

What we know to be happening is the budget deficit in the U.S. is widening again. It widened last year, to very little fanfare. It’s just shy of 700 billion. It’s widened by 10% in the first two months of the fiscal year, meaning October-November. December data’s still pending. And, this is a problem in terms of, you already have 20 and a half trillion dollars that you have to now refinance, refund, at interest rates that are higher than they had been refunded in the past, really, for the first time in a long time. And this is going to add to that deficit, significantly.

You’re looking for a deficit in here that could be over a trillion dollars in fiscal 2018. And that’s a real negative for the dollar. And that’s before you really consider the full extent of the cut in revenues, that will result from the tax cuts. And the potential here if they put an infrastructure program in place, that will deepen the deficit even more. And to me, that’s a secular long-term fundamental flaw in the dollar. And we’re seeing that reflected in the price action.

Now you’re right to suggest that maybe gold and silver should be higher, based on this. I think there’s maybe two reasons for that. Number one, there is some kind of, almost disbelief in the dollar’s decline. So I don’t think people are rushing into metals. Because I think there is some complacency around the dollar’s decline here. And I think there is some thought process to be had here that if you were to see the stock market turn here – and I think we’re really close to that. We’ve been kind of anticipating that for a while. I think the tax program kind of pushed the timetable back a little bit.

But you could be in a situation where you kind of have all asset prices declining. And maybe gold gets caught up in that. So, with all that said … and gold made a pretty long trip from $ 1,205 to $ 1,360 here. So, it’s a pretty decent sized rally, frankly. I think from here the prospects for gold and silver are excellent. If you take out this $ 1,377 high that we have, that’s going to violate the trend line that goes back to the 2011 high. And as you know, we’ve talked about this before. This is a long term, multi-decade secular full market. We can, in fact, trace this all the way back to when the U.S. took the dollar off the gold standard.

And the correction you’ve seen since 2011 was almost a perfect 50%. It was ABC. And it kind of sets the stage now … it was wave four of this grand super-cycle bull market, if you want to get into the cyclical talk. So I think a breakout above $ 1,377 will happen. I think it will come in context with further weakness in the dollar this year, as the deficit deepens further. And you’re going to have a real solid move over the next three to five years.

So, is it a little bit disappointing here? It is. But I think you’ve got to be patient. Because I think it will, in fact, play out in a bullish way for the metals.

Mike Gleason: Yeah. Certainly that overhead resistance level for gold there in the $ 1,370-$ 1,375 range has been pretty significant. It’ll be very interesting to see once we get up to that range again and see if it can finally bust through it.

Now inflation expectations have been creeping higher since the election. With the recent tax cuts we may start seeing the CPI actually move significantly higher. If the President is successful in his push to spend 1.5 trillion dollars on that infrastructure plan that you alluded to in your first answer. Price inflation is likely to become a significant driver in our markets. Higher prices are, of course, the flip side of weakness in the dollar, and could be a catalyst for buying in precious metals.

Now, President Trump’s agenda look like it was in trouble for the first several months of his presidency. But he seems to have the momentum behind him now. So, how do you rate the chances of a major infrastructure program getting pushed through Congress? And then talk about the potential effects on markets.

Greg Weldon: Well, I don’t know what the chances are. I think, like you said, he’s got some momentum here. And I think it would be tough to debate that the country doesn’t need it. I mean, in terms of infrastructure. Not even in terms of politics, or in terms of any of the rest of what we’re talking about here.

There’s no doubt. I mean all you got to do is try and get from New Jersey to New York, and you can see how eroded and kind of almost decrepit some of the infrastructure is, around transportation in particular. Around water, here in Florida where you have some real issues with Lake Okeechobee, and overflow … There are major needs in the country for infrastructure. So I think it becomes less of a political hotbed than, say, something like tax cuts or immigration.

So I think, from that perspective, the chances increase for him to push it through. And in that same context, I have heard very little talk in this tax program about how it affects the deficit. So, I don’t know that the deficit hawks are really out there in full force. And frankly, if the Democrats are going to come here and they’re going to fight infrastructure on the back of … It’s going to increase the deficit and going to increase debt. Well, where have they been for the last eight years during the Obama administration, when we went from nine trillion in debt to twenty and a half trillion.

Okay, so for them to come out now and be against this kind of thing would seem kind of hypocritical, to some degree. So I think all these factors bode well for the package to come through. I think the dollar’s decline, frankly to me, is more critical in terms of the inflation outlook, because it affects commodities. And if you look at where gasoline is now, it’s been kind of contained in the inflation dynamics, because you are in the winter months when gas demand is lower.

If you look at the gasoline strip – the board in the futures market – starting in April, you’re looking at about a two dollar ten price for gasoline. And while, you’re not seeing increases at the pump that impact consumer spending as much, this will work its way into the inflation data. Just because of the way it’s calculated. So, you were a dollar fifty-four, last April. You’re two ten now. That’s a big increase. And that’s going to have an impact on CPI numbers. It’s going to be similar to what we saw last year, around this time, when February’s inflation number was a big number, two point seven on the headline. And a lot of that was because of the year-over-year impact in energy.

Now, you could say, that diminishes the importance of the CPI readings. But that’s problematic in the sense that CPI at the headline rate is already above two. And the Fed is making their changes, really since September everything changed for the Fed, because it no longer became about the dot plot. Because the dot plot had been doved down to the point where it was more realistic, frankly.

And so, with the Fed basically saying we want to get to neutral, alright? Throw this normalization out the window. I hate that term, because nothing is normal about any of this. The new normal is what it is. What they really want to do is get to neutral. And part of the reason, if you read what they say, and what the minutes say and what their speeches say. They want to get to neutral, so they can have some policy option symmetry. Okay? They’ve had an asymmetrical setup, where they have a lot more room to tighten than they do to ease.

And frankly, the Fed is worried that if the stock market cracks, it could take this whole economic optimism and turn it the other way, that they might have to respond. And what they don’t want to have to do is unwind shrinkage, where they’re shrinking their balance sheet. And they have said this. They have said, when we have to make our next policy moves towards easing, we don’t want it to be QE. We want to have room with interest rates to move.

So, in essence – and they are very clear on this – they wanted to bring the short end of the bond market to the level of inflation. And that has happened already. So now the question becomes, what if inflation goes higher? What if inflation? Dollar down, commodities up. The one thing that’s been missing is food inflation. Look at the ag markets. They’re all at pretty much close to their lows. It was a really down year for the ag markets last year. And it has held inflation back.

We’ve also seen that, though, and the year-over-year rate go from negative, to 0.9% was the last CPI reading for food on the year-over-year basis. You have the ag markets set up now to benefit from the lower dollar. And you also have the ag markets set up to where the risk reward margin here, in terms of the supply versus demand … I mean, the markets are down because of huge supply of grains. Alright? In South America, where now you have a really severe drought going on, by the way, in Argentina, which is affecting soybeans already.

But you have no margin for error, because, yeah, supplies are record, but so is demand. So, the margin for some kind of weather event in grains, let alone the positive impact you’re already going to have from the dollar, sets the stage for something more significant in inflation down the road that this has not priced this into the markets at all.

So you’ve taken the two year note, for example. I mean, when it took out 140, we said straight up it’s going to two and a quarter. It’s there now. It’s made the adjustment. What happens from here if inflation goes up? And that could be really problematic for the bond market, in turn for the stock market, in turn for the deficit because now you’re paying even higher yields to refinance the debt, every quarter, so on and so forth.

So I think inflation is the big wild card for the year. I think the ag markets are a big part of that story. And I think it sets up for some really interesting action, probably beginning sometime April-May.

Mike Gleason: Expanding the point here on commodities and precious metals a little bit with that inflation story. Any of, maybe the metals in particular piquing your interest? Copper had a real good run late last year. It’s kind of been languishing a little bit, silver. What do you have to say about maybe some of these industrial commodities if we’d see this big inflation play?

Greg Weldon: Yeah. I do, in fact have, platinum on my radar screen. And for a couple of reasons. First, the infrastructure dynamic. Second, there’s some talk in the EU and other places about substituting platinum for palladium, in terms of auto catalytic converters. The expectations are that after some down years, jewelry demand’s going to be higher. And, all that plays into the fact that platinum, at $ 350, give or take 20 bucks, discount to gold, historic levels, makes me very interested in platinum.

Not only that, but platinum has rallied up to this ten and a quarter level. You have some real long-term … $ 1,377 in gold equates to kind of $ 1,026 in platinum. So, if platinum gets above $ 1,026, and it’s made a decent move already again. So, a pause here wouldn’t be out of the question. Platinum is on my radar screen. And I think, given its discount to gold, and given my outlook for gold, that bodes very well for platinum.

In terms of copper, it’s not my favorite industrial metal. I think it is over-owned. If you look at the commitment of traders, you look at open interest… people have already bought into copper on the anticipation of infrastructure spending. So I think the bang for your buck might be greater in other metals. And I think other metals are actually situated better from a supply-demand fundamental. If you look at copper, the swap rates are at new lows.

So, the copper is amply supplied right now. The speculative position is predicated upon future demand that may or may not materialize. When you look at some of the other markets, zinc, aluminum, even nickel, which has kind of been the weak link, they’re more attractive to me than is copper. So if you’re interested in buying base metals, one of those three would be a preferred choice. And I would really keep an eye on platinum, cause that could be a surprising market this year.

Mike Gleason: Stocks keep soaring, and we’ve been looking for a correction, or a significant correction for quite a while given just the incredible P/E ratios that we’re seeing here. Does it have longer to run here? It sounds like you think maybe May is a point where we might start to see some things roll over. Just give us some of your thoughts here on the equities.

Greg Weldon: I think you’re really close Mike. I think when you kind of overlay the 2-year note with the stock market, it provides an interesting correlation because they’ve moved up together. And it looks to me like this would be a point where maybe you start thinking that the bond market decline, in price, and rise in yields takes a break. Every metric that you want to march out in front of us here, is negative for the stock market. Whether it’s the Case-Shiller at 33, which is second only to 2000. In fact, many of these things outside of the market cap to GDP – which is at a new record high – the bulk of those indicators that I use, and a lot of people use to kind of determine where the stock market is undervalued, fair-valued, overvalued – say it’s the most overvalued it’s been since 2000. And we know what happened in 2000. It was a blood bath.

And, you can make the similarities of tying it into tech, too, because that was the dynamic during 1999-2000. It’s a similar dynamic here, in terms of the leadership and the really lofty, frothy levels to which some of the tech stocks have gotten. And we’ve talked about this before. I was kind of thinking it might happen. I thought it might be kind of buy the rumor, sell the fact on the tax cuts because you had the big rally leading up to the passage of the bill. I thought that might be kind of a denouement. But it’s actually kind of extended it. Why? And that leads back to the consumer. Because the consumer has gone on a borrowing spree that is unprecedented, really for the last 39 months. And specifically in November. And specifically, now in credit card debt.

And this is linked to… guess what? We got a tax cut coming. We’re going to have more money next year. We’re willing to spend a little more and run up our debt even more, because we feel we have that money coming. Alright? So the numbers around November, around Black Friday, around Cyber Monday, were astronomical. Almost insane numbers. So, the question becomes, does that money get paid back with tax cuts? Probably not.

You’re already seeing delinquency rates rise. You have record levels in terms of the, just nominal amount of debt. So, I worry about the consumer, too. And how that maybe has been something that has put the stock market timeframe back a little bit. And then certainly you’ve had a tremendous amount of cash come into the market since the tax cuts were announced. But I think right here, literally like in the last 48-72 hours, you’ve seen kind of a shift in momentum. You’re at such levels where things could happen, from a fast and furious standpoint. If people go to liquidate. God forbid, people go to take profits here.

And, when you look at the high-flying tech stocks… and again, we have talked about this before… but you talk about Amazon at a $ 1,200 or $ 1,300 dollar per share price. You have pretty much, everyone that wants to own these stocks, owns them. The ownership is huge. It’s through the roof. At the same time, because of the high nominal price of one single share, volume has virtually dried up. So what happens if they go to sell, and nobody’s there to buy?

You have the setup here, from psychological, from kind of the fundamentals, in terms of the overvaluation… and then, just in terms of some of the logistics of the best performing stocks, for there to be something of an accident here. So, I think the writing is on the wall. And the other thing I will say to that is, the bond market … People say rising rates haven’t affected the stock market. That’s absolutely not true. You have already seen the utilities breakdown. You have doubt theory divergences here that are very significant. You have the REIT’s on the run. You’ve got the NBS market on the run. Junk is close to breaking down.

So, I think there has been an impact. And it is visible, if you look at it. We’re actually long the REIT short ETF. And it is performing. So you have seen the interest-sensitive sectors of the stock market already affected. And man, does this not remind me, personally, of 1987. Where you went months and months and months with a bond market getting trashed, every single day. The T-bond was down 2-3 points, many days in a row. And no impact on the stock market until there was an impact on the stock market. And it was delayed by about nine months. You’re kind of in that time frame here.

So, you’ve got a lot of things that are converging here to suggest that the risk-reward, right now, does not favor buying stocks here at all. And in fact, I think the risk is significant, of some kind of major correction.

Mike Gleason: Well, as we begin to close here, any final comments on what you’re watching for most closely? Maybe some of those trigger events that could really make waves in the markets and kind of get things going? And then, also, what kind of year do you think it’s going to be for gold and silver in 2018?

Greg Weldon: I think there’s great opportunities for trading, because I think what really kind of made change and is already showing us some sign of changing, is volatility. I mean this market run has been – even in the bond market – the rise in yields has been very condensed, in the sense you don’t see wild swings. It’s just kind of up a little bit every day in yields. You’ve seen that kind of same thing in the stock market. I think I heard somewhere you haven’t seen even a 1% rally in a single day since September. And you hadn’t seen a 1% decline in stocks since August until this week.

So I think one of the things that has been kind of just put on the back burner … That people aren’t even paying attention to but it’s still kind of on the boil, is volatility. So, I think from the perspective of actually trading these markets you’ve got great opportunities. I think the short side of the stock market will be a great opportunity here somewhere. I think the long side of the commodities markets will be great opportunity. And I think gold and silver are poised to break out, along with platinum.

So I think, at the end of the day I think 2018 offers great opportunities for people that are diversified and willing to be long or short, that are flexible, that are nimble. That can kind of pay a little closer attention than your average retail guy might. I think that the opportunities this year are going to make 2018 a great trading year, much better than we saw last year. Which wasn’t a bad year, frankly. It was pretty good.

Mike Gleason: Well Greg I know you haven’t been feeling your best this week, but I really want to thank you for joining us nonetheless. We’ve really enjoyed having you on and appreciate your insights on the state of today’s financial world. Now before we let you go, please tell folks about Weldon Financial, how they can find you, and any other information they should know about you and your firm.

Greg Weldon: Sure. Thanks, Mike. Well, we do Weldon Live, which is a daily … I put in parentheses almost daily because I do all the work myself. And we cover everything from top-down global macro dissection of data … ISMs is on the docket for today, for example. We’ll break that down to its real detailed, micro level. Then we do foreign exchange, fixed income, stock indexes and ETF’s, industrial and base metals, ags and energy. So, we cover everything. I’ve been doing this for 33 years. We welcome any and all of your listeners, who have not had a free trial subscription to our service, to come to Weldon Online, that’s WeldonOnline.com. And sign up for a free trial to our Weldon Live. We also have what we call trade lab as part of the service. And that is specific trading recommendations, including entry and exit points. Kind of longer term stuff.

The differential between traders and investors has become very blurred these days because everyone’s a trader now; nobody’s an investor. To try and handicap these markets five to ten years out. Unless you’re really young and you’re just getting started. The stock market’s been commoditized to a large degree. So, everyone’s a trader, and from that perspective the service is useful to anyone out there. Whether you’re retail, an individual, and we have some of the world’s largest hedge funds as our clients as well. So, we welcome anyone to come check it out.

Mike Gleason: Well good stuff, Greg. Thanks again for your time, and hope you have a great weekend and look forward to catching up with you down the road.

Greg Weldon: You too, Mike. Thanks. Always a pleasure.

Mike Gleason: Well, that will do it for this week. Thanks again to Greg Weldon of Weldon Financial and WeldonLive. For more information, simply go to WeldonOnline.com and we urge everyone to sign up for a free trial there. Again, you can find all of that information at WeldonOnline.com. Be sure to check that out.

And check back here next Friday for our next weekly Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

Precious Metals News & Analysis – Gold News, Silver News

The Interest on National Debt Surges: DANGER AHEAD FOR U.S. GOVERNMENT

The U.S. Government is in serious trouble when interest rates rise. As interest rates rise, so will the amount of money the U.S. Government will have to pay out to service its rapidly rising debt. Unfortunately, interest rates don’t have to increase all that much for the government’s interest expense to double.

According to the TreasuryDirect.gov website, which came back online after being down for nearly a month, reported that the average interest rate paid on U.S. Treasury Securities increased from 2.2% in November 2016 to 2.3% in December 2017. While this does not seem like a significant change, every increase of 0.1% in the average interest rate, the U.S. Government has to pay an additional $ 20.5 billion in interest expense (based on the $ 20.5 trillion in total U.S. debt).

Already, the U.S. Government is off to a BANG as it’s interest expense paid for the first three months of the year increased to $ 147 billion compared to $ 139 billion in the same period last year:

US Oct DEC 2015 2017 Interest Expense

This chart was taken directly from the TreasuryDirect.gov site, with my added annotations. As we can see, the U.S. Government paid $ 126.5 billion to service their debt Oct-Dec 2015. We must remember, the U.S. Government Fiscal period starts in October. So, in just two years, the interest expense the U.S. Government paid for Oct-Dec increased more than $ 20 billion. Now, what is interesting is that the average interest rate in Dec 2015 was 2.33%, but in Dec 2017 it was only 2.31%. Thus, it was actually lower, even though the interest expense increased by $ 20 billion.

The reason for the $ 20 billion increase in the interest expense during Oct-Dec 2017 versus Oct-Dec 2015 was due to a more than $ 2 trillion increase in U.S. debt over that two-year period. So, the U.S. Government will have a serious problem as interest rates really start to rise… and that doesn’t even include the continued increase in total U.S. debt.

This next chart shows the increase in U.S. debt, while the average interest rate fell from an average 6.6% in 2000 to a low of 2.2% in 2016:

US Debt Avg Interest Rates US Treasuries

The falling average interest rates occurred due to the Federal Reserve policy to stimulate the economy as well as to keep the U.S. Government interest expense from skyrocketing.

Now, there is a difference between the U.S. Federal Government net interest expense of $ 266 billion on the $ 14.7 billion in public debt in 2017 versus the total $ 458 billion interest expense on total debt of $ 20.3 trillion, which includes “intragovernmental holdings.” The Federal Government is only stating the interest it’s paying on the public debt in its budget. However, Intragovernmental debt is debt that one part of the government owes to another part. In almost all cases, it is debt held in government trust funds, such as the Social Security trust funds.

So, if we want to know the total interest expense paid via total U.S. Treasury Securities, we have to also include the intragovernmental holdings, or that amount that the U.S. Government has borrowed from other governmental agencies.

For example, before the government raised the debt ceiling on Sept 7th, the public debt was $ 14,410 billion, and the intragovernmental holdings were $ 5,434 billion for a total of $ 19.844 billion:

US Public Debt Intragovernmental Holdings Jan29 2018

However, the intragovernmental holdings increased the most in percentage terms by rising 4.7% ($ 256 billion) to $ 5,690 billion while total public debt only increased 3.2% ($ 649 billion) to $ 14,802 billion… for a grand total of $ 20,493 billion. The U.S. government still has to pay interest on their intragovernmental holdings… and a lot of that interest is going to pay for Social Security. According to Social Security Report July 2017, of the $ 836 billion in benefits paid in 2017, an additional $ 88 billion came from earned interest. Thus, 10% of Social Security payouts last year came from a large percentage of interest earned on the Social Security portion of the intragovernmental holdings.

If we consider total U.S. Government interest expense, including intragovernmental holdings, it hit a record high of $ 458 billion in 2017:

US Annual Interest Expense Avg Interet Rate

Unfortunately, when interest rates move back toward a more normal rate of 5%, the U.S. Government will have to fork out $ 1 trillion-plus a year, just to service its total debt. Even though the Federal Reserve might try to lower interest rates during the next market crash, the market will likely react in the opposite direction as real rates start to rise.

The Central Banks have purchased $ 15 trillion in assets since the 2008 market meltdown. Furthermore, their zero-interest rate policy has driven speculative growth with the addition of $ 70 trillion in debt in the same time period. While the Central Bank insane easy monetary policy may continue for a few more years, the tremendous amount of LEVERAGE in the system is getting out out hand.

Precious Metals News & Analysis – Gold News, Silver News

For Anyone Still Wondering If Gold Prices Are Rigged…

The Commodity Futures Trading Commission levied fines against three European Banks on Friday for “spoofing” the futures markets, including COMEX gold. Six traders were arrested yesterday.

“Spoofing” involves placing buy or sell orders in order to move markets in a desired direction then canceling the orders before they get executed. It is one more tool that HSBC, Deutsche Bank and UBS have been using to rig markets.

The fines, which range from $ 1.6 million to $ 30 million, might otherwise have been written off as a cost of doing business for these behemoth banks.

The arrests yesterday could mean this action at least has a chance of serving as a deterrent. Crooked bankers generally sail past the regulators by paying a modest fine (using shareholder money) and rarely grapple with the prospect of prison.


That said, it is way too soon for investors in gold futures to start counting on fair dealing. There are, as usual, a few telltale signs that the action is unlikely to have much effect.

There are no U.S. based banks listed as part of this enforcement action, but that is merely suspicious. What really looks bad is the fact that, once again, no senior bank executives have been charged with a crime.

No matter how often people at these same firms get caught lying, rigging, and defrauding their own clients and investors at large, regulators never manage to pin blame on the top brass.

They have yet to suspend the trading privileges of any major bank.

James McDonald, who became the CFTC’s head of Enforcement last year, gave market participants a pretty good idea of what to expect from the agency – a passive attitude toward enforcement. Reuters summarized his approach this way:

He plans to encourage companies and staff to report their own wrongdoing and cooperate with investigators, a strategy he hopes will make it easier to prosecute more individuals.

With a policy like this, Wall Street banks don’t have much to worry about. Investors looking for a fair shake in precious metals futures markets, on the other hand, don’t have a whole lot to look forward to.

Precious Metals News & Analysis – Gold News, Silver News