The Real Estate Bubble Looks Eerily Like Early 2006

We called the real estate bubble top in late 2005, just before it began to burst in early 2006. So did Jim Stack, a newsletter writer in Whitefish Montana.

Now Jim has a Housing Bubble Bellwether Barometer that’s flashing a sell signal after going up 80% last year. All our alarms are going off as well.

The Confidence Indicator for the National Association of Home Builders/Wells Fargo is at its highest reading in 18 years… higher than it was in early 2006.

The Case-Shiller National Home Price Index is now higher than the peak in early 2006, and looks like a carbon copy of the last bubble.

All of this is to say: things are looking dangerous in the real estate market!

Look at this chart…

 

The chart measures home prices versus the CPI (Consumer Price Index). Robert Shiller proved that real estate prices correlate with inflation long term. In fact, Shiller was the only other forecaster (alongside us) who called the housing bubble last time.

In 2017, prices went up 7% while inflation went up 1.9%.

This index is 34.3% above the CPI, almost exactly like the 35% premium in early 2006!

These two bubbles couldn’t be more similar in time frame, overvaluation, and advances if they’d be computer constructed… yet almost no one sees a problem here! When will people ever learn!

Mainstream economists and forecasters are bubble-blind again!

The best sector of the S&P 500 last year was, of course, homebuilders – up 74.8%.

Starter-home companies are doing the best as that’s where the supply is tightest and the demand the strongest.

Yet, home builders have been leaning more towards the high end of the market and aging Baby Boomers for higher profits.

LGI Homes Inc. is a good example of a company that has nailed the low-end markets. It was up a whopping 161% in 2017. The largest homebuilder, D.R. Horton, was up 87% (that could be a great short in the next few months).

But like I said: alarm bells are sounding.

There are two potential “pins” that could trigger a collapse in real estate…

The first is mortgage rates rising from around 4% towards 5%.

The second is the fact that property taxes are no longer deductible. That hurts the bubbliest states like California, New York, and New Jersey.

My bubble model would suggest that home prices go back to their point of origin, at worst, or, most likely 85% of the way. That suggests a loss of 42% to 49%! That’s worse than the 34% crash from 2006 into 2012.

And my model says it should take as long to deflate as it took to build – or about six years or into around 2023, just like last time.

That’s a long way away down!

We’re finalizing a special real estate ebook at this very moment. It contains details of the countries and states most at risk in the bubble… and how much each stands to lose when this situation turns bad. We’ll be sending details about this as soon as its ready, so watch out for that.

Harry
Follow Me on Twitter @harrydentjr

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Harry Dent – Economy and Markets ()




2018 Stock Market Bubble vs. Gold & Silver

The U.S. Stock Market is reaching its biggest bubble in history. When the price of the Dow Jones Index only moves in one direction… UP, it is setting up for one heck of a crash. While market corrections aren’t fun for investors’ portfolios, they are NECESSARY. However, it seems that corrections are no longer allowed to take place because if they did, then the tremendous leverage in the market might turn a normal correction into panic selling and a meltdown on the exchanges.

So, we continue to see the Dow Jones Index hit new record highs, as it moved up 765 points since the beginning of the year. Now, if we go back to 1981 when the Dow was trading about 800 points, it took five years to double itself by another 800 points. However, the Dow Jones Index just added 765 points in less than two weeks. It doesn’t matter if the (1) point increase in the Dow Jones today is insignificant compared to a (1) point increase in 1981, investors feel rich when the numbers are increasing in a BIG WAY.

This is the same phenomenon taking place in the Bitcoin-Crypto Market. Crypto investors who are used to 10-20 baggers (10-20 times increase) no longer have the patience to invest in a real company that might grow on a 10-25% basis annually. Why the hell put money in a real business that employees a lot of people when you can turn $ 1,000 into $ 50 million in a few weeks?

Unfortunately, the Bitcoin-Crypto Market has destroyed the new Millennials ability even to consider making old fashion sound investments in real capital-intensive companies. Today, the Entrepreneurs rather make money trading Cryptos on their I-Phone, sporting a few thumbs-up Selfies, compared to the previous generation of business people doing deals out of their briefcases.

Regardless, as the stock markets head even higher, it should provide a big RED WARNING LIGHT to investors that all is not well. I put together my first YouTube video titled, THE STOCK MARKET BUBBLE vs. GOLD & SILVER;

In my video, I show how the Dow Jones Index and certain stocks are truly in bubble territory. I also explain why the gold and silver values compared to the Dow Jones and these stocks are tremendously undervalued. Furthermore, I provide an update on the cost to produce Bitcoin versus Gold.

I plan on putting out 1-2 new videos each week on various subjects and believe the video platform will be able to explain some difficult concepts and analysis about how Energy and the Falling EROI will impact precious metals, mining, economy, financial system and our future society.

Precious Metals News & Analysis – Gold News, Silver News




Silver Antidote to Bubble Craziness

CHARACTERISTICS OF BUBBLE CRAZINESS:

  • U.S. stocks, according to many measures, are the most over-valued in history. We live in a Bubble Zone!
  • Bitcoin and other cryptos are definitely in a bubble, but they could rise even higher.
  • Bonds yield little, and in many European countries, less than zero. Central banks have created this distortion to the detriment of savers, insurance companies and pension funds.
  • Real estate: Some locations, such as New Zealand, Canada and Australia are up a factor of 8 to 20 since 1980. Houses have become unaffordable for many, even with historically low interest rates.
  • Silver and gold: No bubble since 1980. Prices have been repressed since 2011 and are attractive now.

INVESTING IN BUBBLE CRAZINESS:

  • Institutions buy stocks because bonds yield so little. This works until the inevitable crash. Think tech stocks in 2000 or 2018(?).
  • Institutions and central banks buy bonds trusting the “greater fool” theory. Argentina sold 100 year bonds. What happens when the world runs out of “greater fools?”
  • People buy Bitcoin because it is going up, and it might double again from here. Are you comfortable investing savings with that plan?
  • Others deposit their digital currency units into a “high yield” checking account that yields 0.01% interest. Or they “invest” in a CD that guarantees a yield of 1% per year in a currency that will be devalued by far more. Others buy a motor coach that depreciates $ 100,000 when they drive it from the dealer lot. Or they purchase a house that costs $ 10,000 to $ 50,000 per year in taxes, insurance, maintenance and utilities before principal and interest.
  • Demand value! Not doing any of the above! Avoid fads, bubbles, central bank distortions and obvious financial insanity.

WHAT’S LEFT? GLAD YOU ASKED!

  • What has been money for thousands of years?
  • What is more permanent than ephemeral digital currency units that are continually devalued?
  • Asia has aggressively accumulated it for decades.
  • What has been secretly sold from western vaults and shipped to Asia?
  • What is used in thousands of industrial and medical applications?
  • What has been suppressed by governments and central banks because they promote their own digital and paper currencies which have zero intrinsic value?

THE WINNERS ARE SILVER AND GOLD!

  • But “they” claim gold and silver are volatile and dangerous. Gold and silver might go up or down (for a few years) when measured in digital currency units created from “thin air” by corrupt central banks. Gold in 1971 was $ 42 and is about $ 1,300 today. Silver prices have increased similarly as central banks devalued the dollar.
  • For other examples of volatile and dangerous prices, consider the price chart for Global Crossing stock or Enron stock. Or the NASDAQ 100 from 2000 to 2002 (down 84%). Or the S&P 500 Index from 2007 to 2009.
  • But “they” claim gold and silver are relics of a bygone era, and digital is the wave of the future. So why are Russia and China accumulating gold bullion? What happened to Iraqi gold, Libyan gold, and Ukrainian gold, and who wanted it?
  • Do dictators escape while carrying paper currency units or gold bullion?
  • Would you prefer 100 ounces of gold or 130,000 paper dollars in a ten year time capsule?
  • Central banks create trillions of U.S. dollars, euros, pounds, yen and Swiss Francs each year. The Swiss central bank “creates” currency units and buys U.S. stocks. The media thinks “creating from nothing” is normal and healthy, yet informs us that investing in gold, to protect from devaluing currencies, is silly and dangerous!

GOLD AND SILVER IN THE BIG PICTURE:

U.S. dollars are created as debt. Central banks and governments want more currency units so debt, deficits and expenses exponentially increase.

Graph the price of silver (times a trillion) divided by the national debt. The ratio is low because debt has increased rapidly and silver is inexpensive.

Silver times 1 trillion to total debt: ratio

Graph the price of silver (times a trillion) divided by U.S. government annual expenses. The ratio is low and silver is inexpensive compared to total U.S. government expenses.

Silver times 1 trillion to U.S. govt. expenditures: ratio

Graph the price of silver (times one trillion) divided by currency in circulation as measured by M3 (St. Louis Fed).

Silver times 1 trillion to M3: Ratio

Graph the ratio of silver to the Dow Jones Industrial Average over 30+ years. The ratio is low, as it was in 2001 when silver sold for under $ 5.00. In early 2018 the DOW is too high and silver is inexpensive. Both will reverse.

Silver times 1,000 to DJIA Index: Ratio

SHOULD WE BUY SILVER OR GOLD?

Graph the ratio of silver to gold. Since 1971 a high ratio has indicated the top of a bull market in both silver and gold. But when the ratio is low (silver is inexpensive compared to gold) both silver and gold are cheap, especially compared to other paper and digital assets – like now!

100 times Silver to Gold: Ratio

The lows in the ratio show excellent times to purchase both silver and gold, particularly silver. Silver prices are listed in the boxes at the ratio lows. Expect the ratio to increase as both metals rise in price during the metals bull market that restarted in December 2015.

CONCLUSIONS

  • Bonds, most stocks, and Bitcoins are too expensive and have risen too far and too fast.
  • Some, perhaps most, real estate is overpriced and ready to fall.
  • Silver in early 2018 is inexpensive compared to M3, National Debt, government expenditures, the Dow and gold.

Republished with permission by The Deviant Investor.




Bitcoin Isn’t the Bubble It’s the Pin!

I wish I could take credit for that perfect description of Bitcoin, but I can’t. That goes to JP Research.

This Bitcoin bubble will be the “pin” that bursts the more widespread bubble, just like the Nasdaq bubble burst the markets back in the early 2000s.

I wrote about this twice last week, showing you how the Bitcoin bubble compares to the internet bubble, and how much Bitcoin could potentially lose when the burst happens.

Then, last Friday, I took to Facebook with this video, elaborating more on the Bitcoin situation.

I explain why Bitcoin could make one more new-high at best and then what to expect… not only with Bitcoin, but the future of the cryptocurrency industry in general.

Watch this Facebook video, and comment with your thoughts on this Bitcoin bubble.

Harry

 

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Harry Dent – Economy and Markets ()




Looks Just Like the Late Stage Internet Bubble into 2000

Cycles reoccur throughout history, but they more rhyme than duplicate.

Each bubble tends to get more extreme than the last one because there’s more wealth to chase it. Wealth is concentrated in the top 1% to 0.1% and grows exponentially (income does not).

The greatest bubble of our lifetimes was the tech bubble in the Nasdaq from late 1994 into early 2000. That built over a period of five years – the typical time frame for most stock bubbles.

This current bubble, from 2011 to present day is an anomaly. This Fed and global central bank bubble has been totally artificially driven by unprecedented QE and zero interest rate policies for 8.7 years now.

It has now outstripped the tech bubble in time, total point gains, and percentage gains.

Make no mistake about it: This is the greatest stock market bubble in modern history.

But it’s not THE greatest bubble anymore. That dubious honor goes to Bitcoin!

This morning, safety triggers shut down trading of Bitcoin futures because prices had soared too high too fast!

And there are experts out there still trying to convince investors that this isn’t a bubble! That’s dangerous talk, if you ask me.

Bitcoin and cryptocurrencies are following a similar path to the late and most bubbly internet sector of the last tech bubble, which came largely between late 1998 and early 2000. Look at this chart.

The Bloomberg internet index went up eight times in a little more than a year and then collapsed 93% compared to the 78% decline in the Nasdaq! Talk about an extreme bubble!

And most of the damage occurred within one year of that, as usual, with the first sharp crash in the first few months. Investors lost 50% right off the bat in a few months. That’s why its better to get out a bit early.

Now, look at Bitcoin versus the internet back then… and note that Bitcoin is one of the most extreme and largest leaders here – it’s like one stock versus a broader index – so it may be a little more exaggerated…

Any closer a correlation to the late stage internet bubble and it might as well be identical!

Now, if Bitcoin follows the internet bubble pattern, it could first see a sharp correction to $ 7,000 – $ 8,000, then make a final push to something like $ 20,000 or a bit higher. Then collapse 90% plus back down to $ 2,000 or so. That’s scenario #1.

This second scenario is that Bitcoin is already nearing its final peak and will crash dramatically, sooner rather than later.

Either way, this bubble is likely closer to done than not and the risks are growing of a major 90%-plus crash with most of it occurring in the next year.

Everyday investors are no longer piling into the FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks as strongly, the leaders of the last internet revolution that started in the late 1990s. Instead, they’re piling into Bitcoin and other cryptocurrencies, like Ethereum and hundreds of others.

This late-stage bubble could peak just weeks ahead of the broader Nasdaq bubble and give warning signs of the next great crash ahead…

A crash in which we’re likely to see a 40%-plus loss in the first two or three months.

You don’t want to be there for that!

But here’s the most important insight…

This cryptocurrency trend is the second stage of the internet revolution, and deals with security of financial transactions and other things of financial value that are increasingly under threat of being hacked.

It’s not the “big bang” that launches a new 45-year Innovation Cycle like the internet did. Rather it’s the one that first consolidates it and makes it better in the maturing phase of the cycle. That said, it could well morph into the next big bang cycle from 2032 to 2055.

It’s about more secure, faster, and lower cost financial transactions over the internet. That makes this a major trend in the longer term, which is why Michael Terpin, a leading cryptocurrency expert, is developing services to help you invest in the leading-edge companies that survive this bubble collapse and become the next FAANG giants of the future.

These stocks, like the best emerging countries and metals in commodities, will be the leaders to come out of the greatest crash, making them prime sale of a lifetime candidates in the years ahead.

Harry
Follow Me on Twitter @harrydentjr

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Harry Dent – Economy and Markets ()




More Investors Sell Bitcoin for Gold/Silver; Michael Pento: Stock Market & Fixed Income Bubble

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

Coming up we’ll hear a truly explosive interview with Michael Pento of Pento Portfolio Strategies. Michael describes for us what may be coming in the bond and fixed income markets and the impact on the stock market and on gold prices in 2018. He also shares some of his very strong feelings about Bitcoin and the crypto-currencies. You absolutely must hear my conversation with Michael Pento, coming up after this week’s market update.

On Thursday, Congress hastily passed a short-term funding bill that averts a government shutdown – but only for two weeks. Republicans and Democrats will have to come back to the negotiating table later this month in order to reach a deal on spending and contentious issues such as “deferred action” for illegal immigrants.

There are a handful of Republicans in Congress who oppose these bipartisan budget deals on grounds that they grow government and grow the deficit. But whether fiscal conservatives have enough clout to force any meaningful concessions from leadership is doubtful. The political forces pushing for more spending and more borrowing on Capitol Hill are simply too great.

And while unsustainable spending will have ruinous long-term consequences for the U.S. dollar, those consequences aren’t being felt just yet… at least not the negative ones. The stimulus of debt spending and currency creation is helping corporations boost their profits and their share prices, at least for now.

Meanwhile, precious metals markets are having a rough go of it this week. Gold prices are down 2.5% since last Friday’s close to bring spot prices to $ 1,249 per ounce. Silver is off 63 cents or 3.8% for the week to trade at $ 15.83. Platinum is down 5.5% to $ 889, while palladium shows a weekly loss of 1.4% to come in at $ 1,010 per ounce as of this Friday morning recording.

The U.S. Dollar Index is up over 1% for the week, but that doesn’t fully explain the weakness in gold and silver prices over the past few months. The dollar remains down significantly for the year, yet metals markets haven’t put on much of a counter-dollar move, with gold up only about $ 100 and silver now slightly negative for the year.

The lack of investor interest in gold and silver this year may have more to do with what’s been going up. As long as the stock market keeps plowing ahead, the safe-haven appeal of hard assets will be limited mainly to those who are true contrarians, to those who are willing to go against the direction of the herd.

Even among alternative asset investors and free-market money advocates, gold and silver have been overlooked in favor of newfangled digital currencies such as Bitcoin. This week Bitcoin surged to over $ 18,000 amidst volatile trading and soon to be opened futures contracts for the crypto-currency.

Bob PIsani (CNBC): The first Bitcoin futures market, that’s going to begin Sunday night. Let’s talk to the man in charge of all this. Ed Tilly is the CEO of the CBOE.

And Ed, congratulations, you’ve won this sort of arms race to get to the first Bitcoin futures. CME will be doing it a week later.

You’re familiar with Jamie Dimon’s famous comment. Mr. Dimon had said, “If you’re stupid enough to buy Bitcoin, you’re going to pay the price for it one day.” He called it a fraud. Do you think this is an opportunity for Bitcoin? Do you think this is another great investment, or is it a fraud?

Ed Tilley: There’s a suitability issue with every investment. Bitcoin should be no different. I don’t think we’re setting up Bitcoin and saying that’s for everybody, but we certainly know there’s interest out there on the long and the short side.

Just about all of us can look back with regret for not having bought Bitcoin – or not having bought enough of it – when it was trading below $ 1,000. But there’s no point in dwelling on what you could have done in retrospect. There will always be something – whether it’s a penny stock, or an obscure commodity, or a rare piece of art, or an ideal plot of land – that you could have made a fortune on if only you had known what and when to buy.

By the same token, those who own Bitcoin may one day regret not selling at what in retrospect was the top. Maybe we’re at it now. Maybe it has much further to go. But an asset class as volatile and speculative as crypto-currency won’t simply reach a plateau.

When the upside momentum runs out for whatever reason, a crash of some magnitude will likely follow. Saxo Bank came out with a prediction that Bitcoin will hit $ 60,000 in 2018…only to crash back down to $ 1,000.

If a scenario like that played out for the crypto-coin, the crash phase could be hugely bullish for hard coins – gold and silver. Bitcoin holders tend to value things like privacy, free markets, and being contrarian to what Wall Street and the banking establishment are pushing. If they lose confidence in crypto-currencies, many are likely to come back home to physical precious metals.

In fact, we’ve recently seen a significant uptick in Money Metals customers buying gold and silver using their bitcoin for payment. It’s super easy to do that at Money Metals.com. And over the phone, you can also do larger buy OR sell transactions exchanging gold and silver for crypto currencies — or vice versa. Just call us at 1-800-800-1865 to do so.

Well now for more on the state of the markets, the perilous situation the new head of the Federal Reserve will likely face in 2018, and for much more on the rise and potential fall of Bitcoin, let’s get right to this week’s exclusive interview.

Michael Pento

Mike Gleason: It is my privilege now to welcome in Michael Pento, President and founder of Pento Portfolio Strategies and author of the book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market. Michael is a well-known and successful money manager and has been a regular guest on CNBC, Bloomberg, Fox Business News, and also the Money Metals Podcast, and shares is astute insights on markets and geopolitics from the perspective of an Austrian School economist’s viewpoint.

Michael, welcome back. Thanks for joining us again and how are you?

Michael Pento: I’m doing fine. Thanks for having me back on Mike.

Mike Gleason: Well, Michael, you focus a lot on the bond markets. Let’s talk for a minute here as we begin about the bubble that has been created and maintained there, and then we will get into the potential ramifications for precious metals. I was researching this morning and the yield on the 10-year Treasury note was 2.242% on December 20, 2015, just after the Federal Reserve made the first rate hike in the current cycle of raising the Fed funds rate. Today, the 10-year yield is 2.327%, a tiny increase from two years ago, so the yield has barely budged despite the funds rate ratcheting up a full percentage point higher. Now, the funds rate isn’t directly tied to Treasury yields, but shouldn’t this tightening be translating to higher yields? Why is that not happening?

Michael Pento: What a great question to start off the show. So, I’ll just dovetail on what you just said and say that in the beginning of 2017, the yield on the 10-year note was 2.4%, or just around that level. Now, as you said, it’s 2.32%. So, there’s a very good reason for why this is happening because the long end of the bond market is concerned with inflation and if the Fed is hiking rates from pretty much zero to one and a quarter percent as we sit today, the effective Fed funds rate is just a little bit above 1%, that doesn’t mean that the yield should go higher on the long end of the yield curve. Actually, what that does mean, is that the Fed is vigilant, for now at least, on fighting inflation.

They’re reigning inflation out of the economy. That means the long end is going to come down to meet the short end, and I will tell you on that front that in the beginning of 2014, 260 basis points was the spread on the two and 10-year note. And we’ve had five rate hikes since then and guess what the spread is today as we record this interview, 51 basis points. So, you don’t have to have an advanced degree in calculus to figure out that you have two rate hikes left, two, assuming that the two-year note rises commensurately with the Fed funds rate, two rate hikes left before the yield curve is completely flat.

And the problem is that when I’m reading a lot of material in the past few days that the all-knowing pundits on Wall Street from the big brokerage houses, the big wire houses, are claiming that we’re going to have five rate hikes. Mike, five rate hikes between today, December 6th and the end of 2018, five. Not two, five. That means the Fed funds rate is going to be well above where the 10-year note yield is trading today, so you’re going to have a massively inverted yield curve by the end of 2018. Not only that, you pile onto the fact that central banks are going from a $ 120 billion worth of counterfeit confetti each month to zero by October. So, if you’re not worried about a recession, if you’re not worried about an inverted yield curve, if you’re not worried about the central banks moving their massive bid from stocks and bonds and if you’re not worried about the stock market imploding in the next few quarters, if not months, you should be.

Mike Gleason: Interest rates are essentially the price of risk and the market seems to be saying there just isn’t much. However, you and I both know there is plenty, as you just discussed there, but this is bubble has persisted for years now. The truth is we don’t have real properly functioning markets and this extraordinary mispricing of risk will go on until, and probably suddenly, it doesn’t. What signals are you watching for in the bond markets, if you would expand on that, that would indicate the game is about up and are you seeing any of those signs?

Michael Pento: Well, you have to watch high yield spreads and the nominal yield. If you see those yields starting to spike, then you should worry. They were spiking a few weeks ago. They’ve since come down a little bit, but keep an eye on that. There were good break-even spreads, inflation break-even spreads. I watch those very insidiously. Of course, like we just talked about, you watch for the yield curve to invert.

When the yield curve flattens out and inverts, it means this – and it doesn’t really matter why it happens – some people will say, well, I hear this Mike, that you shouldn’t worry about the yield curve inverting this time because it’s inverting because. Because, is the 10-year (German) bund is yielding .29%. Mario Draghi over in Europe is bending the whole yield curve to the south in Europe and that’s putting pressure on our yields here in the United States. Well, that’s true to some extent, but let me ask you a question, if the yield on the 10-year bund was .5% not too long ago, why is it .29% now in light of the fact that everybody knows the ECB is going to taper from 60 billion euros of QE today to 30 billion come January, and eventually stop their QE probably in October around the same time the Fed steps up their monthly sales to 50 billion.

The answer is because the economy is slowing. It’s very clear to me, the economy and inflation is slowing. That it’s putting further pressure down on long-term yields. That means the yield curve is going to invert and it’s not different this time. What that means is that if you’re a depositor at the bank and you’re going to be getting say X% on your money, whatever it is, one, two percent on your money, and then the private banks make the same loans are yielding the same as they’re paying in deposits, it no longer benefits the bank to lend out money. So, money supply growth crashes and that means deflation starts to diffuse across the economy and that means asset bubbles crash.

And I just want to make one thing very clear. What happened this week, this week happened, this data point was breached. The total market capital stocks is now a staggering 140% of GDP. Yes. It did reach 140% of GDP. That ratio has only been higher at one time in history and that was during just a few short months around the very peak of the NASDAQ bubble. Outside of that very short duration, that ratio for decades was 50%. So, we don’t just have a regular stock market bubble, we have an epic Stock Market bubble that is couched within the biggest bubble in fixed income that the world has ever seen and it’s not going to end very well.

Mike Gleason: Now, let’s talk about what a bursting of the debt bubble might mean for precious metals. One could argue that if real interest rates move sharply higher, it will weigh on metals, which don’t offer a yield at all. It’s zero or even negative real interest rates that gold bulls want to see. But that certainly hasn’t been the case in recent years. Maybe gold and silver will respond as safe-haven assets in the turmoil in markets created by a collapse in bonds will drive demand for metals. What would you expect the long overdue reckoning in bonds will mean for gold and silver prices, Michael?

Michael Pento: The last time we had an inverted yield curve in a recession was circa 2006-2009. And gold benefit is very greatly leading up to the Great Recession, but if you look on your data points and see what happened in 2008, gold did not do very well at all. And that was partially because real interest rates rising is not good for gold, but it was also the case that there was a huge dollar short occurring at that time.

So, people were borrowing in dollars and investing in the so-called BRIC countries, Brazil, Russia, India, China. When it became evident that we were having a global recession, the manifestation of the global recession, people had to unwind those carry trades. So, in other words, they sold renminbi and they sold the ruble and they went back into dollars driving the value of the dollar way up. That crushed gold in the short term. But then you remember, from 2009 all the way to really late 2011, early 2012, gold had a huge run and that’s because deficits absolutely soared. We had annual deficits in this country were well over a trillion dollars. We’re going back there again and then the dollar started to again weaken.

This time around there is no massive dollar short. As a matter of fact, it’s quite the opposite. In this next iteration of a recession, there may actually be dollar weakness. Even though you have rising real interest rates, which has always been the death knell for gold, you’re not going to have that rise in the dollar. That will mollify or attenuate the swollen gold prices, if there is any at all, but on the other end of this recession, and once this recession becomes manifested and you see the Fed going from wherever they are at that juncture, maybe 2% back to zero and then QE… and then we have Mr. Marvin Goodfriend on the Board of Governors – he’s been nominated by Donald Trump – he wants negative, nominal interest rates. He wants to ban cash. You’re going to have universal basic income. You’re going to have negative nominal rates. You’re going to have QE. You’re going to have perhaps even helicopter money. You’re going to have some version of that dangerous inflation cocktail and that has to be incredibly bullish for gold.

Mike Gleason: It sounds like a “perfect storm” sort of scenario there for the yellow metal. These days, when you talk about markets, the topic of bitcoin and crypto currencies is almost certain to come up. Bitcoin hit $ 13,000 earlier today as we’re talking here on Wednesday afternoon. It’s epic run higher this year cannot be ignored. Have you taken any interest in this space? We’d like to get your thoughts on where this phenomenon is headed.

Michael Pento: Well, you were you asking me about crypto-currencies. I’ve been on record for well over a year saying that it’s a scam. I’ve been wrong for well over a year. I will never own a crypto-currency in my life. I will never own a bitcoin or Etherium or any of these things. When you think about it Mike, what is a crypto-currency. Well, what you really own … You always see these pictures of people holding a coin with a B on it with a dollar sign through it. That’s not a bitcoin. A bitcoin, and I’m far from a computer programmer, so please understand, but from my knowledge of what a bitcoin is, it’s a private key. So, what you actually own is a private key, which is just a series of letters and numbers. I think it’s about 64 of these. It’s a series of letters and numbers, characters, that exist not even in tangible form, they exist in the Internet, so they exist digitally. So, how could a bunch of numbers be considered money?

The definition of money, it has to be portable, tangible and it has to be transferrable, but the most important factors of money, they have to be extremely rare and virtually indestructible. Now, what the heck is extremely rare or indestructible about numbers and letters? They’re very, very common and they have zero utility. Bitcoins and crypto currencies have zero utility. Let me repeat that. Zero utility outside of that ecosystem. So, you have to agree, in order to believe in Bitcoin, that this chain of numbers and letters can be worth $ 13,000 per unit and that that chain of numbers and letters is money, but outside of that ecosystem, there’s zero utility and you have ask yourself what good is it to be able to move numbers and letters via the Internet. Well, you could move U.S. dollars electronically over the Internet.

What you really should be asking is how can I move gold. Gold, which is all the properties of money, gold has. And most importantly, it’s virtually indestructible and extremely rare. There are over a thousand crypto-currencies, so various versions of those numbers and letters in the private key. There’s an immutable open ledger that is used to transfer bitcoins, but you can use a private blockchain to move gold. There are companies that do that. That’s the value of the blockchain. The blockchain’s value is not to move letters and numbers over the Internet and then somehow think that unit could be anywhere near $ 13,000. It’s a scam. It’s going to come crashing down and I’ll not be a part of it.

Mike Gleason: Well, I don’t think anyone’s going to wonder where you stand on that, thanks for honest assessment on that. Now, what are your thoughts on Jerome Powell taking over for Janet Yellen as the new Fed Chair. He’s a mainstream dovish-minded economist from all indications, so will it be more of the same, or do you have any insights on what a new Powell Fed will look like?

Michael Pento: Well, everybody says he’s going to be more of the same. He’s another dove like Janet Yellen, but you have to understand – and there’s two things I want to mention about Mr. Jerome Powell. Everybody knows he’s nominated by Donald Trump, but why did Donald Trump make the switch from Janet Yellen to Powell? Well, Mr. Powell is going to assent to two things. Number one, what does Donald Trump love to talk about more than almost anything else? Well, he likes to talk about how great the stock market’s doing, so I can assure you one thing is Jerome Powell will not allow the stock market to go down very much, very quickly. That’s number one.

Number two, Donald Trump is on record now, not Candidate Trump, President Trump is on record saying, he wants a weaker currency and he’s also a lover of debt. So, I expect in the long run, maybe not the short run because you’ve seen this baton has been passed to Mr. Powell, who’s going to carry on with Janet Yellen’s interest rate hikes and the reduction of the balance sheet. But, once the recession hits and the stock market turns south, and I’m talking about the 10% hit that I see happening very, very soon is going to quickly morph into 30%. And once we get 30% plus down in the stock market, you’re going to see Mr. Powell reverse course very quickly, because Mr. Trump can no longer brag about the stock market when it’s down 30%. And you’ll see all those things that I mentioned, some variation of that cocktail and that is negative interest rates, QE, universal basic income and helicopter money.

Mike Gleason: Well Michael, as we approach the end of the year here and start looking forward to 2018, I would like to ask you what you think people might be talking about this time, say a year from now, in the markets? What are a couple of those key events that you see happening in the next 12 months and also, your outlook for gold next year?

Michael Pento: Well, I think you’ll be talking about the epic crash of crypto-currencies a year from now. I think a year from now, you’ll be talking about the inversion of the yield curve. I think you’ll be talking about a crash in inflation and the onslaught of deflation. You’ll be talking about a crash in the major markets and in the capital markets. You’ll be talking about a reversal in the Fed’s monetary policy. You’ll be talking about a falling dollar and you’ll be talking about gold, which will be well over $ 2,000 an ounce by the end of next year, given the fact that construct I just laid out. If half those things that I just mentioned occur, gold will be well on its way to its all-time record nominal high.

Mike Gleason: It should be a very interesting year. I know we have talked a lot with you and you, of course, write a lot about the oscillations between the inflation cycle and the deflation cycle. And it’s always great to get your commentaries here and read them on a regular basis. We always appreciate your time, Michael. Thanks so much for the times you’ve come on this year and I certainly look forward to doing it again. Now, before we let you, please tell people how they can follow you more regularly, get those great commentaries in their email inbox each week, and also other information that they might need to know if they would like to potentially become a client of your firm there Pento Portfolios Strategies.

Michael Pento: Thank you Mike. The office number here is 732-772-9500. You can email me directly at mpento@pentoport.com. And the website is PentoPort.com.

Mike Gleason: Well, thanks again Michael. Enjoy the Christmas season and I look forward to our next conversation in the New Year. Take care and thanks for all you do.

Michael Pento: God bless you. Merry Christmas Mike.

Mike Gleason: Well that will wrap it up for this week. Thanks again to Michael Pento of Pento Portfolio Strategies. For more info just visit PentoPort.com. You can sign up for his email list, listen to the mid-week podcasts and get his fantastic market commentaries on a regular basis. Again, just go to PentoPort.com.

And don’t forget to check back here next Friday for our next 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




Bitcoin Bubble: Is Bitcoin Going To $1 Million Or Is it Going To Zero?

The price of Bitcoin continues to rise at an exponential rate, and the financial world is in a complete state of shock.  Just yesterday, I marveled that the price of Bitcoin had surged past the $ 13,000 mark for the first time ever, but then on Thursday it actually was selling for more than $ 19,000 at one point.  As I write this, Bitcoin is sitting at $ 16,877.42, but a few hours from now it could be a couple of thousand dollars higher or lower than that.  Those that got in early on “the Bitcoin revolution” have made extraordinary amounts of money, and many believe that this is just the beginning.

Of course many of the most respected names in the financial world were convinced that this would never happen.  For example, back in 2014 Warren Buffett encouraged investors to “stay away” because he believed that Bitcoin was a “mirage”.  And not too long ago JPMorgan Chase CEO Jamie Dimon said that “if you’re stupid enough to buy it, you’ll pay the price for it one day”.

But for now, it is Bitcoin investors that are having the last laugh.  If you would have gotten into Bitcoin back at the beginning of this year, your investment would be worth 16 times as much today.  The following comes from CNN

Bitcoin cracked $ 1,000 on the first day of 2017. By this week, it was up to $ 12,000, and then it really took off: The price topped $ 16,000 on some exchanges Thursday, and $ 18,000 on at least one. Other cryptocurrencies have seen similar spikes, though they trade for much less than bitcoin.

There’s a long list of factors people may point to in an attempt to explain this. Regulators have taken a hands-off approach to bitcoin in certain markets. Dozens of new hedge funds have launched this year to trade cryptocurrencies like bitcoin. The Nasdaq and Chicago Mercantile Exchange plan to let investors trade bitcoin futures, which may attract more professional investors.

At this point, Bitcoin has a market cap of approximately 280 billion dollars, and that means that if it was a stock it would “rank among the 20 largest stocks in the S&P 500“.

To put this another way, Bitcoin’s market cap is now greater than the GDP of the entire nation of Greece.

Earlier today, Zero Hedge posted a chart that showed how meteoric Bitcoin’s rise has been…

  • $ 0000 – $ 1000: 1789 days
  • $ 1000- $ 2000: 1271 days
  • $ 2000- $ 3000: 23 days
  • $ 3000- $ 4000: 62 days
  • $ 4000- $ 5000: 61 days
  • $ 5000- $ 6000: 8 days
  • $ 6000- $ 7000: 13 days
  • $ 7000- $ 8000: 14 days
  • $ 8000- $ 9000: 9 days
  • $ 9000-$ 10000: 2 days
  • $ 10000-$ 11000: 1 day
  • $ 11000-$ 12000: 6 days
  • $ 12000-$ 13000: 17 hours
  • $ 13000-$ 14000: 4 hours
  • $ 14000-$ 15000: 10 hours
  • $ 15000-$ 16000: 5 hours
  • $ 16000-$ 17000: 2 hours
  • $ 17000-$ 18000: 10 minutes
  • $ 18000-$ 19000: 3 minutes

So where is Bitcoin headed next?

Whenever we see anything go up this fast, it is inevitable that there will be a pullback, and that is precisely what we are witnessing at the moment.  After soaring past the $ 19,000 mark, Bitcoin dropped back to under $ 17,000.  But this pullback could just be temporary, and there are some that are absolutely convinced that Bitcoin will blow well past the $ 20,000 mark by the end of December.

In the long-term, experts such as John McAfee and James Altucher believe that the price of Bitcoin will reach one million dollars.  But there are others that believe that Bitcoin is one of the biggest financial bubbles in history and that it will eventually end in an absolutely horrible crash.

So who is correct?

Well, it is entirely possible that both sides are correct.

Bitcoin could theoretically continue to skyrocket for the next few years if the economy remains somewhat stable.  And it is also true that given a long enough time frame, virtually every financial investment goes to zero.

Just like every other financial investment, the key is to get in at the right time and to get out at the right time.

For now, Bitcoin has sparked a worldwide craze that is absolutely unprecedented.  The following comes from the Washington Post

Such warnings have not stopped the craze surrounding the currency as the sharp rise in value creates ever more demand. In South Korea, people are pouring their life savings into bitcoin and other digital currencies. In Venezuela, after observing the rise of bitcoin, the government announced it would launch its own virtual currency called the “Petro” to get around U.S. sanctions.

And of course Bitcoin has spawned a whole host of competitors.  At this point there are more than 1,000 virtual currencies in existence, and that number is constantly growing.

To me, this whole phenomenon is absolutely amazing.  Bitcoin and other cryptocurrencies are digital creations, and they don’t have any real intrinsic value.

But something doesn’t have to have intrinsic value in order to be extremely expensive.  For example, a single painting by Pablo Picasso once sold for more than 100 million dollars.  You and I may consider it to be just a silly painting, but because there are people out there that are willing to pay more than 100 million dollars for it, that is how much it is worth.

The same thing is true with cryptocurrencies.  At this moment there are people willing to pay more than $ 16,000 for a single Bitcoin, and therefore that is what it is selling for.

Someday if this craze fades or global governments really start cracking down on cryptocurrencies, things could change very, very rapidly.  So anyone that is considering investing should be aware of the risks.

But for the moment Bitcoin is on a wild ride, and it has been fun to watch.  And since Bitcoin and other cryptocurrencies are not controlled by the authorities, it is easy to root for them to be successful.

However, now that they are getting so much attention it is inevitable that the heavy hand of government will come down hard at some point.  In the end, government usually ends up ruining just about everything, and I have a feeling that cryptocurrencies will be no exception.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Economic Collapse




The Debt Bubble Is Beginning To Leak Air

“The current state of credit card delinquency flows can be an early indicator of future
trends and we will closely monitor the degree to which this uptick is predictive of
further consumer distress.” – New York Fed official in reference to rising delinquency rate of credit cards.

The recent sell-off in junk bonds likely reflects a growing uneasiness in the market with credit risk, where “credit risk” is defined as the probability that a borrower will be able to make debt payments. This past week SocGen’s macro strategist, Albert Edwards, issued a warning that the falling prices of junk bonds might be “the key area of vulnerability that could bring down the inflated pyramid scheme that the Central Banks have created.”

The New York Fed released its quarterly report on household debt and credit for Q3 last week. The report showed a troubling rise in the delinquency rates for auto debt and mortgages. The graph to the right shows 90-day auto loan delinquencies by credit score. As you can see, the rate of delinquency for subprime borrowers (620 and below) is just under 10%. This rate is nearly as high the peak delinquency rate for subprime auto debt at the peak of the great financial crisis. In fact, you can see in the chart that the rate of delinquency is rising for every credit profile. I find this fact quite troubling considering that we’re being told by the Fed and the White House that economic conditions continue to improve.

While the Fed reports that 20% of the $ 1.2 trillion in auto loans outstanding has been issued to subprime borrowers, there tends to be a significant time-lag between when an individual’s credit condition deteriorates and when the FICO score reflects that deteriorated financial condition. I would argue that the true percentage of subprime auto debt outstanding is likely over 30%.  Bloomberg reported last week that “delinquent subprime loans are nearing crisis levels at auto finance companies.”Before the 2008 crisis, the outstanding level of auto loans peaked in late 2005 at $ 825 billion. The current level based on the most recent data is over $ 1.2 trillion, or nearly 50% higher than the previous peak. More troubling, the average loan balance, at close to $ 30,000, is substantially higher now.

Revolving credit is now over $ 1 trillion. At $ 1.005 trillion, it’s slightly below the previous peak of $ 1.020 trillion in April 2008. Most of the revolving debt category as tracked by the Fed is credit card debt. The Fed reports that 4.6% of credit card debt is 90-days delinquent, up from 4.2% in Q3. I would note that the Fed relies on reporting from banks and consumer finance for the delinquency data. Accounting regulations give banks a fairly wide window of discretion before a loan is officially declared to be delinquent. Banks and consumer finance companies tend to drag their feet before declaring a loan to be delinquent because it directly affects quarterly earnings. I would bet money that the true delinquency rate is higher than is being reported.

Mortgage delinquencies are now following the trend higher in auto, student and revolving loans:

The data in the graph above is sourced from the Mortgage Bankers Association (MBA).  MBA data is lagged. again because of reporting methodology and because banks under-report delinquencies.  As such, the true current rate of delinquency is likely higher. I drew the red line to illustrate that, outside of the period from 2009 to 2014, the current rate of delinquency is at the high end of the historical range going back to 1979.

Let’s drill down a little deeper. The delinquency rate for FHA mortgages soared to 9.4% in Q3 2017 from 7.94% in Q2. That jump in the rate of delinquency is the highest quarterly increase in the history of the MBA’s survey. Recall that the FHA began offering 3.5% down-payment mortgages in 2008. Because of the minimal down payment requirement, the FHA’s share of single-family  home purchase mortgage underwriting went from 3.9%  2007 to it current 17%  share.  In effect, FHA replaced the underwriting void left by the bankrupt private-issuer subprime lenders like Countrywide and Wash Mutual.  It’s no surprise that FHA paper is starting to collapse.  Fannie and Freddie started issuing 3% down-payment mortgages in early 2015.  All three agencies (FHA, FNM, FRE) reduced the amount of mortgage insurance required for low down payment loans. Just in time for the FHA complex to start cratering.

The reduction in mortgage qualification standards was implemented by the Government in order to keep the homes sales activity artificially stimulated. Do not overlook the fact that the National Association of Realtors drops more magic money dust on Congress than the Too Big To Fail Wall Street banks combined.

The rising trend in consumer and mortgage debt delinquencies will, for a time, be dismissed as temporary or related to the hurricanes. The MBA applied a thick layer of “hurricane mascara” on the mortgage delinquency numbers. But the massive debt bubble inflated by the Fed and the Government is springing leaks. And the debt delinquency trend is seeded in economic fundamentals. The BLS released its real earnings report this past Wednesday, which showed that real average hourly earnings declined for the third month in a row. It’s no coincidence that debt payment delinquencies are rising given that after-tax income for the average household is getting squeezed. This will get worse when soaring health insurance premiums hit starting in January.

St Louis Fed President, James Bullard, asserted last Wednesday that there’s no need to raise interest rates with inflation low. I have to believe that these folks at the Fed are intelligent enough to understand that the “official” inflation numbers are phony. Given that assumption on my part, the reluctance of the Fed to raise rates – note: I do not consider the 1% hike in Fed funds over the last two years to be material – is from the fear of crashing the system.

Many of you have seen the recent reports of the “flattening” Treasury yield curve. This occurs when short term Treasury rates rise and longer term rates fall.  A flattening yield curve is the market’s signal that the economy is in trouble.  Currently, the yield spread between 2-yr and 10-yr Treasuries is 59 basis points.  The last time the Treasury curve was this “flat”  was  November 2007.

The front-end of the curve is rising for two reasons. First, the Fed let $ 10 billion in short term T-bills expire without replacing them, which took away the Fed’s bid for short term Treasuries. Second, when short rates rise relative long rates, it’s the market’s way of discounting an uptick in the potential for financial distress.

If the Fed were in a position of “normalized” monetary policy, it would likely be lowering rates in response to the obvious signs of rising financial distress.  But the Fed is backed into a corner.  Rates have been zero to near-zero for so long that the credit market is largely “immune” to taking rates back down to zero from the current 1% – 1.25% “target.”

The Fed inched its way into reducing its balance sheet by letting  SOMA assets fall $ 10 billion in value since early October.  At that rate it would take 35 years to “normalize” its balance sheet. Yet, the Treasury curve is telling us that the Fed should be easing monetary policy, not tightening.  The Fed has an 80-year track record of removing liquidity from the system at the wrong time.

The commentary above is an excerpt from the latest Short Seller’s Journal.  Two short ideas were presented in connection with the analysis presented.  To learn more about this newsletter, click here:   Short Seller’s Journal info.

Investment Research Dynamics




Buy Into An Asset Bubble Before It Becomes A Bubble

Let’s face it, the trillions of fiat currency printed by Central Banks globally, which has been compounded by an even greater amount of debt issuance derived from the printed currency, has fomented multiple assets bubbles of historic proportions. Bitcoin is a bubble. The FANG stocks plus Tesla, among dozens of other daytrader and hedge fund momentum darlings, are bubbles. Novo Resources, for now, is a bubble.

Rather than buying into today’s bubble valuations, real money can be made anticipating the next asset bubble sector. Please note that I consider cryptocurrencies to be de facto fiat currency because they share many similar attributes with electronically produced Central Bank currency. When the fiat currency experiment fails, which it will (please see Voltaire, et al), the next bubble will form from the race out of fiat money into real money – gold and silver. The bubble will not be gold and silver. The bubble will be the derivatives of gold and silver:  mining stocks.

William Powers, of MiningStockEducation.com, invited me onto to his program to discuss the precious metals market and investing in junior mining stocks. Junior mining stocks are extraordinarily undervalued and will likely be the next great asset bubble – Bill and I discuss why and several other topics:

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If you are interested in learning more about the Mining Stock Journal, please use this link: Mining Stock Journal information.

Investment Research Dynamics




Gold, Bubbles, S&P 500, and Currency Wars

From John Rubino: “We’ll Look Back At This And Cringe

“Millions of people out there still bear the psychic scars of buying gold at $ 800/oz in 1980 or a tech stock at 1,000 times earnings in 1999 or a Miami condo for $ 1,000 per square foot in 2006.

Today’s bubble will leave some similar marks. But where those previous bubbles were narrowly focused on a single asset class, this one is so broad-based that the hangover is likely to be epic in both scope and cumulative embarrassment.”

BUBBLE? WHAT BUBBLE?

WARS: CURRENCIES AND NUCLEAR

From Timothy Alexander Guzman: “A Currency War Will Escalate

One quote that always crosses my mind regarding the decline of the U.S. dollar and the state of geopolitics associated with it, is by Gerald Celente, founder of the Trends Research Institute who said that “When all else fails, they take you to war.”

As the U.S. dollar continues to lose its status as the world’s premiere reserve currency, the reality of a world war seems inevitable, especially when major countries such as China, Russia and Iran are making strategic moves to bypass the U.S. dollar in favor of other currencies such as China’s ‘Petro-Yuan’. China has made the decision to price oil in their own currency the “Yuan” by a new gold-backed futures contract which will change the dynamics of the world’s economy. China is preparing to launch the petro-Yuan later this year that will eventually threaten the U.S. dollar as the world’s reserve currency.”

The Gold Market – 30 Year Log Scale Graph:

From Christopher Aaron: Gold Price Forecast – First Breakout Signal Since 2008

This is interesting analysis from Christopher Aaron!

“In sum, the leading signals of gold rising versus the broad commodity index at a major price low, the downtrend break, and the trend line retest were all sequential indicators of a significant advance in prices setting up for the future.”

REGARDING SILVER:

From James Cook, President of Investment Rarities, Inc. – October 2017 newsletter:

“We’ve been buying back a lot of silver lately which is another sign of a bottom.”

The Silver Market – 30 Year Log Scale Graph:

PRINT – PRINT – PRINT: MORE DIGITAL CURRENCIES

From Robert Gore: A Crash Like We’ve Never Seen Before

“Credit creation, without restraint has papered the globe with the greatest pile of debt mankind has ever amassed.”

“When the debt bubble implodes, a global margin call will prompt forced selling, driving down all asset prices precipitously. Most of what is currently regarded as wealth will vanish.”

The S&P 500 Index – 30 Year Log Scale Graph:

(Or, the stock market goes up forever ………)

From Michael Pento:

“You still have time to extricate yourself from the lemming herd that is about to take its third 50%+ investment cliff dive since 2000.”

FREE GOLD BOOK:

Gold-Eagle has published a FREE gold e-book.

“The Definitive Gold Investing Guide” is available for download at: https://gold-eagle.lpages.co/gold-investing-guide/

The book is free in exchange for your email address.

My book “Buy Gold Save Gold! The $ 10K Logic” is available at Amazon.

Gary Christenson

Republished with permission by The Deviant Investor.