Stocks Markets Charge Ahead; Gordon Chang: Blowup w/ China, N. Korea Could Change Almost Everything

Happy New Year and welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear a wonderfully insightful interview with Asian expert Gordon Chang. Gordon shares his views on Donald Trump’s much-hyped Tweet about the size of his nuclear button, gives his very studied view on the state of the Chinese economy and what the state of all of the Asian geopolitics will mean for the global markets. Be sure to stick around for my very interesting conversation with Gordon Chang, coming up after this week’s market update.

Precious metals markets are off to a strong start in the New Year.

The gold market shows a 1.2% gain this week to bring spot prices to $ 1,319 an ounce. The first key technical level to watch going forward from here is $ 1,350 – gold’s high mark for 2017. After that, the $ 1,375 and $ 1,400 levels will come into play. A breakout above $ 1,400 would represent a multi-year high and likely induce some strong momentum buying for the first time in years. But for now the yellow metal still remains mired in a long-term basing pattern.

Turning to silver, prices currently come in at $ 17.24 per ounce and are higher by 1.5% for this first week of 2018. Platinum was the laggard in the PM space in 2017 but is a leader in the first few trading days of 2018 – posting a gain of 4.0% this week to trade at $ 970. Its sister metal palladium made a new all-time high on the heels of a 3.0% weekly advance and currently trades at $ 1,095 an ounce as of this Friday morning recording.

On Wednesday, the Federal Reserve released the minutes from its December meeting. Metals initially sold off as the dollar strengthened, but those market reactions both reversed on Thursday.

Policymakers raised the Federal funds rate by a quarter point this past December. But as the meeting notes reveal, opinion is divided over whether to continue raising rates at a gradual pace this year. The consensus forecast is for the central bank to push through three rate hikes in 2018. Traders are now putting the odds of a March hike at close to 70%.

The GOP’s tax cut passage may tilt the Fed slightly more hawkish. Fed economists now project modestly higher GDP growth thanks to the tax cut stimulus.

The fiscal stimulus should help push inflation rates up toward the Fed’s 2% target by the end of the year – and perhaps beyond. In recent weeks, inflation-correlated assets such crude oil, precious metals, and resource stocks have perked up while interest rate sensitive assets such as bonds have struggled.

The stock market, of course, keeps chugging ahead – where it finally stops, no one knows. Momentum chasers keep buying, which pushes prices higher, which creates more momentum to chase. The stock market has long past the point of being a place for value investors – at least when it comes to the major averages such as the Nasdaq and S&P 500. Valuations are now in bubble territory.

Investors may look back on 2018 as the opportunity of a lifetime to switch from overvalued stocks to undervalued precious metals.

The supply and demand fundamentals for precious metals are set to improve in 2018. Low gold and silver prices over the past few years have severely hurt the mining industry. It has continued to operate existing mines – sometimes at losses – even as it has slashed exploration and development of new projects. That will mean years of stagnating or even declining output ahead.

Metals Focus projects mining output of gold in 2018 will show a slight decrease from 2017. Analysts expect a more significant drop could occur in 2019.

A similar pattern is expected to play out in silver, though it’s more difficult to forecast since few primary silver miners exist. Demand for silver is also more variable, with investment demand being the biggest wild card.

Commodity markets analysts at TD Securities believe silver may be the metal to own in 2018. They forecast silver prices will hit $ 20 this year. That would be an important technical level to hit. Yet $ 20 per ounce silver would still be less than half of its all-time high. You can’t say that about gold or most any other commodity or asset class on the planet right now.

From a value perspective, silver looks compelling. Stacking more silver may be a great new year’s resolution for investors to keep in 2018.

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

Gordon Chang

Mike Gleason: It is my privilege now to welcome in Gordon Chang, author, television pundit, and columnist at the Daily Beast. Gordon is a frequent guest on Fox News, CNBC, and CNN, among others, and is one of the foremost experts on Asian economics and geopolitics, having written books on the subject and it’s great to have him back on with us.

Gordon, it’s a real honor to have you on again, and thanks so much for your time today. I know it’s been a busy week for you given all of your media appearances, and we’re grateful that you could join us today. How are you?

Gordon Chang: I’m fine, thank you, and thank you so much, Mike. I really appreciate the opportunity.

Mike Gleason: Well, there are many things to cover here given all that’s going on right now. We certainly appreciate your expertise, particularly when it comes to the developments in Asia. There’s a lot going on in that part of the world with big implications for investors. Let’s start with North Korea. That’s obviously been at the forefront of the news this week with tensions getting ratcheted up again.

Kim Jong-Un and President Trump are both bragging about their nuclear arsenals. The over the top posturing on both sides makes it hard to gauge just how seriously the threat of nuclear exchange should be taken. The market seems to have stopped paying attention for the most part. Please give us your thoughts on the matter. Is there any likelihood the disagreement over North Korea’s nuclear weapons program will escalate beyond words, Gordon, or is this war only going to be fought on Twitter?

Gordon Chang: If you look at Twitter, this certainly is a matter of concern, but I think the reality is much different. Right now, Kim Jong-Un, the ruler of North Korea, is feeling sanctions. We saw a hint of that in his New Year’s address where he referenced it, at least indirectly, and at one point he actually called the sanctions an existential threat.

What he’s trying to do right now with his overture to South Korea is to get the South Koreans to shovel money into his regime. What he would like in return for sending two figure skates to the winter Olympics in South Korea next month would be for South Korea to lift sanctions to resume inter-Korean projects, like the Kaesong Industrial Complex, and also for more North and South Korean aid.

I don’t think that those expectations are realistic. Some of what he wants would be a violation of UN sanctions, and President Trump’s policy has been to cut off the flow of money to Pyongyang so it can’t launch missiles or detonate nukes. This is going into, I think, a very crucial period, because if you look back in history, and I’m talking seven decades, we have seen North Korea engage in military provocations shortly after making peace overtures. And this whole concept of the Olympics and his opening of dialog with South Korea, that’s a peace overture.

Mike Gleason: We’ve got two huge wild cards at the forefront of all this with President Trump and Kim Jong-Un being rather unpredictable, to say the least. Is Trump’s tit-for-tat responses to his adversary here going to make diplomacy harder to achieve as our allies might have a hard time joining in full force to combat the North Korean threat?

Gordon Chang: I think on Tuesday, the second of his two tweets certainly made diplomacy harder. I think it was a setback for the American position. You’ve got to remember that in the morning, the first tweet was actually quite constructive. In the first tweet, President Trump talked about how sanctions were biting the North Korean regime.

What Trump needs to do, and this is not just among friends, but also neutral countries and potential adversaries like Russia and China, the backers of North Korea, what he needs to do is to get them to cut off the flow of money to the North. Any time that he talk about sanctions, that’s important. That’s good for us, but Tuesday evening in that exchange of messages, we saw President Trump with his tweet about button size. This was a setback in the sense that we’re no longer talking about what’s important for diplomacy, which are sanctions. We’re now talking about infantile behavior on the part of the American president. That’s not a good thing.

Mike Gleason: Now, let’s talk about North Korea’s much larger neighbor for a bit. Chinese officials just held the Communist Party’s National Congress, a gathering held once every five years to formalize the party leadership. Some think the event may be significant in that it will mark a turning point, the theory being that officials there worked hard to prevent a slowdown in the Chinese economy until after Congress has concluded, and now that it is done, a much-needed correction could be underway. Do you see National Congress as meaningful, Gordon, and what are you expecting for the Chinese economy in the year ahead? Because as we know, what happens in China has far-reaching effects on markets globally.

Gordon Chang: The Congress was important I think because Xi Jinping outlined a very expansive notion of Chinese power. That’s going to be I think an overstretch. I think that their commitments now are far bigger than their resources. This has implications, of course, for the economy and the strains on it. This year, this whole issue is going to be deleveraging. Chinese officials have been talking about deleveraging for years. They haven’t been able to accomplish it. And that’s largely because they are not willing to undertake structural reforms. They’re not willing to see the economy go into a recession.

In 2016, the last year where we really had good numbers, the World Bank thinks that the Chinese economy grew not at the 6.7% pace that the official national bureau statistics claimed. They actually released a chart in the middle of 2017 and with a little arithmetic, you can see that the World Bank thinks that the Chinese economy grew by 1.2%. Also, that 1.2%, although it might be shockingly low to many people, is consistent with the most reliable indicator of Chinese economic activity. That’s the overall consumption of energy.

In 2016, overall energy consumption increased, but only by 1.4%. So, we’re talking an economy that is growing maybe now a little bit better than 2016. Maybe we’re talking 2%. I don’t know. But the point is that they’re accumulating debt at a pace which is about six, seven, maybe eight times faster than they are producing output. They can do that for a little while because they control the banks, they control the big state enterprises, they control the markets, but they can’t do that forever.

Mike Gleason: You haven’t been terribly optimistic about the Chinese economy, and for good reason. However, from a certain point of view, there is a massive amount of central economic planning going on everywhere. You just alluded to that. Obviously, there’s a lot of that going on here in the U.S., of course. We’ve seen some extraordinary maneuvers from the U.S. Federal Reserve over the past decade, and the truth is that we almost certainly don’t know the full extent of what our central bank has been doing to intervene in markets. If history is a guide, all of the tampering could lead to serious trouble.

It probably isn’t fashionable to ask since most are talking about strength in the U.S. economy, but it is at least possible that there are bubbles waiting to pop in both the US and China. Admittedly, there are lots of differences between the two nations, and the potential for central bank policy errors is just one piece of the equation. What are your thoughts? Is the risk of a bubble bursting lower here than in China?

Gordon Chang: Well, I don’t know if it’s lower. In China, there’s going to be a bubble bursting. It could be a lot later than I think, but it will burst. Of course, in the United States, when you have a run up in the economy, you’re going to have a rundown at some point. But whether it’s going to be a 2008 style burst, I just don’t think so.

In any event, from the Chinese perspective, they look at the U.S. economy. They’re extraordinarily dependent on us. For instance, in 2016, the last year for which we have complete figures, a full 68% of China’s merchandise trade surplus related to sales to the U.S. When the U.S. is doing well, Chinese exporters do well, but there’s a real risk in the U.S. doing well, which I think people don’t talk about. And that is, the Chinese are able to hang on because they’ve been able to control the renminbi, but with the Federal Reserve tightening, that is putting pressure on the Chinese currency. It makes it much more difficult for Chinese technocrats to manage in a difficult environment already.

If you talk to the American citizen, they might even not know what the Federal Reserve is. They certainly don’t follow what’s going on in terms of interest rates for the most part, but if you go to China, many housewives can tell you a lot about what the Fed is doing because it affects their pocketbook in a very immediate way.

China has been able to staunch the outflow of currency. In 2015, it was about $ 1 trillion according to Bloomberg. 2016, probably a little bit more than that. Last year, a lot less because of extraordinary capital controls, some of them announced, some of them not. With the Fed tightening, that makes it very difficult for China to maintain those controls, which are difficult even under the best of circumstances. I think it’s going to be a very difficult environment for Beijing this coming year, much more difficult than it was in 2017 or 2016.

Mike Gleason: If we recall back to late summer of 2015 when the Chinese stock market had a sharp and deep correction, it had major implications for markets around the world, including the U.S., so they certainly are interconnected. If the Chinese markets were to be the first to falter, you would have to think that U.S. investors would feel that, as well, just like it did two and a half years ago.

Speak to that and then also comment about the likelihood that the Chinese and thus the world will be able to right the ship this time, like they did last go around, when they were able to prevent that snowball from really getting going.

Gordon Chang: Well, of course, any major downturn, especially a sharp one in China, is going to ripple through global markets. It will be felt here, but we’re relatively, I think, in good shape because China is less important to the global economy than people think. Yes, there’s a lot of growth there, but China has been taking growth away from other countries through predatory trade practices.

So, if it were to disappear down a dark hole, yes, we’d all be shot, but I think in six months, we’d realize, “Hey, this wasn’t so bad,” because when you have Chinese producers not able to flood the global markets as they have been, producers in other countries will take up that slack and there will be, I think, better conditions elsewhere, including the United States. So, I think that the effect of China’s problems really, I think are just exaggerated in people’s conceptions.

With regard to the second question, I think that central banks are not in as good a position today as they were in 2008, 2009 to take up the slack. And so I see things better of course in many, many, many ways than the last decade, but I don’t think that we’re going to get the relief efforts from central authorities that we did last time. But I think the economies are better than they were before, so I’m a relative optimist about the rest of the world, but we’ve got to remember, though, that geopolitical problems in North Asia could actually be the one thing that takes all of our assumptions and makes them incorrect.

Mike Gleason: Getting back to capital controls, Chinese citizens have certainly had a big appetite for cryptocurrencies like Bitcoin and others as they look to flee the local currency. Any developments there to update us on when it comes to the government cracking down and trying to prevent people from diversifying with cryptos?

Gordon Chang: I don’t think there’s been really very much in the way of developments in the last week or so. The most important thing is that the Chinese authorities are very suspicious of crypto-currencies. They are going to continue to try to attack Bitcoin and others. They may let up every once in a while, but I don’t think that they have given up in any event, because this is where Chinese technocrats view the last stand. They’ve got to protect the renminbi. If they don’t, it’s all over, and not only for the Chinese economy and financial system, but also for the political system. So, they’re going to do everything possible to make sure that currency doesn’t leave China.

As we saw in 2017, they were really determined. Now, they’re going to pay a big price, or actually many big prices, for their currency controls. What they did was they solved their immediate problem. These guys are looking at the short-term. They don’t look at the long-term. So, you can expect for them to go after Bitcoin, go after the crypto-currencies, go after any other conceivable way to get money out of China. The Chinese authorities are going to attack it. So, any sort of optimism short-term about Beijing changing its views I think is just misguided.

Mike Gleason: China recently launched an oil futures contract, which is denominated in yuan but convertible into gold. This looks to us like another assault on the supremacy of the Petrodollar, what we’ll see if the gold backing is enough to lure some of the energy trade away from the established markets. If you’ve been following that development, please give us your comments. Is the yuan a significant threat to the dollar here, Gordon?

Gordon Chang: No. If we’re talking 50 years, 60 years, 70 years down the road, yeah, it could very well be a threat to the dollar, but not now. Renminbi usage around the world over the last couple years has been in decline, and it will remain in decline as long as China has those capital controls announced and unannounced. By the way, having unannounced capital controls makes China look like a Banana Republic.

So, as much as they’re going to try to encourage use of the renminbi, it’s just not going to have significant success until they’re willing to open up their capital account. And I don’t see that (happening) any time soon because there’s just too much pressure on the currency for them to do that. So, they can devise whatever instrument they want. They might make a little bit of in road here and there, but long-term, renminbi usage probably will continue to fall. That’s just because if you can’t get the money out, you’re just not going to want to use that as a medium of exchange.

Mike Gleason: We often talk about how the Asian world is full of very strong hands as it relates to gold and that much of the precious metals that leave the West and head East don’t come back. Any thoughts there about what that might mean for the western world if we do have a big rush into precious metals as a safe haven investment during an economic and market downturn, given that so much gold has left western in recent years and gone over to China?

Gordon Chang: What leaves will come back. The U.S. has a strong economy. It’s relatively stable. Asia right now is a place of geopolitical danger, and I think that there’s going to be a long-term reversal. Right now, there’s just too many hot spots along the periphery of China. One of those situations is going to go wrong. I can’t tell you which one. It could be India. It could be South China Sea. It could be East China Sea. It could be North Korea. We don’t know, but if you’re looking at safe havens, Asia is not it.

Mike Gleason: Well, as we’re getting close here, Gordon, any final comments that you want to leave us with? Maybe give us an idea of what you’re watching most closely here over the coming weeks and months in terms of the geopolitical theater in Asia, and then the impact that it’s likely to have on U.S. investors.

Gordon Chang: The most important thing will be the attitude of the Trump administration towards China. There are a number of items on the agenda which could derail relations. For instance, the section 301 investigation into China’s intellectual property theft and a number of other investigations. There’s going to be continuing friction between the United States and China, not only over North Korea, but other matters. This is not going to be good for the markets. I can understand markets not discounting this now, but when things happen, I think that we will see sharp reversals. This is just the thing to keep in mind in terms of geopolitical risk, because it’s the one thing that could change almost everything, or even everything overnight.

When it comes to geopolitical risk, I think that there’s a mis-perception of things. The one thing that really concerns me is war talk in the United States. There’s an assumption in Washington among many people that the United States can strike North Korea without consequences. That could very well be true, but we’ve got to remember that in August of 2017, the Chinese said that if the United States were to strike North Korea first, it would come in and aid North Korea.

While although there could be no consequences to an American attack on North Korea’s missile and nuke sites, we could very well end up in an exchange of nuclear weapons, not only with the North Koreans, but with the Chinese and perhaps the Russians, as well. So, all of these scenarios are there. Of course, the extreme scenarios, the extremely good ones and the extremely bad ones usually don’t come to pass, but we’re at a time where it resembles in many ways the prelude to the Cuban Missile Crisis of 1962.

There are extraordinarily large number of ways that all of this can go wrong. I’m not saying it will, but I don’t think people have started to think about the consequences of some of the courses of action that they’re recommending. The United States can peacefully disarm North Korea, not use force in doing that, but there’s no political will in the United States to do that – which is essentially to impose cost on North Korea’s backers, primarily Russia and China. It is easier to start a chain of actions that could lead to global conflict than it is to go after North Korea’s backers. That’s a very dangerous situation.

Mike Gleason: Well, very good summary there to close us out. Gordon, it’s been a truly fascinating conversation. I really enjoyed it. It was great to have you on. Once again, I’m really glad you were able to find time for us this week with everything going on. Continued success to you in the new year, and I would love to have you on again in the future as this all unfolds. Thanks again and have a great weekend.

Gordon Chang: Thank you so much, Mike.

Mike Gleason: Well, that will do it for this week. Thanks again to Gordon Chang, Daily Beast columnist. You can follow him on Twitter @GordonGChang or check out his book The Coming Collapse of China.

And check back next Friday for the next 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




Stocks, Gold and Crude Oil Long Term Pattern Predictions

The green arrows are 10 years long. Peaks indicated are in 1987, 2007, and potentially 2017.

The pause in 1997 was not a top because the market rally extended into early 2000. The current peak in 2017 could also extend, but valuation and timing indicators show high risk.

When the monthly RSI (timing indicator at bottom of graph) exceeds 70, turns down, and prices fall below the red support line, a significant correction or crash is possible. Those crashes occurred in 1987, 2000, and 2008. The S&P is ready to make a similar correction or crash in 2017 or 2018. The RSI has reached its highest level in two decades.

The S&P 500 Index, DOW, NASDAQ, DAX and many other indices are excessively high, thanks to central bank “stimulus” and QE policies. The monthly chart of the S&P shows S&P prices are in a high risk danger zone.

Possible tops have occurred before, but instead of crashing, the market sometimes zoomed higher. Do you own due diligence.

Also, read “Hindenburg Omen Meets Titanic Syndrome.” However, if you want to believe the S&P is going higher, read “Stock Market Crash … Another Lie.

The Gold Market and its 10 year pattern

The gold market has an approximate 10 year low to high pattern.

Gold: 2001 – 2011

The dashed green arrow shows that gold bottomed in April 2001 and peaked in August 2011, ten years later. Gold prices bottomed in late 2015 and could rally for many years.

Gold: 1970 – 1980 & 1982 – 1993

Gold sold for about $ 35 per ounce in 1970, although the market was controlled. In January 1980, ten years later, it sold for over $ 850. Gold prices crashed to a low in June 1982 and eleven years later they peaked in August 1993.

A ten year low to high pattern, beginning with the late 2015 low in gold prices, suggests a gold price high during the middle of the next decade.

The Crude Oil Market 1998 – 2008

Crude oil prices bottomed in 1998 at under $ 11.00 and rose to nearly $ 150 per barrel in 2008, ten years later.

The Silver Market – Same 10 year pattern as gold

Silver prices have a 10 year low to high pattern similar to gold.

Silver prices bottomed in November 2001 and rallied from $ 4.01 to over $ 48 in April 2011, about 9.5 years. Silver prices bottomed again in December 2015. A nine to ten year low to high pattern suggests a high well into the next decade.

Given the exponential increases in global debt and increasing consumer prices, the coming silver and gold highs could be many times larger than today’s relatively inexpensive prices of about $ 1,250 for gold and $ 16.00 for silver.

The Nikkei 225 Index

The Japanese Nikkei 225 Index shows a pattern similar to the S&P 500 and DOW Index. The Nikkei peaked in mid-2007 and has rallied, in part due to purchases by the Japanese Central Bank, into late 2017. We shall see if 2017 is a lasting high. The weekly chart (shown below) indicates a possible rollover in prices and RSI.

Total Debt Securities

The St. Louis Federal Reserve publishes data for total debt securities in the United States. In 1971 President Nixon severed the last connection between gold and the U.S. dollar, which encouraged expansion of currency in circulation, debt, and continual devaluation of the dollar.

Date         Total Debt Securities in $ Millions

1971           772,728

1981           2,224,583

1991           7,902,302

2001           16,767,365

2011           33,868,046

2017           41,800,000

2021           52,771,000       (assuming continued exponential growth

2031           94,505,000       of 6.0% per year, the compounded rate

2041           169,245,000     for the last 20 years)

The pattern for total debt is simple: Up, Up, and Up. This makes the pattern for the dollar’s purchasing power equally obvious: Down, Down, and Down.

So What?

  1. Dollar devaluation is central bank and governmental policy. Expect it to continue.
  2. To preserve purchasing power, your income, savings and retirement must grow more rapidly than the dollar is devalued.
  3. The stock markets (DOW, S&P 500, NASDAQ, DAX etc.) have increased in price since 1982, 2002 and early 2009.
  4. Gold and silver have increased in price since 1971, 1991, 2001 and late 2015.
  5. Buy low, sell high! Buying gold and silver in January 1980 and April 2011 was unfortunate timing.
  6. Buying the U.S. stock market in early 2000 and mid-2007 was unfortunate timing. We may look back from future years and compare 2017 to 2007.
  7. The stock market indices, as of late December 2017, are expensive and ripe for a correction. Today is a high risk time to purchase most stocks.
  8. Central banks have levitated stock markets since 2009 via the injection of trillions of digital currency units in addition to outright purchases of stocks and ETFs. But central banks are not all-powerful. If they were, the market disasters in 2000 and 2008 would have been prevented. More crashes will occur.

Conclusions:

  • Dollar devaluation is central bank and government policy. It will continue.
  • Stock markets have been levitated by central bank “stimulus” and “printing.” Most stocks are now dangerously high, whether measured by fundamentals or technical timing indicators.
  • Stock markets MAY have already turned lower as indicated by the daily and weekly charts. The monthly charts say, “Look out below!”
  • Gold and silver prices are currently inexpensive and will rise substantially as dollar devaluation continues. Fear and panic from stock and bond sell-offs will also push gold and silver prices much higher.
  • Take advantage of current low metals prices by purchasing silver, platinum, and gold.

Precious Metals News & Analysis – Gold News, Silver News




What Tax Reform Could Mean for Stocks

There’s an old joke that the Founding Fathers wisely chose a patch of land located along the Potomac River as the site of our nation’s capital because it’s a place so miserably humid in the summer and so bitterly cold in the winter that our elected representatives would choose to stay away most of the year, thus have fewer opportunities to make a mess of things.

Alas, centralized heat and air conditioning made the swamp habitable, and Washington, D.C., has been infested ever since.

Most of what our government does is, at best, a waste of time and, at worst, downright harmful. But Congress (mostly) got something right in its tax reform package, which the Senate approved earlier this month.

The bill is by no means perfect. It falls far short of its stated goal of simplifying the tax code, which remains as convoluted as ever. And some taxpayers – particularly high-earners in California, New York, and New Jersey – will get hosed and actually end up paying more of their money to government. For most individual taxpayers, the reform package is a nonfactor, neither much of a positive or much of a negative.

But the corporate rate reduction is a very big deal, with significant implications for the broader market and the recommendations I make to my Peak Income subscribers in particular.

America’s largest multinational companies have close to $ 3 trillion essentially “trapped” offshore. They don’t bring it home because doing so means giving 35% of it to the government. Instead, companies essentially borrow against their offshore cash by issuing bonds.

What do you think will happen to new bond issuance once all of that offshore money starts making its way back home?

It will pretty much grind to a halt. (In case you’re wondering why so many Wall Street bankers have been lukewarm, at best, towards the bill, here’s your explanation. It will all but kill their lucrative bond underwriting business, as their largest customers will no longer need their services.)

The bill also limits the amount of interest that companies can write off on their taxes, which further disincentivizes them to borrow.

So you’re going to have a major curtailing of new bond issues… at a time when demand for income from Baby Boomers is as strong as ever. That’s a recipe for low bond yields and high bond prices for a long time to come.

The situation isn’t quite as extreme in the tax-free municipal bond market, but you’re still likely to see fewer new bond issues coming down the pipeline.

Congress is removing the tax-free status of bonds used for things like sports stadiums and other “special purposes.” Meanwhile, personal income taxes won’t be falling enough to make munis less attractive to high-income Americans. (Remember, the lower the tax rate, the less important it is to have tax-free income.)

A relatively tight supply of muni bonds should keep prices high for the foreseeable future.

But it’s not just bonds that will be affected. Lower taxes means more cash on hand for dividends and buybacks, particularly for the large multinationals looking to repatriate their offshore cash hoards.

We’re talking about a lot of money that’s likely to get dumped into the stock market one way or another.

Anticipation of corporate tax reform has been a major driver of the Trump Rally. This bull market – like all bull markets – will end, sooner, probably, rather than later.

But I also believe this market has at least one last major hurrah left in it, which is what told Peak Income readers when recommending this month’s addition to our income portfolio.

Normally, I recommend safe, stable income plays that you should be able to hold for multiple years… maybe even decades. But this month I’m presenting an opportunity to profit from one last surge in the U.S. stock market.

I’ve said for months that I expect overseas markets to outperform over the next several years, and that’s still my working hypothesis. But over the next six months or so, I expect U.S. stocks to beat the pants off of pretty much everything else.

And so I’ve told readers to target an all-American fund chock full of some of the biggest names in the S&P 500 Index, familiar names like Facebook, Alphabet/Google, and Amazon.com.

I see this as shorter-term trade. We’ll be out of it long before we see a bear market, but we’ll be in it long enough to enjoy a nice payout. This fund trades at a 10% discount to net asset value and yields 11%. A total return in the 20% neighborhood is doable.

Click here to learn more and subscribe to Peak Income today.

In case you missed it, click here to see what I mean.

charles sizemore helicopter money

Charles Sizemore
Editor, Peak Income

The post What Tax Reform Could Mean for Stocks appeared first on Economy and Markets.

Charles Sizemore – Economy and Markets ()




As A Dog Returns To Its Vomit, Stock Jockeys Return To The Ponzi Stocks

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. – Sir John Templeton

I’ve always admired John Templeton. Not as the “father” of the modern mutual fund but because I considered him to have been one of the most intelligent thinkers in at least my lifetime (55 years). In 2003 he gave an interview from his retirement “perch” in the Bahamas to one of the financial media organizations. He stated at the time that he would not invest in the U.S. housing market until “home prices go down to one-tenth of the highest price homeowners paid.” Imagine what he would say today…

“As a dog returneth to his vomit, so a fool returneth to his folly” (Proverbs 26:11). That proverb is particularly applicable to today’s “everything bubble,” especially stocks and housing. The current en vogue is to compare today’s market to 1987, when the Dow crashed 22.5% in one day. Honestly, I don’t think it matters whether you use 1929, 1987,
2000 or 2007. By just about any conceivable financial metric, the current stock market is the most overvalued, and thereby the most dangerous, in U.S. history. The other “vomit” to which analysts “returneth” are the attempts to explain why today’s extreme valuations are “different” from the extreme overvaluations at previous pre-crash market tops. I find the “interest rates are record lows now” to be the most amusing.

On Friday, the momentum-chasing hedge funds and retail daytraders couldn’t get enough of the FAANGs (FB, AMZN, AAPL, NFLX, GOOG) + MSFT. AMZN’s stock ran up $ 128, or 13.2%, which was still less than AMZN’s biggest one-day percentage jump of 26.8% on October 23, 2009.  AMZN’s stock price has been highly correlated with  amount of money printed by the “G3” (U.S./Japan /EU) Central Bank money printing machine.  But since July, AMZN’s stock began to diverge negatively from the growth path of G3 money supply. The FANGs in general had been losing steam starting in June. AMZN was particularly weak after it reported that big loss in July. It took one absurd headline “beat” for AMZN to “catch back up” into correlation with the growth line of G3 money printing (FYI, the Fed’s balance increase slightly in October, despite the announcement that it would be reduced by at least $ 10 billion in October).

The stock market will head south quickly sooner or later. The “curtain” is being “pulled back”on stock Ponzi schemes one by one. The truths about Tesla (TSLA) are beginning to emerge in public finally. Eventually the stock market will take a hard look behind the Amazon (AMZN) curtain. Ponzi schemes can flourish during periods of bubble inflation. But when bubbles deflate, Ponzi schemes fail. It’s no coincidence that Bernie Madoff’s Ponzi scheme fell apart in late 2008 (he admitted guilt in December 2008). It began to become unmanageable during 2007, when the stock market started to head south. Eventually it will become impossible to cover up fundamental facts from the investing public. Fundamental facts about the economy, corporate earnings and the financial system. That’s when the rush toward the exits will commence.

The above commentary/analysis is from the latest issue of the Short Seller’s Journal. In that issue I review AMZN’s Q3 financials in-depth. This includes excerpts from the SEC-filed 10-Q used to demonstrate why Jeff Bezos’ LTM “Free Cash Flow” of $ 8.05 billion is a Ponzi number and the true GAAP Free Cash Flow is -$ 3.9 billion. AMZN is a cash-burning furnace and I prove it. To find out more about this and other ideas for shorting this bloated stock market, click here: Short Seller’s Journal information.

Investment Research Dynamics




Here’s Why Stocks and Home Runs Are at All-Time Highs

By Alan Hall, senior analyst at the Socionomics Institute

Why in the world would Major League Baseball home run statistics track the U.S. stock market?

It’s tempting to dismiss such a finding as a wild coincidence or a fluke, but as you can see in the chart, the relationship between the two has persisted for nearly 150 years. What’s more, it gets even stronger if you add strikeouts into the mix. Most hitters and pitchers don’t check stock tickers before swinging and flinging, and most stock investors don’t check baseball stats before buying and selling. So what’s the connection? The simplest explanation is that society’s overall mood influences performance in both arenas.

For example, on Friday, June 2 of this year, the Dow Jones Industrial Average set a new all-time high for the first time in three months. The next day, confidence wafted on the breeze, along with the aromas of hot dogs and popcorn, as Seattle Mariners catcher Mike Zunino stepped up to the plate and gracefully swatted a “mammoth” grand slam. Zunino later told the Associated Press: “It’s just nice to step in the box and feel like you can hit.”

Feeling “like you can hit” was “l’esprit du jour” in ballparks that Saturday. Six other MLB players also belted grand slams. Zunino’s was the seventh, a new single-day record. “It’s officially the grandest day in Major League Baseball history,” wrote MLB.com.

That record-setting Saturday was part of a record-setting month in a record-setting year for Major League Baseball, mirroring the Dow Jones Industrial Average’s record-setting streak to numerous all-time highs. In June, players hit more home runs than in any previous month in history. And on September 19, hitters broke the record for home runs hit in a single season.

The previous single-day grand slam and single-month home run records were set in May 2000, the year of the previous record high for single-season home runs — and a year in which the stock market also set an all-time high.

Home runs weren’t the only records set in baseball this year. Pitchers also threw more “immaculate innings” (striking out a side on nine consecutive pitches) than ever before. The New Yorker wrote, “it’s true that the increased tendency to swing for home runs comes with an additional likelihood that one will miss: Strikeouts have also spiked to record rates.”

Our chart plots 147 years of social mood as reflected by a PPI-adjusted index of U.S. stocks versus two indicators of baseball performance. The bottom line plots average home runs per MLB game. Homers have trended roughly parallel to the Dow/PPI, but the relationship is not perfect. Notable divergences surround some of the major peaks and troughs.

The middle line in the chart plots average home runs plus strikeouts per game, a new baseball metric which I dubbed the “Swing for the Fences” indicator, or SWAT — not an exact acronym, but it’s catchy and close enough. This performance index has had an even tighter relationship with the Dow/PPI, especially since the 1940s. Today, stocks, SWAT and average home runs per game are at new all-time highs.

Just as the fever for investing peaks and subsides, so do fans’ attitudes toward baseball. Sports Illustrated and others have recently argued that the current deluge of home runs and strikeouts is a problem because it makes for a longer, boring game. One can almost hear the passion fading and the psychology shifting.

Robert Prechter’s socionomic theory sees stock market indexes as more than just financial indicators. They are also indicators of changes in society’s optimism and pessimism, our social mood. Positive mood produces optimism, confidence and stock market advances. Negative mood produces pessimism, fear and stock market declines. The same seems to be true for baseball performance.

Sabermetrics has come a long way in the past four decades, but stats that measure batter confidence and psychology have remained elusive. Perhaps part of the answer has been right under our noses, in the ups and downs of the stock market.

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This article was originally published on CNBC under the headline Home Runs and Strikeouts Can Track the Stock Market.




Top Financial Expert Warns Stocks Need To Drop ‘Between 30 And 40 Percent’ As Bankruptcy Looms For Toys R Us

Will there be a major stock market crash before the end of 2017?  To many of us, it seems like we have been waiting for this ridiculous stock market bubble to burst for a very long time.  The experts have been warning us over and over again that stocks cannot keep going up like this indefinitely, and yet this market has seemed absolutely determined to defy the laws of economics.  But most people don’t remember that we went through a similar thing before the financial crisis of 2008 as well.  I recently spoke to an investor that shorted the market three years ahead of that crash.  In the end his long-term analysis was right on the money, but his timing was just a bit off, and the same thing will be true with many of the experts this time around.

On Monday, I was quite stunned to learn what Brad McMillan had just said about the market.  He is considered to be one of the brightest minds in the financial world, and he told CNBC that stocks would need to fall “somewhere between 30 and 40 percent just to get to fair value”…

Brad McMillan — who counsels independent financial advisors representing $ 114 billion in assets under management — told CNBC on Monday that the stock market is way overvalued.

The market probably would have to drop somewhere between 30 and 40 percent to get to fair value, based on historical standards,” said McMillan, chief investment officer at Massachusetts-based Commonwealth Financial Network.

McMillan’s analysis is very similar to mine.  For a long time I have been warning that valuations would need to decline by at least 40 or 50 percent just to get back to the long-term averages.

And stock valuations always return to the long-term averages eventually.  Only this time the bubble has been artificially inflated so greatly that a return to the long-term averages will be absolutely catastrophic for our system.

Meanwhile, trouble signs for the real economy continue to erupt.  As noted in the headline, it appears that Toys R Us is on the brink of bankruptcy

Toys R Us has hired restructuring lawyers at Kirkland & Ellis to help address looming $ 400 million in debt due in 2018, CNBC had previously reported, noting that bankruptcy was one potential outcome.

Kirkland declined to comment.

Earlier Monday, Reorg Research, a news service focused on bankruptcy and distressed debt, reported Toys R Us could file for bankruptcy as soon as Monday.

This is yet another sign that 2017 is going to be the worst year for retail store closings in U.S. history.  I don’t know how anyone can look at what is happening to the retail industry (or the auto industry for that matter) and argue that the U.S. economy is in good shape.

But most Americans seem to base their opinions on how the economy is doing by how well the stock market is performing, and thanks to relentless central bank intervention, stock prices have just kept going up and up and up.

In so many ways, what we are watching today is a replay of the dotcom bubble of the late 1990s, and this is something that McMillan also commented on during his discussion with CNBC…

Part of McMillan’s thesis is rooted in his belief that the lofty levels of the so-called FANG stocks — Facebook, Amazon, Netflix and Google-parent Alphabet — seem reminiscent of the dot-com bubble in the late 1990s.

“I’ve been saying for about the past year, this year looks a lot like 1999 to me,” McMillan said on “Squawk Box.” “If you look at the underlying economics [and] if look at the stock market, the similarities are remarkable.”

I am amazed that so many big names continue to issue extremely ominous warnings about the financial markets, and yet most Americans seem completely unconcerned.

It is almost as if 2008 never happened.  None of our long-term problems were fixed after that crisis, and the current bubble that we are facing is far larger than the bubble that burst back then.

I don’t know why more people can’t see these things.  It has gotten to a point where “even Goldman Sachs is getting worried”

The stock market bubble is now so massive that even Goldman Sachs is getting worried.

Let’s be clear here: Wall Street does best and makes the most money when stocks are roaring higher. So in order for a major Wall Street firm like Goldman to start openly worrying about whether or not the markets are going to crash, there has to be truly MASSIVE trouble brewing.

On that note, Goldman’s Bear Market indicator just hit levels that triggered JUST BEFORE THE LAST TWO MARKET CRASHES.

When things fall apart this time, it is going to be even worse than what we went through in 2008.  In the aftermath, we are going to need people that understand that we need to fundamentally redesign how our system works, and that is something that I hope to help with.  We cannot base our financial system on a pyramid of debt, and we cannot allow Wall Street to operate like a giant casino.  Our entire economy has essentially become a colossal Ponzi scheme, and it is inevitable that it is going to come horribly crashing down at some point.

But for now, the blind continue to lead the blind, and most Americans are not going to wake up until we have gone over the edge.

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




Central Banks Now Own Stocks And Bonds Worth Trillions – And They Could Crash The Markets By Selling Them

Have you ever wondered why stocks just seem to keep going up no matter what happens?  For years, financial markets have been behaving in ways that seem to defy any rational explanation, but once you understand the role that central banks have been playing everything begins to make sense.  In the aftermath of the great financial crisis of 2008, global central banks began to buy stocks, bonds and other financial assets in very large quantities and they haven’t stopped since.  In fact, as you will see below, global central banks are on pace to buy 3.6 trillion dollars worth of stocks and bonds this year alone.  At this point, the Swiss National Bank owns more publicly-traded shares of Facebook than Mark Zuckerberg does, and the Bank of Japan is now a top-five owner in 81 different large Japanese firms.  These global central banks are shamelessly pumping up global stock markets, but because they now have such vast holdings they could also cause a devastating global stock market crash simply by starting to sell off their portfolios.

Over the years I have often been asked about the “plunge protection team”, but the truth is that global central banks are the real “plunge protection team”.  If stocks start surging higher on any particular day for seemingly no reason, it is probably the work of a central bank.  Because they can inject billions of dollars into the markets whenever they want, that essentially allows them to “play god” and move the markets in any direction that they please.

But of course what they have done is essentially destroy the marketplace.  A “free market” for stocks basically no longer exists because of all this central bank manipulation.  I really like how Bruce Wilds made this point

One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses. Their incursion into this bastion of the free markets signals we have entered the era where true price discovery no longer exists. The central banks are often viewed as price-insensitive buyers, so this incestuous influx of money is in some ways the ultimate distortion.

According to Business Insider, global central banks are on pace to purchase an astounding 3.6 trillion dollars in stocks and bonds in 2017.

Overall, the five largest global central banks now collectively have 14.6 trillion dollars in assets on their balance sheets.

You can call this a lot of things, but it certainly isn’t free market capitalism.

The Swiss National Bank is one of the biggest offenders.  During just the first three months of this year, it bought 17 billion dollars worth of U.S. stocks, and that brought the overall total that the Swiss National Bank is currently holding to more than $ 80 billion.

Have you ever wondered why shares of Apple just seem to keep going up and up and up?

Well, the Swiss National Bank bought almost 4 million shares of Apple during the months of January, February and March.

And as I mentioned above, the Swiss National Bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg”

Switzerland’s central bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg, part of a mushrooming stock portfolio that is likely to grow yet further.

The tech giant’s founder and CEO has other ways to control his company: Zuckerberg holds most of his stake in a different class of stock. Nevertheless this example illustrates how the Swiss National Bank has become a multi-billion-dollar equity investor due to its campaign to hold down the Swiss franc.

It is now the world’s eighth-biggest public investor, data from the Official Monetary and Financial Institutions Forum show.

But as shameless as the Swiss National Bank has been, the Bank of Japan is even worse.

Today, the Nikkei is essentially a giant sham.  The Bank of Japan regularly goes in and just starts buying up everything in sight, and according to Bloomberg they are on pace to become the largest shareholder in dozens of the most prominent Japanese corporations by the end of 2017…

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings.

If global central banks have the power to pump up these markets, they also have the power to crash them.

Why would they want to do such a thing?

I can answer that question with just two words…

Donald Trump.

If the Comey angle doesn’t work, the elite could try to destroy Trump by engineering an absolutely devastating stock market crash.  Close to half the U.S. population dislikes Trump anyway, and so it would be fairly easy to get them to believe that Trump’s policies have caused a new financial crisis.  Of course that would be complete nonsense, but in our society today the truth often doesn’t really matter.

And without a doubt, evidence continues to mount that the real economy is starting to slow down substantially.  For example, we just learned that bankruptcies surged once again in May.  The following comes from Wolf Richter

So here we go again. Total US business bankruptcies in May rose 4.7% year-over-year to 3,572 filings, according to the American Bankruptcy Institute. That’s up 40% from May 2015 and up 10% from May 2014.

And there’s another concern: Bankruptcy filings are highly seasonal. They peak in tax season – March or April – and then fall off. The decline in April after the peak in March was within that seasonal pattern. Over the past years, filings dropped in May. But not this year.

Without unprecedented intervention by global central banks, financial markets would have crashed long ago.

And if they keep increasing their purchases of stocks and bonds, the central banks may be able to prop things up for a while longer.

Who knows?  Perhaps with enough financial engineering they would be able to keep this bubble going for years.  Of course things would start to get really awkward once they eventually owned virtually everything, but I have a feeling that things will never get that far.

I have a feeling that global central banks will eventually find an excuse to start “unwinding their balance sheets”, and I have a feeling that it will be at a time that is highly inconvenient for President Trump.

The Economic Collapse




The Evidence that Stocks Are More Overvalued than Ever

Tuesday morning, the Dow was just 27 points away from 21,000 again!

How can anyone believe this is NOT a bubble?!

Nobel Laureate and economist Robert Shiller developed the best valuation indicator I’ve seen. His cyclically adjusted price-earnings ratio is known as the Shiller P/E, or CAPE.

And he agrees with me: We’re clearly in bubble territory!

Yet Fed Chair Janet Yellen and investing legend Warren Buffett – and way too many other experts and investors – continue to believe otherwise!

They should take notice of what I’m about to say…

Shiller uses the average of the last 10 years’ earnings to smooth out wild fluctuations near tops and when earnings suddenly crash in major recessions or depressions. This makes the model more reliable than the simple price-to-earnings ratio (P/E).

Doing this shows us that we’ve only gone higher twice before, and there are specific reasons for that, which I’ll explain below.

First, look at this chart…

As you can see, we’ve seen several peaks, biggest of which were in 1929, 1999, and now.

So, by saying that we’re not in a bubble, are the experts insinuating that 1929 wasn’t a bubble?

That the 90% crash, the greatest in U.S. history, was just bad luck… a “black swan?”

It certainly seems that way, but then again, most people can only see a bubble with 20/20 hindsight.

It’s true that today’s ratios aren’t as high as 1999, but that’s missing an important detail. That is, stock prices and valuations soared at the turn of the century because my four key cycles were moving up together.

A quick comparison of the 1925-29 bubble, the current bubble, and the tech bubble of 1995 to early 2000, shows what effect this different environment has on valuations.

The 45-year Innovation Cycle peaked in 1920, with the exact peak of the railroad industry. It then turned down into 1942.

The 39-year Generational Spending Wave pointed up strongly into late 1929, with a massive generation of immigrants. Then it crashed and had a secondary high again in 1937 before crashing once more.

The 34-year Geopolitical Cycle turned up in 1915 and peaked in 1930, converging with demographic trends through late 1929.

The 10-year Boom/Bust Cycle turned up in late 1923 and peaked in late 1929. Then it crashed into late 1933, the depths of the Depression.

So, three of my four key indicators converged in an upward arc into late 1929.

All four of them headed downward simultaneously from late 1930 into 1933. During this time, the Shiller CAPE indicator managed to reach only 32.6, but again well after the peak! It was only 18 at the peak in late 1929.

These four cycles converged again into early 2000.

The Generational Spending Wave turned up from late 1982 through late 2007. The 45-Year Innovation Cycle turned positive from late 1988 through 2010. The Geopolitical Cycle headed up from late 1982 into 2001 (until 9/11, to be precise). Finally, the Boom/Bust Cycle was up until February 2014 and has pointed down since then, with a bottom projected around early 2020.

All four cycles were heading up – together – into early 2000. This made the tech bubble of late 1994 into early 2000 the most favorable period in history, even more so than the Roaring 20s bubble… the greatest before it.

That’s why we witnessed the highest-ever valuations. It was baked into the cycles cake.

Now, all four cycles have converged on a downward path into early 2020…

The impact of the Geopolitical Cycle on stocks alone is to halve valuations from top to bottom. Based on this cycle, P/E ratios of 22 to 24 would be more normal at this point, with Dot-Com Era peak ratios of 44.2 unattainable.

There’s also another way to look at this…

Here’s a chart that adjusts the CAPE ratios for GDP growth which is much lower in the recent boom than in the roaring 90’s.

The picture is clear: P/E ratios are higher than ever, and much higher that 1999 when you adjust for lower growth and economic momentum.

And if that’s not proof enough, there’s another valuation indicator that puts to rest any doubts that we’re in a bubble. You can read the May issue of Boom & Bust for the details.

Do yourself a favor: Don’t be lulled into a false sense of security by the experts claiming we’re not in a bubble.

We are in the largest and broadest bubble in modern history. And it will burst.

Harry
Follow me on Twitter @harrydentjr

The post The Evidence that Stocks Are More Overvalued than Ever appeared first on Economy and Markets.

Harry Dent – Economy and Markets ()




Mining Stocks Rebound; Craig Hemke: Silver Manipulation Like NEVER Before

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

Coming up you’ll hear a tremendous interview with Craig Hemke of the TF Metals Report. Craig pulls no punches in calling out the foolish speculators who inadvertently perpetuated the silver price manipulating schemes by continuing to make bad bet after bad bet in the futures market. He’ll explain what’s been happening and what it will take to bring the whole flawed price discovery mechanism down. You simply will not want to miss a truly fantastic interview with Craig Hemke, coming up after this week’s market update.

Despite a rough several weeks in metals, the mining stocks may be pointing the way forward for gold and silver markets.

The GDXJ junior gold stocks ETF had been the source of some of the selling that hit the sector over the past few weeks. After acquiring outsized positions in small cap stocks, the fund become too large of a shareholder in some thinly traded names. GDXJ moved to re-allocate its portfolio, and in the process it adversely moved the market.

But this week the mining stocks rallied. Through Thursday’s close the GDXJ was up more than 6% for the week.

The rally in the mining sector may be signaling that the recent slump in gold and silver prices is coming to end. The silver market got hit especially hard, dropping 15% from its April high. It finally ended a 16-day losing streak earlier this week.

As of this Friday recording, silver prices trade at $ 16.47 per ounce and are putting in a weekly gain now of 0.3%. Gold checks in at $ 1,230 an ounce, unchanged now for the week. Turning to the platinum group metals, platinum is up 0.5% since last Friday’s close to trade at $ 922. Palladium is down 1.5% to trade at $ 805 an ounce.

The technical picture for the yellow metal still looks strong — believe it or not — with prices holding above their March lows during the recent decline. So far gold is making a higher low in a classic stair step rally.

Silver’s chart doesn’t look so good, with prices sitting well below the March and February lows. Yet despite the damage done, silver is still trading slightly above where it started the year. Perhaps the market will find ample buying support at these levels.

Some analysts are looking for a major bottom to come next month. Others think the selling has already run its course. The near-term outlook for precious metals is always difficult to gauge because it is more dependent on the behavior of large institutional traders in the futures market than it is on fundamentals.

Ultimately, the fundamentals do matter. But they may take some time to be fully reflected in prices. For long-term precious metals bulls, the good news is that supply and demand fundamentals are turning in their favor.

Even though bullion demand in the United States has softened since the election last year, demand is ramping up in Asia. Chinese gold imports surged in the first quarter of 2017. Gold imports to India jumped 342% this April compared to last year. Gold jewelry buying in the world’s second most populous nation is coming back strongly after currency controls and import restrictions crimped demand last year.

Meanwhile, major central banks including those of Russia and China continue to steadily add gold to their monetary reserves.

On the supply front, gold and silver mining production is likely to go into decline. For silver, the decline began last year. The Silver Institute’s World Silver Survey 2017 was released on Thursday and it paints a bullish long-term picture based on silver’s supply and demand fundamentals.

Here’s some of what Silver Institute president Mitchell Krebs told Bloomberg radio:

Mitchell Krebs:

The good news, for sure, is that silver supply, for the first time in 14 years, actually declined last year. So, that’s a big deal. Not by a lot, but it’s now declining and it’s expected to continue to decline, which basic supply and demand fundamentals suggest that that’s a positive tailwind for silver going forward. It’s the fourth year in a row now where we’ve been in a structural deficit, where demand has outstripped supply. That’s another positive. I’d say on the demand side, solar panel demand hit an all-time high, it was up 34% last year. And that’s a market that we think will continue to grow.

There’s certainly going to be a lot of growth in the years ahead in solar panels and other energy technologies that require silver. The wild card is investment demand. If it returns to the highs seen during the Obama years, we can expect wider deficits in the physical market and possible shortages in the retail market for coins, rounds, and bars.

Given the potential for demand to vastly outstrip supply in the silver market going forward, don’t count on the current low prices being sustained for much longer. The recent price dip orchestrated in the futures market represents a fantastic buying opportunity in the physical market.

Well now for more on what’s been driving the recent decline in silver, the shenanigans at play in the paper derivatives market and what’s ahead for the white metal, let’s get right to this week’s exclusive interview.

Craig Hemke

Mike Gleason: It is my privilege now to welcome in Craig Hemke of the TF Metals Report. Craig runs one of the most highly respected and well-known blogs in the industry, and has been covering the precious metals for close to a decade now. And he puts out some of the best analysis on banking schemes, the flaws of Keynesian Economics, and the evidence of manipulation in the gold and silver markets.

Craig, it’s great to have you back with us and thanks for joining us again today.

Craig Hemke: Hey Mike, it’s always a pleasure. I appreciate the invite.

Mike Gleason: Well, here we are with metal sliding backwards once again. We got off to a great start in 2017 but most of those gains evaporated in the past couple of weeks, especially for silver. The pattern is all too familiar, Craig. Open interest in the silver, and silver made new record highs. The bullion banks sold fresh paper contracts to anyone who wanted one, unconstrained by having to back all the paper with actual metal.

Now prices are falling with a healthy push from these banks. And they’re covering their shorts with a tidy profit. All of this just underscores and highlights how the price discovery in precious metals is completely broken and corrupt; a topic you have been focused on for years. Tell listeners who may not be familiar with how the bullion banks rig this game. And do you think they will ever run out of people who are willing to play in their crooked casino?

Craig Hemke: Mike, you described it perfectly. You nailed it all in 45 seconds… I usually go on and on for what seems like hours talking about it, and you were able to condense it into 45 seconds. It was perfect. I tell you, it was very frustrating to watch happen, because all through really the back half of March and into early April, we knew what was coming, right? As you mentioned, the banks, or I guess essentially de facto market makers on the COMEX at this point, simply create and issue new short contracts, put them on the offer side of the market. The speculators looking for silver exposure chasing the momentum to the upside or on the bid.

And rather than deal with a finite amount of paper contracts as you said, the banks are not limited at all, by any stretch of the imagination, by how many paper contracts they can supply to the specs. And then they just simply wait them out. They drove open interest to an all-time high of 235,000 contracts. That’s something like 1.15 billion ounces of paper silver trading on the COMEX. The world only produces about not even 900 million a year. Again, none of this seems to bother anyone besides maybe you and I and everybody else in this space. When you get to the regulators, the CFTC, SEC, Department of Justice, nobody gives a damn. And so you correctly then surmised why they do it, particularly in silver, it’s a profit center. I mean if you can sit there and issue however many shorts you need to, between $ 18 and $ 18.65 over a course of three weeks. And then just wait for the specs to head to the exit then you can buy all your shorts back and cover them on the way down.

And if you just simply made, I don’t know, a dollar (an ounce) on 20,000 contracts … That’s a lot of money my friend, at 5,000 ounces per contract. And so that’s why it’s done. The banks play this game. They know they’re in complete control.

I think you were sort of referencing the last article I wrote. I wrote a series of public articles through the month of April describing what was going on, predicting how it was going to end, unfortunately again. And the last one I wrote I summarized by saying, “Look, man, if you’re still foolish enough to be trading against these banks. If you’re in there thinking, ‘Well, you know I can count my waves and I’m smarter than the average bear. And so, I’m going to go in there and I’m going to trade against these banks and I’m going to show them who’s boss.'” Man, you deserve to get your ass kicked.

If you don’t understand the forces that you’re up against, you deserve every single loss that you get. By trading futures, in the COMEX. Everybody else that’s been victimized by this over the years, that’s a whole other story and we should all be angry if not even slightly bitter that nothing has changed in the time that I’ve been following these markets. But gosh, anybody that’s still foolish enough to think they can actually trade against the banks and win. Man, they deserve to lose money no doubt about it.

Mike Gleason: Yeah, certainly would be nice if we could see fewer speculators in that market playing the other side and just letting them have their way. Totally agree.

Craig Hemke: See that’s just it, Mike. I mean the people that still trade it in and accept the food that’s fed them from CNBC about, “That’s the price and that’s how price is determined.” Well they’re perpetuating the problem because they’re legitimizing the scheme.

These contracts are created from thin air. They’re swapped back and forth at light speed between computers. You’re trading digital silver, if you want to call it that. But it’s no more related to silver than trading baseball cards. But yet this price that’s determined by the unlimited creation of digital silver is somehow pushed down and accepted as the physical price. And there’s no physical component to it! It’s not a function of supply and demand, and global mine supply, and retail silver demand, and all these other reasons that people give as to why the price is going down. No, man.

Price was held in check by these banks as it went up. And then they just flush out the specs and wring the register. Happens time and again. They’re probably done now. Price has come all the way down to $ 16. That’s been pretty good support in the past. We’re probably ready to start bouncing back a little bit. But I can assure you that as we go up again later this year, banks will be in there just attempting to run the same scheme. And that’s why I said, if anybody that’s in there trading futures contracts or trading options. And is somehow unaware of how the deck is stacked against them. You’re just as dumb as somebody playing Three-Card Monte on the streets of New York. This is not a fair game and you should not be playing in it.

Mike Gleason: You have your finger on the pulse of the precious metals community as well as anyone, as your site is a forum for gold and silver investors to come and talk about all of this. So what are you seeing there in terms of the patience level for this among the metals buying public? Are people throwing in the towel here? Or are they still holding on to their principled beliefs that in the end we’ll all be vindicated for owning this stuff as protection against the paper markets. What are your thoughts there and what’s the mood been?

Craig Hemke: Mike, that’s a great question because we do have a large community. I don’t think it’s ever been any bigger in terms of subscribers, at least we since we started the subscription component back in 2013. And so it’s a broad, diverse community and it’s really interesting to gauge that sentiment. Because as you … It’s predictable as you might imagine. You know, when we’re getting the crap kicked out of us for 16 days- 16 days in a row my friend! You can’t help but be kind of psychologically damaged by that. Makes it a lot less fun to be me, I can tell you that, right? Because you kind of got to hang in there with everybody and deal with people being frustrated, angry, and everything else that goes with it.

But in a big picture, I like to think that we’ve educated folks enough about the how’s and the why’s of this pricing scheme and the extraordinary amounts of leverage behind it. You know that in gold and silver too, there could be as many as 100 beneficial owners for each physical ounce in the world. The banks have created this system where instead of supplying physical metal into the market to try to peg price as they did in the 50s and through the 60s with the London Gold Pool. They now have alchemized, legally alchemized, gold and silver through the creation of paper. And they’ve convinced people that a futures contract, shares in the GLD, an unallocated account in Switzerland, that these are all just as good as the real thing. And so, they’ve multiplied the real thing like I said, I don’t know, anywhere from 50 to 100 times. Well, what we’re all waiting for and recognizing that the day will eventually come. The world will figure out that there’s not nearly as much gold and silver on hand as the price would indicate.

I’ve said before I think the price makes you think that gold and silver are abundant. And that somehow that’s what the price indicates. No, no, no. The price is indicating that the gold and paper derivative is what’s abundant. These forms of gold are what’s abundant, not the physical thing itself. And when there’s finally a crisis of confidence where people demand their metal. You show up at the bank and they tell you, “Well, no, you can come back in 90 days.” “Wait, what! No, I’m not waiting 90 days. Says here I can come get it any time.” When that fire finally spreads. That’s when this paper derivative pricing scheme will finally fail. And I think people realize that and so we’re willing just to kind of wait them out.

Mike Gleason: Yeah, and until then, just look at it as buying opportunity. If they want to make it cheap for us, then what the heck. Let’s just keep stacking at this low price.

Craig Hemke: Right, and it gets to something I would imagine a lot of folks on your site consider. And that’s that gold silver ratio. There’s all these people scratching their heads (and saying) “How could the gold silver ratio be 75? It historically should be 15.” Well for God’s sake if anything tells you how messed up this pricing scheme is, it’s that. Maybe the reason why the gold silver ratio is five times higher than it should be is because there’s five times the amount of paper silver derivatives and silver exposure than there is gold. Maybe that’s how you need to look at it. Either way, you can tell just simply by that gold silver ratio that the prices are not being economically determined in the same manner that they have been for millennia. And one day that will correct itself.

Mike Gleason: Now if we are going to get a floor under prices and get them headed back up higher again, speculators are going to need a reason to buy gold and silver again. You and I could put together a long list of reasons for people to own metals… central banks keep working to devalue paper money around the world; borrowing and spending remain hopelessly out of control; the financial system is more rickety than ever. But lots of people, including pretty much everyone on Wall Street, aren’t paying much attention to those fundamentals. Few people have been interested in safe-haven assets of late, especially since the November election. Investors instead have been busy chasing stock prices higher and looking for more risk. So what do you see as some potential catalyst for drawing the specs back into the gold and silver markets in the months ahead?

Craig Hemke: Mike, you’ve touched on it right there, my friend. If you’re going to get price to rise, you’ve got to have demand for the derivative because price is based on the derivative trading, right? So, you’ve got to get some of these hedge funds, trading funds, momentum funds, whatever, to want to buy the derivative on the COMEX and get it moving higher. If there’s more selling, there’s less demand than there is supply, price goes down. If there’s more demand than there is supply, price goes up. The key to managing that though is sentiment and momentum, like you said. And in large part why JP Morgan and the other market making banks do what they do.

Let’s go back to the first of the year, late December when price was really not a whole lot lower than where it is now. Open interest, total open interest on the COMEX is about 160,000 contracts… 800 million ounces of silver. As I said earlier, that thing peaked out at 235,000 thousand contracts with the price up at $ 18.50, I don’t know, what, three weeks ago? So price went from $ 16 to $ 18-plus while the banks increased the supply, the available supply of those derivatives, by 50%. Now, if they did not have the ability and the regulators weren’t looking the other way and couldn’t care less. The banks did not have the ability to just by willy-nilly just increase the supply by 50%, how high would price have risen. If open interest had to stay at 160,000, right? Probably wouldn’t have gone just to $ 18, right? Because all that, call it 80,000 contracts of buying would have had to come from people willing to sell. The existing contracts. Do you follow me, Mike?

So, they blunt the momentum and blunt the rise, and make people think, “Uh, you know, this silver stinks, never going anywhere. Blah, blah, blah, blah.” Well if they’d had to keep open interest stable. Or if was somehow pegged at the amount of silver on hand in the COMEX. Well maybe instead over the first three and a half months of the year, silver goes from $ 16 to $ 28 instead of $ 18. Well heck, we’d have a whole different conversation at this point, wouldn’t we?

And we’d be looking a little bit more like maybe Bitcoin, right? I mean there’s no Bitcoin futures, there’s no Bitcoin banks that are in there just creating Bitcoin futures contracts and saying, “Hey, this is, uh, synthetic Bitcoin. Uh, yeah, yeah, this will work just fine. Yeah, this is Bitcoin, trust us.” Instead there’s just Bitcoin. And for every seller there’s got to be a buyer in it. Sellers aren’t appearing at a certain price level then price has to move up until they do. But again, that’s not how it works in the futures markets. Instead of having to find sellers of existing contracts the banks just create new contracts and sell them. So again, getting back to your point. How do you get price to go up? Well, you’re going to need a break out of momentum and sentiment. And that’s why the banks load up all of this, these new contracts and feed them into the specs. One, to make money. But two? To keep sentiment down, keep price under control, then keep playing the same game.

Mike Gleason: Oil and copper prices are taking a beating and that is contributing to price woes in metals particularly silver, which can trade more like a commodity at times. Economic growth is lousy and it looks like real problems are developing in China. If the commodity selloff persists and starts dragging on the equity markets, we would expect gold and silver to start trading more like safe havens than commodities. What do you make of the action in oil and copper and do you see that impacting the metals?

Craig Hemke: Yeah, there’s kind of a fine line there, isn’t it? Because on one hand, you look at something, let’s talk about just silver specifically because it’s both a monetary metal and an investment and then a very important industrial metal. And so, as you see economic growth slowing, as you see almost a deleveraging, in a sense, in China because so much of what they put up as collateral is commodities based. You would think, yeah, you could really see some pressure in silver. And maybe that’s part of what we’ve seen in the 16-day run is some overseas liquidation. It’s impossible to say for certain.

But at some point, then the market begins to look forward, if you want to call it a market. And you think, “Well geez, if the economy’s slowing, and maybe what we’re looking at instead of additional rate hikes all through the next three or four years, all the sudden we’re looking at a recession and more QE and maybe that’s good for gold and then maybe that drags silver along for the ride.” So it’s a multi-layered question where you try to figure out which part of that is in working at present.

I don’t know, Mike, it’s going to be interesting to see. What’s particularly galling is all of this, you know, first we treat these Fed goons, the Fed governors, as if they’re rock stars, right? Oh, everybody hangs on every word just like teenagers hang on every move by Kim Kardashian. It’s appalling and galling to watch. But then to see these goons… I mean there’s one today, Rosengren, out of, I don’t know where the hell’s he’s from, it doesn’t matter. Anyway, Fed goon Rosengren’s out there talking about how, “Oh, you know, the economy may be growing too fast.” What?!? What about one half of one percent in the first quarter is too fast? 2016 was the lowest year for economic growth since 2011. But yet now, all the sudden, we’re going to start hiking rates all the time.

Again, we had terrible job growth. Whatever inflation seemed to show up is no longer there, here in March and April. First quarter GDP comes in at just one half of one percent. Trump with all of his issues. I mean it’s pretty clear at this point there’s not going to be any tax reform this year. There’s not going to be big infrastructure plans put into place. All that garbage that was thrown at us from the first couple months of the year about how all these things are going to… None of it’s happening.

But yet the Fed is still saying, “Oh, we’re going to keep hiking rates.” “Uhh, why?” “Well because it’s good for our banks, and so. Oh, did I say that out loud? I’m sorry.” But that’s obviously what they’re doing. And they’re going to hike rates whether it’s bad for the regular person or not. And that seems to be the course that they’re on. We’ll just see how this eventually plays out. As you know, gold and silver have both rallied sharply out of the three previous rate hikes in December of ‘15, December ‘16, and then back in March. God if can we just survive until June it’ll probably happen again. In fact, I would imagine the market might even begin to anticipate that since it’s been so predictable now after three times. Instead trading all the way down into that June FOMC where apparently they’re going to hike again. Heck, we might start front-running that by Memorial Day. So we’ll see.

Mike Gleason: Yeah, it’s an interesting point because a lot of people do think that as rates increase you’re going to see metals fall with maybe everything else but that’s a very good observation there. We have seen metals rally off of those last three rate increases. So if we do continue to see rate increases throughout the rest of the year, that doesn’t necessarily mean it’s a bad thing for metals.

Craig Hemke: Right, Mike. Go back to 2003 through 2007, the Fed hiked the Fed Funds Rates 17 times. Basically every quarter. For four and a half years. And during that time period the price of gold went from $ 300 to $ 1,000. So maybe those Fed goons are doing us a favor, my friend. Maybe that’s what we should be pulling for. We’ve just gotten so numb to thinking that it has to be QE and a declining dollar and all that stuff that makes gold go up. Maybe we should be pulling for rate hikes instead because our most recent experiences is a triple in five years during a period where the Fed was inverting the yield curve by raising the short rates so high.

Mike Gleason: Well as we begin to close here, Craig, what advice do you have for metals investors here after a pretty bloody couple of weeks… couple of years actually? And then what do you expect the rest of the year when you look at the geo-political front, and what may drive things, including Trump getting his policies pushed through Congress? Because it appears to us that the market is pricing in him getting everything he’s asking for and you have to wonder if that’s going to happen. You commented on that a moment ago, not much has happened on that front but yet the market’s still pricing everything in as if he is going to get all of his initiatives through. So talk about that, the market reaction there, if it becomes clear he’s not going to get that, and then give us any other thoughts as we begin wrap-up here.

Craig Hemke: Okay, I’m going to go backwards. I’m going to take you to the second part of that question first. And you’re exactly right. I think the first time I formally wrote about it and released it publicly was back in about the middle of January in a post called “Questioning the Generally Accepted Narrative.” And yeah, it’s almost as soon as Trump as elected. Remember, because Trump was supposed to be bad for the stock market, right?

And then all the sudden, as soon as he was elected, we started getting this mantra just shoved down our throats from all the sell-side analysts and the financial media that, “Ah, this is going to be great. It’s going to be easy. He’s going to spend all this money. It’s going to have this infrastructure plan. That’s going to make the Fed have to hike rates. And that’s going to make the dollar go up. And, oh, this is just a lay-up.” And I thought, “You know, I don’t if it’s going to be that easy.” And so, we’ve been calling it a rejection of that generally accepted narrative. All year long. And I haven’t seen anything that would change it. And as we said politically, Trump may be wounded enough now that anything he wants to do, aggressive in terms of tax reform, or infrastructure spending, or whatever. I just can’t see it happening at all this year.

So, with that in mind, I have told my subscribers all year long that I did not expect this year to play out like last year with the big spike end of the summer and then a selloff into the end of the year that leaves us up in single-digit percentage-wise. I still think that over time, the market if you will, the global financial market begins to figure this out. The failure of this narrative. And it doesn’t happen overnight. And again, once in a while the markets fight back. Trying to reinforce it, a little bit of what we’ve seen here recently. But I think in, over time, as we’re getting to the summer, into the fall, people go, “Wait a second, this didn’t work out anywhere near…” And the economy’s slowing down because the Fed hiked rates three times and all this stuff.

And so, I’ve always said since the beginning of the year that I thought that the highs for this year will come in the fourth quarter, not the second quarter. And then that will carry us over into what I think will probably be a pretty good 2018. In terms of what do I say to the people out there that are just sick of this crap. And … Look man, I’m sick of it too, geez Louise, at least everybody else that’s stacking physical metal like I am has a life. I mean they can shut off their computer and walk away and not pay attention and all that stuff if they want. Not me man. So I mean, what do I say to everybody? Look, it’s not any fun. And I’m not going to sit here and say, and try to blow sunshine up anybody’s skirt.

But I’ll just continue to say what I’ve always said. Look, if you think that this system can’t go on continued, forever. If 20 trillion dollars in debt is going to double to 40 trillion to 80 trillion… I mean, at some point it’s a mathematical certainty the whole thing collapses upon itself. And if you understand your history then all fiat currency schemes, going back to the Roman Empire basically, turn into what we’ve become. And then they collapse and then the world reverts back to sound money and the whole process starts over again. If you think all of that stuff, economically and historically, then it makes sense to have physical gold and physical silver. Again, not the derivative, not the make-believe stuff, because everybody that thinks they have physical gold and silver that has that stuff, they’re going to be left holding the bag.

What people need to be doing is contacting your company and every month, maybe every two weeks, just buy a little bit more. Be dollar-cost averaging like the financial advisors tell their clients to do with their mutual funds. Or like your 401k, every two weeks, a little bit of money comes out of your check and it goes into mutual funds in your 401k. Well what if every two weeks you bought yourself a couple more Silver Eagles. You’d be an idiot to put all of your money into an S&P Fund and you’d be an idiot to put all your money into gold or silver. But you’d be foolish not to at least have some. And if you believe in the economics and if you believe in history. All you do is just wait. You try to ignore this noise. Let me, let you, Mike, deal with all the garbage of what the banks do and the Fed goons, and the lies and the nonsense and the B.S. In the meantime everybody else should just be patient, dollar-cost average. Know that you’re doing the right thing for solid rationale. And just wait.

Mike Gleason: Well extremely well put. That’s a great synopsis of where we’re at, couldn’t agree more. Great comments as usual, Craig. It’s always fantastic to have you on. Now before we sign off here, please tell everyone more about the TF Metals Report and what they’ll find when they visit your site.

Craig Hemke: First thing they’re going to find is the fantastic, vibrant community. People that are either inhabiting the forum section which are free, or they inhabit the threads where I write a post every morning and record a podcast every afternoon. That’s subscriber content but to be a subscriber it’s going to cost you a whopping $ 12 a month. You know, $ 3 a week.

What is that, 60 cents a day.. while the markets are open. We don’t want to price anybody out. But we’re not trying to be some kind of timing or trading service either.

But I think people will find that the site is valuable. Okay, what I do maybe helps for people that are trying to figure whether they should have been buying more silver three weeks ago at $ 18 or if maybe you can wait and price comes back to $ 16 and you save yourself a couple bucks an ounce. I think a lot of folks think that the subscription cost pays for itself that way. But whether you’re a trader or stacker or just trying to learn more, I think the community is what really has value. And again, that’s what we’re most proud of at TFMetalsReport.com.

Mike Gleason: Well outstanding. Thanks very much, Craig. Hope you have a great weekend. Look forward to catching up with you again real soon, always appreciate your time.

Craig Hemke: Mike, thanks for calling. It’s great to visit with you and please tell all my friends there hello.

Mike Gleason: Well that will do it for this week. Thanks again to Craig Hemke. The site is TFMetalsReport.com, definitely a fantastic source for all things precious metals and a whole lot more. We urge everyone to check that out and you’ll want to check it out regularly for some of the best commentary on the metals markets that you will find anywhere.

And be sure to check back here next Friday for our next 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 ’51st U.S. State’ Declares Bankruptcy As Corporate Insiders Sell Stocks At The Fastest Rate Since The Last Financial Crisis

Puerto Rico has collapsed financially and has “filed for the equivalent of bankruptcy protection”.  When this was announced on Wednesday, it quickly made front page news all over the planet.  For decades, Puerto Rico has been considered to be the territory most likely to become “the 51st U.S. state”, and there have even been rumblings that we could soon see a renewed push for statehood.  But that is on the back burner for now, because at the moment Puerto Rico is dealing with a nightmarish financial crisis that is the result of an accelerating economic collapse.  Unfortunately, many Americans still don’t believe that what has happened to Puerto Rico could happen to us, even though signs of major economic trouble are emerging all around us.

Almost two years ago I issued a major warning about the debt crisis in Puerto Rico, and now the day of reckoning for “America’s Greece” has finally arrived

Saddled by mountainous debts and undermined by rapid population loss, Puerto Rico filed for the equivalent of bankruptcy protection Wednesday in a historic move that will trigger a fierce legal battle, with the fate of the island’s citizens, creditors and workers at stake.

The oversight board appointed to lead the U.S. territory back to fiscal sustainability declared in a court filing that it is “unable to provide its citizens effective services,” crushed by $ 74 billion in debts and $ 49 billion in pension liabilities.

Like Greece, Zimbabwe, Venezuela and so many others, what has happened in Puerto Rico shows us that it is simply not possible to live way above your means indefinitely.  If your debt grows much faster than your economy, eventually you reach a point where financial disaster is inevitable.  This is a lesson that our leaders in Washington D.C. desperately need to learn before it is too late for the United States.

Since 2007, the population of Puerto Rico has declined by 10 percent and the number of jobs in that nation has declined by 20 percent.  It is a long-term economic collapse that just continues to get even worse with each passing month.

Unfortunately for Wall Street, many large U.S. financial institutions have invested very heavily in Puerto Rico’s bonds.  In fact, it has been estimated that 180 mutual funds have “at least 5% of their portfolios in Puerto Rican bonds”.

At this point, U.S. firms stand poised to lose billions of dollars as their investments become worthless, and many of these firms were totally blindsided because they were assured that this could not happen…

The financial collapse promises to impose deep losses on bondholders who for years snapped up Puerto Rico’s securities, which are tax-free throughout the U.S. U.S. states can’t file for bankruptcy, and investors bought the bonds assured that it wasn’t a legal option for Puerto Rico either.

The scale of the restructuring is far larger than Detroit’s record-setting $ 18 billion bankruptcy, and it’s unclear how long a court proceeding would last or how deep would be the cuts that are imposed on bondholders.

So how far will the financial collapse of Puerto Rico ultimately ripple through our financial system?

It is hard to say, but without a doubt this is a major concern.

Meanwhile, corporate insiders are selling stocks at the fastest pace that we have seen in seven years.  The following comes from Business Insider

As the investing public has continued to devour stocks, sending all three major indexes to record highs in the last few months, corporate insiders have been offloading shares to an extent not seen in seven years. Selling totaled $ 10 billion in March, according to data compiled by Trim Tabs.

It’s a troubling trend facing an equity market that’s already grappling with its loftiest valuations since the 2000 tech bubble. If the people with the deepest knowledge of a company are cashing out, why should investors keep buying at current prices?

What do those corporate insiders know that the rest of us do not?

Perhaps they are just being rational.  If I was a top corporate insider at one of these “unicorns” that have market caps in the tens of billions of dollars even though they are consistently losing hundreds of millions of dollars a year I would be selling too.

You make money in the stock market by selling at the right time.  Those that sold their Pets.com stock at the peak of the dotcom bubble got quite wealthy, but those that held on all the way through the stock market crash got completely wiped out.

There have been some analysts that have suggested that one way to make money in the stock market is to simply do what the insiders are doing.  If they are buying, then that is supposedly a time to buy, and if they are selling that is supposedly a time to sell.

Personally, I would rather use my limited resources to get prepared for the horrific crisis that is inevitably coming, but not everyone agrees with that outlook.

The crisis in Puerto Rico developed over an extended period of time, and there were plenty of warning signs.

So anyone that is still holding Puerto Rican bonds at this point is quite foolish.

Similarly, the warning signs here in the U.S. have been mounting for quite a while.  Just yesterday, we got more exceedingly bad news for the U.S. auto industry, and we are on pace to absolutely smash the all-time record for most retail store closings in a single year.

Just because a crisis does not arrive on the exact month or year that you were anticipating does not mean that it has been canceled.

I warned about a looming financial cataclysm in Puerto Rico nearly two years ago, but they somehow managed to hang on until now.  And even though the U.S. financial system is still afloat for the moment, everyone should be able to see that we are definitely living on borrowed time.

So don’t look down on Puerto Rico, because what is happening to them is eventually coming here too.

The Economic Collapse