Economics

Economics
Max and Stacy give you all the financial news you need as the Global Insurrection Against Banker Occupation gathers pace. Occupy Wall Street, Crash JP Morgan, Buy Silver and DEFINITELY visit MaxKeiser.com!
Updated: 4 hours 49 min ago

Buy Gold for Long Term as “Fiat Money Is Doomed”

11-Sep-2017

– Buy gold for long term as fiat money is doomed warns Frisby
– Gold’s “winning streak” will continue in long term
– September is traditionally a good month for gold, as we head into the Indian wedding season
– “It’s just a matter of time before gold comes good again…”

by Dominic Frisby, Money Week

Today folks, by popular demand, we’re talking gold.
It’s had a nice summer run.
What now?

Gold has been buoyed by the North Korea scare

Let’s start with an update. Back in July I suggested a flip trade: buy then in anticipation of a rally, sell in the autumn. But I also ventured that a proper, multi-year bull market in gold, such as the one we saw in the 2000s, was a way off.

The price then was $1,230 an ounce. As I write, we’re a couple of dollars shy of $1,340. We’ve had a $110 rally. Aren’t I a genius?

So what do we do now? Buy more? Sell? Hold?

Let’s have a lively debate.

The first observation I’d make is that a good $30 to $40 of today’s price is war premium. A certain North Korean has been firing missiles and exploding bombs. The world has, quite understandably, got nervous. And a certain American has been positing (with some justification) various potential responses on Twitter.

Click here to read full story on GoldCore.com

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

Magomedov Brothers Aim High, But Shoot Blanks

11-Sep-2017

Dagestani billionaire Ziyavudin Magomedov and his older brother and junior partner are highly ambitious. Their forays into telecommunications infrastructure, gas, oil, construction, and port logistics have thus far succeeded wildly across the the Caucasus region. These victories are enormous, to be sure, catapulting Magomedov’s net worth to over $2.1 billion in the period between 2009 and 2013 alone. However, as many know for certain, success on the shores of the Caspian is simply not possible without a little help.

One can be forgiven for being a billionaire, but when there’s skepticism in the air, money becomes less important than intent. Millions flowing from the ever-richer Magomedovs are appearing in surprising places all over the globe, and though everything looks calm on the surface, dealing with the Magomedovs requires that one look deeper.

Forging the Bonds of Nepotism

The enormous profits made by Magomedov and Summa Group directly coincide with the rise of Russian President Dmitry Medvedev. As private resources became state resources, and the volatility of the conflicts in the Northern Caucasus lessened, President Medvedev looked to rebuild the area’s infrastructure. With better roads, systems and services, he argued, the people would be happier and less likely to tolerate further fighting. It might even bring tourism to the region.

Significant funds went through Russian channels towards Magomedov, who is largely responsible for taking on the huge projects meant to alter the face of the region. This made him and his company, Summa Group, very wealthy. Many of these projects failed in spectacular fashion, however, while others simply petered out before completion.

One of the most well-known examples is attributed to Magomedov through his associate and cousin Akhmed Bilalov, who was contracted to build infrastructure for the Sochi Winter Olympics in 2014. While on a tour of the facility, President Putin commented on the lack of progress, and inquired if costs had risen. They had, he was informed. The proposed price for construction of the Olympic ski jump had shot from $40 million to $265 million, and was significantly delayed. Putin was dismayed, and his relationship with Magomedov suffered accordingly. Tensions remain to this day.

Another famous overreach that was proven without wings was the Rotterdam Port oil terminal. The Netherlands’ Prime Minister signed a contract with a company called Shtandart TT B.V. to build and operate a new crude oil terminal in the port in 2011. It would potentially open trade opportunities across the continent. Shtandart, 75% of which is owned by Magomedov’s Summa Group, demonstrated lackadaisical construction efforts and other issues. It was terminated in 2015, after Netherlands officials suspected the delays to be an ongoing money-laundering scheme conducted by Magomedov on behalf of Russia.

Staying in the Loop

Recently, Magomedov has expressed interest in investing in startups. His company Caspian VC Partners, founded in 2013, exists to disburse as much as $300 million to promising startup projects. The one that has gained the most press is Hyperloop One, a California-based transportation startup based on designs by Elon Musk.

The project plans to build a cross-state high-speed train using new technology, and Magomedov wants the same for Moscow’s transportation system. He has bigger plans as well, and imagines the Hyperloop train connecting faraway markets like China with greater Europe. While this could revolutionize existing trade routes and lead time on shipped goods, investors and partners are taking Magomedov’s solemnity with a grain of salt.

Given his pockmarked record of unexpected delays, inflated construction costs, and other potentially disruptive elements, this comes as no surprise. While no one is pointing fingers, doing business with Russia and their cadre of made-men requires thorough research before a contract can be safely signed. With Magomedov it is no different, and though many of his projects have been astounding successes, it is difficult to predict which ones Russia has a hand in.

The Wild West-like financial markets and property ownership laws of Russia, alongside its government’s dubious relationships with the country’s underworld, make the United States and Western Europe one of the only safe places for acquired wealth. The richest men, men cut from the same cloth as Magomedov and his political allies, have much to gain from maintaining ties to legitimate ventures. Regardless of the number on the check, Western businessmen know that investments are only well-spent when the final product emerges.

Who’s Going To Eat The Losses?

10-Sep-2017

When you tally up all of the US economy’s “outstanding IOUs” (public & private debt, entitlement & pension obligations, etc), the total is well over 1,000% of GDP. That’s a hole that’s simply too big to be dug out of.

So the only question that matters at this point is: Who’s going to eat the losses?

Click here to read the full article

[KR1121] Keiser Report: RIP, Petrodollar?

9-Sep-2017

Max and Stacy ask, “RIP, Petrodollar?” China readies a yuan-priced oil benchmark backed by gold. Is this the final nail in the dollar’s coffin? In the second half, Max interviews Michael Pento of PentoPort.com to discuss the oil-gold-yuan futures contract, North Korea, hurricanes and coming market meltdowns.

The Real Reason Wages Have Stagnated: Our Economy is Optimized for Financialization

8-Sep-2017

The Achilles Heel of our socio-economic system is the secular stagnation of earned income, i.e. wages and salaries. Stagnating wages undermine every aspect of our economy: consumption, credit, taxation and perhaps most importantly, the unspoken social contract that the benefits of productivity and increasing wealth will be distributed widely, if not fairly.

This chart shows that labor’s declining share of the national income is not a recent problem, but a 45-year trend: despite occasional counter-trend blips, labor (that is, earnings from labor/ employment) has seen its share of the economy plummet regardless of the political or economic environment.

Given the gravity of the consequences of this trend, mainstream economists have been struggling to explain it, as a means of eventually reversing it. The explanations include automation, globalization/ offshoring, the high cost of housing, a decline of corporate competition (i.e. the dominance of cartels and quasi-monopolies), a failure of our educational complex to keep pace, stagnating gains in productivity, and so on.

Each of these dynamics may well exacerbate the trend, but they all dodge the dominant driver of wage stagnation and rise income-wealth inequality: our economy is optimized for financialization, not labor/earned income.

What does our economy is optimized for financialization mean? It means that capital and profits flow to the scarcities created by asymmetric access to information, leverage and cheap credit–the engines of financialization.

Optimization is a complex overlay of dynamically linked systems: the central bank optimizes the flow of cheap credit to the banking/financial sector, the central state tacitly approves the consolidation of cartels and quasi-monopolies, and gives monstrous tax breaks to corporations even as it jacks up taxes and fees on wage earners and small business.

Financialization funnels the economy’s rewards to those with access to opaque financial processes and information flows, cheap central bank credit and private banking leverage. Together, these enable financiers and corporations to get the borrowed capital needed to acquire and consolidate the productive assets of the economy, and commoditize those productive assets, i.e. turn them into financial instruments that can be bought and sold on the global marketplace.

These commoditized assets include home mortgages, student loans, and specialized labor forces which are “sold” with their employers or arbitraged globally. Once an asset is commoditized, the profits flow to those who process the transactions of packaging and marketing these assets globally.

Take auto loans as an example: the big money isn’t made from collecting the interest on the auto loans; the big money is made by processing and assembling the loans into tranches that can be sold to investors globally.

One way of understanding financialization is to ask: what’s the quickest, easiest way to make $10 million in our economy? Is it building a business based on the labor of employees over a decade or two?

You’re joking, right? The easiest way to make $10 million is to be part of the investment banking team overseeing a $10 billion corporate buyout or merger deal, or investing seed money in a tech company that subsequently goes public.

How about the easiest and quickest way to make $100 million? The answer is the same: working a vein of financial wealth based on commoditized instruments, leverage and credit.

Labor’s share of the national income is in freefall as a direct result of the optimization of financialization. The money flows to those with the capital, credit and expertise to optimize financialized skims. As for selling one’s labor in an economy optimized for capital and the asymmetries of finance–there’s no premium for labor in such an economy, other than technical/managerial skills required by finance to exploit markets.

This is the driver of the rising income-wealth inequality this chart reveals:

 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Gold Has 2% Weekly Gain,18% Higher YTD – Trump’s Debt Ceiling Deal Hurts Dollar

8-Sep-2017

– Gold hits $1,355/oz as USD at 32-month low -concerns about Trump, US economy
– Silver and platinum 2.3% and 1.2% higher in week; palladium 3% lower
– Euro Stoxx flat for week – S&P 500, Nikkei down 0.65% and 2.2%
– Geo-political concerns including North Korea, falling USD push gold 2.1% in week
– Gold prices reach $1,355 this morning following Mexico earthquake

– Safe haven demand sees gold over one year high, highest since August 2016
– Silver touches $18.24 – highest level since April 2017
– Goldman, BoAML and Deutsche Bank all warn re markets this week

Editor: Mark O’Byrne

This morning the earthquake in Mexico likely contributed to gold eking out further gains to $1,355/oz, its highest since August 2016. The gold price is now up 2.1% for the week.

Sadly some of the short-term performance in both gold and silver is because of devastating events around the globe. From hurricanes and earthquakes to potential nuclear wars.

However, as explained earlier this week, while gold is reacting to geopolitical events in the short term, the real driver of gold will be the impact of these events which is government money printing and debasement of the currency. Only this week, Trump extended the debt ceiling – with the devastation of the floods in Texas and Hurricane Irma the latest reason to increase the US national debt.

Is the Euro too strong?

Yesterday the ECB decided to leave interest rates unchanged. On the back of the decision, the euro rose to $1.20 pushing the US dollar to a 32-month low. Draghi did not express concern over the currency’s strength.

Some indication was given as to the when the ECB would taper asset purchases – October is expected.

Relative to gold and silver in the last week, the euro has underperformed.

No increase in the US rates or the dollar

Meanwhile in the US weak economic data and events in Texas and Florida have likely pushed any chance of further rate hikes back. Data yesterday showed weekly jobless claims rose this week to their highest since 2015. Hurricane Harvey likely contributed to this and it is likely the start of a trend and will likely get worse.

Odds of the increase happening this year have slipped from 40% to 29%. For many a rate hike would be bad news for gold and silver prices. However so far this year this has not proven to be as damaging as some bears expected. Indeed, as we have shown with data and charts many times, rising interest rates generally corresponds with rising gold prices – as seen in the 1970s and from 2003 to 2006.

Click here to read full story on GoldCore.com

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

[KR1120] Keiser Report: Social Media Making Hillary Grate Again

7-Sep-2017

In this episode of the Keiser Report, Max and Stacy discuss social media cracking down on ‘fake news’ in order to protect the likes of Hillary Clinton from losing again. In the meantime, the ‘internet of hate’ – aka ‘alt tech’ – begins developing an alternative internet. In the second half, Max continues his interview with Mish Shedlock of MishTalk.com about the latest in the disaster zone called the central bankers’ economy.

The Insanity of Pushing Inflation Higher When Wages Can’t Rise

7-Sep-2017

The official policy goal of the Federal Reserve and other central banks is to generate 3% inflation annually. Put another way: the central banks want to lower the purchasing power of their currencies by 33% every decade.

In other words, those with fixed incomes that don’t keep pace with inflation will have lost a third of their income after a decade of central bank-engineered inflation.

There is a core structural problem with engineering 3% annual inflation. Those whose income doesn’t keep pace are gradually impoverished, while those who can notch gains above 3% gradually garner the lion’s share of the national income and wealth.

As I showed in Why We’re Doomed: Stagnant Wages, wages for the bottom 95% have not kept pace with official inflation (never mind real-world inflation rates for those exposed to real price increases in big-ticket items such as college tuition and healthcare insurance).

Most households are losing ground as their inflation-adjusted (i.e. real) incomes stagnate or decline.

As I’ve discussed in numerous posts, the stagnation of wages is structural, the result of multiple mutually reinforcing dynamics. These include (but are not limited to) globalized wage arbitrage (everyone in tradable sectors is competing with workers around the world); an abundance/ oversupply of labor globally; the digital industrial revolution’s tendency to concentrate rewards in the top tier of workers; the soaring costs of labor overhead (healthcare insurance, etc.) that diverts cash that could have gone to wage increases to cartels, and the dominance of credit-capital over labor.

In an economy in which wages for 95% of households are stagnant for structural reasons, pushing inflation higher is destabilizing. The only possible output of pushing inflation higher while wages for the vast majority are stagnating is increasing wealth-income inequality–precisely what’s happened over the past decade of Federal Reserve policy.

The stagnation of wages isn’t supposed to happen in conventional economics.Once unemployment drops to the 5% range, full employment is supposed to push wages higher as employers are forced to compete for productive workers.

Alas, conventional economics is incapable of grasping the fluid dynamics of labor, automation, capital, globalization and cost structures dominated by monopolies and cartels in the 4th (digital) industrial revolution.

In sector after sector, employers can’t afford to pay more wages as labor overhead costs march ever higher while prices are held down by competition and oversupply. In other sectors, the rigors and supply, demand, stagnant sales and productivity push employers to automate whatever can be automated, and push tasks that were once performed by employees onto customers.

So why are central banks obsessed with pushing inflation higher? The conventional answer is that a debt-fueled economy requires inflation to reduce the debtors’ future obligations by enabling them to pay their debts with constantly inflating currency.

This same dynamic enables the central state to pay its obligations (social security, interest on the national debt, etc.) with “cheaper” currency. After a decade of 3% inflation, a $100 debt is effectively reduced to $67 by the magic of inflation. If wages rise by 3%, the worker who earned $100 at the start of the decade will be earning $133 by the end of the decade, giving the worker 33% more cash to service debts.

The government benefits from inflation in another way: incomes pushed higher by inflation push wage earners into higher tax brackets, and their higher incomes generate higher taxes.

All this wonderfulness of inflation is negated if wages can’t rise in tandem with inflation. In the view of the central banks, deflation (i.e. wages buy more goods and services every year) is anathema, and it’s not hard to understand why.

The private banking sector benefits from inflation as well. The lifeblood of banking profits is transaction and processing fees from issuing new credit. Since inflation enables households to buy more stuff with credit and service more debt, banks benefit immensely.

Deflation, on the other hand, is Kryptonite to bank profits; households earning less every year are more likely to default on existing debt and eschew new debt. As wages stagnate, an increasing percentage of the populace becomes uncreditworthy, i.e. a marginal borrower who isn’t qualified to borrow (and thus spend) more.

Unfortunately for the Fed and other central banks, there is no way they can push wages higher to keep pace with inflation. Short of creating $1 trillion in new currency and sending a check for $10,000 to every household (something central banks aren’t allowed to do), central banks can’t force employers to pay higher wages or force customers to pay higher prices to enterprises.

Pushing inflation higher while wages stagnate can be charitably called insane. Less charitably, it’s evil, as it strips purchasing power and wealth from all whose income isn’t keeping pace with central bank-engineered inflation.

 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Is the High Cost of Housing Crushing Wages?

7-Sep-2017

A provocative essay, Don’t Blame the Robots, makes the bold claim that “Housing Prices and Market Power Explain Wage Stagnation.” (Foreign Affairs) In other words, the stagnation of the bottom 95% of wages isn’t caused by automation or offshoring, but by the crushingly high cost of housing:

“Yet recent academic work in macroeconomics suggests that current wage stagnation has less to do with robots and more to do with real estate and market power.

Real wage growth is a function of two things: changes in productivity and changes in the share of national output attributed to labor. If the share of GDP going to workers doesn’t change, then real wages simply track productivity.”

The market power argument is straightforward: as competition declines, cartels and quasi-monopolies scoop up a larger share of the national income, leaving relatively less for labor.

The high housing costs crush wages argument is more nuanced. 

The high cost of housing means that much of the nation’s available capital stock is invested in housing, rather than in productivity-boosting capital investments. This diversion of capital from productivity to housing reduces the productivity gains that enable higher wages.

The authors describe a second dynamic: the soaring cost of rents / purchasing housing in high-productivity cities such as New York and San Francisco effectively locks out lower-productivity/wages workers, pushing them into low-productivity locales which then have an oversupply of labor, further pressuring wages.

The authors claim that wages have dropped because workers have to devote a larger share of their earnings to housing, but this erroneously conflates real wages and disposable income: the two are entirely different.

If a worker earns 12% more pay annually, and inflation is 2% per annum, her real (adjusted for inflation) wages rise by 10%. If her housing costs rise by 20% in the same time period, her disposable income, i.e. what’s left after paying for housing, declines despite her higher income.

In other words, the higher cost of housing may well lower disposable income, but that’s not the issue: the issue is the stagnation of real wages paid by employers to employees (and the earnings of self-employed people).

While these arguments describe a little-noticed connection between capital, housing costs and wages, the case is not entirely persuasive. While it’s clear that sky-high rents in Manhattan and San Francisco are unaffordable to average wage earners, what about cities in the Midwest, Southwest and Southeast with much lower housing costs?

In cities where it’s still possible to buy a small, older home for $60,000 – $90,000, and rent an apartment for $450 to $700 per month, shouldn’t the wages be higher, since the cost of housing isn’t prohibitive? Some cities provide a mix of high and low-productivity jobs and low to moderate housing prices. If the authors’ premise is correct, there ought to be a discernible correlation between low housing costs, a mix of higher-wage and lower-wages jobs and broadly higher wages.

While I don’t know of any studies that track these variables, my sense is cities with relatively low-priced housing exhibit the same stagnating wages for the bottom 95% as high-cost cities.

I think it more likely that high housing costs exacerbate the income-wealth divide rather than explain secular wage stagnation. Take a look at this chart of the spending patterns of the top 5% and the bottom 95%. Clearly, the top 5% have pulled away from the 95%. Wages aren’t stagnating for all workers; rather, wage gains are flowing upward to the favored class that can optimize managerial/technical/financial expertise.

The authors’ thesis doesn’t explain the 47-year downtrend of labor’s share of the economy. Housing was relatively stable for much of the past four decades, while labor’s share of GDP fell steadily. Even more unsettling, labor’s share fell off a cliff in the period 1990 to 1996, when housing was flat even in high-priced regions.

The siphoning off of capital from productive investments to unproductive housing is a core dynamic in explaining the stagnation of productivity. But this doesn’t explain why employers either can’t or don’t have to pay higher wages in an era of steadily rising costs for nearly every major expense: not just housing, but healthcare, college tuition, etc. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Check out both of my new books, Inequality and the Collapse of Privilege($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.

‘Things Have Been Going Up For Too Long’ – Goldman CEO

7-Sep-2017

– “Things have been going up for too long…” – Goldman Sachs’ CEO
– Lloyd Blankfein, Goldman CEO “unnerved by market” (see video)
– Bitcoin bubble is no outlier says Bank of America Merrill Lynch

– Bubbles are everywhere including London property
– $14 trillion of monetary stimulus has pushed investors to take more risks
– We are now in a new era of bigger booms and bigger busts – BAML
– “Seeing signs of bubbles in more and more parts of the capital market” – Deutsche Banks’ John Cryan
– Global debt bubble and China very vulnerable too – warns Steve Keen
– Bubbles, bubbles everywhere … lots of potential pins … got gold?

Editor: Mark O’Byrne

Video – Goldman CEO Unnerved By Market. Image: Getty Images via CNBC

The B word is something which is almost whispered in financial circles. To acknowledge there might be a bubble somewhere is like admitting the proverbial elephant is in the room.

But, like many taboo words, it seems the mainstream are coming around to the idea that it is ok to mention the word ‘bubble’ and express their concerns about the possibility of at least one existing.

This week Goldman Sachs’ Lloyd Blankfein, Deutsche Banks’ CEO John Cryan and strategists at Bank of America Merrill Lynch have separately expressed concerns that there are signs of bubbles in the markets – from the obvious bitcoin bubble to the less obvious bubble in London and other property markets and bubbles in many stock and bond markets.

The most obvious one is bitcoin. Bitcoin is up 380% this year whilst the combined market cap of cryptocurrencies is up by 800%. However these are by no means anomalies according to analysts at BAML.

Cryan and Blankfein agree, thanks to central bank money printing and low interest rates, they too are expressing their concerns over the state of markets.

“When yields on corporate bonds are lower than dividends on stocks? That unnerves me … “
Lloyd Blankfein

There’s no bubble here

Professor Robert Shiller has been calling a bubble in bitcoin for a couple of years, for him it is the latest sign of ‘Irrational Exuberance’. 

“The best example right now [of irrational exuberance] is Bitcoin. And I think that has to do with the motivating quality of the Bitcoin story. And I’ve seen it in my students at Yale. You start talking about Bitcoin and they’re excited! And I think, what’s so exciting? You have to think like humanities people. What is this Bitcoin story?”

The bitcoin community was not best pleased when the man who is credited with being able to spot speculative manias decided to single out the cryptocurrency as the latest one.

Click here to read full story on GoldCore.com

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

[KR1119] Keiser Report: Is US really a 3% GDP economy?

6-Sep-2017

In this episode of the Keiser Report, Max and Stacy discuss ‘the mysterious’ moves in gold markets moments before Janet Yellen spoke in Jackson Hole, Wyoming and the equally mysterious, unknowable event that happened in the mid-seventies to cause wages to decline as productivity continued to climb. In the second half, Max interviews Mish Shedlock of MishTalk.com about the latest in US financial markets and data: Is it really a 3% GDP economy?

The Trouble with Asset Bubbles: If You Stop Pumping, They Pop

6-Sep-2017

The trouble with inflating asset bubbles is that you have to keep inflating them or they pop. Unfortunately for the bubble-blowing central banks, asset bubbles are a double-bind: you cannot inflate assets forever. At some unpredictable point, the risk and moral hazard that are part and parcel of all asset bubbles trigger an avalanche of selling that pops the bubble.

This is another facet of The Fed’s Double-Bind: if you stop pumping asset bubbles, they pop as participants realize the music has stopped, and if you keep pumping them, they expand to super-nova criticality and implode.

There are several dynamics at play in this double-bind.

1. The process of inflating a bubble (for example, the current bubbles in stocks and real estate) requires pushing investors and speculators alike into risky asset classes. This puts the market at increasing risk as everyone is pushed to one side of the boat.

2. Those on the other side of the boat (i.e. shorts) are slowly but surely eradicated as the pumping keeps inflating the bubble. When the bubble finally bursts, there are no shorts left to cover, i.e. buy stocks at lower prices to reap their profits.

3. As the bubble continues to expand, the money available to enter the market and keep prices rising declines. The very success of the pumping process strips the markets of new sources of new money, leading to a point where normal selling exceeds new-money buying and the bubble collapses.

4. Money pumping by central banks and governments follows a curve of diminishing return. One analogy is insulin insensitivity: as the systemic distortions build, markets become increasingly insensitive to money pumping. Authorities respond to this intrinsic process of increasing insensitivity by pumping even more money into the system.

But as with insulin insensitivity, at some point the system loses all sensitivity to money pumping: no matter how much money central authorities inject, the markets refuse to go higher. At this point, the stick-slip nature of bubbles manifests and modest selling triggers a collapse as participants all rush for the exits. Buyers have vanished and there is no longer a bid at any price.

5. Having pumped the assets higher with ever-greater injections of speculative risk and pumping, central banks and states have exhausted their ability to re-inflate assets as they collapse.

This growing insensitivity to money pumping is visible in the stock market’s response to each new QE program: each market advance is of shorter duration, and each rise is less robust than the last one.

This degradation of response to pumping has forced the Fed to pursue a policy of infinite QE, with no time or pumping limits.

The idea that authorities can massage their pumping to keep asset bubbles inflated at a permanently high plateau is currently being tested. The Fed is implicitly suggesting that it can adjust the expectations/policy dials with such control that it can keep the bubble inflating essentially for years to come.

Systems cannot be controlled once risk and moral hazard have been raised to levels where instability is an intrinsic feature of the system. Those who actually believe the Fed can keep asset bubbles inflated at a permanently high plateau will discover their error in dramatic fashion, as the bigger the bubble, the more violent the implosion.

This is the super-nova nature of asset bubbles: if you try to deflate the bubble slowly, it implodes, but if you keep inflating the bubble it eventually implodes from its internal extremes.

 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Bitcoin, Sour Grapes and the Institutional Herd

6-Sep-2017

If I had a bitcoin for every time some pundit declared bitcoin is a bubble, I’d be a billionaire. There are three problems with opining that bitcoin and cryptocurrencies are bubblicious:

1. Everything is in a bubble now: stocks, bonds, housing, heck, even bat guano is bubblicious. Exactly what insight is being added by yet another guru repeating the BTC is a bubble meme?

2. What’s the value proposition in declaring BTC is in a bubble? Spotting bubbles is like shooting fish in a barrel; the value proposition is in identifying the price/time tipping point at which bubbles pop.

3. Declaring bitcoin is a bubble is starting to sound like sour grapes. Sour grapes defined: those who missed the 10-bagger (never mind the 100-bagger) feel better by dismissing the whole thing as a fad and a bubble, but as BTC continues marching higher, it looks like they missed the boat but are too proud to admit they didn’t grasp the significance of cryptocurrencies and BTC in particular.

For those who don’t know what the fuss is about, here’s a one-year chart of bitcoin (BTC). Note the increase from $500 to $5,000 ($4.500 as I write this). Some initial coin offerings have made gains that make this mere 10-bagger look like small change.

This might look like a speculative side-game, but for institutional money managers, it’s getting serious. As we all know, it’s becoming increasingly difficult to manage money such that the returns on the managed money exceed the return of an S&P 500 index fund.

If a passive index fund does better over five years than an actively managed fund, then what the heck are we paying the fund managers big bucks for?

This is a question that occurs to everyone with money in a pension fund, mutual fund, insurance company, etc. Why are we paying these guys and gals annual salaries of $250,000 plus bonuses if they’re missing out on the big winners like bitcoin?

Let’s stipulate up front that no institutional money manager can speculate in the cryptocurrency equivalents of penny stocks, i.e. ICOs (initial coin offerings). The risk management rules of serious money funds preclude this sort of rampant speculation, no matter how potentially lucrative.

But bitcoin is different. It’s been around the longest, and has survived all the slings and arrows of outrageous fortune tossed at it. Despite a much-dreaded hard-fork (greetings, BTC Cash), the original bitcoin still operates by the initial conditions set by the creator(s): there can only be 21 million bitcoins issued, and the management of the blockchain is not controlled by a central agency (though some miners are more equal than others–but that’s a thicket to explore another time).

Bitcoin is tailor-made for institutional ownership. While it is inherently volatile, it is stable and transparent; there is no “insider trading” or financial trickery (such as bogus financial statements) to be wary of. Unlike many other investment vehicles, it’s highly liquid.

Once exchange-trade funds (ETFs) based on direct ownership of BTC are widely available, this opens the door wider to both institutional and mom-and-pop investors.

All of this puts pressure on institutional money managers to buy some bitcoin so they don’t look like they missed the investment vehicle of the decade. Never mind when you bought it, or at what price; better to get in now before the price jumps even higher. Going forward, it will be this simple: either you own bitcoin or you’re out of a job.

This is the same reason virtually every institutional money fund owns Apple (AAPL)–if you don’t own Apple, then you missed out on the decade’s greatest investment story. So if your fund lags index funds, and has no ownership of Apple, Facebook, Netflix, Amazon and Tesla– here’s your pink slip, buddy–you blew it.

But wait–I bought bitcoin at $3,000, and added at $4,000! Hmm. Smart move. Maybe there’s hope for you yet.

The point is institutional ownership of bitcoin is in the very early stages. As bitcoin continues to advance, institutional money managers will be forced to buy in, just to avoid the fate of those who failed to buy Apple.

Money managers buying now at $4,500 will look like geniuses when it hits $10,000, and everybody who dismissed BTC as a bubble at $5,000 will face a bleak choice–either get some bitcoin in the portfolio or prepare for a pink slip.

When the institutional herd starts running, it’s best not to get trampled. 

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Time to Exercise CAUTION in Gold & Silver

6-Sep-2017

Silver did not decisively break through $17 until last Thursday, just a few trading days ago. On Sunday night, silver futures broke through $18. We are nowhere near the “all clear”.

We must be more careful than ever to not get too bullish or too complacent.

Looking at the daily on silver, there is some resistance around $18.25, and major resistance around $18.50. Seeing that we have just shot up a greenback in a couple of days, this does not mean we will just storm the lines and over-run the resistance. Good news is that since bottoming out at $15.14 in July, we have had two healthy pullbacks. What is worrisome, however, is that the RSI is beginning to signal”overbought”.

If we are rooting for anything this week, it would be nice to see silver hold at $18, because with a dollar move in two days, there is a bunch of factors, both technical and fundamental in nature, that could cause another dollar move before the week is up. If silver breaks-out to $19, that would be the time to get bullish. If it breaks down to $17, that would be the time to back-up the truck and load up on physical while the getting is good.

Gold, as has been the case all year, is faring much better than silver. Gold is within’ spitting distance of the 52-week highs:

As the days go by, the 52-week highs will be taken out all on their own even if gold consolidates here. We recognize, however, there has been very little consolidation in the metals this year. It has been going up, or going down. With geo-political tensions and mother nature reaching a climax this week, some consolidation would be welcome in somewhat of a figurative and literal calm before the storm.

That would also give silver the chance to catch up to gold from their divergence that just does not want to close:

If gold drops from here, silver has room to run, if gold consolidates from here, silver has room to run, and if gold rises in price from here, silver still has room to run. The strength in the yellow metal has not been shown in the white metal, even though it has been shown in literally every other metal, base, industrial or precious. We keep highlighting the fact that the price of three of the four precious metals averages over $1000, and today, the average price for gold, palladium and platinum is over $1,100. Even when we average in silver to get an average price of all four precious metals, we still have an average price of $832.

When we talk about the absolute cheapest asset on the entire planet, there is a reason for that. How long silver remains to have the price suppressed is the question we are all trying to answer, but trying to time purchases for $.50 savings of downside price action could end up in paying $1 more based on just what we have seen in the last few days.

Palladium and copper continue to show the strength in price action that they have showed all year:

Palladium is precious and industrial. Copper is a base metal that the entire internet runs off of. It is not so much an infrastructure “spend”, but an infrastructure “rebuild”, and raw materials are going to be in high demand, which include the metals among other things. Crude oil is turning out to be very interesting on the chart:

We have a classic “inverse head and shoulders” pattern forming on the chart. The question is, how much of it is fundamental and how much of it is technical. In other words, if the WTI price shoots up to $53.50, would that be coincidence? Notice the top of the head, in our case the bottom price on the chart, is exactly the low for crude oil.

Fear in and of itself is starting to look a mess:

Since the beginning of the North Korean thermo-nuclear war threat, there have been three surges in the VIX. They have all occurred with little separation on the charts. Now we know the Fed is suppressing the VIX and propping the broader markets, but on the chart, even with the market manipulation, it looks as if VIX is in for a repricing, which would be higher, not lower. Upside volatility repricing is bullish for gold and silver prices, the ultimate hedges against uncertainty.

And wouldn’t ya know, coming off of those VIX surges, there have been three surges in the Dow as the VIX retraces:

The problem with the stock market, however, is that it now looks very, very exhausted. All three runs have failed, and the trend certainly points down in what is looking more and more like a rounding top on the chart. 200 points in the Dow are peanuts at 22,000, but when it is not 200 points, but 2,000 points? That still would not even be a 10% drop. How low will it have to go before the Fed steps in? If the Dow drops 2,000 points, it is quite possible the Fed will maintain absolute media silence on the matter, because that would be a paradigm shift from the “everything is awesome” economy they have been selling since 2009. They are running out of buyers very fast.

And if everything is so awesome, we know President Trump can’t resist the chance to cheer-lead the stock market of now his making, what explains this:

The yield on the 10-year is now back to “The Day After” level. The entire move in yield has now completely retraced. Perhaps this is why there is all the sudden a renewed push tokick the can on the debt ceiling by tacking it on to hurricane relief? Not helping the bond market is the fact that on September 20th, Janet Yellen will have to face softball questions from the propagandist MSM regarding the FOMC action to raise or not to raise interest rates, and to reduce or not to reduce the balance sheet.

Either way, this does not look good:

That leaves us with the dollar. Since every MSM “analyst” is certain the reversal is coming any day now, we’re not so sure:

SilverDoctors.com has been on the leading edge of Gold News and Silver News Since 2011. Each month, more than 250,000 investors visit SilverDoctors.com to gain insights on Precious Metals News as well as to stay up-to-date on World News impacting the metals markets.

Physical Gold In Vault Is “True Hedge of Last Resort” – Goldman Sachs

6-Sep-2017

– Physical gold is “the true currency of the last resort” – Goldman Sachs
– “Gold is a good hedge against geopolitical risks when the event leads to a debasement of the dollar” 
– Trump and Washington risk bigger driver of gold than risks such as North Korea
– Recent events such as N. Korea only explain fraction of 2017 gold price rally
– Do not buy gold futures or ETFs rather “physical gold in a vault” [is] the “true hedge”

Editor: Mark O’Byrne

What’s increasing the demand for gold? Is it Kim Jon-Un’s calls for nuclear war? Trump’s tough tweets on government and trade and unleashing “fire and fury” on North Korea? The threat of World War III? Possibly not, according to Jeff Currie of Goldman Sachs. This is more to do with the market mechanics underlying such events.

Currie released a note arguing that gold’s strong performance of late is less to do with the current perceived risk in the geopolitical sphere and instead from the currency debasement that arises from central banks printing money.

In light of this, investors should be buying up gold. Goldman’s Currie refers to gold as the ‘geopolitical hedge of the last resort’. This is the case ‘if the geopolitical event is extreme enough that it leads to some sort of currency debasement’ and especially so ‘ if the gold price move is much sharper than the move in real rates or the dollar.’

Read on to see in exactly what form Currie believes you should be investing in gold.

Click here to continue reading on www.GoldCore.com

Bitcoin Falls 20% as Mobius and Chinese Regulators Warn

5-Sep-2017

– Bitcoin falls 20% as Mobius and Chinese regulators warn
– “Cryptocurrencies are beginning to get out of control” – warns respected investor Mark Mobius
– Mobius believes governments will begin to clamp down on cryptocurrencies sparking rush to gold

– Yesterday China’s PBOC ruled Initial Coin Offerings (ICOs) are illegal and all related activity to halt
– China is home to majority of bitcoin miners
– Paris Hilton latest celebrity to support an ICO
– Gold’s return of 16% YTD look ‘dull’ or ‘stable’?

– Bitcoin fell 23%, now down 16% from $5,000 high

Editor: Mark O’Byrne

Bitcoin in USD 1 Year (Coindesk)

An ICO – “unregulated issuances of cryptocoins where investors can raise money in bitcoin or other [cryptocurrencies]”
Financial Times

Just as you thought you were getting your head around bitcoin and all the other hundreds of cryptocurrencies out there, the financial headlines are screaming at you about something called initial coin offerings or ICOs. Now you don’t really know what’s going on.

The latest news in the crypto world is that the People’s Bank of China (PBOC) announced yesterday that ICOs (Initial Coin Offering) are illegal and that all related fundraising activity should cease immediately.

But what is an ICO?

An ICO is like an IPO but kind of in reverse.  It is a tool that trades future cryptocoins in exchange for cryptocurrencies of immediate, liquid value. You exchange bitcoin or ethereum with the underlying company in exchange for a new token, say ‘ISawYouComing Coin’

A more formal explanation is offered by Travis Scher:

An ICO is a crowdsale of cryptographically secured blockchain tokens to fund the development and operation of one of three types of blockchain projects:

A platform-layer blockchain (such as ethereum or Lisk)

An organization that operates on a blockchain (known as a decentralized autonomous organization (‘DAO‘), or a centrally organized distributed entity (‘CODE‘)

A decentralized application (‘dapp’) that runs on a platform-layer blockchain. Tokens that fund these are sometimes known as appcoins. 

So far in 2017 $1.366 billion has been raised in ICOs. In global market terms they are still relatively small. But when you consider that US startups raised just $11 billion through IPOs in the second-quarter of this year then you can appreciate the rapid growth in the space.

Click here to read full story on GoldCore.com

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

Gold Surges To $1338 as U.S. Warns of ‘Massive’ Military Response

4-Sep-2017

– Safe haven gold extends rally to 11-month high after North Korea nuke test and U.S. warns of ‘massive’ response
– Asian and European stocks fall, bonds flat, gold, silver, palladium, Swiss franc rise as Korea tensions flare as North Korea tests ‘hydrogen bomb’
– North Korea prepares for possible ICBM launch says S. Korea
– U.S. warns of ‘massive,’ ‘overwhelming’ military response to North Korea after meeting with Trump
– Trump weighing new economic sanctions that target China
– Gold is consolidating above the $1,300/oz key resistance level and building on 4% gain seen in August

Relative Performance (1 Day) – Finviz.com

Safe haven gold continued to eke out further gains of 0.73% today and reached its highest level in 11 months at $1,338.65/0z. The latest gains came after North Korea’s latest and most powerful nuclear test again saw investors diversify into safe haven gold and other safe haven assets.

Asian and European shares have fallen and the geo-political risk led to the the usual knee-jerk shift to safe havens pushing the yen, Swiss franc, gold and silver higher.

The Nikkei was down 0.93 and EuroStoxx 50 was down 0.45%. The Stoxx Europe 600 Index declined, with all industry sectors in the red.

The U.K.’s FTSE 100 Index dipped 0.3 percent and Germany’s DAX Index fell 0.5 percent. The MSCI All-Country World Index sank 0.2 percent, the largest dip in more than two weeks. Stock market futures suggest a difficult day for global equities.

The White House warned any nation doing business with Kim Jong Un’s regime would be met with economic sanctions and trade embargoes, and Trump’s defense chief said the U.S. has “many military options.”

Gold’s gains came after gold rose both last week and in August when gold and silver saw strong safe haven gains of 4% and 5% respectively.

Click here to continue reading…

Blockchain, Timestamps and Proof of Existence Could Transform Online Publishing

4-Sep-2017

Could “proof of existence”, a protocol made possible by blockchain technology, get rid of the fake news and imposter websites which litter the world wide web?

BTC Media, likely the largest blockchain publisher alongside CoinDesk, thinks so. The publication began timestamping its curated articles on June 19 with Po.et’s Bitcoin blockchain-based ‘proof of existence’ protocol. The effort is meant to ensure the publisher’s online content is properly attributed, licensed and that freelancers retain control over their intellectual property. Po.et consists of three layers: a base-layer, time stamping layer, and a layer that meta-dates content into the blockchain.

“Once content is on a ledger, you can do more than you were able to do beforehand,” says Pat Riley, Bitcoin Magazine’s Head of Product, and Co-Founder of Po.et. “You can build out equity ownership automatically without trusted third parties and their fees. If an editor and writer are working on a piece together, they could crypto-split the equity in an automated manner.”

BTC Media found that after it posted an article on one of its online publications (Bitcoin Magazine, Distributed, LTB Network and Devsub), it would spread across the internet without attribution.This took away from the publication’s advertising revenue and, in its view, contributed to the spread of misinformation.

“One of the main services we provide to our readers is trust,” says Mr. Riley. “A lack of trust is a huge problem in the news industry right now. Who has legitimate information? Who is standing by their facts? Who has proper journalistic practices? Stamping our articles and embedding them in the history of what we are covering through blockchain technology delivers the trust our readers expect.”

To solve the problem, the publisher turned to proof of existence to verify the existence of digital files – in this case, its online content –  with timestamped blockchain transactions. The publisher’s goal is to bring the media, the publishing industry, and its articles into the internet of value.

“Right now, [our articles] exist in silos or decentralized worlds whereas increasingly apps are acting more peer-to-peer than the database-siloed world we know,” says Mr. Riley.

With the addition of a marketplace on top of Po.et, BTC Media believes publications can begin placing bounties out for certain articles the same way development teams put bug bounties out for code. “Po.et allows a writer to print out a series of ten articles they are most interested in and post it on the marketplace for resale,” describes Mr. Riley. “They can search topics and have pre-written content there ready [to choose from]. Instead of e-mails going back and forth, they can license it, and depending on the license they can reuse the content.”

For instance, Bitcoin Magazine published an article written by Vitalik Buterin when he was initially thinking through multi-signature and how Ethereum could work.

“It’s the first time the term ‘multi-sig’ was used in an article,” Mr. Riley recalls of the article, which detailed the concept of bitcoin transactions requiring more than one key (read: password) for authorization.

“It is constantly referred to back in slides and presentations and white papers, and so it is a high-ranking link,” says Mr. Riley. “If they were attributing it to Po.et on their site, the total cost of advertising redirect to their site or blog could be paid out over time.”

He adds: “While smart contracts are promising and indeed the future, we believe this basic utility –  proof of existence – has been overlooked.”

Meatspace markets won’t open for another 10 days in crypto-time!

3-Sep-2017

Stacy Summary: NK tests an H-bomb and France warns other major economies to monitor for market chaos. But markets don’t open for another two days in America . . . . zzzzzzzzzzzzzz.

Meatspace markets won’t open for another 10 days in crypto-time!

Van Halen, M&Ms, And The Next Market Downturn

3-Sep-2017

Paying attention to the right indicators is key to future success.

This is especially true in the world of investing, where the better the indicators you use, the more accurate and informed your decision-making will be — and the better your returns will be.

And, of growing concern to us, more and more of the indicators we track are signalling a topping out of the financial markets and a decline of the US economy into recession.

Click here to read the full article

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