- Volatility? Then there’s gold volatility
- Gulf expands between paper gold and the real thing
- Precious metals dealers are “stoked”
- Deadpan take on a dire economic indicator
- Jim Rickards on probability of a 2020 recession…
- … And 2020 election victor
- Mainstream wakes up to de-dollarization’s endgame
- The 5’s villain(s) of the day
- “Essential” small-business owner in Wisconsin… Laid-off in the Bay Area… Getting philosophical in Idaho… And more!
There’s volatility… and then there’s gold this morning.
“Trading has been wild Tuesday morning amid unconfirmed reports that London spot gold price quotes have become unreliable or have been pulled,” says a report from Kitco, “as U.K. market makers shut down due to the COVID-19 outbreak and the U.K. government ordering the country on lockdown.”
After a solid rally yesterday from $1,500 to $1,575… the price action has become juuust a little wild. At last check we’re at $1,614 and maybe things will stabilize a bit with trading in London now closed. Maybe.
The confusion has only made worse the disconnect between “paper gold” and the real thing.
“Traders have reported a growing global shortage of gold bars,” says the Financial Times, “as the coronavirus outbreak both disrupts supply and stokes demand, with one business comparing the frenzied buying of the yellow metal with the consumer rush for toilet roll.”
Three of Europe’s biggest precious-metals refineries are in Switzerland, near the Italian border; production is shut down for the moment. Abundance of caution and all that.
Last week we took note of a photo posted on Twitter from a storefront coin dealer selling U.S. Gold Eagles for $90 over spot.
Poking around online this morning, it appears that premium has blown out to nearly $200. At one popular dealer, you can only pre-order 1-ounce Eagles from a supply that won’t be available for three more days.
At our affiliated firm Hard Assets Alliance, supply remains available right now — and of course, Hard Assets Alliance offers among the lowest premiums in the business and the easiest website interface to navigate, bar none. (Yes, our firm bought a piece of the company last year, so we’ll collect a small cut if you open an account and buy. But we wouldn’t have made that deal unless we liked how they treated their customers to begin with.)
Stocks, you wonder? On a tear — even though Congress is no closer to a “stimulus package” than it was 24 hours ago.
An agreement is near… An agreement is not…
Then again, Boeing’s threat to suspend airliner production in metro Seattle could be concentrating the minds of congresscritters; Boeing management might not know how to build airplanes that stay in the sky, but they know how to game the system very well, thank you.
BA is up 15% at last check, and that’s helping lift the Dow nearly 8%, or 1,500 points — back above the 20,000 level.
Volatility as measured by the VIX is down to a calm-by-recent-standards 54 — the lowest in nearly two weeks.
The biggest so-far-in-March economic indicator is in — and it’s pretty awful.
This is the “flash PMI” indicator. Numbers above 50 indicate growth; below 50, contraction. The manufacturing number rang in way better than expected at 49.2 (which is still the weakest reading since 2009). But services sank to — gulp — 39.1.
Put the two numbers together and the composite figure comes out to 40.5. That’s lower than the lowest guess among dozens of economists polled by Econoday, prompting the firm to issue this deadpan summary conclusion: “The economy likely entered a recession during the month of March.”
If not now, then soon: Jim Rickards has upped his 2020 recession probabilities in the last week from 50% to 100% — which has prompted him to update his 2020 election models.
“Until about six weeks ago, my models were giving Trump a 74% chance of winning. This was based largely (not exclusively) on the odds of a recession before the election. Trump’s odds were the inverse of the recession odds.”
No more. “Since a recession is now a 100% chance, I have reset the odds between Trump and Biden at 50/50 and will update from there based on new data.
“The election is still over seven months away. But it’s not too soon for investors to contemplate the impact that a President Biden might have on their portfolios.”
The financial fallout from the coronavirus might accelerate the process of “de-dollarization” we’ve been chronicling for the last six years.
The currency markets have been just as volatile as other asset classes in recent weeks — maybe more. The beneficiary has been the U.S. dollar, as seen here on the “trade-weighted dollar index” — which measures the greenback against a basket of more than two dozen foreign currencies.
That’s a reflection of the mad scramble for dollars — the “dollar shortage” we mentioned here last week. There’s an insane amount of dollar-denominated debt overseas, and a rising dollar makes that debt harder to service. That’s why the Federal Reserve has opened “swap lines” with other central banks to stop the bleeding for now.
But longer term, the current crisis is sure to turn the rest of the world off dollar dependence. Even the mainstream is slowly waking up.
“The financial system’s reliance on one keystone currency proved to be an amplifier of shocks more than a decade ago [during the Panic of 2008],” says a Bloomberg article. “Yet since then, the greenback’s role has climbed even further as borrowers outside of America ramped up dollar-denominated debt. That’s again adding an enormous layer of stress on markets.”
Bloomberg cites Cornell professor Eswar Prasad, formerly a bigwig at the International Monetary Fund: “The dollar’s surge will renew calls for a shift from a dollar-centric global financial system. But the pandemic has also fractured global governance, making it harder to envision the G20 devising a viable alternative.”
The article suggests China’s yuan is emerging from the current crisis as one of the strongest currencies on the planet — right up there with the dollar. Granted, it’s not very liquid and it still doesn’t trade freely, but the article describes the yuan as “an anchor of relative stability.”
The endgame — not described by Bloomberg, but anticipated by us for years now — is a system that ends the dollar’s global reserve-currency status. Our Jim Rickards sees China, Russia and Iran teaming up on “a robust multilateral payments system that is free of hacking, tracking or interdiction by the U.S., and free of U.S. dollars.
“This gold-based payments system will dilute and ultimately eliminate the impact of U.S. dollar-based sanctions.”
The Federal Reserve’s rescue of money market funds isn’t enough for two funds run by Goldman Sachs.
“Goldman Sachs Group Inc. poured more than $1 billion into two of its prime money market portfolios this week due to heavy investor withdrawals,” says the Reuters newswire, citing a filing with the SEC.
Investors pulled $8.1 billion over four days from the Goldman Sachs Financial Square Money Market Fund and the Goldman Sachs Fund Square Prime Obligations Fund.
We’ll reiterate our guidance from last week (all the way back to 2012, really): If you need to park cash in a money market fund, make sure it holds only U.S. Treasury bills.
We’re still not ready to let go of the congressional insider-trading scandal.
As noted here yesterday, the story got buried as soon as it turned out members of both major parties were doing it — i.e., the current and former chairs of the Senate Intelligence Committee.
But wait — there’s more!
For the moment we give the last word to Rep. Matt Gaetz (R-Florida) — one of the few members of Congress we don’t totally despise. There’s a bit of assumed knowledge here, but you should get the gist…
On to a full mailbag after we asked for your frontline dispatches from the Main Street economy…
“I am an independent bicycle and skateboard retailer in southern Wisconsin,” reads our first entry. “Tuesday our governor has asked everyone but essential businesses to close. We are considered an essential business because we repair bikes.
“I am glad to have this designation because I really don't have a choice. My wife and I opted out of paying unemployment taxes years ago, so we can't collect unemployment checks. I am my landlord, so I have to pay rent because I have a mortgage on the building that I had to take out in 2010 to stay in business during that recession.
“I am in my 39th year in business and 68 years old, ready to find a buyer and retire, not ready to take out another loan. We employ six full-time workers. If we as a country don't figure out a balance and get the country back to work, there are thousands of businesses like mine that will just disappear, leaving the longest trail of bankruptcy this country has ever seen. Loans won't work if there is no cash flow.”
“I'm probably not a typical reader at The 5; I'm 27 and work as a busser/dishwasher in the Bay Area. I don't have much in the way of investments, and to be totally honest I have no idea how I ever got onto The 5's mailing list, but I'm glad I did.
“The bakery I work at is still open with a skeleton crew for takeout orders, but hours are slashed across the board and many people have been effectively laid off until further notice, myself included. The sharp downturn in employment I am witnessing for my generation is unlike anything I have ever seen.”
[This reader also had some intriguing thoughts about cryptocurrency, but we want to keep things moving for our 5 Mins. today. Perhaps later this week…]
“Life goes on,” writes one of the many Californians who’ve taken refuge in Idaho.
“After I retired and my wife died and my last kid left the nest (about nine years ago), I decided I should not just get a bug-out place but bug out permanently. So I left California after 25 years for a sane, lightly populated, conservative state. Even dogs like it better here.
“Nothing much has changed here since then, or since the coronavirus. My family and I had planned a mini-reunion at my place a couple of months ago, and last week the California contingent drove up, and the Alabama gang flew in. We had a fun week together, including a birthday dinner Thursday at a good local restaurant for nine of us. During our party, the governor and his wife and another couple came in for dinner and were seated across the aisle from us.
“Everything was normal until Friday a.m. when I took the Alabama gang to the airport for their flight home. After dropping them at the airport, I tried to enter a McDonald's to grab a sausage biscuit and a senior coffee and found that the leftist local mayor had ordered all restaurants shut down despite the fact that our state was reporting fewer than 50 COVID cases, with the biggest group of those being in a liberal recreational enclave on the other side of the state.
“So I went home, and 30 minutes later life had returned to normal. There was nary a liberal political hysteric in sight, the sun was bright and the day was warming. It's time to start breaking ground for this year's potato crop.”
“Disgusting” says a cri de coeur from one of our longtimers — after yesterday’s laundry list of outrages perpetrated by politicians and central bankers.
“As long as we the people remain fighting with each other, and blaming the other party as the problem, nothing will change for the better — only for the upper 1% who have designed, legislated and run the system for their benefit.
“Both parties have shared power for the past century and both have led us to where we are, the brink.
“Congress, and all of their minions who live high while looking down their nose at the 99%, will only change and become terrified of we the people if we do one thing: stop fighting with each other and direct our ire at them.
“As long as we are divided against each other, we will continue to suffer and they will continue to live large off of us.
“But I don’t see it happening. They have us so walled off into our tribes we never think to hold them accountable.
“We the people get what we deserve, and unfortunately they will once again turn us against each other, possibly in violence this time, while they have parties and laugh at us behind their gated and guarded walls.
The 5 Min. Forecast
P.S. Amid still-elevated levels of volatility, we want to draw your attention to a unique and profitable trading strategy.
We can’t keep the doors open indefinitely, though. For reasons you’ll understand when you click, this link will go dead at midnight tonight.
Investing legend Jeremy Grantham says: “The thing about a bubble… it can keep going.” Read More
The Federal Reserve’s twice-yearly Financial Stability Report whistled past the graveyard where Archegos Capital Management will soon be interred. Read More
“While China may be the leader in the race to build central bank digital currency (CBDC),” says Jim Rickards, “the Fed has not been caught napping…” Read More
The Central Bank of Russia has been loading up on gold for years. “No one plays the gold market better,” observes Jim Rickards. Read More
If China forces Taiwan reunification, is the U.S. ready to go to war with China? Read More
The mainstream is finally recognizing that a new era of the mom and pop investor has arrived. Read More
“Financial technology (FinTech) — along with some good old-fashioned creativity — has opened an elite market to the masses,” says Zach Scheidt. Read More
“Even prior to COVID, moving to the suburbs seemed to make economic sense relative to higher city prices,” says former Wall Street banker Dr. Nomi Prins. Read More
As the number of American companies dwindles, George Gilder says: “Now [investors] have to find where the new value is really being generated.” Read More
If the mainstream insists on beating this 1999 theme to death, we’ll insist on continuing to push back against it… Read More