Monday, July 4, 2022

Market Report: Counter-trend decline

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by Alasdair Macleod, GoldMoney:

After the previous two-week rally, it was perhaps natural for precious metals to consolidate this week. Gold, which closed on a high note last Friday, lost $23 to $1281 by early European trade this morning (Friday), and silver 34 cents to $17.08. Trade on Comex was subdued, and the reason behind the pause appears to be a continuing rally in the dollar.

The dollar’s rally extending was always likely, given its decline since the start of the year. Essentially, it is a pause which reflects traders locking in profits. And when that process is over, the dollar’s downtrend is likely to resume.

There are two reasons for the dollar’s continuing weakness. Offshore demand for the dollar is set to deteriorate, as China continues to chip away at its status as the dominant settlement currency. Latest moves, which will culminate in the forthcoming introduction of a yuan for oil futures contract on the Shanghai Futures Exchange, strike at the heart of the dollar’s status. Indications are this contract will start trading next month, so that by the beginning of 2018 it should be reasonably established.

In time, this should mean that bank credit loaned offshore from America will contract, reflecting sales of surplus dollars. To the extent these sales are not neutralised through currency intervention by the authorities or the banks reducing their balance sheets, these surplus dollars will end up onshore, inflating domestic credit. The transfer from offshore to onshore is bound to undermine the dollar’s value.

The second reason for the dollar’s decline is China is likely to ramp up demand for industrial commodities, now this week’s Congress is out of the way. Domestically, America will face commodity-driven price inflation, as will everyone else. But having cut herself off from the Asian growth story, the US economy is set to be relatively weak. The Fed will be torn between retaining monetary stimulus and the need to contain price inflation. Real rates seem certain to become increasingly negative under these conditions, fuelling further dollar weakness.

The gold price is the other side of this coin. For the moment, the talk is of dollar interest rates rising, perhaps by another quarter point or so, followed by a further quarter point in due course. But how far can this process go, before the dollar debt mountain begins to slide into insolvency?

Markets are focused on the short term, not discounting the mounting dangers the dollar faces. That is bound to change, and the time scale may be tied to China’s plans to expand the number of yuan denominated futures contracts. There has been some talk that Iran, Russia and perhaps Venezuela will sell some of their yuan for gold, matching oil to gold through futures in Shanghai and Hong Kong. That would drive the gold price up, but the desire to buy gold with excess yuan is yet to be established.

Read More @ GoldMoney.com

The Big Short 2.0: The NAR Whiffed Badly This Month

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by Dave Kranzler, Investment Research Dynamics:

Based on the National Association of Realtor’s “Seasonally Adjusted” Annualized Rate (SAAR) metric, home sales were said to have ticked up 0.7{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in September from August. On a SAAR basis they declined 1.5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from September 2016.  In his customary effort to glaze the pig’s lips with lipstick, NAR chief “economist” and salesman, Larry Yun, asserted that sales would have been stronger but for the hurricanes that hit Florida and Texas.

This guy should do some better vetting of the data before he tries to spin a story. The Houston Association of Realtors was out a week earlier stating that Houston home sales were up 14{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in September from August and up 4.2{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from September 2016. Yun’s fairytale is a stunning contrast to what is being reported from Houston. But it illustrates the fact that the data on housing the NAR reports is highly suspect.

As I’ve been detailing for years, the NAR’s existing home sales report is highly manipulated and flawed.  It works well for the industry and the media in rising markets, but the real estate market has rolled over and is preparing to head south.  Likely rather quickly.  As it turns out, the September existing home sales report released Friday reinforces my view that the market is starting to topple over.  I go over the details in the next issue of the Short Seller’s Journal, with a couple examples which foreshadow a collapse in the over $1,000,000 price segment of the market.  This in turn will affect the entire market.  I always suspected that the “Big Short 2.0” would start at the high-end.  An example outside of Colorado can found here:  Greenwich Sales Plunge.

Read More @ InvestmentResearchDynamics.com

US Treasury Rates Hit Nine-Year Highs

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by Wolf Richter, Wolf Street:

But the yield spread collapses to lowest since early in the Financial Crisis. Even the Fed is worried.

Prices of US government bonds fell across the board on Friday, and their yields rose and set a number of nine-year highs, in some cases nine years to the day.

Many people have pointed at the Senate where the prospects of the tax cut are said to have “brightened” when the Senate approved a budget resolution. The tax cuts, if they make it, are said to lower government revenues by $1.5 trillion over 10 years. So maybe the bond market is starting to pay attention to government deficits and the national debt once again. But the bond market hasn’t paid attention in many, many years, and until the proof is in, I doubt it.

There are, however, other factors that predate Friday by many months. In fact, the moves in Treasury yields for maturities up to two years have been fairly consistent: yields have been surging.

On Friday, the three-month Treasury yield rose to 1.11{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, the highest since the brief spike around July 25, when the debt ceiling issue hit a speed bump. At the time the thinking was that in late September – when these securities would mature and the government would have to come up with the money to redeem them – the government might not be able to come up with enough money due to the debt ceiling. But this scare passed, the debt ceiling was extended temporarily, and the trajectory of the three-month yield returned to normal. Except for this spike, the three-month yield, at 1.11{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, is now at the highest level since October 20, 2008 (let’s remember that date, it keeps cropping up):

In 2013 through 2015, the 3-month yield bounced around at near zero, and actually hit 0{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} several times in October 2015, which was the low point. In December 2015, the Fed raised its target range for the federal funds rate for the first time since July 2006. By now, it has raised the target range three more times, and it will likely raise it again in December.

Read More @ WolfStreet.com

Keiser Report: ‘Luxury-priced’ Obamacare policy (E1139)

from RT:

In the second half, Max interviews independent journalist, Andrew Coffey (@coffeygrinds) about the latest in the alt-media market as demonetisations sweep the sector.

Russia Triples Gold Reserves In Preparation For Full-Scale Economic War With The United States

by Jay Syrmopoulos, Activist Post:

The Central Bank of Russia has more than doubled the pace of its gold purchases, and tripled its gold reserves—from around 600 tonnes to 1,800 tonnes—bringing its international gold reserves to the highest level since Putin became president 17 years ago, according to the World Gold Council.

The impetus for the massive increase in Russian gold reserves is their desire to break away from the hegemony of the U.S. petrodollar and dollar-based payment systems. Currently, over 60 percent of global reserves and 80 percent of global payments are denominated dollars, according to James Rickards, author of Currency Wars.

Additionally, the U.S. is the only country with veto power at the International Monetary Fund, known as the global lender of last resort. Thus, one of the most crucial weapons wielded by Russia, in its war to free itself from the hegemony of the petrodollar, is gold.

The reason gold is so critical is that it cannot be manipulated by U.S.-based economic warfare, as it cannot be frozen out as other forms of digital and paper fiat can be.

Gold can simply be loaded onto pallets and shipped to another state to make a payment, thus bypassing targeted economic sanctions that are often used by the United States as a means of attempting to force geopolitical compliance by Russia and other countries. The strategic significance of gold is so great, that even when oil prices and Russian financial reserves were collapsing in 2015, they continued to acquire gold.

In fact, during the second quarter of 2017, Russia accounted for 38 percent of all gold purchased by central banks. The massive increase in Russian gold reserves has taken place while simultaneously abstaining from purchasing foreign currency for more than two years.

Even as global demand for gold fell to a two-year low in the second quarter, Russia maintained its strong position due to gold being one of the most geopolitics-proof investments in the world. In a time of increased economic warfare, with the petrodollar being utilized as a weapon by the U.S., gold is a means of bypassing U.S. sanctions.

“Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.”

In addition to being the largest international purchaser of gold, Russia is also one of the three biggest gold producers in the world, as the Central Bank of Russia purchases gold from domestic mines using commercial banks and not in the open market.

Russia’s accelerated pace of gold bullion purchases began in 2007, with Russian gold holdings now having quadrupled to 1,556 tonnes at the end of June. In terms of total reserves, Russian now comes in just behind China and has more gold reserves than India, Mexico and Turkey combined, with a total of nearly $427 billion in reserves.

Additionally, Russia is simultaneously pursuing other strategic dollar alternatives besides gold. Russia and China have built a non-dollar payment system for regional trading partners.

Read More @ ActivistPost.com

Catalonia’s Political Crisis Snowballs into an Economic Crisis

by Don Quijones, Wolf Street:

Independence would be “horrific” and amount to “financial suicide,” said Spain’s Economy Minister. But financial suicide for whom?

It’s not easy being a Catalan bank these days. In the last few weeks the region’s two biggest lenders, Caixabank and Sabadell, have lost €9 billion of deposits as panicked customers in Catalonia have moved their money elsewhere. Many customers in other parts of Spain have also yanked their savings out of Catalan banks, but less out of fear than out of anger at the banks’ Catalan roots.

Moving their official company address to other parts of Spain last week may have helped ease that resentment, allowing the two banks to recoup some €2 billion of deposits. But the move has angered the roughly 2.5 million pro-independence supporters in Catalonia, many of whom have accounts at one of the two banks. Today they expressed that anger by withdrawing cash en masse.

Many protesters made symbolic withdrawals of €155 — a reference to Article 155 of the Spanish constitution, which Madrid activated today to impose direct rule over the semi-autonomous region. Others opted for €1,714 in a nod to the year 1714, when Barcelona was captured by the troops of King Felipe V, who then proceeded to suppress the rights of rebellious regions.

Some bank customers withdrew a lot more than that. The council of Argentona, a small town outside Barcelona, closed its accounts at Caixabank and Sabadell and transferred all €2.25 million of its funds to a branch of the Dutch lender Triodos. If other institutional or business customers follow Argentona’s example, Caixabank and Sabadell could have a big problem on their hands.

The fallout of political instability in Catalonia is being felt across the whole economy. Real estate investment in the region, both domestic and foreign, is drying up. Starwood European Real Estate Finance, the European subsidiary of the U.S. property giant Starwood Capital, has announced that it’s shifting its focus away not only from Catalonia but Spain as a whole, and toward more stable European markets.

It’s not just investments that have been put on hold. People are not spending much either. Important consumer purchases have been put on hold until some semblance of stability returns, and people are not going out as much as before. Based on my own observations, the bars are emptier and the streets are quieter.

Tourism to Catalonia, Spain’s most visited region last year, slumped by 15{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in the two weeks following the referendum on independence, according toindustry experts. Catalonia received about 18 million visitors last year, and tourism accounts for around 12{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the region’s GDP, with industry and trade as the other main contributors.

Those sectors are feeling the pinch too, partly due to the dark clouds of uncertainty and dread surrounding the region’s short-term future, but also as a result of a gathering boycott against Catalan products in other parts of Spain.

“There is a widespread rejection of Catalan products and more and more restaurants and supermarkets are changing the brands they offer,” says Bartomeu Servera, the president of a food and beverage trade association in the Balearic Islands. “It is especially noticeable in the drinks sector, but it affects all products that are identified with Catalonia.”

It’s not just Catalan companies that are being hurt. Many Catalan products include components and raw materials from other parts of Spain. A case in point is the Catalan ready-made pizza company, Tarradellas, which has been on the sharp end of the boycott for months. The tomato sauce it uses to top its pizzas is provided by Conesa, a tomato-processing company in Extremadura, an impoverished region on the border of Portugal in the South West of Spain.

Speaking to the Extremaduran newspaper Hoy Conesa’s Managing Director, Manuel Vázquez Calleja, warned that “by refusing to buy Catalan products such as those of food company Tarradellas, we could be shooting ourselves in the foot, as their pizzas are covered with our tomatoes… Probably the tuna they use comes from Galicia and the flour from Andalusia.”

This self-defeating pattern is a constant feature of the economic tug of war between Madrid and Catalonia — a war that began when Madrid seized full control of the accounts of Catalonia’s 298 regional public bodies in the wake of the banned referendum on Oct. 1. Shortly after that the Rajoy government passed a law making it much easier for Spanish companies to move their registered address.

The move helped spark a mass exodus as over a thousand Catalan-based businesses, including six of the seven firms listed on Spain’s benchmark index, the IBEX 35, opted to move their registered address outside Catalonia. The extent to which it was a voluntary move is debatable. Some companies, including Spain’s car manufacturer SEAT, have accused the Spanish government and King Felipe VI of pressuring them to leave the region.

On Thursday Spain’s Economy Minister, Luis de Guindos, raised the stakes even further, warning that the independence of Catalonia could spark a bank run in the region. Independence would be “horrific;” it would amount to “financial suicide,” he said.

But financial suicide for whom?

Read More @ WolfStreet.com

MARKETS… WE GOT TROUBLE: Debt & Brain-Dead Retail Investors Prop Up Stocks

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by Steve St. Angelo, SRSrocco:

As the Dow Jones Index hits another all-time high today, smart money is rushing to the exits.  You see, smart money knows when something is too good to be true.  Unfortunately for the retail investor who is suffering from acute BRAIN DAMAGE, they are doing quite the opposite.  As institutions sellout on each new market price rise, retail investors are happily buying… hand over fist.

And why shouldn’t they?  These are good times.  Well, maybe not for Americans living in Houston, parts of Florida, California or in Puerto Rico.  Whatever happened to the news on the massive flooding and hurricane damage in Houston, Florida and Puerto Rico?  I remember seeing videos of Miami Beach High-Rise Condos with seawater 5-8 feet surrounding the entire area.  Does anyone have an idea of what happens to electrical systems when salt water floods buildings?  It’s not good.

Regardless… the amount of destruction major U.S. cities have experienced in the past three months is like nothing we have witnessed before.  Regrettably, a lot of these homes and businesses will never be rebuilt.  Not only don’t we have the money to do it, more importantly, we also don’t have the available energy.  While the massive destruction by hurricanes, flooding and fire have not impacted the stock market currently, they will.

As I mentioned at the beginning of the article, retail investors are propping up the markets.  However, they aren’t the only ones, or should I say, the only factor in keeping the markets from falling off a cliff.  Thanks to Uncle Sam, total U.S. debt has increased by $590 billion in just the past month and a half.  Here is a table of U.S. debtfrom the data published by the fine folks at TreasuryDirect.gov:

The U.S. debt ceiling was finally breached on Sept 8th as the Treasury added another $318 billion of debt in one day.  Since that day, the U.S. debt has increased by another $271 billion.  The addition of debt to the U.S. Government balance sheet had a wonderful impact on the stock market:

You will notice that the Dow Jones Index was running along the 50 Month Moving Average (BLUEline).   Any breach below a crucial technical support line could force selling by traders.  But, when the U.S. Treasury added another $318 billion of debt on Sept 8th, this propelled the markets higher.  While I don’t pay much attention to technical analysis, many professional traders most certainly do.

Read More @ SRSrocco.com