Monday, April 22, 2019

Time to Get Defensive If You’re in the Stock Market

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by Mike Gleason, Money Metals:

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

Coming up we’ll welcome back our good friend David Morgan of the The Morgan Report. David has some interesting things to say about the dollar, shares his research on the inverse correlation between stocks and metals and gives us his thoughts on when he expects to see gold and silver finally breakout. Don’t miss another wonderful interview with the Silver Guru, David Morgan, coming up after this week’s market update.

As trading for the third quarter winds down today, investors should prepare to face some new headwinds in the fourth quarter.

Beginning in October, the Federal Reserve will engage in so-called Quantitative Tightening. The Fed will allow some of its bond holdings to leave its balance sheet as they mature.

It may not sound too dramatic. But over the next year hundreds of billions of dollars will effectively be pulled out of the financial system. That could have dramatic consequences.

Nobody knows for sure what level of stimulus withdrawal will finally cause the stock market to break down from its long uptrend. But there’s no doubt that Fed stimulus has been a big contributor to its rise since 2009. Take away the punch bowl and the party can’t be expected to last much longer.

The S&P 500 index did close Thursday at yet another slight new record high. So in spite of the coming threats of Quantitative Tightening and a likely rate hike in December, stock market investors are as complacent as ever.

They will eventually pay a price for their complacency. Bull market gains that take years to accumulate can be wiped out in a fraction of that time during a stock market crash.

Major crashes tend to occur every few years. The last one was the financial crisis of 2008. Before that we had the tech wreck of 2002. In 1998, long-term capital management triggered a mini crash that nearly got out of hand. And of course in October 1987, the market crashed seemingly in an instant, without warning or reason.

It’s prudent to get defensive in your investments, even if you’re too early. Better to miss out on a few more points of upside in an overextended market than to be caught unprepared and undiversified when it finally takes a big plunge.

Plus, when you diversify into alternative assets such as physical precious metals, you aren’t just sitting on the sidelines. You are invested in markets that have tremendous upside potential in their own right, regardless of which direction the stock market heads. On that note, be sure to stick around for my interview with David Morgan coming up shortly as he will shed some light on what happens to metals when we get those corrections in the equity markets.

Over the past three weeks, metals markets have pulled back. Gold prices currently check in at $1,285 per ounce, down 1.0{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} for the week. Silver shows a weekly drop of 1.2{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to bring spot prices to $16.84. Platinum is down 1.7{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to trade at $921, while palladium is up 1.4{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to $938 an ounce as of this Friday morning recording.

Yes, this week the per ounce price of palladium surpassed platinum for the first time in 16 years. Congratulations to Money Metals writer and regular podcast guest David Smith, who predicted palladium would return to a 1:1 ratio with platinum way back when palladium was trading at about half the price of its sister metal.

It remains to be seen if platinum will return to a 1:1 ratio with gold and eventually get back to a more historically normal premium. Platinum prices have traded at a discount to gold for going on three years now. That’s very abnormal and David Morgan will have some comments on that as well in my interview with him this week.

We can’t rule out the possibility that platinum may be down for the count, never to return to its glory days. But it’s probably still too early to bet against several decades of cyclical history.

Silver bugs might argue that even if platinum prices recover to historic norms, silver has superior upside potential and has more utility as money. They have a point. Silver is a money metal while platinum and palladium are niche industrial metals used mostly in the automotive industry.

We have always urged precious metals investors to first acquire a foundational position in gold and silverbullion before venturing into platinum or more speculative metals such as rhodium. There’s a time and a place in life for speculation, whether in metals or in stocks. But there’s never a good time to completely abandon a long-term diversified investment strategy in favor of chasing a hot market.

Regardless of what October and the rest of the fourth quarter bring, don’t let market movements tempt you out, or scare you out, of your core positions.

Read More @ MoneyMetals.com

Thoughtful Disagreement with Ted Butler

by Keith Weiner, SilverSeek:

Dear Mr. Butler:

In your article of 2 October, entitled Thoughtful Disagreement, you say, “someone will come up with the thoughtful disagreement that makes the body of my premise invalid or the price of silver will validate the premise by exploding.” I will take you up on your request.

You state your case in this paragraph:

“Here are the issues. Silver (and gold) prices are set by paper dealings on the COMEX by a few large speculators (banks and managed money traders), to the exclusion of input from real producers and consumers, making the price discovery process and the resultant price artificial. For the past nearly ten years, CFTC data have indicated that JPMorgan has been the dominant paper silver short seller, along with a few other large banks and as a result of that dominance and control none have ever taken a loss when adding short positions. In addition, for the past six and a half years, JPMorgan has accumulated a massive amount of actual silver (650 million oz) at rock-bottom and self-created depressed prices, all while never taking a loss while shorting silver on the COMEX.”

In other words, the four issues are:

1)   the price of silver is set exclusively in the futures market (throughout my article, I will refer to silver but what I say is equally applicable to gold also)

2)   JP Morgan and the banks are speculators

3)   the largest speculator has never taken a loss

4)   JP Morgan has accumulated a large amount of metal, as opposed to paper.

Let me first address #3. The others are all integral and I will respond to them at length below.

When I was about 12, I spent every waking moment teaching myself to program computers. I had this brilliant idea, or so I thought, for how to beat the casino at roulette. Bet $1 on red. If you win, take the profit off the table and bet $1 again. If you lose, bet $2. If you win, you’re even and go back to a $1 bet. If you lose, double again to $4 and so on. The magic is due to the fact that a string of losses becomes more and more improbable the longer it gets.

So I wrote a little program to test this scheme. After hundreds or thousands of iterations, you would lose your entire stake. I checked everything; there was no bug in the code. So what caused the losses?

Roulette has a 0 and a 00. These numbers are neither red, nor black. The probability of winning a bet on red (or black) is less than 50{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, but the payout is only 1 to 1.

It doesn’t matter how big a stake you bring to the table (though larger takes longer). Betting on roulette will wipe you out eventually.

You might be wondering, what does this have to do with JP Morgan being so big that it need never take losses in silver? The principle is the same. If the bank was net short from Nov 2008 (when you said they became “the new Mr. Big on the short side of silver” after their takeover of Bear Stearns) through April 2011, then it was on the wrong side of a market that moved from $8.30 to $49.80. There is no protection for the big, the medium, or the small. Betting wrong brings losses to anyone.

If the argument is that JP Morgan is so big, that it could just short more silver then I have two responses First, please read the above roulette story. Second, the price of silver did go up more than $40. Whatever hypothetical power the bank is supposed to possess, it did not in fact stop the price from rising almost six-fold.

If the argument is that JP Morgan did take a loss, but doesn’t have to report it, then let me just note that a bank that big has many people who know its silver position: traders, accountants, internal and external auditors, directors, regulators, etc. Over a period of years, this must add up to hundreds of people who would be risking their careers and liberty to commit fraud by signing off on financial statements showing a profit in such case of loss.

Whatever is going on in silver, I would bet an ounce of fine gold against a soggy dollar bill that no bank is committing such a fraud, marking trading losses as gains.

The answer why JP Morgan has never taken a loss, and the other three issues also, is simply: the banks are not speculators, but arbitragers. Allow me to give a brief outline of my theory of the market, and by the end it will be clear why I say they are arbitragers.

Read More @ SilverSeek.com

 

Not All Hard Assets Are Created Equal – Jeff Nielson

by Jeff Nielson, Sprott Money:

A familiar refrain in many previous commentaries is that fiat currencies – especially Western fiat currencies – are fundamentally worthless . These currencies are backed by nothing, the definition of a fiat currency.

Typically, these currencies have been borrowed into existence. This makes such notes de facto IOU’s of our governments. However, Western governments are bankrupt. Their currency IOU’s are just as void of value as their bonds. Compounding this fundamental worthlessness, these Western currencies (especially the U.S. dollar) have been conjured into existence in unprecedented quantities in recent years.

Denominated in these worthless currencies, the “price” of any hard asset is effectively infinite. Why have the exchange rates of these various forms of worthless paper not already priced in this worthlessness?

There is a general answer and a specific to this question. The general answer goes as follows. The plunge of a currency to worthlessness is almost always “a confidence event”. What does this mean?

It means that such fiat currencies almost always become worthless from a fundamental perspective well before the official exchange rate descends to zero. The reason for this is quite simple.

A currency that has been in use for a significant period of time acquires the faith of the population that uses it. Few members of any population have the economic savvy to understand when a currency has become worthless from a monetary standpoint. Thus there is a honeymoon period.

A currency continues to have a relatively normal exchange rate even after it is fundamentally worthless because it still enjoys the confidence of that population. At some point (generally when the currency becomes even more extremely diluted), the population realizes that their currency has been debauched.

The paper loses the confidence of that population, and the descent in the exchange rate to near-zero quickly follows. We are currently in this “honeymoon period” with Western fiat currencies. They are fundamentally worthless, but very few people are aware of this.

There is also a second, specific reason why these various forms of worthless paper have not already begun their final death-spiral. The banking crime syndicate, better known as the One Bank , uses this paper to fund its criminal operations.

It has a very, very strong motive to delay this final death spiral. It has two powerful tools that it uses to extend this delay: propaganda and currency manipulation .

The propaganda is as constant as it is absurd. The central bankers (and their media lackeys) pretend there is no connection between the increase in supply of these currencies and the decrease in their value – the basic fundamentals of supply and demand.

In the fantasy world of Western central banks, the concept of dilution essentially does not exist. The laughable propaganda goes as follows.

With their reckless money-printing, these central bank charlatans are “trying” to create inflation (i.e. reduce the value of these currencies) but supposedly failing to do so. It’s the equivalent of a magical lemonade stand, where no matter how much water is added to the lemonade it cannot be diluted – it remains as strong as ever.

The other tool that the banking crime syndicate uses to delay the end of, in particular, the U.S. dollar is currency manipulation. The Big Bank tentacles of the One Bank have been criminally convicted of manipulating all of the world’s currencies.

With a potent propaganda machine, near-omnipotence in manipulating markets, and no meaningful law enforcement, the One Bank has added extra years to the life of its fraudulent fiat currencies. But their days are numbered.

What then?

All hard assets would have an effective “price” of infinity denominated in the various forms of this worthless paper. In that scenario, readers have asked: why should they be giving preference (now) to holding gold and silver?

It is because all of these hard assets are not equal. They are not equal in absolute value. Perhaps more importantly, as the bankers have manipulated most of our markets, prices have become severely skewed. The relative value of various hard assets has become even more unequal.

In terms of absolute value, gold and silver are “precious” metals. Silver, in fact, is even more aesthetically brilliant than gold. This means that when the fiat paper goes to zero, these are assets which (historically) are always valued highly.

However, the real reason why people should gravitate towards these assets is relative value. Many readers know that in monetary terms, gold and silver are “canaries in the coal mine”. They are supposed to alert us to precisely the sort of currency debauchment that has swept the Western world.

As a further means of delaying the end of this fraudulent paper, the One Bank has made the price suppression of precious metals one of its overriding obsessions. The price of gold has been held to a small fraction of its real value in order to make the bankers’ fiat paper appear to have retained its worth.

The price of silver has been suppressed even more ruthlessly. In real dollars, it was driven to a 600-year low, and has effectively remained at that level. Compare the relative value of these hard assets with real estate.

Year after year of near-zero interest rates has fueled real estate bubbles of unprecedented proportions across major urban centers. In relative terms, real estate has never been more expensive. Real estate is theworst place to attempt to shelter our wealth as we flee the bankers’ paper currencies.

Various other classes of hard assets fall somewhere in between these two extremes. Almost all commodities are at relatively depressed levels. Soaring commodity prices are a secondary warning of imminent hyperinflation, so the bankers have suppressed most commodity markets.

This may confuse the issue in the minds of some. If all commodities are suppressed, then any commodity becomes a suitable haven for our wealth as we flee fiat currencies. Not so.

Read More @ SprottMoney.com

Catalonia Chaos Begins to Squeeze Spain’s Financial Markets

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by Don Quijones, Wolf Street:

Bank shares plunge. Money is already on the move.

Spain’s biggest political crisis of a generation, which has led to the complete breakdown of communication and understanding between its government in Madrid and the separatist region of Catalonia, is finally beginning to take its toll on the country’s financial markets.

Spain’s benchmark index, the Ibex 35, slumped nearly 3{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} following its worst day of trading since the Brexit vote last June. Spain’s 10-year risk premium — the differential between the yield on its 10-year bonds and the yield on Germany’s 10-year bonds — soared to 129 basis points. And that’s despite the fact that the ECB continues to buy Spanish debt hand over fist.

But it is the banks that have borne the brunt of the pain this week. On Monday, the first trading day after the independence referendum, they lost €4.84 billion in market value. Over the past five trading days, shares of the two biggest Catalan-based banks, Caixabank and Banco de Sabadell, have plunged respectively, 9{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} and 13{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

So tense is the situation that the CEOs of each bank felt compelled to release a statement today reassuring customers that they have all the means and tools necessary to protect their interests. Their contingency plans include the option of abandoning their base of operations in Catalonia and moving elsewhere — to Madrid in the case of Sabadell and Mallorca in the case of Caixabank.

But it wasn’t just Catalan banks that were caught up in today’s rout. Important Spanish banks with somewhat less exposure to Catalonia also saw their shares plunge. Santander, Spain’s only global systemically important bank, was down 3.8{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} on the day’s trading; BBVA, Spain’s second bank which has important operations in Catalonia after acquiring the failed saving bank Catalunya Caixa in 2015, fell 3.6{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}; and Bankia was also down 3.6{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

Standard & Poor’s today put Catalonia’s credit rating — at B+/B, it’s already deep into junk — on review for a downgrade of one notch or more, “if we believed that escalating political tensions between Catalonia’s government and Spain’s central government could put in question the full and timely refinancing of Catalonia’s short-term debt instruments or undermine the effectiveness of the central government’s financial support to Catalonia.” The threat of default moves a step closer.

Two days ago, Moody’s warned that the ratcheting-up of tensions between Spain and Catalonia has negative credit implications for Spain because it complicates the process of legislating policy and putting together its 2018 budget‍.

It may have taken a long time, but investors are finally beginning to sit up and take notice of the events unfolding in Catalonia. As I reported yesterday, neither side of this conflict is showing any willingness to deescalate tensions.

The King of Spain, Felipe VI, speaking in a televised address on Tuesday night admonished the Catalan government for its “inadmissible disloyalty” and called on the Spanish state to restore constitutional order. Not once did he mention the word “dialogue” or the hundreds of people injured in the Spanish police raids on voting stations on Sunday.

In Brussels today the first Vice-President of the European Commission, Frans Timmermans, categorically ruled out the possibility of the EU playing a mediating role in the dispute. He also defended Rajoy’s use of rough justice on Sunday, arguing that every government has an obligation to uphold the rule of law and (pay close attention, EU citizens) “that can sometimes require the proportional use of force.”

At any moment Rajoy, with the King’s explicit support, could activate article 155 of Spain’s constitution, which would allow the central government to force the Catalan government to obey the laws of Spain. To that end, the Rajoy administration dispatched two military convoys to Barcelona today to beef up its coercive capabilities in the city as well as provide logistic support to the Civil Guard and National Police based there.

In other words, the markets are right to be jittery.

Read More @ WolfStreet.com

SPAIN TO DECLARE THEIR INDEPENDENCE ON MONDAY

from Harvey Organ, Harvey Organ Blog:

TRUMP STATES THAT BONDHOLDERS OF PUERTO RICO BONDS WILL BE WIPED OUT/GOLD AND SILVER HOLD

GOLD: $1272.10 UP   $0.10

Silver: $16.60  DOWN 1 CENT(S)

Closing access prices:

Gold $1274.80

silver: $16.61

SHANGHAI GOLD FIX:  FIRST FIX  10 15 PM EST  (2:15 SHANGHAI LOCAL TIME)

SECOND FIX:  2:15 AM EST  (6:15 SHANGHAI LOCAL TIME)

SHANGHAI FIRST GOLD FIX: $n/a DOLLARS PER OZ

NY PRICE OF GOLD AT EXACT SAME TIME:  $n/a

PREMIUM FIRST FIX:  $8.24 (premiums getting larger)

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SECOND SHANGHAI GOLD FIX: $n/a

NY GOLD PRICE AT THE EXACT SAME TIME: $/na

Premium of Shanghai 2nd fix/NY:$13.00 (PREMIUMS GETTING LARGER)  

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LONDON FIRST GOLD FIX:  5:30 am est  $not important

NY PRICING AT THE EXACT SAME TIME: $not important

LONDON SECOND GOLD FIX  10 AM: $1283.10

NY PRICING AT THE EXACT SAME TIME. 1283.10

For comex gold:

OCTOBER/

NOTICES FILINGS TODAY FOR SEPT CONTRACT MONTH: 75 NOTICE(S) FOR  7500  OZ.

TOTAL NOTICES SO FAR: 2115 FOR 211,500 OZ  (6.5785 TONNES)

For silver:

OCTOBER

 

 23 NOTICES FILED TODAY FOR

 

115,000  OZ/

Total number of notices filed so far this month: 316 for 1,695,000 oz

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

 

end

Let us have a look at the data for today

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In silver, the total open interest SURPRISINGLY ROSE BY  285 contracts from  183,209  UP TO 183,494   WITH RESPECT TO YESTERDAY’S TRADING (UP  1 CENT ). THE CROOKS TRIED TO COVER AS MUCH OF THEIR SILVER SHORTS AS POSSIBLE BUT IT LOOKS LIKE THEY FAILED AGAIN

RESULT: A SMALL SIZED RISE IN OI COMEX  WITH THE  1 CENT PRICE RISE AND CONSTANT TORMENT. IT SURE LOOKS LIKE OUR BANKERS FAILED AGAIN IN THEIR ATTEMPT TO COVER THEIR MASSIVE SILVER SHORTFALL

 In ounces, the OI is still represented by just UNDER 1 BILLION oz i.e.  0.915 BILLION TO BE EXACT or 131{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of annual global silver production (ex Russia & ex China).

FOR THE NEW FRONT OCT MONTH/ THEY FILED: 19 NOTICE(S) FOR 95,000OZ OF SILVER.

In gold, the open interest FELL BY A  MUCH LARGER THAN EXPECTED 5604 CONTRACTS WITH THE FALL in price of gold ($2.75 ) .  The new OI for the gold complex rests at 525,127. WEHAVE NOW ENTERED GOLDEN WEEK (ONE WEEK OF CHINESE HOLIDAY)..SO EXPECT TORMENT FOR THE REST OF THE WEEK AS THE CROOKS DO NOT HAVE TO WORRY ABOUT PHYSICAL DELIVERIES FOR A WEEK. OUR BANKER FRIENDS WERE QUITE SUCCESSFUL IN COVERING MORE OF THEIR GOLD SHORTS.

 

Result: A GOOD SIZED DECREASE IN OI WITH THEFALL IN PRICE IN GOLD ($2.75) 

we had: 75 notice(s) filed upon for 7,500 oz of gold.

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With respect to our two criminal funds, the GLD and the SLV:

GLD:   

Tonight , NO CHANGES  in gold inventory at the GLD

Inventory rests tonight: 854.30 tonnes.

SLV

Today:  NO changes in inventory:

INVENTORY RESTS AT 326.615 MILLION OZ

 

end

.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver SURPRISINGLY ROSE BY 285 contracts from 183,209  UP TO 183,2494(AND now A LITTLE CLOSER TO THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787) . IT  SEEMS THAT  OUR BANKERS WERE AGAIN UNSUCCESSFUL IN COVERING THEIR  SILVER SHORTS.  WITH GOLDEN WEEK IN CHINA, EXPECT THE BANKERS TO HAVE CONSTANT TORMENT THROUGH THIS COMING WEEK AS THEY TRY AND COVER AS MANY AS POSSIBLE OF THEIR SILVER/GOLD SHORTS.

RESULT:  A SMALL SIZED INCREASE IN SILVER OI  AT THE COMEX WITH THE RISE IN PRICE OF 1 CENT IN YESTERDAY’S TRADING. EXPECT CONSTANT TORMENT FOR THE REST OF THE WEEK. OUR BANKER FRIENDS WERE UNSUCCESSFUL IN THEIR ATTEMPT TO COVER ANY OF OUR SILVER SHORTS

(report Harvey)

.

2.a) The Shanghai and London gold fix report

(Harvey)

 

2 b) Gold/silver trading overnight Europe, Goldcore

(Mark O’Byrne/zerohedge

and in NY:  Bloomberg

3. ASIAN AFFAIRS

i)Late TUESDAY night/WEDNESDAY morning: Shanghai closed /Hang Sang CLOSED / The Nikkei closed UP 12.59 POINTS OR 0.03{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}/Australia’s all ordinaires CLOSED DOWN 0.77{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}/Chinese yuan (ONSHORE) closed/Oil DOWN to 50.26 dollars per barrel for WTI and 55.86 for Brent. Stocks in Europe OPENED RED EXCEPT GERMANY .  ALL YUAN FIXINGS CLOSED

Read More @ HarveyOrganBlog.com

Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds as Trump Says It Will Be Wiped Out

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by Pam Martens and Russ Martens, WallStOnParade:

There was likely a collective gasp at OppenheimerFunds Inc. yesterday when President Donald Trump made another of those market-moving pronouncements, telling Fox News that Puerto Rico’s debt would have to be wiped out. The President’s remarks suggested he thought the losers would be Wall Street banks. The President stated: “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.”

The reality is that a large percentage of Puerto Rico’s debt is held in tax-free municipal bonds and municipal bond mutual funds, owned not by Wall Street banks or tycoons, but by mom and pop investors seeking tax-free income. (As a result of Congressional legislation, the interest on municipal bonds issued by the Commonwealth of Puerto Rico, its political subdivisions and public corporations, is not subject to Federal, state or local taxes. This has made the individual bonds and mutual funds particularly attractive in places like New York City and to residents of New York counties with high local taxes.)

According to a semi-annual report made last month at the Securities and Exchange Commission, Oppenheimer Rochester Fund Municipals, a popular tax-free fund held by many New York investors, was sitting on a boatload of Puerto Rico municipal bonds as of June 30, 2017. The SEC filing shows over 100 different Puerto Rico bonds, issued by the Commonwealth and numerous other Puerto Rico issuers like the Puerto Rico Electric Power Authority and the Puerto Rico Sales Tax Financing Corp. (The fund, of course, holds a widely diversified portfolio of other bonds as well.)

In July, Reuters reported that Oppenheimer’s various tax-free mutual funds had the largest mutual fund holdings of Puerto Rico bonds as of April 30, totaling a whopping $7.3 billion face amount. According to Oppenheimer’s September SEC filings reviewed by Wall Street On Parade this morning, most of that debt is trading at a large discount to the face amount and the values, reported as of June 30, 2017 to the SEC, do not reflect the new market lows experienced by the bonds since Hurricane Maria made a direct hit to Puerto Rico in late September. (Reuters reported that the second largest mutual fund holder of Puerto Rico debt as of April 30 was Franklin funds, which also provides popular tax-free funds to mom and pop investors. Franklin was reported to be holding approximately $3 billion face amount of Puerto Rico bonds.)

In its September SEC filing, OppenheimerFunds notes that it has set up a special web section to provide updates on the situation with its Puerto Rico bond holdings. (See hereand here.) Tellingly, those web pages have not been updated since the devastation from Hurricane Maria occurred, suggesting OppenheimerFunds understands it’s now in uncharted waters. What it had said before the hurricane hit was as follows:

“Securities issued in Puerto Rico have historically helped Oppenheimer Rochester deliver high levels of tax-free income to the shareholders in many of our 20 muni bond funds. Our funds hold a large and diverse set of bonds from Puerto Rico, many of which offer very attractive yields and all of which are exempt from federal, state and local income taxes for individual investors.

Read More @ WallStOnParade.com

3 Uncommon Signs that an Economic Collapse Could Happen Soon

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from Birch Gold:

As stocks continue to climb and the U.S. economy sustains its third longest period of expansion in history, market forecasters are seeking clues for when our next crisis may strike. So far, three uncommon signals have them worried.

Here’s an explanation of the three uncommon signs causing alarm, and what they mean for your savings…

Sign #1: Resurgence of Synthetic CDOs

The riskiest plays on Wall Street are made using financial instruments known as derivatives.

Derivatives are named for how they “derive” their value from the underlying assets on which they’re based. They give investors the ability to leverage assets — that is, control large quantities of an asset without actually buying or selling it.

Depending on how the underlying asset performs, derivatives can generate either massive gains or crushing losses.

But it’s when big banks and financial institutions start gambling in derivatives that things become especially dangerous. And that’s exactly what happened in the case of our last crisis: A slew of “too big to fail” organizations took on excessive risk through derivatives (mortgage-backed securities and others), and they couldn’t shoulder their losses when the bets went bad.

Now one of the most potentially destructive derivatives is regaining popularity after being shunned by Wall Street for years because of its role in the 2008 collapse.

The derivative is called a synthetic collateralized debt obligation (CDO), and Citigroup is spearheading its resurgence.

Granted, post-2008 regulations do make the market for these kinds of derivatives less liable to spark another collapse, and Citigroup executives claim to be pursuing this endeavor responsibly (we can trust them, right?). But Bloomberg reports the positive trend toward CDOs is still a negative sign (emphasis ours):

This time, Citigroup says, it’s doing things differently. The deals are tailored in a way that insulates it from any losses, while giving yield-starved buyers a chance to reap returns of 20 percent or more. The market today is also just a fraction of its size before the crisis, and few see corporate defaults surging any time soon. But as years of rock-bottom interest rates have pushed investors toward riskier products, the revival of synthetic CDOs may be one of the clearest signs yet of froth in the credit markets.

Pay very close attention to that last sentence. In essence, it’s saying that today’s low yield environment is slowly pushing investors to engage in increasingly risky behavior to make satisfactory returns. Eventually, those risks get too big — just like they did in 2008 — and the whole house of cards comes toppling down.

Sign #2: Lenders Loosening Mortgage Standards

When banks lend money to people who can’t pay it back, bad things happen. It’s called “reckless lending” for a reason. And on a large enough scale, reckless lending can be a strong catalyst for systemic financial crisis.

So what encourages banks to practice reckless lending in the first place?

Well, there are two main incentives for banks to lend recklessly:

  1. Increasing competition from other banks, and…
  2. Decreasing demand for credit.

In the case of our last crisis, both of those incentives came into play.

The mortgage lending sector transformed from a duopoly into a tightly competitive market of various lenders, which drove lenders to loosen standards in an attempt to woo borrowers. On top of that, credit demand from high quality borrowers was sparse, further encouraging lenders to approve loans for risky borrowers.

Today, the same thing is happening again.

WolfStreet.com reports (emphasis ours):

The toxic combination of “competition from other lenders” and slowing mortgage demand is cited by senior executives of mortgage lenders as the source of all kinds of headaches for the mortgage lending industry.

Primarily due to this competition amid declining of demand for mortgages, the profit margin outlook has deteriorated for the fourth quarter in a row, according to Fannie Mae’s Q3 Mortgage Lender Sentiment Survey. And the share of lenders that blamed this competition as the key reason for deteriorating profits “rose to a new survey high.”

And how are lenders combating this lack of demand and the deteriorating profit margins that are being pressured by competition? They’re loosening lending standards.

Worse yet, house prices across the country remain grossly inflated. In fact, they’ve far surpassed their pre-2008 housing bubble levels, according to the Case-Shiller US Home Price Index. This means lenders are loosening mortgage standards and pushing borrowers into an inflated housing market, just like they did during the years leading to 2008.

If interest rates rise too fast — a very real possibility considering the Fed plans to start unwinding its $4.5 trillion balance sheet and hike rates once more this year — millions of homeowners could find themselves underwater just like they did nearly 10 years ago.

Loosening mortgage standards at a time like this can only do one thing: Set us up for yet another wave of defaults and foreclosures… which could easily pop the housing bubble and wreck the entire economy.

Sign #3: The “Skyscraper Index”

Analyzing variables with a direct relationship to the market is the first step in forecasting potential future outcomes. But taking a broader look at more obscure correlations can give even deeper insight.

Take the Barclays “Skyscraper Index,” for example. Gathering data from the past 100+ years, the index examines historical booms in large commercial construction projects (primarily skyscrapers), and their tendency to precede economic downturns.

Read More @ BirchGold.com

The future of the EU at stake in Catalonia

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by Pepe Escobar, Asia Times:

A new paradigm has been coined right inside the lofty European Union: ‘In the name of democracy, refrain from voting, or else’

Fascist Franco may have been dead for more than four decades, but Spain is still encumbered with his dictatorial corpse. A new paradigm has been coined right inside the lofty European Union, self-described home/patronizing dispenser of human rights to lesser regions across the planet: “In the name of democracy, refrain from voting, or else.” Call it democracy nano-Franco style.

Nano-Franco is Spanish Prime Minister Mariano Rajoy, whose heroic shock troops were redeployed from a serious nationwide terrorist alert to hammer with batons and fire rubber bullets not against jihadis but … voters. At least six schools became the terrain of what was correctly called The Battle of Barcelona.

Extreme right-wingers even held a demonstration inside Barcelona. Yet this was not shown on Spanish TV because it contradicted the official Madrid narrative.

The Catalan government beat the fascist goons with two very simple codes – as revealed by La Vanguardia. “I’ve got the Tupperware. Where do we meet?” was the code on a prepaid mobile phone for people to collect and protect ballot boxes. “I’m the paper traveler” was the code to protect the actual paper ballots. Julian Assange/WikiLeaks had warned about the world’s first Internet war as deployed by Madrid to smash the electronic voting system. The counterpunch was – literally – on paper. The US National Security Agency must have learned a few lessons.

So we had techno power combined with cowardly Francoist repression tactics countered by people power, as in parents conducting sit-ins in schools to make sure they were functional on referendum day. Some 90{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the 2.26 million Catalans who made it to the polls ended up voting in favor of independence from Spain, according to preliminary results. Catalonia has 5.3 million registered voters.

Roughly 770,000 votes were lost because of raids by Spanish police. Turnout at around 42{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} may not be high but it’s certainly not low. As the day went by, there was a growing feeling, all across Catalonia, all social classes involved, that this was not about independence any more; it was about fighting a new brand of fascism. What’s certain is there’s a Perfect Storm coming.

No pasarán

The “institutional declaration” of overwhelming mediocrity nano-Franco Rajoy, right after the polls were closed, invited disbelief. The highlight was a mediocre take on Magritte: “Ceci n’est pas un referendum.” This referendum never took place. And it could never take place because “Spain is a mature and advanced democracy, friendly and
tolerant”. The day’s events proved it a lie.

Rajoy said “the great majority of Catalan people did not want to participate in the secessionist script”. Another lie. Even before the “non-existent” referendum, between 70{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} and 80{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of Catalans said they wanted to vote, yes or no, after an informed debate about their future.

Crucially, Rajoy extolled the “unwavering support of the EU and the international community”. Of course; unelected EU “elites” in Brussels and the main European capitals are absolutely terrorized when EU citizens express themselves.

Yet the top nano-Franco lie was that “democracy prevailed because
the constitution was respected”.

Rajoy spent weeks defending his repression of the referendum by invoking “the rule of law such as ours”. It’s “their” law, indeed. The heart of the matter are Articles 116 and 155 of a retrograde Spanish constitution, the first one describing how states of alarm, exception and siege work in Spain, and the latter applied in “order to compel the [autonomous community] forcibly to meet … obligations, or in order to protect the … general interests.”

Well, these “obligations” and “general interests” are defined by – who else, Madrid and Madrid only. The Spanish Constitutional Court is a joke – it couldn’t care less about the principle of separation of powers. The court congregates a bunch of legalistic Mafiosi/patsies working for the two parties of the establishment, the so-called “socialists” of the PSOE (Spanish Socialist Workers’ Party) and the medieval right-wingers of Rajoy’s People’s Party (PP).

Few outside Spain may remember the failed coup of February 23, 1981 – when there was an attempt to hurl Spain back into the long dark Francoist night. Well, I was in Barcelona when it happened – and that vividly reminded me of the South American military coups in the 1960s and 1970s. Since the coup, what passes for “justice” in Spain never ceased to be a mere lackey to these two political parties.

The Constitutional Court actually suspended the Catalan referendum law, arguing that it was violating the – medieval – Spanish constitution. This disgraceful collusion is crystal-clear for most people in Catalonia. What Madrid is essentially up to amounts to a coup as well – against the Catalan government and, of course, against democracy. So no wonder the immortal civil-war mantra was back in the streets of Catalonia: “¡No pasarán!” They shall not pass.

Brussels does demophobia

Rajoy, thuggish, mediocre and corrupt (that’s another long story), lied even more when he said he keeps the “door open to dialogue”. He never wanted any dialogue with Catalonia – always refusing a referendum in any shape or form or transferring any powers to the Catalan regional government. Catalonia’s regional president, Carles Puigdemont, insists he had to call the referendum because this is what separatist parties promised when they won regional elections two years ago.

And of course no one is an angel in this hardcore power play. The PDeCaT (the Democratic Party of Catalonia), the main force behind the referendum, has also been mired in corruption.

Catalonia in itself is as economically powerful as Denmark; 7.5 million people, around 16{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of Spain’s population, but responsible for 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of gross domestic product, attracting one-third of foreign investment and producing one-third of exports. In a country where unemployment is at a horribly high 30{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, losing Catalonia would be the ultimate disaster.

Read More @ AsiaTimes.com

What Few Expect: Inflation Will Surge, Destabilizing the Status Quo

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by Charles Hugh Smith, Of Two Minds:

Few seem to ponder what global shortages in key commodities might do to prices.

If there is any economic truism that is accepted by virtually everyone, it’s that inflation is low and will stay low into the foreseeable future. The reasons are numerous: technology is deflationary, globalization is deflationary, central banks will keep interest rates near-zero essentially forever, and so on.

Just for laughs, let’s look at healthcare, almost 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of America’s entire economy, as an example of low inflation forever. If being up over 200{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in the 21st century is low inflation, I’d hate to see high inflation.

Here’s the official Consumer Price Index (CPI), which as many have noted, severely distorts real-world inflation by claiming big-ticket items such as college tuition and healthcare are mere slivers in household budgets.

Note the remarkably stable trend line in CPI over the past 40 years. This certainly doesn’t shout “inflation is near-zero and will stay low indefinitely.”

Read More @ OfTwoMinds.com