The Caracas Syndrome

Published by Cyrille Jubert | Jan 8, 2020 | Articles 4819

In May 2017, I started commenting for my followers the extraordinary journey of the Caracas stock market.

In 2013, the Venezuelan Stock Exchange index hovered around 100. But successive devaluations of the bolivar quickly brought the stock market around 1 000.

On January 2, 2015, the Caracas index listed 3 936. A year later, to the day, it was at 14 588. It touched 100 000 in June 2017 and then 551 875 on October 6.

Great performance, you would tell me! But you haven’t seen anything yet.

 

I have a chart from December 5, 2017, where the index is at 1 409 000 and another one in February 2018 where it is at 4 million.

Venezuelan authorities ended up dividing the index by 10 million at the end of 2018. It restarted trading at 0.1.

This January 3, 2020, the index was again at 98 580… So close to 1 000 billion bolivars on the old scale.

Awesome, right?

 

If I’m talking about Caracas, it’s to draw a parallel with Wall Street.

In Venezuela, the stock market goes up because the currency devalues… The same is true in New York.

 

 

The New York Stock Exchange has been going up faster and higher and higher since the start of the key rate cut in the 1980s…

 

And the rise has become geometric with the massive monetary injections from the various central banks.

In reality, the more money is created, the more money devalues.

If you take the Dow Jones value expressed in ounces of gold, the stock market has halved since 2000.

The rise in the stock market on Wall Street is therefore an optical illusion, like that of Caracas.

 

The yellow metal is set to rise sharply in the coming months.

Open Interest at Comex has set new historical records day after day. The highest was marked on January 6 with 797 110 contracts of 100 ounces of gold.

As it can be seen in the chart below, the price of gold follows the number of contracts on the comex. Prices will soar.

 

 

In 1988, The Economist, the Rothschild’s magazine, had announced a world currency reform to come “around 2018”. The gold coin, around the neck of the Phoenix reborning from the ashes of fiat money, already showed that gold would have a role to play in backing the currency.

 

 

The message was repeated in March 2009 by China calling for monetary reform. She asked for a basket of currencies like the SDR, guaranteed by tangible values, with explicit reference to the Bancor de Keynes.

Since then, China has bought all the gold and physical silver it could. At the same time, his posters announced the color in Asia.

 

 

Since November 30, 2015 and even more since September 2018, the rise in the price of gold has been initiated on the Shanghai Gold Exchange.

 

 

On the chart underneath, we can see that the AB resistance was broken in mid-June and has since become the support.

The new resistance is marked CD on this chart. It is much more vertical. So there will be a further acceleration in the rise of gold.

If we report this on the gold dollar chart, the 2011 peak could even be reached before the end of February.

 

 

The inevitable monetary collapse

From the end of 2017, the Fed had plans to raise rates and reduce its balance sheet. This spawned a series of crashes and the Fed had to give up and even cut rates.

Today, central banks have two options:

A) or they continue to inject liquidities to support the markets and save the banks, until a total collapse of the value of the currency, Caracas style.

B) or they stop this policy of monetary expansion and this causes a very short-term financial crash and very deep deflation.

For the moment, the scenario A is being played. The stock market going up suits politicians, and notably Trump, who is playing for his re-election in November. Politicians in Europe want to avoid the collapse of banks and the plunder of savers. The “yellow vests” are aware that their purchasing power is declining, but do not understand that it is a political choice at the highest level and that it will worsen in the months to come.

What seems to be taking shape for gold should logically be the same for silver.

If we compare the bullish rally of 2016 to the current rise, we note first, that the peaks of the first two legs of rise were made significantly higher in 2019 than in 2016.

As you can see, in the third rising leg of 2016, the fourth weekly candle attacked the $ 18 resistance but closed below. In 2020, the close was over.

In 2016, the fifth candle, once the resistance had been passed had been extraordinarily bullish and the sixth did hit the $ 21 target of Fibonacci.

In January 2020, the resistance of $ 18 had been passed, silver should make a strong push higher in January-February towards $ 21 and beyond…

The Comex Silver Open Interest is very close to setting a new historic record.

 

If the gold analysis holds true in the coming weeks, silver will follow, bringing a violent short squeeze expected in the last half of February.

“In politics, events never happen by chance,” wrote Roosevelt.

Current geopolitics in the Middle East serves the interests of central banks by raising the price of a barrel, thus avoiding a deflationary crisis. It goes in the direction wanted by the highest monetary authorities, who can thus justify the rise in gold by the fear of the outbreak of a world war, whereas this rise is essential to the Monetary Reform envisaged and programmed for a long time.

This article is not an encouragement to play on the markets and even less with leveraged instruments. Secure your cash and capital in physical gold and silver kept outside the banks.

Gold and Financial Survival in the 2020s

Gold and Financial Survival in the 2020s

Published by Egon Von Greyerz | Jan 10, 2020 | Articles 1310

2020 – what an ominous year and even more so what an inauspicious decade.

2020 is of course perfect vision or “facilely accurate judgment or assessment” as Webster’s defines it.

So why should we be able to forecast the 2020s better than we have the 2000s or the 2010s? Well, I can with confidence say that we won’t.

GLOBAL DEBT UP 2X & NASDAQ 7X

Who, 10 years ago, could have forecast that the Nasdaq would have gone up 7x since the 2009 bottom. Or that global interest rates would be around zero or negative for most of the last decade. Or that global debt would double since the Great Financial Crisis started in 2006 from $125 trillion to $260 trillion. And with all that money printing, who would have believed that gold in US dollars would still be below the 2011 peak of $1,920 nine years later.

FORECASTING IS A MUG’S GAME

It all comes to show that forecasting is a mug’s game. But many lucky successful investors would disagree with this statement. So would my good friend Alfred whom I wrote about in February last year. Alfred has been fully invested in the US stock market since 1945 and has made a fortune in spite of many vicious pullbacks.

Alfred proved that by always being long the market, you outsmart at least 99% of the professional investment managers who unsuccessfully try to time the market and turn over their portfolio frequently.

So Alfred had another good year with the Dow up 24% in 2019. What a good life, you just follow the index, don’t do any analysis, don’t time the market, never sell and just, never read any financial news and just enjoy your retirement. Alfred has done this for soon 75 years and is unlikely to change his simple investment strategy. Why should he since by just investing his savings he now has a portfolio today worth $16 million (chart shows $14M). Will Alfred be lucky for another year? As always, we will know afterwards.

 

 

FINANCIAL SURVIVAL IN THE 2020S

Many experts are sitting down at the beginning of the year and of the decade to make intelligent projections. I shall try to resist being a mug this time. There are so many others who will do this and most of them unsuccessfully. This still won’t stop me from giving some hints at the end of the article.

But although I like many others have views about market direction, the most important factor for this coming decade is in my view not to make money but to survive financially.

The 2010s was a decade of fantasy – fantasy markets, fantasy valuations, fantasy money, fantasy debt and fantasy central bankers. For the people who have benefitted from this fantasy world, it clearly seems very real.

Will the fantasy world continue for yet another decade? That we will know by 2030. The majority of all investors who benefitted in the 2010s are clearly not going to change their stance at the beginning of the 2020s.

HUBRIS AND COMPLACENCY CAN BE COSTLY

Traders are aware that the most dangerous period in their trading is after a major win in the market. That is the time when they think they are masters of the universe. There are many examples of this. Take hedge fund manager John Paulson who after his subprime mega gains has lost the majority of his assets, going down from $36 billion at the peak to $8 billion.

It will be the same today for most investors whether they are in stocks, bonds or property. They now believe that they are totally invulnerable and know it all. The same thing happened during the Nasdaq boom in the late 1990s. In early 2000 every investor was an expert on tech stocks. Two years later with the Nasdaq having crashed 80%, there was not a tech expert to be found.

ON THE EDGE OF A PRECIPICE

Today, after another record year in most global stock markets, very few investors show any concern. Why should they? After all, many investors are now wealthier than ever. So are we now standing on the edge of a precipice like in 2007, 2000, 1987, 1973 or 1929?

Those years are examples of peaks with subsequent falls in the various indices of 50% to 90%. We must remember that these were average declines and many companies disappeared. In 1973 I worked for Dixons Group in the UK and can vividly recall how my first options went from £1.27 to £0.09, a 93% fall. The company was financially strong but being in consumer electronics, it crashed a lot more than the market. Still, Dixons recovered and by the 1980s we had built it to a FTSE 100 company and the dominant consumer electronics retailer in the UK.

After a long life in business and in markets, I have learnt that it is virtually impossible to exactly time tops or bottoms. As the economist John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.”

 

 

BEWARE OF UBER-CONFIDENCE

So rather than focus on if we are at the cusp of a crash, it is much more important to focus on risk. Firstly if we look at market risk, most assets are today in bubble territory whether it is stocks, bonds or property. On any valuation criteria, these markets are massively overvalued. But we must remember that bubbles can always grow bigger, as Keynes said.

A number of factors hold markets up and one of the critical ones is confidence. And for quite a while, investors have been in uber-confident mood. This has been supported by central banks led by the Fed but also other central banks like the ECB, BoJ (Bank of Japan), and the SNB (Swiss National Bank). With incessant money printing or QE, combined with asset purchases, these banks have supported stock markets throughout the 2000s.

From most investors point of view, there is no reason to believe that central banks will stop supporting the markets. And the central bankers know that markets are in constant need of liquidity injections to stop them from crashing. So markets are confident that the vicious virtuous cycle of more QE and higher prices will continue ad infinitum. And as long as this confidence can be maintained, markets will stay high.

But extremely overvalued markets supported by the printing of worthless money is not a sign of health. Instead, it is a false market bolstered by fake money. And very little is required to break it.

3 DOZEN REASONS TO WORRY

Below is a time bomb with 3 dozen reasons to worry. Any single one of these risk factors is enough to trigger a market crash. The catalyst could be Iran and the risk of a major global conflict or it could be trade wars, or a bank collapse like Deutsche or a crashing US dollar. But a catalyst doesn’t have to be a major event. In a fragile market, it could be a small bank going under or even a political event.

 


It serves no purpose to try to figure out what the trigger will be. Instead investors should focus on risk. With unprecedented global risk and overhanging global debt plus derivatives and unfunded liabilities exceeding $2 quadrillion, the coming crash will be monumental, whenever it starts.

ONLY DEUS EX MACHINA CAN SAVE US

And except for Deus ex Machina (god saving the plot in the ancient Greek plays), there is no solution. We cannot solve a debt problem with more debt and making all interest rates negative will just make it worse since neither banks nor savers or pensioners would survive.

So what is the solution? Well, I am 100% confident that there is no solution. As von Mises said, “There is no means of avoiding the final collapse…”

 

 

As von Mises said in the quote above, we are now due for “a final and total collapse of the currency system involved”. And when he says currency system, he clearly means a total collapse of the financial system. Sadly, this is the likely outcome of the biggest financial bubbles and excesses in history.

With the world facing the risk of the biggest wealth destruction ever, what can they do about it. Regrettably most people will do nothing until it is too late. They expect to be saved by central banks yet again but this time the banks will be powerless. Further money printing will be a pointless exercise and will just cause hyperinflation. So, many investors are likely to lose 75% to 99% of their wealth in the next few years.

GOLD IS YOUR BEST INSURANCE

The best insurance against collapsing paper wealth is clearly hard assets. Throughout history, physical gold has always been the ultimate protection against political or financial risk. And this time won’t be different from history. Sadly very few people study history or they believe that it is different this time. But it is seldom different and we all have a lot to learn from history. We have had a 100 year period based on debt, printed money which has created ever increasing paper wealth. Thus most investors will see no reason to change tack.

HIGH DEMAND AND PAPER GOLD FAILURE WILL CREATE MASSIVE GOLD SHORTAGES

Less than 0.5% of investors currently hold gold or gold stocks. Very few will buy precious metals when the crisis starts. As gold goes over $2,000 and silver above $50, more investors will start to be interested. The problem for new investors is that gold, and silver and precious metal stocks are a minuscule market. Increased demand will not create more physical gold and silver since we have reached peak production. There is of course around 170,000 tonnes of gold and gold jewellery in the world but virtually none of that will be available at these low prices.

To exacerbate the problem, the futures markets in gold and silver and the interbank market have massive paper positions in paper gold and silver. Once paper holders demand physical delivery, gold and silver prices will explode since there are no physical metals behind the paper mountains of gold and silver. We have seen panic in the gold market before like in China in 1948.

 

 

THE GOLD BULL HAS FAR TO GO

We have had a bull market in precious metals since 2000. There have been long periods of correction but the latest correction is now behind us and the move that has just started is likely to be very strong. Gold is at all time highs in most currencies except for Swiss francs and US dollars. It should not be long before the 2011 high of $1,920 will be exceeded on the way to much higher prices, as the dollar collapses. And silver is likely to go up 2-3x as fast as gold.

So when will all of this start. Well, the precious metals have started their move already and could move fast. What about stocks? As somebody said, “don’t tell me what stocks to buy, tell me when”. Based on my risk assessment and cycle analysis, stock markets could turn at any time now. And based on technicals, the end of the secular bull market is imminent as I have been stating in my last few articles.

Whether the global economy will turn down early in 2020 or the euphoria will continue for a while is irrelevant. What we do know is that risk is at a maximum and therefore it is absolutely critical to protect your wealth. Throughout history physical gold has acted as the best financial risk insurance money can buy. It won’t be different this time.

Original source: Matterhorn – GoldSwitzerland

The Very Big Fish in the Silver’s Aquarium

Published by Cyrille Jubert | Nov 12, 2019 | Articles 10067

Remember that Alasdair Macleod did a Commitment of Traders (COT) analysis on July 11, saying there was a very big fish in the money market. See my article of August 12 2019.

This big fish caused the sharp rise of silver in late August, which looked a lot like a short squeeze. The other sharks had to buy back their short positions in a hurry. This very big trader held 20 000 contracts of 5 000 ounces, ie 100 Moz of silver.

According to Ted Butler these 20 000 contracts were sold around August 20, with a profit of $ 300 million. In very unusual circumstances, at the time this long position was liquidated on COMEX futures, there was a simultaneous explosion of more than 100 Moz of physical silver deposits in a number of Silver ETFs, including SLV, SIVR and Silver ETF from Deutsche Bank.

There is therefore a “big fish” who, by a sleight of hand between futures and ETFs, who could be now in possession of 100 Moz of “physical” silver without making the silver price soaring. At the same time, by converting its futures into ETF shares, this trader gets out of reach of the CFTC, which cannot sanction him to hold a dominant position in the market.

 

 

The silver’s Open Interest at the COMEX was August 8 at 244 169 contracts of 5 000 ounces, very close to its historical record of 244 196 reached in August 18, 2018. After the logical decline of the Open Interest during the consolidation of September and October, we see that the OI goes up again every day. On November 8, the OI climbed to 227 524 contracts or 1 137 Moz, representing $ 19.11 billion.

The Big Fish (and its remora) is back and took advantage of lower prices to strengthen its long position.

The end of the consolidation

On this weekly silver chart dated 8/11/2019, first have a look at the Fibonacci’s fans (in red), which fall from the 2011 peak. (I erased those that have already been played.)

Now, focus your attention on the green line. It starts from the low point of July 14 1997, when Warren Buffet started buying silver, causing the 1997-1998 mini-rally.

We note that this support has played an iterative role over the last 20 years, particularly in 2005-2006 and in 2008.

 

The next graph is only the enlargement of the current period.

Look first at the role of the 1997 axis and the essential role it had played since December 2018.

The prices have just made a pull-back on this old resistance of early 2019, in a perfect way.

 

Now look at the role of the Fibonacci fans coming from the 2011’s top. Here too, the movement has been more than perfect!

Finally, you can see that on Friday 8, the low point was made on the support (dark green) of the canal.

Silver is now able to bounce back to attack the Fibonacci fan at $ 19.2 and should pass the $ 20 level before December 31st.

Gold’s Open Interest

Gold’s Open Interest marks historic records every day:

The 06/11 : 690 181 contracts New historical record
The 07/11 : 693 184 contracts New historical record
The 08/11 : 708 244 contracts. New historical record = $ 103.5 billion

Obviously, a very big bullish movement is being prepared.

Does Gold touched its low point? I dont think so. On the other hand, what I’m sure is that the prices will know an historical rise in the first half of 2020. They should most likely double between the low point of November-December 2019 and the future high point in June-July 2020.

While the CNN “fear or greed index” is close to the maximum of greed on Wall Street and the stock market seems about to develop a bullish rally, I think we should witness in the first days of 2020 to a turnaround of 180°.

The precious metals will rise on a sharp fall in the stock market, which should lose 40% of its value before the end of 2021.

 

 

 

Dont be greedy. Dont play the rise of metals with these leveraged financial instruments, just be in physical gold and silver. All the “paper” will end badly. Take your profits now and invest them in physical metals exclusively.

Gold Price Is Not The Price of Gold

Published by Egon Von Greyerz | Nov 18, 2019 | Articles 10674

The gold price is determined in a Casino with massive leverage and has nothing to do with the real price of physical gold. More about that later in the article.

At what point will gold turn from a minority interest attracting less than 0.5% of world financial assets to a mass-market investment?

Three decades ago I identified physical gold as the best asset to hold for wealth preservation purposes. Then, almost two decades ago we decided to invest properly in physical gold for ourselves and the investors we advised at the time. Part of our wealth protection plan was obviously to store the gold outside the area we saw as the biggest risk, namely the financial system. Anyone who holds gold in a bank, ETF or some gold fund has not understood the purpose of physical gold.

99.5% OF INVESTORS DON’T UNDERSTAND OR HOLD GOLD

Being holders of a minority asset means that 99.5% of the investment population sneers at you and believes you live on a different planet. As a company who passionately wants to help others to protect their wealth, we are fortunate to meet like-minded people. But most of our clients feel very isolated because they have no one to discuss their concerns about the world with.

I would advise anyone with a gold interest to attend a good precious metals conference. In the last two weeks I have been speaking at two excellent gold conferences. One was the Gold Symposium in Sydney and the other one the Edelmetallmesse (International Precious Metals & Commodities Show) in Munich. It is important to pick a conference which includes many participants talking about the risks in the world and who see gold as a remedy against these risks. Most gold conferences are more geared towards gold mining and therefore less interesting for the wealth preservationists.

For anyone who wants confirmation that they are not alone in their analysis of the risks in the world, it is good for the soul to attend one of these gold conferences. Both the show in Sydney and Munich had a very enthusiastic crowd. For someone who has written newsletters for many years and appeared in interviews, like myself, most people in the audience will know you and want to talk to you. The Australians are more expressive and want to shake your hand and have a photo taken. The Germans are a bit more shy but also have a lot of questions. Both conferences were very well attended. More than in previous years.

SOMETHING ROTTEN IN THE FINANCIAL SYSTEM

I have expressed in previous articles that there is clearly something very rotten in the financial system currently. Central banks are panicking and QE is back with a vengeance. The Fed is injecting a total of $200 billion monthly if you add up Repos and Pomos (permanent open market operations). The ECB has started with €20 billion a month but that is likely to increase since Lagarde most certainly also will do “whatever is takes” as Draghi stated. These are massive amounts and a clear indication that these two central banks are seeing real problems in the system.

 

NO TRUE MARKETS AND NO TRUE PRICES

The whole financial system is just a massive paper tiger but the world hasn’t realised it yet. In effect there are no true markets, no true prices and no solid counterparty standing behind any transaction. Financial markets are a casino full of drunken gamblers. A small minority has rigged the system in their favour and this is the way players like, investment banks make massive profits every day. These investment banks make gambling bets that are exponentially greater than the risk they can cover when all goes wrong. They are totally aware that they are too big to fail.

TOO BIG TO FAIL

The world experienced the “too big to fail” syndrome during the LTCM collapse (Long Term Capital Management) in 1998 as well as during the 2008 collapse. Both these times, the financial system was minutes from a total breakdown but the investment banks had to be saved at an enormous cost. No senior banker was fired or prosecuted and their bonuses continued to even more ridiculous levels. The winner takes it all!

With central bank printing and guaranteeing at least $25 trillion, the system was saved temporarily. But it wasn’t actually saved. All that happened was that a smaller problem became an exponentially bigger problem. And this is where we are today. The 2006-9 Great Financial Crisis was never resolved just deferred. So the proverbial can was kicked down the road again but the next time it will be too big to kick.

DON’T CONFUSE THE GOLD PRICE WITH THE PRICE OF PHYSICAL GOLD

Just to understand the size of markets, let’s for example consider the Forex market. Daily turnover in the Forex Casino is in excess of $5 trillion. That means $1.5 quadrillion a year is traded in foreign exchange. That’s 19x annual global GDP of $80 trillion. But since global trade is only $20 trillion, global forex trading is 75x the amount of goods that involves foreign exchange.

So the majority of the $1.5 quadrillion forex trading is pure speculation leading to the currency price being set in a casino with no relevance to the underlying goods traded. Thus the price has very little correlation to the products or services traded.

If we look at the gold market, exactly the same thing is happening. The annual mine production of gold is around 3,400 tonnes with a value of $159 billion. But if we look at the daily trading volume of gold it is a staggering $187 billion, and thus greater than annual production.

That makes annual gold trading $48 trillion or 1,030,000 tonnes. All the gold ever produced in the history is 170,000 tonnes. So annual gold trading is an incredible 6X all the gold ever produced in history and 300X annual mine production. It is important to understand that this gold trading is virtually all paper trading with a very small percentage of physical.

So for all of you who own PHYSICAL gold and believe that last week’s closing price of $1,460 per ounce is the real price of gold, please think again. $1,460 is the paper gold price in the casino. It has nothing to do with the real price of physical gold.

Today we can still buy physical gold for the same price as paper gold. That is an anomaly which will not last. All the physical gold that is produced in the world is absorbed by the market in spite of relatively slow market conditions.

THE PAPER GOLD MARKET WILL FAIL

The corrupt and manipulated paper gold market is guaranteed to fail. A market that is leveraged 300X the underlying physical or real market has no chance of survival. When the holders of paper gold realise that they are holding a worthless piece of paper, the whole paper market will implode and gold surge. This is not a question of IF but WHEN.

And WHEN is getting closer quickly. Stocks are very near the end of their secular bull market and the coming moves down will frighten the world. Bond markets might hold out a bit longer but will surprise everyone how quickly they will come down. The coming fall in stocks and bonds will shake confidence in all markets with many investors looking for protection in gold. Other positive factors for gold are the major increases in QE happening right now, as well as negative real interest rates.

COMING SURGE IN GOLD DEMAND CAN ONLY BE MET AT MUCH HIGHER PRICES

The physical gold market cannot satisfy the coming increase in demand at current prices. The only way that new buyers can find gold will be at much, much higher prices.

So I advise holders of physical gold and silver not to worry. This correction is soon over and in the next few years we will see the price of gold and silver reaching multiples of the current prices.

But remember that you are holding physical precious metals as essential life insurance for long term protection of your wealth and not for short term price gains.

 

Original source: Matterhorn – GoldSwitzerland

Ideal Period to Accumulate Silver

Published by Stefano Bottaioli | Nov 25, 2019 | Articles 7073

Silver has the characteristic of moving up or down respecting the seasonality a lot. I tried to check the last 5 years indicating the bottoms that often arrive between late November and mid-December. At this stage, silver has risen sharply since June (another classic seasonal minimum) and is consolidating, staying above the medium-term line. If we observe the movement of the last few years, the average has been approximately + 22% which is consistent with the scenario which sees the next leg upward projected towards the level of $ 21, which in turn coincides with the parallel of the ascending channel. The RSI indicator remains above the level of 50, not showing a negative divergence but forming a double marginal low which supports the hypothesis that the next movement may be not only upward but also well supported.

We are entering the ideal period to accumulate silver.

 

 

Reproduction, in whole or in part, is authorized as long as it includes a link back to the original source.

Risk Grows Exponentially – Hold 50% or More of Your Assets in Gold

Published by Egon Von Greyerz | Nov 28, 2019 | Articles 2237

In this interview, Brian and Darryl Panes reconnect with Egon von Greyerz of Matterhorn Asset Management AG at the Gold and Alternative Investments Conference in Sydney.

Debt continues to grow exponentially, and consequently, risk is growing at a super exponential rate. So what’s been the response to date? Just print more FIAT currency and increase the bubble.

Also they discuss:

  • Debt grows exponentially, risk grows super exponentially
  • No system as fragile as today’s world financial System
  • China as the next superpower in the world
  • Governments don’t like gold, as it reveals their deceit in mismanaging the economy
  • Governments continuously destroy paper money – down 80% in this century
  • Importance of holding 50% or more of your assets in Gold
  • Gold is as cheap, undervalued and unloved as it was in 1970 or 2000
  • Physical gold outside the banking system represents your personal life insurance

 

 

Original source: Matterhorn – GoldSwitzerland

The Beginning of a Flight From Money?

Published by Philippe Herlin | Nov 28, 2019 | Articles 9826

The printing press never stops: in OECD countries, the balance sheet of central banks has risen from the equivalent of 10% of GDP in 2008 to more than 30% today, a threefold increase in ten years. The Federal Reserve stopped shrinking its balance sheet in October 2019 and there is starting to be talk of resuming quantitative easing, just like the ECB, whereas the Bank of Japan never stopped its own.

In the past, excess money creation led to inflation, but this is manifestly no longer the case. But this does not mean that there will be no negative consequences, and this could take the form of a “flight from money”: investors and savers get rid of their cash to acquire “real” assets, i.e. assets that are tangible and have intrinsic value, allowing them to maintain value in a context of mistrust of money and the risk of bank failure.

According to the Natixis Bank‘s research department, “There are now a few signs in OECD countries that could reveal an incipient flight from money: rising prices in real estate, unlisted equities, gold, bitcoin”. Thus, “The limit is no longer inflation, it is confidence in money.”

Investor savers are thus shifting to real estate (house prices in OECD countries start to rise again from 2013), listed equities (stock market indexes have been rising continuously since 2008), unlisted equities (valuation multiples of private equity transactions are rising). The study also points to the “safe haven” assets of gold and other precious metals, and cryptocurrencies, although the high volatility of bitcoin certainly does not make it a very reassuring asset.

For our part, we will add the raw materials (for nations and institutional investors) that could also crystallize this mistrust, and also the art market, and vintage cars, whose prices are steadily rising. However, all these assets should not be put on the same level since real estate and equities are already in a bullish context, their margin of growth being limited, which is not the case for physical gold, or to a much lesser degree. It is therefore clear where the investor should go.

For Natixis, the situation is serious: “The fact that the prices of real estate, listed and unlisted equities, gold and bitcoin, for example, are now rising may be a sign that OECD countries are nearing the point where confidence in money is lost” As a result, it is no longer necessary to wait too long to turn to gold.

And let us also point out that inflation will be our right anyway, and that it will be the consequence of the flight from money, which will drive up the price of raw materials, and therefore consumer products (food, energy). An emergence of inflation which, in addition, will drive up interest rates and collapse the bond market. In this scenario, you really don’t want to miss the boat.

U.K. Can’t Be Trusted With Gold, Top Slovak Party Leader Says

Published by Goldbroker ™ | Nov 29, 2019 | Articles 1231

Slovakia’s former premier said parliament should force the central bank to bring back the nation’s gold stored in the U.K. as history has shown that allies “can hardly” be trusted.

Ex-Premier Robert Fico, who chairs the biggest party in Slovakia, said Thursday his formation is seeking to hold a special parliamentary session on the issue. The gold isn’t safe in the U.K. because of Brexit and a possible global economic crisis, he said.

“You can hardly trust even the closest allies after the Munich Agreement,” he told reporters, referring to a 1938 pact by France, the U.K., Italy and Germany, which allowed Adolf Hitler to annex a part of Czechoslovakia. “I guarantee that if something happens, we won’t see a single gram of this gold. Let’s do it as quickly as possible.”

Three months before general elections take place in Slovakia, Fico is riding on a wave of nationalist sentiment that has gripped many countries in the European Union’s east, including neighboring Poland and Hungary.

Central bank spokesman Peter Majer declined to comment on Fico’s comments. Slovakia, which uses the euro, has 31.7 metric tonnes of gold worth 1.3 billion euros ($1.4 billion) and it’s actively trading it, he said.

 

Original source: Bloomberg

Viktor Turns $10K Into $1 Billion In 6 Moves

Published by Egon Von Greyerz | Dec 3, 2019 | Articles

Viktor set out his investment strategy early in life. He started with $10,000 in 1970 and his assets are today worth $121 million. But Viktor believes that this is just the beginning. He expects to reach $1 billion within the next 5-10 years.

Viktor had learnt that planning and goal setting are the most powerful tools when it comes to achieving results. This was proven by the Harvard study on goal setting where the 3% who had specific written plans for their future earned 10x more than the ones who had no plans.

 

 

Viktor understood the significance of cycles and long trends. He was also totally clear that real fortunes in investment markets are created by riding long trends. Viktor enjoyed life. He liked reading and he liked travelling to interesting continents and places. He also liked investment markets but did not want to spend all his life studying detailed daily financial analysis of companies and markets.

Viktor’s first criterion was to only make one investment decision every ten years. He would buy an asset class which was unloved and undervalued but which had substantial potential based on his cycle analysis as well as his macro analysis of the global economy.

He had finished his studies at the end of the 1960s and decided that he would make his first investment at the beginning of January 1970. He chose gold to be his first 10 year holding. Gold had been fixed at $35 since 1933. In the meantime global debt had been growing and the US’s debt was increasing fast due to the Vietnam war. With mounting US debts, Viktor questioned the US ability to hold gold at $35.

1970 – 1980 GOLD – FROM $10K TO $160K UP 16X

Viktor had received a $10,000 inheritance which he bought gold for at $35 per ounce. Since this was a 10 year investment, Viktor decided that his stop loss would need to be a generous 33%.

The positive surprise came earlier than even Viktor could have hoped for when Nixon closed the gold window on August 15th, 1971. Gradually gold appreciated in the 1970s but with major corrections. Still, by early January 1980 gold was $559. So based on his plan, Viktor exited gold at that time to enter a new 10 year investment. With the benefit of hindsight Viktor could have made a lot more since gold went to $850 by the end of January 1980.

But Viktor stuck to his plan. And it wasn’t a bad plan, $10,000 had grown to $159,700 by January 1980 when he sold his gold at $559. So he had earned almost 16X his money in 10 years.

1980 – 1990 NIKKEI – FROM $160K TO $950K UP 6X

Viktor spent some time studying Japan at the end of the 1970s. Japan was now industrialising fast and had started to produce goods like electronics and cars which were in demand globally. And the Nikkei, the Japanese stock market, was at that point unloved and undervalued which was the perfect position to invest.

So Viktor took his winnings of $159,700 and put it all into the Nikkei index. Viktor had a very tax efficient structure so his gains could be invested tax free. The Japanese economy grew rapidly in the 1980s and the stock market virtually exploded. Viktor’s $159,700 grew almost 6X in 10 years to $950,000. So in 20 years, his $10,000 had gone up almost 100X. Obviously Viktor was pleased that his very simple investment plan was working out so well.

This time Viktor was very lucky with his exit since when he sold the Nikkei in early January, when the price was 38,700, which was very near the all time high.

1990 – 2000 NASDAQ – FROM $950K TO $8.5M UP 9X

Viktor always had an interest in Tech and after in depth studies decided that this was going to be the next major growth area. So he put his $950,000 into the Nasdaq Composite in January 1990. This turned out to be a spectacular investment. Based on his rules, Viktor exited the Nasdaq investment in January 2000 not far from the top and just before an 80% crash.

The gain on the Nasdaq had been a spectacular 9X and Viktor’s equity had now grown to $8.5 million. In 30 years, Viktor had multiplied his initial $10,000 an impressive 850X.

Viktor was obviously pleased that when he sold his three first investments of Gold, Nikkei and Nasdaq, the 10 year exit point was very near the top in all these three markets. So his cycle theory was clearly working very well.

2000 – 2010 GOLD – FROM $8.5K TO $32M UP 4X

Having already made a very good return in gold, Viktor decided to return to the yellow metal which had spent 20 years correcting the strong move up in the 1970s to the 1980 peak of $850. So Viktor decided that gold had again reached the point when it was unloved and undervalued and he bought gold at $288, investing his $8.5 million capital. Due to the massive money printing and credit expansion gold increased rapidly in price during the 2000s and in January 2010 Viktor exited gold at $1,096. He obviously didn’t know at the time that gold would climb to $1,920 by September 2011. But this was anyway irrelevant since Viktor followed his investment plan religiously.

The latest gold investment had increased the value of Viktor’s assets 3.8X. This was in effect the lowest return in the four 10 year periods that he had invested. But in any case, his capital had now grown to a healthy $32 million. Not bad on a $10,000 investment.

2010 – 2020 NASDAQ – FROM $32M TO $121M UP 4X

The Nasdaq crashed 80% in 2000 after Viktor had exited and crashed again in 2007-8 by 56%. In January 2010, the Nasdaq was still down 60% on the 2000 high. Viktor considered this an excellent opportunity to enter again and put his total capital of $32 million into this index.

Viktor is still in the Nasdaq since this 10 year investment cycle ends in early January 2020. As of end of November 2019, his Nasdaq investment has increased 3.7X. His $10,000 is today after 40 years worth a healthy $121 million. Thus so far Viktor has achieved a compound annual return of 26.5% and a total return of 1.21 million percent. This is totally remarkable for having made just one investment decision every ten years.

40 YEARS – 5 INVESTMENT DECISIONS

Over a 40 year period, Viktor invested twice in Gold, once in the Nikkei and twice in the Nasdaq. Clearly very few investors will have the skill and luck of Viktor. He never tried to time his investments but followed his plan of entering and exiting in early January every 10 years. But what investors can learn from this is the opposite of conventional wisdom. Most people buy high when an investment reaches the front pages. Very few follow Viktor’s principle of buying when an investment is low, undervalued and unloved.

We see the same in gold also. Most of the buying is done when the price is going up. We have many times shown graphs of how undervalued gold is today but sadly for most people that is seldom the main criterion for buying. The psychology of the price going up is such a major temptation and much more enticing than a low price.

Viktor’s style of investment proves that buying an asset which is undervalued but has a substantial intrinsic value improves your risk/reward dramatically. Also, since Viktor’s strategy included holding the investment for 10 years, the long term prospect of his holding was clearly of utmost importance. Therefore Viktor spent a significant time around the end of each 10 year period to analyse the macro economy, markets and investments.

ALFRED – A BUY AND HOLD INVESTOR

Viktor’s method is very different to Alfred’s whom I wrote about earlier this year. Like Viktor, Alfred was born at the end of WWII and received his first shares from his grandparents. He then invested all his savings during his working life into Dow stocks and today has a fortune of $14 million. He never timed the market and he never sold anything even during the worst corrections. But investing in a growing economy, fuelled by massive money printing and credit expansion meant that Alfred never had to worry. The Government and the Central Bank looked after him well by always expanding the money supply and thus pushing stocks to higher highs, even after big setbacks.

Alfred is obviously very happy with always being in the market. He is totally unaware of what is coming. The biggest economic bubble in history is about to burst and Alfred will probably lose at least 95% of his wealth in real terms in the next 5 years. It might sound dramatic to forecast a 95% loss but we must be aware that in 1929-32 the Dow lost 90% under economic conditions which were nowhere near as dire as today. So Alfred’s 74 year investment success is about to be totally wiped out in the next few years. But Alfred along with virtually all stock market investors will hold on to his portfolio in the belief that stocks will recover again like they have in the last 3/4 of a century. Alfred doesn’t realise that we are now at the end of a secular bull market and that this time any attempt by central banks will have zero effect.

With this coming implosion of stock and debt markets, additional massive money printing will initially have a positive effect on markets but that will be short lived as investors realise that adding worthless money to worthless debt still equals zero. Also, this time around there is no margin for lowering rates since they are already zero or negative in most countries.

INTEREST RATES WILL REACH THE TEENS

Even worse, when investors start dumping the long end of the bond market, long interest will go up rapidly and also pull short rates up. At that point central banks will totally lose control of rates, leading to a total panic in credit markets. No country can afford 1 to 2 percent increase in rates but the collapse of credit markets will lead to rates quickly going into the teens like in the 1970s.

That will set off a vicious circle of higher rates, more money printing, more inflation and still higher rates and more money printing leading to hyperinflation. This will last for around 2-4 years and will end with a deflationary implosion of most assets. Few banks will survive this phase, especially as the $1.5 quadrillion derivative market implodes.

VIKTOR WILL BUY GOLD AGAIN

2020 – 2025 GOLD – FROM $121M TO $1 BILLION UP 8X?

So what will Viktor do at the end of 2019 when he reaches the end of another 10 year investment period. Well, for Viktor the answer is obvious. He is certain that the world will see the biggest money printing bonanza in history and this on a global scale.

GOLD AS CHEAP TODAY IN 2019 AS IN 1970 & 2000

Viktor also knows that gold is as cheap today as it was in 1970 when he first bought gold at $35 and in 2000 when he bought gold the second time at $288. The chart below shows the price of gold adjusted for US money supply and confirms Viktor’s conviction.

 

 

So Viktor is totally convinced that gold is the only asset that he wants to hold in the next decade. In order to reach a total worth of his portfolio of $1 billion, gold would only need to go up 8.3 times from today to $12,000. But for the real measurement, Viktor must wait to see where the prices of the Nasdaq and Gold will be on January 2nd.

FROM $10K TO $1 BILLION IN 6 MOVES

 

 

VIKTOR WILL BE THE VICTOR AND ALFRED THE LOSER

If we assume the Nasdaq and gold prices are the same on January 2nd as today, it would mean that gold must reach $12,000 for Viktor’s account to reach $ 1billion. With the problems Viktor sees in the world economy, he considers $12,000 in today’s money to be easily achievable and that much higher levels are likely.

If gold reaches $12,000 by say 2025, Viktor’s wealth will during a 55 year investment period have gone from $10,000 to $1 billion which is a return of 10 million percent. Quite remarkable for just taking 6 investment decisions during his 50 year life as an adult.

But sadly for Alfred, the buy and hold strategy will in the next few years prove disastrous and he stands to lose 98% of his wealth in real terms which means measured in gold.

DON’T FOLLOW THE ROAD TO RUIN

So this is the decision that investors have to make right now. Either stick with stocks that are likely to start crashing in 2020 and wipe out your wealth totally or hold physical gold and preserve as well as enhance your wealth.

Quite an easy decision really but sadly 99% of investors will follow the road that leads to ruin.

Original source: Matterhorn – GoldSwitzerland

Mongolia Buys 14.4 Tons of Gold in First 11 months This Year

Published by Goldbroker ™ | Dec 3, 2019 | Articles 1262

Mongolia’s central bank announced on Tuesday that it has bought a total of 14.4 tons of gold from legal entities and individuals in the first 11 months of this year.

As of November, the bank’s average gold purchase price was 128,002.45 Mongolian tugriks (over 47 U.S. dollars) per gram, the Bank of Mongolia said in a statement.

Purchasing gold is said to be one of the key instruments for the Asian country’s central bank to increase its official foreign exchange reserves.

The Bank of Mongolia has been striving to ensure economic stability by consistently increasing its foreign currency reserves.

The country’s foreign exchange reserves reached 4 billion dollars at the end of July. The central bank aims to increase the reserves to at least 6.5 billion dollars in the medium term.

Original source: Xinhuanet