Did Buffett Just Bet Against The US? Berkshire Buys Barrick Gold, Dumps Goldman
This is going to get awkward.
Berkshire Hathaway’s latest 13F just dropped and contained inside is a signal that none other than the Oracle Of Omaha appears to now be quietly betting against The United States.
Why? Because for years – in fact for as long we can remember – Warren Buffet has denigrated gold:
In a speech delivered at Harvard in 1998, Buffett said:
“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
He once famously said:
“Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”
In his 2011 letter, Buffett noted that for $9.6 trillion you could buy “pile a” — all of the gold in the world, or “pile b” — the entire US cropland (400 million acres) plus 16 ExxonMobils and still have another $1 trillion left over.
“Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold,” he wrote. “I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.”
In 2013, Buffett even went so far as to mock investors betting on gold, saying that there were better places to put your money.
“What motivates most gold purchasers is their belief that the ranks of the fearful will grow,” Buffett wrote in 2012. “During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth — for a while.”
“… for every dollar you could have made in American business, you’d have less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by the headlines.”
“The magical metal was no match for the American mettle.”
All of which makes the following even more stunning…
According to the latest 13F, Howard Buffett’s Berkshire Hathaway not only dumped all his airlines – as we learned previously 0 but has also liquidated huge amounts of its exposure to US banks (exiting Goldman Sachs entirely).
Berkshire’s JPMorgan Stake Down 62% to 22.2M Shrs
Berkshire’s Wells Fargo Stake Down 26% to 238M Shrs
Berkshire trimmed its bet on PNC Financial and M&T Bank as well as Bank of New York Mellon Corp., Mastercard, and Visa.
Berkshire Exits Goldman stake entirely
And while he modestly added to his positions in Kroger, Store Cap and Suncor Energy, the only new stock he bought in Q2 was… the world’s (formerly biggest) gold miner:
Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.
Barrick Gold is up around 6% after hours…
Of course, we do note that this 13F filing reflects the stock picks of Buffett as well as his long-time deputies, Todd Combs and Ted Weschler. So it’s unclear who exactly put money to work in Barrick.
So, the famously anti-gold investor has abandoned banks – ‘the backbone of America’s credit-driven economy – in favor of a gold miner (which was the largest in the world until last year when Newmont bought Goldcorp).
Is Buffett betting against America with a levered position on precious metals?
What is most ironic about all of this is that Warren’s father, Howard Buffett, is among the great gold bugs of all time.
As we noted in 2010, a must read essay by Howard Buffett, father of the “legendary” investor who initially was so very much against derivatives then promptly changed his tune, discusses fiat money and gold, and concludes that “human freedom rests on gold redeemable money.”
In this stunningly simple, straightforward, and flawless analysis, Buffett’s father stresses the relation between money and freedom and contends that without a redeemable currency, an individual’s freedom and one’s access to property is dependent on goodwill of politicians.
Buffett also says that paper money systems generally collapse and result in economic chaos. He goes on to observe that a gold standard would restrict government spending and give people greater power over the public purse. Lastly, back in 1948, Howard Buffett, said this the “present” is the right time to restore the gold standard. Alas, 60 years later, his advice has still been largely ignored, and as a result we have a global economy that stands on the precipice of global default with runaway budget deficits across the entire developed world. Key quotes:
“Is there a connection between Human Freedom and A Gold Redeemable Money? At first glance it would seem that money belongs to the world of economics and human freedom to the political sphere.
But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty. Also, when you find that Lenin declared and demonstrated that a sure way to overturn the existing social order and bring about communism was by printing press paper money, then again you are impressed with the possibility of a relationship between a gold-backed money and human freedom.“
His conclusion is eerily prophetic with what is happening with US society currently:
“I warn you that politicians of both parties will oppose the restoration of gold, although they may outwardly seemingly favor it. Unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money.“
And of course, he notes that the Federal Reserve is at the forefront of those who will do everything in their power to prevent a return of the gold standard:
Most opponents of free coinage of gold admit that that restoration is essential, but claim the time is not propitious. Some argue that there would be a scramble for gold and our enormous gold reserves would soon be exhausted.
Actually this argument simply points up the case. If there is so little confidence in our currency that restoration of gold coin would cause our gold stocks to disappear, then we must act promptly.
The danger was recently highlighted by Mr. Allan Sproul, President of the Federal Reserve Bank of New York, who said:
“Without our support (the Federal Reserve System), under present conditions, almost any sale of government bonds, undertaken for whatever purpose, laudable or otherwise, would be likely to find an almost bottomless market on the first day support was withdrawn.”
Our finances will never be brought into order until Congress is compelled to do so. Making our money redeemable in gold will create this compulsion.
The full essay is below, which we are confident was never read by Howard’s “oracular” son… until perhaps very recently…
Did it really take him until he was 90-years-old to realize that his dad was right after all?
So what happens next? Do Munger and Buffett buy bitcoin?
One week ago, we published a remarkable interview with two former Fed economists – Simon Potter and Julia Coronado – who have tremendous impact and influence on prevailing thinking at the Federal Reserve, and who hinted at the Fed’s last ditch reflationary strategy: wiring digital money into the bank accounts of Americans, bypassing the reserve system entirely, and sparking an inflationary conflagration. As we said last Monday, “the two propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments, which will be wired instantly to Americans.“
“One of the issues Congress had in passing the Cares Act is identifying who’s got mainly tip income, who doesn’t have sick days. If society wanted, you could use large datasets to direct fiscal transfers to those people.” – Bloomberg Interview with Coronado And Potter
And while this idea may have seemed absolutely ludicrous as recently as just one year ago, the fact that the just as ludicrous Helicopter Money is now de facto policy means that direct deposits of cash by the Fed into individual accounts is becoming increasingly probable, the only thing missing is the “digital currency” that would be used by the central bank.
Addressing this issue, on Thursday afternoon, Federal Reserve Governor Lael Brainard hinted once again at the coming monetary revolution when she said that the Fed is studying the opportunities and challenges presented by central bank digital currencies.
“To enhance the Federal Reserve’s understanding of digital currencies, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology in a multi-year effort to build and test a hypothetical digital currency oriented to central bank uses.”
The objectives of our research and experimentation across the Federal Reserve System are to assess the safety and efficiency of digital currency systems, to inform our understanding of private-sector arrangements, and to give us hands-on experience to understand the opportunities and limitations of possible technologies for digital forms of central bank money. These efforts are intended to ensure that we fully understand the potential as well as the associated risks and possible unintended consequences that new technologies present in the payments arena.
In prepared remarks of a speech titled simply enough “An Update on Digital Currencies” and prepared for delivery Thursday at a Fed technology event, Brainard said that “a significant policy process would be required to consider the issuance of a CBDC, along with extensive deliberations and engagement with other parts of the federal government and a broad set of other stakeholders.”
The punchline: “It is important to understand how the existing provisions of the Federal Reserve Act with regard to currency issuance apply to a CBDC and whether a CBDC would have legal tender status, depending on the design. The Federal Reserve has not made a decision whether to undertake such a significant policy process, as we are taking the time and effort to understand the significant implications of digital currencies and CBDCs around the globe.”
So what would prompt the Fed to undertake this significant policy process? Why another crisis, of course.
We read with great interest a Bloomberg interview published on Saturday with two former central bank officials: Simon Potter, who led the Federal Reserve Bank of New York’s markets group i.e., he was the head of the Fed’s Plunge Protection Team for years, and Julia Coronado, who spent eight years as an economist for the Fed’s Board of Governors, who are among the innovators brainstorming solutions to what has emerged as the most crucial and difficult problem facing the Fed: get money swiftly to people who need it most in a crisis.
The response was striking: the two propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments, which will be wired instantly to Americans.
As Coronado explains the details, Congress would grant the Federal Reserve an additional tool for providing support—say, a percent of GDP [in a lump sum that would be divided equally and distributed] to households in a recession. Recession insurance bonds would be zero-coupon securities, a contingent asset of households that would basically lie in wait. The trigger could be reaching the zero lower bound on interest rates or, as economist Claudia Sahm has proposed, a 0.5 percentage point increase in the unemployment rate. The Fed would then activate the securities and deposit the funds digitally in households’ apps.
As Potter then elucidates, “it took Congress too long to get money to people, and it’s too clunky. We need a separate infrastructure. The Fed could buy the bonds quickly without going to the private market. On March 15 they could have said interest rates are now at zero, we’re activating X amount of the bonds, and we’ll be tracking the unemployment rate—if it increases above this level, we’ll buy more. The bonds will be on the asset side of the Fed’s balance sheet; the digital dollars in people’s accounts will be on the liability side.”
And that, in a nutshell, is how the Fed will stimulate the economy in the next crisis in hopes of circumventing the reserve creation process: it will use digital money apps (which explains the Fed’s recent fascination with cryptocurrency and digital money) to transfer money directly to US consumers.
To be sure, the narrative is already set for how the Fed will “sell” this direct transfer of money to the rest of the world and the broader US population: as Coronado explains “it’s the most efficient from a macroeconomic standpoint in supporting spending and confidence. The fear of unemployment acts as an accelerant on a recession. There’s a shock—people are losing their jobs or worry about losing their jobs. They get very risk-averse. [By] getting money to consumers you can limit the depth and duration of a recession.”
And the kicker:
“you could actually generate real inflation. It could be beneficial for not only avoiding negative rates but creating a more healthy interest-rate market, a more healthy yield curve.”
So there you have it: the one thing that was missing from a decade of monetary tinkering by the Fed, the spark of inflation, will finally arrive as the Fed gives money to those most likely to spend it: the lower and middle classes of society.
But wait, there’s more: now that the Fed is implicitly focusing on racial inequality, and soon explicitly with Joe Biden going so far as to urge the Fed to fight “racial economic inequality” and former Minneapolis Fed president Kocherlakota writing an op-ed in which he said the Fed “should have a third mandate on racial inquality“, the stage is now set for the Fed to specifically release funds for those who have “suffered from inequality”, and once the time comes when the narrative allows to deploy reparations or direct funding to minorities, the Fed will be ready.
* * *
Below we republish the Bloomberg Markets interview with Coronado and Potter because it lays out, very clearly, just what the next monetary stimulus will look like now that helicopter money is fully engaged and money is about to be sent by the Fed directly to those Americans the Fed finds to be “in need.”
BLOOMBERG MARKETS: How would recession insurance bonds work?
JULIA CORONADO: Congress would grant the Federal Reserve an additional tool for providing support—say, a percent of GDP [in a lump sum that would be divided equally and distributed] to households in a recession. Recession insurance bonds would be zero-coupon securities, a contingent asset of households that would basically lie in wait. The trigger could be reaching the zero lower bound on interest rates or, as economist Claudia Sahm has proposed, a 0.5 percentage point increase in the unemployment rate. The Fed would then activate the securities and deposit the funds digitally in households’ apps.
And so instead of these gyrations we’ve been going through to get money to households, it would happen instantaneously.
SIMON POTTER: It took Congress too long to get money to people, and it’s too clunky. We need a separate infrastructure. The Fed could buy the bonds quickly without going to the private market. On March 15 they could have said interest rates are now at zero, we’re activating X amount of the bonds, and we’ll be tracking the unemployment rate—if it increases above this level, we’ll buy more. The bonds will be on the asset side of the Fed’s balance sheet; the digital dollars in people’s accounts will be on the liability side.
BM: Aside from speed, what are the main advantages of this approach?
JC: It’s the most efficient from a macroeconomic standpoint in supporting spending and confidence. The fear of unemployment acts as an accelerant on a recession. There’s a shock—people are losing their jobs or worry about losing their jobs. They get very risk-averse. [By] getting money to consumers you can limit the depth and duration of a recession. And you could actually generate real inflation. It could be beneficial for not only avoiding negative rates but creating a more healthy interest-rate market, a more healthy yield curve.
BM: What are the origins of the idea?
JC: The Bank of England has proposals for digital currency. And a number of people have talked about the need for monetary financing—the idea that the interest-rate tool is simply less effective in lower growth, slower credit growth economies. Helicopter money [making direct payments to the public] goes back to Milton Friedman, but Ben Bernanke revisited it. Some people proposed doing that through financing fiscal stimulus. We think going directly to consumers is more efficient than wading through that sticky fiscal process.
BM: This policy could be complementary to Treasury stimulus?
JC: It’s not a replacement for fiscal policy. It makes sense from a fiscal perspective, for example, to authorize unemployment insurance benefits for people who lose their jobs and other assistance for medical-care providers in the current situation.
SP: The central bank is not elected. It cannot make allocation decisions about fiscal transfers. It’s now being pushed to make allocation decisions around credit with the Treasury, because we believe this situation is so unique that the private sector cannot make those decisions itself. The simplest way to do this would be a lump sum. Not in the way Congress did it. We’d take the bluntness of monetary policy and say anyone who’s eligible should get the same amount of bonds.
Fiscal controls could use the same infrastructure. The imperative to invest in it is high. Nearly all Treasury payments at some point touch the Fed because it’s the Treasury’s bank. The digital payment providers—called interface providers in the Bank of England proposal—would manage these accounts and link them to the Fed and Treasury.
BM: What are the objections from the Fed, and other challenges?
SP: The reaction from some of my former colleagues a while ago to the notion of helicopter money was not the most embracing. Some of those concerns have disappeared.
The two objections were related to the switch of deposits in normal times from the traditional banking system into digital accounts and the extra stress in crisis times as people want to get safe. An account with the central bank is safe because the central bank can always print money to honor that claim. A private bank can’t do that because their asset side has all kinds of credit on it. What we’ve created is a narrow bank-type model [narrow banks only take deposits and invest them in the safest assets] that’s small and fit for purpose, with a cap of $10,000 [per person].
JC: One challenge is making it profitable for digital providers. We want strict limitations on the fees so we’re reaching people that are underbanked, but we also want a public-private partnership with a diversity of competitors jumping into this market. Privacy is just as important, because one thing that might induce them is access to people’s data. As the Fed, are you blessing that, and what structure do you put around that?
SP: We’ll all have to deal with deep questions of privacy in the digital world. One of the issues Congress had in passing the Cares Act is identifying who’s got mainly tip income, who doesn’t have sick days. If society wanted, you could use large datasets to direct fiscal transfers to those people. But that’s a job for Congress.
BM: Have you seen similar trials elsewhere?
SP: Sweden is a leader in thinking about this in part because they had a large decline in cash use. China is testing versions of digital currency. Fintech firms in the U.S. are interested in this—there’s a stable coin version of our proposal. There’s easily sufficient innovation within the U.S. to do this. How to do it in a way that’s well regulated and serving the public purpose is something the Fed should focus on over the next few years. It would be a key accomplishment of the Fed and Treasury to get this infrastructure in place.
Gold Prices Show There’s A “Big Short” Going On In Official Currencies
On August 4, 2020, the price of gold surpassed $2,000 per ounce.
While one may say that the price of gold is on the rise, it would actually be more meaningful to say that the purchasing power of the world’s fiat currencies vis-à-vis gold is on the decline…
…because this is what a rising price for gold and silver in, say, US dollars, euros, Chinese renminbi, Japanese yen, or Swiss francs really stands for: The higher the price of this precious metal, the lower the exchange value of official currencies.
Gold isn’t just a good like any other.
It is special: it is the “ultimate means of payment,” the “base money of civilization.”
Monetary history bears this out: whenever people were free to choose their money, they went for gold. Indeed, gold has all the physical properties that make for sound money: gold is scarce, homogenous, easily transportable, divisible, mintable, durable, and, last but not least, has a relatively high value per unit of weight. Even though officially demonetized in the early 1970s, people haven’t stop appreciating gold’s “moneyish” qualities.
However, it is not only the rising gold price that indicates that the purchasing power of fiat currencies is on the decline. Basically, all other goods prices go up as well, most notably asset prices—the prices of stocks, bonds, housing, and real estate. This means that you can buy fewer and fewer stocks, bonds, and houses with a given official currency unit. From this perspective, you can rightfully conclude that a broad-based debasement is going on as far as the world’s major official fiat currencies are concerned.
Of course, this is not what most people would wish for, as they prefer to hold a kind of money that doesn’t go down in value, money that actually preserves or even increases its purchasing power over time. Actually no one who is in his right mind would wish to hold inflationary money. Unfortunately, however, central banks have been debasing their official fiat currencies over the last decades. To make things even worse, the monetary debasement is gathering speed due to the consequences of the politically dictated lockdown crisis.
Central banks around the world print up ever greater amounts of fiat currencies to make up for lost income and profits. It is against this background that the rise of goods prices in terms of official currencies can be interpreted in a meaningful way: the rise in the quantity of money will, as an economic law, cause the exchange value of the money unit to go down—either in absolute terms or in relative terms (that is by keeping money prices at a higher level when compared to a situation in which the quantity of money has not been increased).
In view of central banks‘ expansion of the quantity of fiat currency, people increasingly seek to hold assets, such as, say, stocks, housing, real estate, and commodities, that are considered to be “inflation protected.” As they exchange fiat currencies for other goods, the money prices of these goods are bid up, and higher money prices are equivalent to a decline in the purchasing power of fiat currencies. Of course, financial market traders will be among the first to react and benefit, while those less informed will get the shaft.
In a world in which central banks not only ramp up the quantity of fiat currency but also push market interest rates to zero, people get hit particularly hard. Saving in traditional instruments (bank deposits, money market funds, etc.) is made impossible. The artificially lowered interest rates also contribute to asset price inflation: the prices of stocks and real estate are driven upward. Those holding fiat currencies suffer losses as far as their purchasing power is concerned, while people who hold assets that gain in price are on the receiving end.
Unfortunately, an end to central banks’ inflationary policies is not in sight. There is the widespread and deeply entrenched belief among people that an increase in the quantity of fiat currency would make the economy richer, and that it would help overcome financial and economic crises. This is, however, a serious mistake, for all an increase in the stock of money does is make some richer at the expense of many others. And an inflation policy can cover up economic and financial problems only for so long.
Ludwig von Mises wrote:
The collapse of an inflation policy carried to its extreme—as in the United States in 1781 and in France in 1796—does not destroy the monetary system, but only the credit money or fiat money of the State that has overestimated the effectiveness of its own policy. The collapse emancipates commerce from etatism and establishes metallic money again.1
Mises’s words should help us to better understand why the appreciation of gold (and lately also silver) vis-à-vis the fiat currency universe has been underway for quite some time now.
Triple-Inverse Nat Gas ETN Goes Berserk, Explodes By $10,000 In Minutes
For some color, the last three days have been extremely chaotic with manic runs likely driven by HFT algos…
Monday started the chaos…
Then Tuesday saw a major ask spike in the middle of the day but no trade at that level…
Then there’s today…
And all the moves were on tiny volumes again suggesting this was not Robinhood’rs or retail malarkey.
As Bloomberg’s ETF analyst, James Seyffart, notes, Credit Suisse may need to consider shuttering the (DGAZF), after pricing broke down and the exchange-traded note closed with a 645% premium to net asset value yesterday, and it traded as much as 3,900% above NAV because market makers lack the ability to create new shares to meet demand.
Can we get a better market!!??
There Are Now Less Than 3,000 US Listed Companies And Over 7,000 Global ETFs
ETFs used to be touted as a great way to gain exposure to the stock market. But now, thanks to fee-hungry issuers, the tail is wagging the dog and ETFs are the stock market.
As far back as late 2017, there were just 3,671 domestic listings, according to the Wall Street Journal. The number had declined due to the growth of venture capital and private equity.
“The number of public companies in the U.S. has been on a steady decline since peaking in the late 1990s. In 1996 there were 7,322 domestic companies listed on U.S. stock exchanges. Today there are only 3,671. Easy access to venture, growth and private-equity capital means that companies no longer need to pursue an initial public offering to fund growth or access liquidity,” the WSJ wrote about 3 years ago.
Since then, the number has continued to decline. Yesterday on CNBC, it was reported that there are now less than 3,000 public listings. But there’s now more than 7,000 ETFs globally.
We have often discussed the liquidity crisis that could be created from passive investing in ETFs as their popularity grows. Additionally, the use of ETFs as trading vehicles instead could wind up distorting the true price of the underlying stocks held within them.
Late last year we noted that passive funds had surpassed active funds thanks to the Fed basically making active investing obsolete. Retail masses followed this lead, which has spurred the demand for ETFs that have allowed them to continue to pop up at an alarming rate.
Recall, back in September of 2019, Michael Burry had claimed that “Passive investments such as index funds and exchange-traded funds are inflating stock and bond prices in a similar way that collateralized debt obligations did for subprime mortgages more than 10 years ago.”
He continued: “Like most bubbles, the longer it goes on, the worse the crash will be. This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.”
In case anyone has wondered just how long it has gone on, the widening delta between listed companies and global ETFs gives an indication of exactly how distorted things have become.
For years, the website RobinTrack.net has been doing a great job of mining RobinHood’s data to provide raw data and a visualization of which stocks the users of the retail brokerage have been holding and disposing of on a daily basis.
RobinTrack.net has been a wonderful way to keep an eye on exactly what stocks the bagholder crowd have been rushing into on a daily basis, providing insight into the hysteria of retail daytraders, allowing hedge funds to likely frontrun the data and providing opportunities for short sellers looking for ideas.
But those days appear to be all but over.
On Friday, CNBC reported that the brokerage will no longer display how many of its users hold a certain stock. In addition it is going to be taking down its public API data that allows other sites, like RobinTrack.net, to source its data for visualization and analysis purposes.
“The data has been used to show booms in retail stocks,” a CNBC report said on Friday. “You guys know RobinTrack well. A lot of financial news outlets use it for reporting, including CNBC.”
Robinhood has said in a statement that even thought it is restricting third party access to its API data, it still has “many other tools” that its users can offer.
“Trends and data are often misconstrued and misunderstood,” Robinhood said. “The majority of its users” are buy and hold users, not daytraders, the brokerage said.
Yeah, right. Aside from the PR spin of trying to position itself as a serious brokerage and not a casino app for unemployed daytraders, we’re guessing there is another angle to Robinhood removing this data: if you want it in the future, you’re going to have to pay.
It was about a year ago when we showed a snapshot of the outrages wealth imbalance in the US with the help of just one metric: as of Aug 2019, Wall Street (US private sector financial assets) was 5.5x the size of Main Street (US GDP), and as BofA’s Michael Hartnett pointed out, between 1950 & 2000 the norm was 2.5-3.5x. His conclusion, as recent events have sadly confirmed “Wall Street is now “too big to fail”.“
Well fast forward one global pandemic and one unprecedented bailout later, which none other than Hartnett himself framed in the best possible way as follows…
“The monetary and the fiscal stimulus in terms of the announcements thus far, it comes to $20 trillion, $8 trillion of monetary stimulus and $12 trillion of fiscal stimulus. And that number is – it’s a little over 20% of global GDP. So it’s just astonishing and breathtaking and you have to sort of pinch yourself sometimes to sort of realize that it’s actually happening.”
… when in his latest Flows and Liquidity report, the BofA Chief Investment Officer provided an update on this most critical metric and it’s a doozy.
Dubbing it the “Nihilistic Bull”, Hartnett describes the current market as the consequence of a decade-long backdrop of Maximum Liquidity & Minimal Growth still Maximum Bullish, and more importantly, it has led to the value of US financial assets (Wall Street) now hitting an all time high 6.2X size of GDP (Main Street). In other words, not only is Wall Street now “even bigger to fail”, but in its attempt to “fix” inequality, the Fed has made it greater than ever, and the now daily violence on America’s streets is the most immediate consequence… if only those people protesting knew that they should target their anger not at the Capitol but the Marriner Eccles building.
Going back to the chart above, and the market that spawned it, Hartnett writes that “nothing matters but liquidity…GDP loss of $10tn & US claims 53mn numbed by $21tn policy stimulus, $2bn per hour central bank asset purchases.” Furthermore, according to the BofA credit strategist, “the structural view on low yields now shared by all…doesn’t mean to say it is wrong…but it’s inciting a bubble” which is why Hartnett is now confident that the scramble into all asset will not end until the S&P is at 4000, gold $3000, and oil $60, all of which are “probably inconsistent with 0% Treasury yields.”
And while not directly caused by it, it’s worth recalling that the top 5 stocks are now a record 23% og the S&P500, surpassing dramatically the tech bubble peak:
And in the latest indication of just how long in the tooth the current bubble has become, BofA is now recycling the worst puns of 2018 and 2019, to wit:
I’m so bearish, I’m bullish: Minimal Growth = Maximum Liquidity = Maximum Bullish; narrative of 2010s hardens in 2020 as massive Wall St recovery coincides with Main St recession.
Meanwhile, as the market is stuck in the biggest bubble every, the economy is disintegrating, as banks refuse to lend (as discussed extensively here), while states can’t spend, to wit:
Banks won’t lend: 71% of loan officers reported tighter bank lending standards in Q2, the tightest since Q4 ’08.
State & local governments can’t spend: state tax revenues down 37% YoY in New York, down 42% in California, down 53% in Oregon (Exhibit 1); US state & municipal shortfalls could be >$1tn worse-case in 2020 as no back-to-school, no back-to-office, no back-to-revenue.
All of this is of course happening as gold is exploding to daily all time highs as helicopter money is off the charts and deficits soaring: “U.S. federal budget deficit @ 25% of GDP if Phase IV fiscal stimulus >$1tn, highest since 1943 WWII peak of 27.5%.”
Meanwhile, as even Goldman notes, the Dollar’s reserve status is on borrowed time due to a tsunami of printing and debasing: as Hartnett writes, the US debt & deficits to be financed by:
Fed balance sheet (“Japanification” means higher UST holdings at Fed – Chart 5), and
Debasement of US dollar; big inflection points in US dollar always harbinger of leadership change (1971 = Stagflation, 1980 = Disinflation, 2001 = Globalization, 2020 = Inflation to solve Inequality).
What does all of this mean for markets? Three things – the “summer dip” Hartnett expected may not be coming after all, but 2020 will be the “big top “, and while 2020 is the megabull unleashed by central banks, 2021 will be the bear:
Summer dip: late-summer dip (SPX to 3050) thus far wrong but “air pocket” risk grows post +ve July payroll & Phase IV fiscal stimulus; Turkish lira at all-time low = 1st sign capital flow dislocations (as JPY approached 100); lower government yields bullish until credit spreads widen
Big top: 2020 risk asset peak most likely at time of vaccine, full capitulation by bears, higher interest rates; history of great bear market rallies predicts SPX 3300-3600 top between Aug-Jan; liquidity driving Wall St overshoots until weaker dollar/wider credit spreads signal credit event or fiscal stimulus/higher yields signal recovery.
His conclusion: “2020 = Bull; 2021 = Bear: bigger government, smaller world, US dollar debasement…big picture themes of 2021…buy volatility & inflation assets.”
Translation: buy vix, buy gold.
Lebanese President: We Will Investigate “Possible External Interference” In Historic Beirut Blast
With more than 3,000 Beirut families now homeless, and more than 150 have officially been declared death as the search for remains over the massive blast site continues, Lebanese President Michel Aoun said Friday that an official government probe would look into the “possibility of external interference”, including the possibility that the explosion was triggered by a rocket or a bomb.
“The cause has not been determined yet. There is a possibility of external interference through a rocket or bomb or other act,” President Michel Aoun said in comments carried by local media and confirmed by his office, per Reuters.
Meanwhile, thousands of Beirutis took to the streets last night to protest the government’s apparent incompetence. Some hurled stones at police while others mourned the descent into anarchy.
The small crowd, some hurling stones, marked a return to the kind of protests that had become a feature of life in Beirut, as Lebanese watched their savings evaporate and currency disintegrate, while government decision-making floundered.
“There is no way we can rebuild this house. Where is the state?” Tony Abdou, an unemployed 60-year-old.
His family home is in Gemmayze, a district that lies a few hundred metres from the port warehouses where 2,750 tonnes of highly explosive ammonium nitrate was stored for years, a ticking time bomb near a densely populated area.
A security source and local media previously said the fire that caused the blast was ignited by warehouse welding work.
Lebanon has promised a full investiation, and 16 people have already been arrested. But many fear that those taken into custody are merely scapegoats for government incompetence.
The government has promised a full investigation. State news agency NNA said 16 people were taken into custody.
But for many Lebanese, the explosion was symptomatic of years of neglect by the authorities while corruption thrived.
Officials have said the blast, whose seismic impact was recorded hundreds of miles (kilometres) away, might have caused losses amounting to $15 billion – a bill the country cannot pay when it has already defaulted on its mountain of national debt, exceeding 150% of economic output, and talks about a lifeline from the International Monetary Fund have stalled.
Theories that the explosion was precipitated by a missile or a bomb have been summarily dismissed, due to both a purported preponderance of evidence to the contrary (video of the scene clearly shows a fire and several explosions in the warehouse precipitating the explosion), and the readiness of international terror groups and foreign governments to deny responsibility for the attack. But there’s still so much left unknown, and Lebanon’s apparent disinterest in pursuing the Russian businessman whose seized cache of ammonium nitrate caused the explosion has led to more questions.
To be sure, negligence, or a tragic accident, would also be examined as probable causes. Reuters reported, citing anonymous sources close to the Lebanese government, that an initial probe has blamed negligence pertaining to the storage of the explosive material.
But the US has previously said it has not ruled out an attack. Israel, which has fought several wars with Lebanon, has also previously denied it had any role.
As we explained earlier this week, a 2,500-ton cache of ultravolatile ammonium nitrate had been stored in a waterfront warehouse by the Lebanese government after it was seized from a foreign ship back in 2013. For years, several port authorities (some of whom are now under house arrest as the government starts its investigation/hunt for a scapegoat) reportedly warned the government about the dangers associated with the chemical cash, and urged them to find a way to dispose of it – even if it meant handing it out to Lebanese farmers to spread over their crops.
And the almost unbelievable story of how the explosive substance got there has emerged. It’s centered on a derelict and leaking vessel leased by a Russian businessman living in Cyprus. In 2013 the man identified as Igor Grechushkin, was paid $1 million to transport the high-density ammonium nitrate to the port of Beira in Mozambique. That’s when the ship, named the Rhosus, left the Black Sea port of Batumi, in Georgia.
But amid mutiny by an unpaid crew, a hole in the ship’s hull, and constant legal troubles, the ship never made it. Instead, it entered the port of Beirut where it was impounded by Lebanese authorities over severe safety issues, during which time the ammonium nitrate was transferred off, and the largely Ukrainian crew was prevented from disembarking, leading to a brief international crisis among countries as Kiev sought the safe return of its nationals.
Meanwhile, Igor Grechushkin – believed to still be living in Cyprus – reportedly simply abandoned the dangerously subpar vessel he leased, as well as its crew, never to be heard from again.
The ammonium nitrate was supposed to be auctioned off, but this never happened. Apparently exasperated customs and dock officials even suggested Lebanese farmers could simply spread it across their fields for a good crop yield. But not even this simple solution was heeded, nor proposals to give it to the Lebanese Army.
Meanwhile, the fate of the man originally at the center of the saga, whose decision to simply abandon the leaky ammonium nitrate laden ship in the first place, remains somewhat of a mystery and is now largely being overlooked in international media reports. Strangely, it doesn’t even appear that Lebanese law enforcement is eager to talk to him just yet.
Cypriot media is saying Igor Grechushkin is not a Cypriot passport holder but is indeed residing in the EU country. Local authorities have indicated they are ready to bring him in for questioning, but they haven’t received a request from either Lebanese authorities or Interpol. Cypriot police spokesman Christos Andreou announced Thursday: “We have already contacted Interpol Beirut and expressed our readiness to provide them with any assistance they need, if and when our assistance is requested.”
An initial government “probe” blamed negligence related to storage of the explosive material. And with more Beirutis taking to the streets to demand an answer, we’re curious to see how the government handles the process as it seeks to preserve what little credibility it has left.
The Swiss population owns 920 tonnes in private gold, next to 1,040 tonnes in official gold reserves. In total, Switzerland likely has the highest amount of gold per capita in the world. This article is part of a series in which we examine how much private gold is located in major economies—information that can be decisive for a monetary reset.
In my previous article, “Europe Has Been Preparing a Global Gold Standard Since the 1970s,” we saw that the world is possibly heading towards a new international monetary system that incorporates gold. In the article I exposed that European central banks have sold monetary gold from the 1990s until 2008 to equalize reserves internationally. The same central banks are currently promoting gold as “the ultimate store of value,” protection against “high inflation” and the possibility “the system collapses.” In case we will return to an international gold standard the distribution of gold is essential, which is why I study the whereabouts of all above ground reserves.
I showed that since 1971 official and private gold reserves have been distributed more evenly across the world on a relative basis. In today’s article the spotlight is on Switzerland.
The main motivation for the Swiss to save in physical gold is as a long-term investment (53%), followed by security reasons (39%), and financial stability (34%). The study shows that in 2019 the Swiss invested 1.42 billion CHF in gold, which equals to a gold savings rate of 11.6%
My estimates for private gold ownership in different countries for 2019:
Hopefully more surveys will be conducted so we can get a better view on the distribution of private gold.
Next to the private gold hoard of 920 tonnes, the central bank in Switzerland holds 1,040 tonnes in official gold reserves. Combined, the Swiss own 1,960 tonnes, which is 231 grams per capita. This is higher than “total gold grams per capita” in India, China, France and even Germany. However, relative to “GDP per capita,” it’s in line with the global mean.
For all the countries I have data of, the amount of gold owned by citizens, directly or via their central bank, approximately equals their economic income (GDP per capita). At a gold price of $10,000 U.S. dollars per troy ounce, that is. We will save the number crunching and economic analysis for a future article.
Likely, Switzerland has the highest amount of “total gold grams per capita” in the world. As, there is a correlation between GDP per capita and private gold ownership, and Switzerland ranks very high on the list of GDP per capita.
Only small states with insignificant official gold reserves, like Monaco and Liechtenstein, have a higher GDP per capita. So, it’s likely the Swiss have the highest amount of gold per capita.
H/t Mark Valek. All GDP data used in this article is pre-COVID.