Ainslie Bullion - Daily news, Weekly Radio and Discussions

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Postby AinslieBullion » Tue Oct 04, 2016

Blood In The Streets…

Baron Rothschild famously said "The time to buy is when there's blood in the streets."

Waking up this morning to gold and silver both being smashed last night it is worth remembering these sage words… There was even a tagline online this morning “Bullion Bloodbath”. So what happened last night? In Aussie dollars gold was down $46 or 2.7% and silver (brace yourself) was down $1.27 or 5.1%. In USD gold is sitting at $1269, still above the key support line of $1255.

The rout that took out everything bar the USD last night started with reports via Bloomberg that the ECB were considering tapering their QE program and fresh off Deutsche Bank settling with the US Dept of Justice and not copping that $14b fine that threatened to bring them down. We also had some hawkish statements from the Fed boosted by one OK manufacturing print on Monday and all of a sudden the algos went nuts. That’s what you will read in the finance sections today. By the way, the ECB released various denials of these rumours later last night and regular listeners to our Weekly Wrap will know that good US data print is the exception not the rule…

It’s worth just looking at some other occurrences. Topically after yesterday’s news where we pointed out that “At the moment the gold price is being dictated more by speculative futures trading (COMEX) than fundamentals, but at some stage the rule of supply and demand must prevail.”…. we see the following price action on the open of COMEX last night

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To help you visualise in metric, that is a tad under 100 tonne of gold ‘sold’ in 30 minutes, but most likely nearly all traded purely in paper swaps and reportedly only 2.5m oz (78t) available for delivery should someone actually want it. It will be incredibly interesting to see this weekend’s COT report to see if those big commercial shorts were at play here. The other thing you won’t read is that this happened when China is on a week long ‘National Day’ holiday. That means no big buyers of physical on value and no reality check by the SGE (Shanghai Gold Exchange) via arbitrage. If you think that is coincidence go back and look at previous Chinese holidays…

Speaking of coincidence you may recall in the lead up to the GFC the banks were manipulating the CDS’s on mortgage backed securities trying to scare the holders out of their positions (again, if you haven’t watched The Big Short yet, it’s an absolute must (and is now on Netflix). This somehow makes more sense to everyday people when Margot Robbie, Brad Pitt and Ryan Gosling explain it…). Gold and silver are the proverbial canaries in the coal mine when it comes to the financial system and are both at near record high short positions on COMEX by… you guessed it…. the big banks. But it’s probably nothing…

Nothing really changed last night, however there is maybe just a bit of blood in the streets to take advantage of…

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Postby AinslieBullion » Wed Oct 05, 2016

Bank Cartel Silver Manipulators to Court

Topically after the “coincidental” COMEX lead price plunge yesterday, regular readers may recall our article back in April of this year where Deutsche Bank not only admitted to practices around price fixing precious metals markets brought by a class action, but in the settlement reached, agreed to name and shame other complicit banks. Nearly 6 months later, yesterday the U.S. District Court governing this action dismissed UBS as a defendant but ruled Bank of Nova Scotia (often called ScotiaBank) and HSBC were answerable, and hence now open to silver manipulation price-fixing litigation where investors in the class action can prosecute antitrust and manipulation claims against the banks. Specifically the claims they can now bring to the Federal Court are:

employment of a manipulative device claims
bid-rigging, and unjust enrichment.
price fixing and unlawful restraint
price manipulation claims
aiding and abetting and principal-agent claims.
At the moment this is all about silver as the parallel gold action is still being considered.

Whilst it may not see the end of the sort of blatant market fixing we’ve come to expect from these guys (because banks seem to be able to buy, oops, sorry, ‘settle’ their way out of everything) it gives credibility to the so called conspiracy theorists and is another very important step toward a natural market lead by supply and demand. Importantly too, the discovery process (where documents and communications need to be made available to the plaintiffs’ lawyers) will maybe show the world what these guys get up to and help it being stamped out.

Cynics think that, just like the CFTC ruling a few years back, that whilst ever a low gold and silver price is convenient for the government (reinforcing the ‘everything’s awesome’ narrative) these actions will never have their in-principle support and ultimately fail. The CFTC is not a court, and courts, particularly at a Federal level, have a record of ignoring government edict, proudly declaring rule of law is outside of politics. So cynicism may well be proved wrong this time.

Topically Ed Steer, refers to this bullion banking cartel as ‘Da Boyz’ and yesterday outlined (with our square bracket explanations) how they go about allegedly orchestrating the sort of price falls we saw Tuesday night:

“The procedure, which Ted Butler has pointed out ad nauseam over the years, is always the same. JPMorgan et al [commercial banks] spin their algos [algorithms that control the High Frequency Trading], throw in some spoofing — and sell just enough contracts as it takes to trigger Managed Money [speculative hedge funds etc] sell stops, then pull their bids — and you get the standard waterfall declines that you saw today. The Managed Money traders are Pavlovian pooches, selling longs en masse on one hand — and going short on the other. ‘Da boyz’ are standing right there to pick up the other side of these trades…purchasing all the longs the Managed Money traders are selling and covering their short positions with them.”

In our humble opinion, if this is correct, it is clearly criminal as it robs investors and miners alike.

As we said yesterday it will be very interesting see the next COT report to get some visibility in the shift from commercial to managed money.

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Postby AinslieBullion » Thu Oct 06, 2016

IMF Debt Binge Warning

Before we get into today’s article, it was another hard night for silver last night. Listen to this week’s Weekly Wrap podcast for our thoughts.

If you missed it yesterday the IMF, after already earlier in the week revising down growth forecasts across the globe, issued their latest Fiscal Monitor report with yet another record tumbling in this unprecedented global financial experiment we find ourselves in. Total non financial sector debt, or total public and private debt, hit a new all-time record high of $152 trillion (that’s $200 trillion in Aussie dollars). Now that is of course a huge number but it needs context for full effect. Try 225% of global GDP… That (per the chart below) is about 5% higher than just before the GFC. And remember that excludes all financial sector debt! Of more concern than the headline:

"two-thirds, amounting to about $100 trillion, consists of liabilities of the private sector which, as documented in extensive literature, can carry great risks when they reach excessive levels.”

They point out that Australia is one of the worst, referring to our ‘fast paced binge’ on new debt. As we’ve reported before, we have the highest personal debt to GDP ratio in the world, with Canada snapping at our heals. Both us and Canada have gone on a cheap money property splurge and the IMF is warning of the consequences (“great risks”) of that both in terms of creating bubbles (Canada’s property appears to be popping now) but also the ability to service this debt when rates inevitably rise. In their words:

“there are concerns that the sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery."

In what could be the first signs, in the first nine months of 2016, commercial bankruptcy filings in the US jumped 28% compared to the same period in 2015, September saw a 38% (!) jump on the same month last year.

But it’s not just private debt that has them worried. Topically just one week after the US posting it’s 3rd biggest deficit in history ($1.4 trillion) taking their national public debt to $19.57 trillion, the IMF warned:

“New empirical evidence confirms that financial crises tend to be associated with excessive private debt levels in both advanced and emerging market economies, but high public debt is not without its risks. In particular, entering a financial crisis with a weak fiscal position exacerbates the depth and duration of the ensuing recession. The reason is that the absence of fiscal buffers prior to the crisis significantly curtails the ability to conduct countercyclical fiscal policy, especially in emerging market economies.”

So as you may be feeling a little uneasy with what happened to gold and silver this last week keep in mind why you likely bought it and ask yourself how the world extracts itself from this ‘binge’ without all financial assets inflated by it not unwinding in a way that will make the falls this week look minor.

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Postby AinslieBullion » Sun Oct 09, 2016

Italy On The Cusp

So it looks like Trump has finally done his dash. It will be interesting to see if this affects gold today just as the non-release of Clinton docs by WikiLeaks was said to play on the Tuesday night smack down last week.

So, and discounting the unknown of the escalating Syrian conflict, the next date of importance for gold could well be 4 December. This is the day the Italians go to the polls for a referendum on a structural overhaul to their constitution and governmental process. Anyone who knows Italy would say that is fundamentally a good thing as they have an incredibly cumbersome and archaic system that has frustrated successive governments. So what’s the big deal? In essence the current and unelected Prime Minister Matteo Renzi has bet his premiership on it, and so it has taken on a popular vote component that could de-rail not just the necessary referendum but the Eurozone itself.

The anti-euro, anti globalisation, anti establishment party Five Star Movement (M5S) is set to capitalise on this as their popularity is surging and they have a fundamental platform policy of taking Italy to a referendum on leaving the EU. This is no Britain or Greece. Italy leaving the EU would be disastrous. Keeping in mind too we are not talking about a particularly stable economy on its own as we wrote about most recently here. Of the big 3, Italy has not gone well under the EU, as you can see from the following graph, and their people know and fell this through sky high unemployment, banks on the cusp of failure and a general and protracted economic slump.

Image

The Financial Times recently put it bluntly:
“An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.”

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Postby AinslieBullion » Mon Oct 10, 2016

COMEX Buy Signal?

Last week we mentioned the role COMEX played in the take down of gold and silver last week and that we were waiting to see what the Commitment of Traders (COT) report would reveal Friday night. Here are some comments from COT analysts together with a little education for those new to it:

From John Rubino:

“The quick and dirty COT story is that it's a snapshot of what the big players in gold/silver futures contracts are up to. There are two main groups in this market: the commercials (mostly big banks and companies that buy metal to turn it into coins, jewellery and industrial products) and speculators who bet on price moves. The former consistently fool the latter into guessing wrong at turning points. That is, the speculators are usually way long at the top and very short at the bottom. So you can tell where prices are headed over next the six or so months by looking at what the speculators are betting on and assuming that if they're excited, they're wrong.

This year they've gone record long, which explains the fast recovery in metals prices and mining stocks: The speculators were piling in. This, of course, sets the stage for an eventual correction. So what happened last week was to be expected (though it was several months overdue, illustrating the point that the COT report is great for direction but dangerously unreliable for timing).

So now that we know why the beat-down is happening, let's see what this indicator says about when (in very general terms) it might end.

Image

Note that the speculators are cutting their long positions while the commercials are scaling back their shorts.

The key conclusions:

-Both groups are moving in the right direction to establish a precious metals bottom. That is, if they keep this up, eventually the commercials will be long and the speculators short, setting up a situation where the speculators will be forced to close their shorts by buying gold/silver, thus sending their prices up.

-The commercials are moving a little more aggressively than the speculators to close out their positions. Not sure what that means.

-Neither group had done all that much as of Tuesday the 4th, which implies that the bottom is not yet in sight.

-Based on the brutality of the final three trading days of last week, next week's COT report will probably show a much bigger move in the right direction - that is, the speculators will be a lot less long. So on Friday the 14th (when Tuesday the 11th's results are reported) we'll have a better sense of how close that bottom is.

-The carnage in bullion and mining shares represents a great buying opportunity because eventually these paper games will stop working. The fundamental environment - negative interest rates, massive government deficits, steady increases in private sector debt, incipient banking/credit crises everywhere you look - is phenomenally good for real assets like gold and silver. So who knows? This might be the last chance to get in before the phase change.”

And from Hebba Investments:

“Summary

The latest COT data show a massive drop in gold speculative bulls and increase in gold speculative shorts.
The net position is back at levels that we deem much healthier for a gold bull market.
Gold should see additional physical demand as buying increases from China and India.
We believe gold investors should be taking this opportunity to buy back into gold.”
And finally from us… As stated above the timing is hard to predict. What is not is that metal will get very hard to get when it really takes off. Remember two wise messages:

“Better a year too early than a day to late”

“Trying to pick a bottom usually just results in a smelly finger”

Don’t leave it too late….

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Postby AinslieBullion » Tue Oct 11, 2016

Secular Bull Market – Gold & Silver

We attended the Precious Metals Investment Symposium in Sydney yesterday. There were a range of speakers but a common conclusion. Gold is in a secular bull market. Before you think it’s an obvious conclusion for a gold and silver ‘love in’, that has certainly not been the conclusion of the last couple of years. These conclusions were based on well reasoned analysis on a market that has turned in a consolidated manner.

For us last week was quite instructive too. Gold and silver saw their biggest weekly drop in around 3 years. That sort of ‘shaking of the tree’ would normally see a number of speculative investors fall out and sell in panic. It was the opposite with an extraordinary amount of people ‘buying the dip’ and hardly any sellers.

Last week was also notable for the amount of gold and silver that piled INTO the physical backed paper investment vehicles such as ETF’s. From Bloomberg:

“Holdings of ETFs backed by gold rose by 9.1 metric tons to 2,046.4 tons on Friday. Assets in SPDR Gold Shares, the world’s biggest gold ETF backed, surged to the highest since mid-August.”

In total the ETF’s holdings rose to their highest level since 2013. The story was the same for silver and the following charts show total weekly transparent holdings for both metals:

Image

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The key takeaway is that holdings ROSE on a price decline and it speaks volumes for the secular bull market thesis and that the sell-off was largely paper futures trades on COMEX that can have little to do with physical fundamentals.

By its nature a secular bull market has its big corrections on the way up, nothing goes up smoothly. The smart ones buy the dips on the way up.

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Postby AinslieBullion » Wed Oct 12, 2016

Gold – Doing The Math

An interesting thing happened last night… The US Fed minutes from the last meeting were fairly hawkish (pro raising rates / tightening monetary accommodation). That would normally weigh down on gold. Last night however the gold price increased on the news.

Maybe, just maybe, markets are starting to do the math. All this hullabaloo, this market fixation, is about whether or not the Fed will raise rates by just 0.25%, up to just 0.75%. Also the Fed minute language was clearly of needing to raise rates for credibility and ‘enough is enough’ rather than ‘everything is so awesome we can do it’.

A common gold thesis is that gold performs better when rates are low as people are less concerned by the lack of yield or return. If rates go up, in theory, cash and bonds look better. However this ignores the real rate equation arising from subtracting inflation. That still puts us firmly into negative real interest rates even if they hiked a full 1%. Amid all the talk of deflation, inflation is on the rise. The game is changing.

But it is the other reason people buy gold, and we’d argue right now the MAIN reason are buying gold, that needs greater consideration and the aforementioned application of maths. People are buying gold because they see we are getting perilously close to a financial crash. Gold has proven time and again it is uncorrelated to financial assets. It tends to go up when they go down.

So… if the Fed puts rates up by 0.25% in December you may miss out on 0.25% better returns if you had your money parked in a financial asset. That’s probably not a big deal on the value of your total worth. 0.25%, however, IS a big deal when there is over $200 trillion in global debt, or say the US government with $19.6 trillion. 0.25% is also a big deal to the nearly $300 trillion financial assets market inflated on cheap money and accommodative monetary policy. What happens when that turns to tightening?

And that last question is the key. If we have a financial crash after all this unprecedented stimulus, how big could that fall be? Even if it were "just" 50% like the GFC that 0.25% you missed out on looks completely irrelevant. Remember if you lose 50%, you need to make 100% on that resulting wealth just to get back to even. Meanwhile gold would likely have gained, or at least held in value. It’s pretty simple math.

Keep in mind too it is only the US talking of tightening. Every other country has the monetary easing foot firmly to the floor.

So what does the world’s top precious metals forecaster have to say? From Bloomberg:

“Rising inflation and sagging confidence in the ability of central banks to revive global growth will drive up gold, according to Incrementum AG, which says bullion could climb to a record in the next two years.

‘Consumer prices are set to rise as oil rebounds, while low or negative interest rates and bond buying by central banks have failed to boost economies, said Ronald Stoeferle, managing partner at the Liechtenstein-based company, which oversees 100 million Swiss francs ($101 million). Incrementum was the top precious metals forecaster last quarter, Bloomberg-compiled data show.”

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Postby AinslieBullion » Thu Oct 13, 2016

Australia Gets ‘Extreme’ Warning

If you missed it earlier this week, fresh off the IMF’s warnings, ratings agency Standard & Poors (S&P) has joined them issuing us with a dire warning on our debt exposure. S&P’s warned our debt, both public and private, has hit “extreme” levels and puts us in the unenviable position as one of the worst in the world. In their words:

“Australia would have one of the weakest external positions of the 130 sovereigns that we rate.”

As we have reported previously, Australia’s net foreign debt has surpassed the trillion dollar mark at $1.045 trillion, up from $976b in just the 12 months to June.

The implications are numerous. S&P’s warning joins both Fitch and Moody’s ratings agencies that we are on our final warning on our AAA ratings. You need to understand that losing that rating is not a slap on the wrist but has the dual effect of automatically increasing the cost of servicing that mammoth debt bill but also a larger potential issue of capital withdrawal on a loss of faith in our economy as a safe haven.

S&P also draw a clear comparison between us and Spain. Like us Spain borrowed heavily in the domestic housing market which, like us, saw soaring property prices and a general misconception that debt doesn’t matter when it’s in housing, as many ‘learned’ commentators will offer when dismissing our title of worlds highest personal debt to GDP. We don’t need to tell you how that worked out for Spain (really really badly if you don’t. They are the S in the notorious Euro basket case ‘PIGS’).

S&P call such investment ‘unproductive’. Whilst they didn’t discuss it we remind you that our total national debt is now just over $6 trillion. In the last 5 years that has risen $2 trillion, a 50% increase. Over that same period our actual GDP growth was around $350 billion. In other words it’s taken nearly $6 of debt to generate $1 of economic activity.

Can you see now why they are worried? It doesn’t make us particularly different to other countries but that ratio is about double that of the US which attracts most of the tutt tutting.

What frustrates all of this is our treasurer in the very same week S&P’s issue this warning was telling an audience at the IMF & World Bank that:

"There is not an economy in the G20 or other wise that would not want to be Australia at the moment and would not want to have the strong financial and banking system that ensures that we can have the resilience to ensure we underpin jobs and growth in this country,"

S&P bluntly rebutted this:

“The government will point out that its fiscal position is strong — but it’s not quite as strong as it used to be….And you don’t want to have your fiscal situation adding fuel to the fire on the external side.”

i.e. get your act together Australian government or you will lose that coveted AAA.

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Postby AinslieBullion » Sun Oct 16, 2016

Crash Warnings Escalate – Except Gold…

The warnings of a crash on Wall Street have been coming thick and fast of late.

Recently Bank of America Merrill Lynch (BofAML) warned of an “imminent recession” and said:

“We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand….. We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they’re on, we’re going to hit a recession sometime in the second half of next year….What scares me is the market been so fragile. So, remember what happened in January? We got a whiff of bad news and all of the sudden the market is at 1800….I think that speaks to the reaction function of the market. There are a lot of itchy trigger fingers. There’s lot of violent trades that can really roil a fairly complacent environment.”

Then last week HSBC’s technical analysis team issued a “Red Alert” signalling an imminent sell off in equities. This has escalated quickly from the “Orange Alert” issued at the end of September signally the market topping and noted that the market looked eerily similar to that just before the 1987 crash. They warned that the key lines in the sand are 17,992 for the Dow Jones or 2,116 for the S&P 500 and said:

"With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT……The fall was broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August…..As long as those levels [17,992/2,116] remain intact, the bulls still have a slight hope….But should those levels break and the markets close below (which now seems more likely), it would be a clear sign that the bears have taken over and are starting to feast. The possibility of a severe fall in the stock market is now very high."

No surprise then that Goldman Sachs issued a buy signal on gold:

“We would view a gold sell-off substantially below $1,250 as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth…. The move lower [referring to those big drops a fortnight ago] does not appear to be driven by physical gold ETF liquidation….The drivers of strong physical ETF and bar demand for gold during 2016 are likely to remain intact, including continued strong physical demand for gold as a strategic hedge.” It looks pretty clear on the graph below…

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Postby AinslieBullion » Mon Oct 17, 2016

Gold, Silver, Property, Shares or Cash?

There are a lot of people looking to ‘down weight’ equities on growing calls of a crash nearing (as we reported yesterday). For many this leaves the choice of property, cash or precious metals as most people don’t understand how to access bonds, and many believe these will be an integral part of any crash.

The chart below shows the relative performance of each asset class over the last 15 years (to March of each year). We’ve used it for Brisbane seminars so please excuse the Brisbane-centric House Price (and yes Sydney would be much higher). To remove the ‘gold doesn’t yield’ argument we include rental income for houses, dividend reinvestment plans for shares, and compounding interest on term deposits for cash.

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Postby AinslieBullion » Tue Oct 18, 2016

Inflation at All Costs

Our new governor of the Reserve Bank of Australia gave his maiden speech yesterday and it was all about the battle against low inflation. Australia like most of the rest of the world (except the US) is stuck in a low inflation slump. Why is that bad you ask? Well if you (Australia) have $6 trillion of debt, $1 trillion of that to overseas lenders (as we discussed recently here) and your economic growth and fiscal policy mean you are unable to pay that back, other than defaulting the only option is to inflate it away. Inflation is their only hope after this unprecedented credit cycle.

The other reason for the need for inflation is to give the appearance of economic growth. Real growth is below expectations despite all the monetary stimulus. Nominal growth includes inflation, and so looks better. Problem solved. Lowe barely touched on the resulting property bubble yesterday (nothing to see here, you’re “all” getting “richer”…). But that comes at a time when wage growth is stuck at a 25 year low. So there is a very real erosion in disposable income. Its arguably worse in the US where the monetary stimulus through both QE (money printing) and ZIRP (zero interest rates) has stimulated inflation, but to date largely just in shares and property which enriches the top 1-10% at the expense of the rest who struggle with stagnant income and inflation on real things not always included in the CPI basket. Topically, US Core CPI (released yesterday) is on the rise, hitting 2.2% in September, and has now been above the Fed’s 2% target for 11 straight months. Rather than raising rates in September they deferred to ‘maybe’ December. Surprise surprise…

The risk is, that with all this new and easy money in the system, that inflation can ‘get away from you’ and you lose control. Gold historically thrives most in a high inflation environment, and in particular a negative real rates environment. The US interest rate is 0.5%, less CPI and you are firmly in negative real rates territory. Likewise here we are at 1.5%, less our CPI and again you are in the red.

This all comes at a time when the calls for an imminent US recession are growing louder. Should that happen you could almost bet the US Fed will throw the monetary stimulus kitchen sink at it. Under that scenario, ex hedge fund head at Goldman Sachs Raoul Pal recently said gold would double. On the chances of that happening, and remember a US recession when they are supposedly the only thing saving the global economy at present will see a global sell off, he said:

“The business cycle points to that [its now been over 7 years], and 100% of all two-term elections have had a recession within 12 months since 1910.”

It seems gold wins in either scenario. Business as usual and “this time is different” with no recession (after already one of the longest non-recession streaks in history), and gold will enjoy central banks attempts to get high inflation at all costs. A US recession happens and you see a global sell off of all those inflated financial assets, a run to the safe haven of gold, followed by central banks throwing more stimulus at the fire and boosting gold further.

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Postby AinslieBullion » Wed Oct 19, 2016

The Future Proof Portfolio

You could be excused for concluding, when reading our daily news, that we think you should sell everything and buy gold and silver. We try regularly to say we are more about balance than “all in” precious metals but irregular readers could miss that. That said our tag line is “Balance your wealth in an unbalanced world”!

Why, with everything we report each day about a looming financial crisis, would we say that? To be frank, because we don’t know when this will happen. And in fairness to whomever you seek financial advice, nor do they. Markets act erratically, central bankers seem to be able to string it all out longer than you think possible, and count how many times we use the word ‘unprecedented’ when reporting what’s going on in the world today. The reality is that this global economic experiment is exactly that, unprecedented. That means no one really knows how it will end or when. That means you need a balanced portfolio; one that will have one of its components ‘up’ whilst others may be ‘down’ or neutral. Remember you don’t always get to choose when you divest. This is particularly important in Self Managed Super Funds. You don’t get to choose where the market is at when you retire.

This is why we’ve teamed up with some guys we really respect in the areas of shares, bonds, and property to bring you a seminar titled “The Future Proof Portfolio” on 22 November at the State Library Queensland.

Matthew Gross is the Director of The National Property Research Co. They are an independent property research consultancy. I used Matt almost exclusively over my 20 year property development career because he researches innovatively and thoroughly and tells you as it is, not what you might want it to be when investing potentially 10’s of millions of dollars of shareholders money. Matt will give you insight into what’s happening in property and strips down the generalist property bubble headlines. In fact you may have seen him in Channel 7 News last night talking about Brisbane's apartment market.

Simon Gabbie is a Director at Godfrey Pembroke Financial Advice Specialists and licenced Financial Advisor for over 16 years. Simon is a wise head in financial planning and takes what we consider a well balanced and importantly, honest view on investment. Simon’s services are ‘fee for service’ meaning there is no distraction of commissions in deciding what is best for his clients. Diversification is his mantra.

And then of course is your humble scribe on gold and silver!

So why not join us and get your friends along as well (particularly those thinking you are ‘nuts’ buying gold) to hear all about investing in this new paradigm of finance and investment fundamentals. Seats are limited and the response on release yesterday was very strong, so don’t delay. Click on the link below for details.

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Postby AinslieBullion » Thu Oct 20, 2016

Beware The Chinese Debt Dragon

People often talk about eating Chinese and being hungry half an hour later. China just miraculously met market expectations for GDP growth in the last quarter at 6.7% annualised. The markets gave a collective sigh of relief on Wednesday as the much feared ‘hard landing’ appears to be avoided. But in a common theme in global economics at the moment, that annualised 6.7% GDP growth came courtesy of 20% debt growth over the same period. So it took $3 of debt to get $1 of GDP growth. Did you hear that on the news Wednesday?? Didn’t think so… In September alone China added, wait for it…$330 billion (a third of a Trillion) in debt. Check out this graph:

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Postby AinslieBullion » Sun Oct 23, 2016

Positive Signals – COMEX & Swiss Exports

Firstly, just a notice that our Future Proof Portfolio seminar sold out in just 4 days. Sorry if you missed out. We will try and hold another soon given the overwhelming demand.

We saw an interesting turn of events last week where gold rallied whilst the Managed Money (speculators) on COMEX sold down their long positions. The big Commercials look to have bought those long contracts and reduced their short positions (in both gold and silver), extending their recent run of doing so. This is seen as a bullish set up for the gold price by COMEX analysts.

This coincided with some physical gold demand figures (for September) released showing an increase in demand from the East but importantly too London. The monthly Swiss import/export figures showed gold exports to China spiking to their highest since January (35.5 tonne, up 64% from August) and India up to 27.6 tonne (up 20% on August).


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Postby AinslieBullion » Tue Oct 25, 2016

US Sharemarket “Extreme” Warning

US shares retreated last night and the USD rose to an 8 month high as the odds for a December rate hike increased to 70% (as a side note gold continued to hold strong, indeed it rose, in the face of the rise of the USD. We think this is an important indicator of gold price bullishness). Regular readers will know the usual good news is bad news trend here. Rates are due to go up because ‘everything is awesome’ but shares come off as they are supported not by ‘awesome’ fundamentals but largely by the cheap money game such tightening signals coming to an end. There is also the well founded fear that even that 0.25% rate rise could trigger the crash, so they are getting out of Dodge now.

Banking giant Société Générale’s global head of quantitative strategy, Andrew Lapthorne, is warning of this set up. We’ve written extensively on the fact that US corporates are buying back their own shares, often using debt financing, at a record rate for the pure aim of improving their share price. Lapthorne confirms this, showing that US corporates are spending more than their cashflow (ala debt) at an unprecedented rate. When you look at the chart below you can see when this last neared such lunacy…. Just prior to the GFC…

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Postby AinslieBullion » Thu Oct 27, 2016

The Great Repression

What an enthralling day we had yesterday at The Great Repression investment symposium up here at Port Douglas. 650 people packed the venue for the first of 2 days and it didn’t disappoint. As you know we are big fans of the writings of The Daily Reckoning guys and it was Vern Gowdie who spoke first.

Vern started by pointing out the irony of this being held at The Mirage which was a symbol of the excesses of the last credit bubble of the 80’s through the Skases. This time however that bubble is far bigger and far more global in its reach. Again Vern pointed out that since then, from 1990 to now we have increased our national debt by $5 trillion but achieved only $1.27 trillion of GDP. Like the Skases there are no new ways to go broke, it is always too much debt. Vern went on to outline all the debt accumulated throughout the world and the same lacklustre growth achieved. He then pointed out how overvalued all markets are across many metrics and the inevitability of a very large crash.

Dan Denning pointed out the many geopolitical black swans circling at present and the need to prepare for the eventuality of financial market repression. For him 3 of the bigger immediate threats are the US election, the Italian referendum, but more critically the French and German elections next year. He believes the French election is maybe the most critical as it presents the clearest outcome of a Frexit and that could be catastrophic for markets.

Satyajit Das was fascinating. He debunked the China saviour theory saying they present the biggest threat to the world economy on the back of a credit expansion (debt) that dwarfs all others and must come home to bite. Satyajit methodically and factually outlined how this house of cards must fall and how they resemble almost exactly the Japan story.

Jim Rogers begged to differ. Whilst yes they are likely to crash, and Jim’s account of how bad this next crash will be almost left you feeling sick, he maintains China will rebound to be to the 21st century what the US was to the 20th. All markets crash, and the US felt the Great Depression more than most, but it rallied to now just as he expects China to from now as the US implodes. Jim repeatedly said, buy gold and silver (and have your kids learn Manadarin!).

Greg Canavan gave a very honest and insightful talk on how we should be investing, and that is by understanding we simply don’t know what will happen. It was one of the clearest presentations for the need for balance and removal of emotions in investing you will see.

Kim Iskyan reinforced this by firstly outlining a large study that illustrated the simply awful track record of analysts in calling Buys and Sells in shares where, over the period, shares the subject of Buy recommendations returned almost nil, the Sells actually went up 20% and this all in the context of the market rising 3% as a whole. He stressed the need for uncorrelated assets in your portfolio and illustrated how correlated financial assets are in what many think is a ‘balanced’ or diversified portfolio. He said every portfolio needs gold and silver as they are one of the very few uncorrelated assets.

Port Phillip publishing are selling the dvd of the conference.

Unfortunately due to technical difficulties up here we won’t have a Weekly Wrap podcast available this week.

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Postby AinslieBullion » Sun Oct 30, 2016

“Trump Will Probably Win” Gold “May Rise $100” Overnight

So here we are just one week from the US election. Whilst from afar the daily antics are almost comical, the repercussions on either party winning will be anything but.

Listening to Jim Rickards, Jim Rogers and Dan Denning talk about this at last week’s Great Repression investment conference left you in no doubt. Rickards, whilst saying no one could really tell at this stage, firmly believes himself that Trump will probably get in. He goes on to say that in that event you would see sharemarkets drop 10% overnight and gold jump $100 at the same time. He said the market has fully priced in a Clinton victory (though this was before the latest FBI/email news and polls now having them just 1 point apart and you could see a continuation of the adjustment Friday night that saw gold up and shares down). That said, he believes you could see shares soon recover as the market realises that this guy is going to lower taxes and spend a bomb on infrastructure and a certain wall… After that however, that same deficit funded infrastructure spend will add considerably to their already near $20 trillion in debt... With a Clinton victory we just get more of the same, which the market is getting wary of already with gold still up 21% this year despite the recent correction. He also said Hillary loves a war..

Jim Rogers wasn’t speculating on who would win but was more concerned about the period between the election and inauguration, nearly 80 days of “Leader of the Free World” political no-mans-land at a critical time in geopolitical tensions. Jim was unequivocal, you must own gold and silver.

As we wrote Friday, Dan Denning was actually more concerned about the April French elections. Hollande has a popularity rating of just 4%. His main opponent will take France to a referendum on leaving the EU. You then have German elections in September, again with Merkel’s approval in the gutter and a lot of Germans sick of her EU policies. Both of these are of course after the Italian referendum we wrote of recently here, which could well trigger the same. He believes this could well be the trigger for the next global crisis.

The takeaway from all of this is not that any one of these is going to happen, we simply don’t know that. The takeaway, as was the premise of the whole conference, is that the number of these ‘black swans’ circling at the moment are at numbers not seen in a very long time. It may well happen at any time and you therefore need to balance your portfolio accordingly before it’s too late.

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Postby AinslieBullion » Mon Oct 31, 2016

Picking The “Sure Bet”

Millions of Australians will be having a punt today on the Melbourne Cup. Rarely does the favourite win. The “smart money” seems to get it wrong every year and that “sure tip” you get rarely seems to pay. The same can be said for investing. One of the speakers at last week’s The Great Repression conference spoke of a study involving all major investment houses in Australia where they tracked the performance of shares with a BUY recommendation and likewise SELL recommendation. Year to date those shares the analysts recommended you buy have returned nearly 0%. Those they said you should sell have returned on average 20%! (yes, you read that right). This, in the context of an All Ords up 3%. How’s them for odds…

One predictor that has given much better results for gold’s performance is the Gold:Silver Ratio (GSR). We have written many times about how this is flashing bullish for silver right now. As a very quick recap for newcomers, the 100 year average is around 45, that is, it takes 45 oz of silver to buy 1 oz of gold. It’s over 71 now and that is screaming silver is undervalued compared to gold on simple ‘reversion to the mean’ maths.

When this ratio peaks, as it did in February this year at 84, history has shown gold also turns to a rally (and silver even more so as that ratio drops). We saw this play out this year as gold rallied and silver more so until the ‘correction it had to have’ happened over the last couple of months. You can see how the ratio below has ticked up from 66 back up to 72. That is normal and historically it looks like it is due to drop again. The last 2 times this century saw around 290% gains for gold and much higher for silver after each turn. That is much better odds than those Buy and Sell recommendations…. Now as any disclaimer says, history is not necessarily a predictor of future events but Mark Twain probably put it best:

“History doesn't repeat itself but it often rhymes,”

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Postby AinslieBullion » Tue Nov 01, 2016

Trump Victory Implications

In case you missed it Trump now leads the polls in the US. As we discussed Monday, this market had a Clinton victory fully priced in. This miraculous turnaround in the polls predictably saw the market react immediately. The Dow fell below 18000 before settling just above, likewise S&P500 fell below 2100 before a late small rebound. Gold was up $13 and silver 50c seeing the GSR fall to 70 (topically after yesterday).

Simon Johnson is a professor at MIT's Sloan School of Management and a former chief economist at the International Monetary Fund (IMF). In an opinion piece in today’s AFR it would be fair to say he did not hold great hopes for the global economy should Trump win. This is his conclusion:

“Trump promises to boost US growth immediately to 4-5 per cent, but this is pure fantasy. It is far more likely that his anti-trade policies would cause a sharp slowdown, much like the British are experiencing.

In fact, the impact of a Trump victory on the US could well be worse. Whereas British Prime Minister Theresa May's government wants to close Britain's borders to immigrants from the EU, it does want trade with the world. Trump, on the other hand, is determined to curtail imports through a variety of policies, all of which are well within the power of a president. He would not need congressional approval to slam the brakes on the US economy.

Even in the best of times, US policymakers often do not think enough about the impact of their actions on the rest of the world. Trump's trade-led recession would tip Europe back into full-blown recession, which would likely precipitate a serious banking crisis. If this risk were not contained – and the probability of a European banking debacle is already disconcertingly high – there would be a further negative spiral. Either way, the effects on emerging markets and all lower-income countries would be dramatic.

Investors in the sharemarket currently regard a Trump presidency as a relatively low-probability development. But, while the precise consequences of bad policies are always hard to predict, if investors are wrong and Trump wins, we should expect a big markdown in expected future earnings for a wide range of stocks – and a likely crash in the broader market.”

As Simon says, the market, whilst off relatively modestly last night, is still not believing a Trump victory is likely. A Clinton victory is still largely priced in. As Brexit taught us, that can be a dangerous position to assume, especially as the Trumpanaut has defied every disbeliever in its path so far. Brexit also taught us not to underestimate the level of anti establishment and anti globalisation sentiment amongst the 90% left behind since the GFC. Clinton is the very embodiment of all that people detest in our political system.

Now please don’t get us wrong… We are most certainly not Trump supporters. But as Greg Canavan pointed out last week at The Great Repression conference you cannot invest based on emotion or bias. Wishing for Clinton to win, or ‘surely Trump won’t win’ is not an investment strategy. Being prepared for either eventuality is.

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Postby AinslieBullion » Wed Nov 02, 2016

Massive New Gold Customer Base…

At the moment most of the world’s Muslim population don’t, or cannot, invest in gold. Sharia law considers gold a “Ribawi item” meaning Muslims can’t trade it for future value or for speculation. It can, however, be used as currency or owned as jewellery etc.

The World Gold Council is finalising negotiations with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI - who set the standards for Islamic financial law) to allow Muslims to trade gold.

According to Casey Research that means, for the first time in 42 years, 1.6 billion people, 32 central banks and 112 billionaires would be free to buy gold from 31 December this year!

The pent up demand for such a huge number of people with a cultural affinity for gold could well be staggering.

Yusuf DeLorenzo, an AAOIFI member, has said that “The hesitation about investing in gold when credible Shariah standards are unavailable is nearly universal in the Islamic world. On the reverse side of the equation, however, gold has historically been the choice of individual Muslims desirous of preserving wealth and value.”

Speaking of cultural affinity, keep in mind this 1.6 billion gets added to the 2.7 billion Chinese and Indians who already culturally love, value and trust gold beyond all else.

Of course 31 December is hot off the heels of the supposed US Fed rate hike too, the odds of which last night surged to 80%… We all know what happened in January this year after the last Fed rate hike in December 2015….


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